This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

70925

Vol. 69, No. 235

Wednesday, December 8, 2004

FEDERAL RESERVE SYSTEM 

12 CFR Part 226

[Regulation Z; Docket No. R–1217] 

Truth in Lending

AGENCY: Board of Governors of the 

Federal Reserve System.

ACTION: Advance notice of proposed 

rulemaking. 

SUMMARY: The Board is publishing for 

public comment an advance notice of 

proposed rulemaking (ANPR) to 

commence a review of the open-end 

(revolving) credit rules of the Board’s 

Regulation Z, which implements the 

Truth in Lending Act. The Board 

periodically reviews each of its 

regulations to update them, if necessary. 

The ANPR seeks comment on a variety 

of specific issues relating to three broad 

categories: the format of open-end credit 

disclosures, the content of the 

disclosures, and the substantive 

protections provided under the 

regulation. The ANPR solicits comments 

on the scope of the review, and also 

requests commenters to identify other 

issues that the Board should consider 

addressing in the review.

DATES: Comments must be received on 

or before March 28, 2005.

ADDRESSES: You may submit comments, 

identified by Docket No. R–1217, by any 

of the following methods: 

• Agency Web Site: http://

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/

generalinfo/foia/ProposedRegs.cfm.

• Federal eRulemaking Portal: http://

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov.

Include the docket number in the 

subject line of the message. 

• FAX: (202) 452–3819 or (202) 452–

3102. 

• Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

See Supplementary Information, 

Section I., for further instructions on 

submitting comments. 

All public comments are available 

from the Board’s Web site at http://

www.federalreserve.gov/generalinfo/

foia/ProposedRegs.cfm as submitted, 

except as necessary for technical 

reasons. Accordingly, your comments 

will not be edited to remove any 

identifying or contact information. 

Public comments may also be viewed 

electronically or in paper in Room MP–

500 of the Board’s Martin Building (20th 

and C Streets, NW.) between 9 a.m. and 

5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT:

Elizabeth A. Eurgubian, Attorney, Dan 

S. Sokolov and Krista P. DeLargy, Senior 

Attorneys, Daniel G. Lonergan and John 

C. Wood, Counsel, or Jane E. Ahrens, 

Senior Counsel, 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. Form of Comment Letters 

This ANPR requests data or comment 

on specific issues relating to Regulation 

Z’s open-end credit rules. These 

requests are numbered consecutively. 

Commenters are requested to refer to 

these numbers in their submitted 

comments, which will assist the Board 

and members of the public that review 

comments online. Questions are 

presented by subject matter as follows: 

Scope of the review: Q1. 

Format of Disclosures:

Account-opening disclosures, Q2–Q3. 

Periodic statements, Q4–Q6. 

Credit card application disclosures 

(the ‘‘Schumer box’’), Q7–Q8. 

Subsequent disclosures, Q9. 

Model forms and clauses, Q10–Q12. 

Content of Disclosures:

Classifying and labeling fees as 

‘‘finance charges’’ and ‘‘other charges,’’ 

Q13–Q20. 

Over-the-credit-limit fees, Q21–Q22. 

‘‘Effective’’ or ‘‘historical’’ annual 

percentage rate on periodic statements, 

Q23–Q25. 

Disclosures about rate changes, Q26–

Q27. 

Balance calculation methods, Q28–

Q30. 

Minimum payments, Q31–Q33. 

Payment allocation, Q34–Q36. 

Tolerances, Q37. 

Other questions, Q38–Q42. 

Substantive protections:

General, Q43. 

Accessing credit card accounts, Q44. 

‘‘Convenience checks,’’ Q45. 

Unsolicited issuance of credit cards, 

Q46. 

Prompt crediting of payments, Q47–

Q51. 

Additional Issues:

Providing guidance not expressly 

addressed in existing rules, Q52. 

Adjusting exceptions based on de 

minimis amounts, Q53. 

Improving plain language and 

organization; identifying technical 

revisions, Q54. 

Deleting obsolete rules or guidance, 

Q55. 

Recommendations for legislative 

changes, Q56. 

Recommendations for nonregulatory 

approaches, Q57. 

Reviewing other aspects of Regulation 

Z, Q58

The Board also requests that when 

possible, comment letters should use a 

standard typeface with a font size of 10 

or 12. This enables the Board to convert 

text submitted in paper form to 

machine-readable form through 

electronic scanning, and eases 

automated retrieval of comments for 

review.

II. Background 

The Congress based the Truth in 

Lending Act (TILA) on findings that 

economic stability would be enhanced 

and competition among consumer credit 

providers would be strengthened by the 

informed use of credit, which results 

from consumers’ awareness of the 

credit’s cost. The purposes of the TILA 

are: (1) To provide a meaningful 

disclosure of credit terms to enable 

consumers to compare the various credit 

terms available in the marketplace more 

readily and avoid the uninformed use of 

credit; and (2) to protect consumers 

against inaccurate and unfair credit 

billing and credit card practices. 15 

U.S.C. 1601(a). 

TILA’s disclosures differ somewhat 

depending on whether consumer credit 

is an open-end (revolving) plan or a 

closed-end (installment) loan. TILA also 

contains procedural and substantive 

protections for consumers, for both 

open-end and closed-end transactions. 

70926 Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 

1Amendments to Regulation Z have addressed 

adjustable-rate mortgage loans (52 FR 48665, 

December 24, 1987); home equity lines of credit (54 

FR 24670, June 9, 1989), credit and charge card 

applications and solicitations (54 FR 13855, April 

6, 1989 and 65 FR 58903, October 3, 2000), and 

potentially abusive mortgage lending practices 

(high-cost loans and reverse mortgages, 60 FR 

15463, March 24, 1995, and 66 FR 65604, December 

20, 2001). In connection with reports to the 

Congress, the Board reviewed the rules relating to 

consumers’ right to rescind certain mortgage 

transactions (1995); finance charges (1996); homeequity lines of credit (1996); and closed-end 

mortgage loans (1998).

TILA is implemented by the Board’s 

Regulation Z. 12 CFR part 226; 15 U.S.C. 

1604(a). An Official Staff Commentary 

interprets the requirements of 

Regulation Z. 12 CFR part 226 (Supp I). 

Creditors that follow in good faith Board 

or official staff interpretations are 

insulated from civil liability, criminal 

penalties, or administrative sanction. 15 

U.S.C. 1640(f). 

III. Reviewing the Open-End Credit 

Rules 

TILA, enacted in 1968, was 

substantially revised by the Truth in 

Lending Simplification Act of 1980. 

Regulation Z was revised and 

reorganized to implement the new law, 

effective in 1982 (46 FR 20892, April 7, 

1981). Since then, the regulation has not 

been reviewed in its entirety, although 

much of it has been reviewed in 

individual rulemakings, to implement 

new legislation, in response to 

congressional requests for reports, or 

pursuant to public hearings.1 The 

Official Staff Commentary is typically 

updated annually.

Scope of the Review. The Board 

periodically reviews it regulations to 

update them. The Board plans to review 

Regulation Z over the next few years. 

The regulation is sufficiently lengthy 

and complex, however, that conducting 

the review in stages appears to be the 

most appropriate approach. The Board 

is proposing to focus the first stage of 

the review on Regulation Z’s rules for 

open-end (revolving) credit accounts 

that are not home-secured, chiefly 

general-purpose credit cards and 

merchant-specific credit plans, although 

the rules apply to open-end lines 

generally. Other aspects of the 

regulation would also be addressed if 

the Board determines that it is necessary 

or appropriate to do so. Accordingly, 

comment is also requested on other 

ways that Regulation Z could be 

improved in Section VI, below. Plans for 

future stages of the review of Regulation 

Z are discussed in Section VII, below. 

Some provisions in Regulation Z apply 

to both open- and closed-end credit. 

Even though the Board is proposing to 

review Regulation Z in stages, the Board 

will consider the need for consistency 

across the regulation in proposing 

revisions. 

Q1. The Board solicits comments on 

the feasibility and advisability of 

reviewing Regulation Z in stages, 

beginning with the rules for open-end 

credit not home-secured. Are some 

issues raised by the open-end credit 

rules so intertwined with other TILA 

rules that other approaches should be 

considered? If so, what are those issues, 

and what other approach might the 

Board take to address them? 

Goals. In reviewing Regulation Z, the 

Board’s primary goal is to improve, if 

possible, the effectiveness and 

usefulness of open-end disclosures and 

substantive protections. Consumers’ use 

of open-end credit, especially lines 

accessed by credit cards, has grown 

markedly. The ways in which 

consumers can access open-end lines 

and the uses they can make of these 

lines have both expanded. Pricing has 

become more complex and products 

increasingly diverse, especially for 

general purpose credit cards. Taken 

together, these factors suggest it is 

appropriate to consider whether the 

open-end disclosure rules and 

substantive protections of Regulation Z 

are achieving their intended purposes, 

which are to permit consumers to make 

informed decisions about the use of 

credit and to protect consumers against 

inaccurate and unfair credit billing and 

credit card practices. The review will 

also consider ways to address concerns 

about information overload, which can 

adversely affect how meaningful the 

disclosures are to consumers. 

Disclosures required under TILA are 

required to be clear and conspicuous; 

the Board intends to study alternatives 

for improving the format of disclosures, 

including revising the model forms and 

clauses published by the Board, to 

ensure that consumers get timely 

information in a readable form. 

TILA also seeks to establish 

uniformity in creditors’ disclosures to 

promote comparison shopping. Thus, in 

conducting the review, the Board will 

consider ways that the rules can be 

clarified for creditors to facilitate 

compliance and promote consistency in 

their disclosures. Pursuant to the 

Board’s mandate under the Economic 

Growth and Regulatory Paperwork 

Reduction Act, the Board also intends to 

consider ways to reduce unnecessary 

regulatory burden consistent with the 

purposes and requirements of TILA. 

(See 68 FR 35589, June 16, 2003; 69 FR 

2852, January 21, 2004; 69 FR 43347, 

July 16, 2004.) 

Following the ANPR, the Board may 

determine that proposed revisions to 

Regulation Z’s open-end credit rules are 

appropriate, but there may be other 

responses to the issues raised. For 

example, the Board may consider 

whether to recommend legislative 

changes. The Board may conclude that 

a non-regulatory response would be the 

most effective approach in addressing 

some issues, for example the issuance of 

recommended best practices or 

consumer education efforts. These 

alternative approaches are discussed in 

Section VI, below. 

The Board’s Authority under TILA.

TILA mandates that the Board prescribe 

regulations to carry out the purposes of 

the act. 15 U.S.C. 1604(a). In 

promulgating open-end credit rules to 

implement TILA, the Board is also 

authorized, among other things, to do 

the following: 

• Issue regulations that contain such 

classifications, differentiations, or other 

provisions, or provide for such 

adjustments and exceptions for any 

class of transactions, that in the Board’s 

judgment are necessary or proper to 

effectuate the purposes of TILA, 

facilitate compliance with the act, or 

prevent circumvention or evasion. 15 

U.S.C. 1604(a). 

• Exempt from all or part of TILA any 

class of transactions if the Board 

determines that TILA coverage does not 

provide a meaningful benefit to 

consumers in the form of useful 

information or protection. The Board 

must consider factors identified in the 

act and publish its rationale at the time 

a proposed exemption is published for 

comment. 15 U.S.C. 1604(f).

• Exempt from TILA certain 

transactions involving consumers who 

first provide a written waiver of their 

TILA protections and whose annual 

earned income or net assets at the time 

of the transaction exceeds a certain 

dollar figure ($200,000 and $1,000,000, 

respectively), which the Board may 

adjust for inflation. 15 U.S.C. 1604(g). 

• Provide tolerances for numerical 

disclosures other than the annual 

percentage rate (APR), so long as the 

tolerances are narrow enough to prevent 

disclosures that are misleading or that 

circumvent TILA’s purposes. 15 U.S.C. 

1631(d). 

Open-end Consumer Credit in 

Today’s Marketplace. The principal 

examples of open-end credit not homesecured are general-purpose credit cards 

and merchant-specific credit plans, 

which may or may not involve cards. In 

determining how the Board’s goals for 

the Regulation Z review can best be met, 

the Board will consider the nature and 

function of open-end credit accounts, 

and how the market for open-end credit 

Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 70927

2Thomas A. Durkin, Credit Cards: Use and 

Consumer Attitudes, 1970–2000, Federal Reserve 

Bulletin, (September 2000); Thomas A. Durkin, 

Consumers and Credit Disclosures: Credit Cards 

and Credit Insurance, Federal Reserve Bulletin 

(April 2002).

has developed since the last major 

review of the open-end rules. 

Recent studies and consumer surveys 

(including a 2001 survey of consumers 

with general purpose credit cards 

discussed in the April 2002 article 

noted below) provide some data on 

open-end credit plans and how 

consumers use them, particularly credit 

card accounts, as follows:2

• Increased number of cards held. In 

2001, 73 percent of households had at 

least one general purpose credit card 

with a revolving feature, compared to 43 

percent in 1983. The 2001 consumer 

survey noted above showed that 20 

percent of the respondents obtained a 

new general purpose credit card within 

the previous year, and that around 84 

percent of those respondents did so as 

a result of a solicitation. The survey also 

showed that nearly two-thirds of the 

respondents who had acquired a new 

card in the previous year already held 

two other credit card accounts, and over 

one-third of respondents with general 

purpose credit cards with a revolving 

feature held three or more. 

• Wide range of uses. Open-end 

plans, credit cards in particular, are 

widely used in today’s marketplace. 

Credit cards serve as a substitute for 

cash and checks for millions of routine 

purchases, and allow consumers to 

engage in transactions such as telephone 

and Internet purchases. Also, credit 

limits can be high, and consumers now 

commonly finance the purchase of ‘‘bigticket’’ items (such as appliances and 

furniture) under an open-end plan 

rather than a closed-end installment 

loan, as they did in the past. Card 

issuers have also developed other access 

methods for consumers to use their 

accounts, such as by offering 

‘‘convenience checks’’ that may be used 

for purchases or to transfer balances 

from other accounts. In the 2001 survey 

noted above, about 20 percent of 

respondents having general purpose 

credit cards with a revolving feature had 

transferred balances in the previous 

year. 

• More complex pricing. General 

purpose credit-card pricing has become 

more complex. A single account may 

have multiple APRs for different types 

of credit extensions, or that apply for 

limited time periods. Credit cards are 

available to consumers with a much 

wider range of credit risks, due to 

improved technology for riskevaluation. As a result, pricing is more 

varied. Also, competition has reduced 

‘‘front-end’’ costs for general purpose 

credit cards as card issuers eliminate 

annual fees and offer substantial 

discounts in initial interest rates. On the 

other hand, ‘‘back-end’’ costs have 

increased through higher late fees, overthe-credit-limit fees, and the use of 

penalty rates for late payers. In the 

surveys noted above, about 30 percent 

of credit card users reported paying a 

late fee within the previous year. 

• Additional account features. The 

2001 survey noted above showed that in 

making choices about opening or 

replacing card accounts, consumers 

consider a variety of factors, ranging 

from cost information about rates, 

annual fees, and minimum payments, to 

benefits such as rebate and reward 

programs. 

• Consumers’ perceptions about 

account information. The 2001 survey 

of consumers with general purpose 

credit cards asked the respondents 

about their perceptions of information 

available for these accounts. Sixty-five 

percent said that useful information on 

credit terms was either ‘‘very easy’’ or 

‘‘somewhat easy’’ to obtain, and only 6 

percent thought it very difficult. But 

when asked questions about consumers’

understanding and use of Truth in 

Lending disclosures at account opening 

or on monthly bills for general purpose 

credit cards, nearly one-third of the 

respondents suggested improvements 

could be made regarding format and 

clarity. 

IV. Summary of TILA’s Rules for OpenEnd Credit Accounts 

Under TILA, as implemented by 

Regulation Z, open-end credit exists 

when consumer credit is extended 

under a plan in which (1) the creditor 

reasonably contemplates repeated 

transactions, (2) the creditor may 

impose a finance charge from time to 

time on an outstanding unpaid balance, 

and (3) the credit is replenished as it is 

used, up to any limit set by the creditor. 

15 U.S.C. 1602(i); 12 CFR 226.2(a)(20). 

The rules that apply to open-end credit 

also apply to creditors that issue 

‘‘charge cards’’ that typically require 

outstanding balances to be paid in full 

at the end of each billing cycle. 12 CFR 

226.2(a)(17)(iii). For purposes of this 

ANPR, the terms ‘‘open-end credit’’ and 

‘‘credit card’’ encompass ‘‘charge card.’’

Disclosures. TILA and Regulation Z 

require creditors offering open-end 

credit plans to disclose costs and other 

terms related to the plan. To summarize: 

• Disclosures must be provided with 

credit card applications and 

solicitations. Consumers receive key 

cost information in an abbreviated 

manner, to help consumers decide 

whether to apply for the card account. 

For direct mail solicitations, the 

disclosures are presented in a highly 

structured table. 

• Disclosures provided at accountopening describe how charges 

associated with the plan will be 

determined. Consumers receive 

information about the periodic rate, 

disclosed as an APR, that will be 

applied to the outstanding balance, 

along with other fees that may be 

assessed on the account. Consumers’

rights and responsibilities in the case of 

unauthorized use or billing disputes are 

also explained. Consumers must receive 

these disclosures before the first 

transaction on the account. 

• Disclosures on periodic statements 

reflect the activity on the account for the 

statement period. In addition to the APR 

based on the periodic rate, periodic 

statements must also disclose the 

effective or ‘‘historical’’ APR for the 

billing cycle. The effective APR 

includes finance charges imposed in 

addition to interest (such as cash 

advance fees or balance transfer fees). 

Transactions that occurred and any fees 

imposed during the cycle must be 

identified on the statement, along with 

any time period a consumer may have 

to pay an outstanding balance and avoid 

additional finance charges (the ‘‘grace 

period’’).

• Disclosures about changes in 

account terms and about the terms for 

using a new credit feature or means of 

access are provided on an ad hoc basis. 

Substantive and procedural 

protections. TILA and Regulation Z also 

provide procedural and substantive 

protections to consumers with open-end 

accounts, including special protections 

for credit cardholders, summarized 

below: 

• Consumers using an open-end 

credit plan may assert a billing error, 

which triggers creditors’ duty to 

investigate the allegation within 

prescribed time limits. 

• Cardholders may assert against a 

card issuer claims or defenses arising 

from a credit card purchase, if the 

merchant honoring the card fails to 

resolve any dispute about the quality of 

the goods or services. 

• Cardholders’ liability for the 

unauthorized use of a credit card is 

capped at $50. 

• Credit cards may be issued to 

consumers only upon request. One or 

more credit cards may be issued to 

cardholders in renewal of, or 

substitution for, an accepted card, with 

some conditions. 

• Consumers’ payments on the 

account must be credited as of the date 

70928 Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 

3For purposes of credit card application and 

solicitation disclosures, the ‘‘clear and 

conspicuous’’ standard is interpreted to mean that 

the disclosures must also be ‘‘readily noticeable to 

the consumer.’’ See Comment 5a(a)(2)–1.

4Thomas A. Durkin, Consumers and Credit 

Disclosures: Credit Cards and Credit Insurance,

Federal Reserve Bulletin (April 2002), p. 207.

the creditor receives the payment and 

creditors must refund credit balances. 

• Creditors cannot offset consumers’

credit card debt with funds held on 

deposit with the card issuer except in 

specified circumstances. 

V. Request for Information and 

Comments on TILA’s Disclosures and 

Protections 

Under open-end plans, consumers 

generally control how the plan is 

accessed and the amount and timing of 

credit extensions and payments. 

Because consumers’ decisions about 

using their open-end credit accounts are 

continuous, the relevance of key 

account terms to consumers’ use of the 

account varies over the life of the 

account. Thus, the effectiveness of 

disclosures must be considered in light 

of the multiple functions they serve. 

For example, some information 

received at account-opening may 

become relevant years later, for 

example, when a consumer who uses a 

credit card account for purchases 

decides for the first time to obtain a cash 

advance. Information provided on 

periodic statements tells consumers 

about account activity for the statement 

period, but it also allows consumers to 

make ongoing credit decisions about 

how much credit to use and how much 

of the outstanding balances to pay on 

various accounts. And consumers may 

use existing account-opening or 

periodic statement disclosures to 

compare offers they receive to apply for 

another account or transfer existing 

balances to another account. 

A. Would Format Changes Enhance 

Consumers’ Ability To Notice and 

Understand Disclosures by Making 

Them More Clear and Conspicuous? 

Open-end disclosures are subject to 

few formatting rules. Creditors have 

great flexibility in designing accountopening, periodic statement, and other 

open-end disclosures. The primary 

exception to TILA and Regulation Z’s 

flexible formatting rules for open-end 

credit is the abbreviated and segregated 

tabular disclosures required for credit 

card solicitations and applications 

(known as the ‘‘Schumer box’’). 15 

U.S.C. 1637(c); 12 CFR 226.5a(a)(2). 

TILA disclosures must be ‘‘clear and 

conspicuous,’’ which is generally 

interpreted to be in a ‘‘reasonably 

understandable form.’’ 15 U.S.C. 1632; 

12 CFR 226.5(a)(1); comment 5(a)(1)–1.3

In June 2004, the Board withdrew 

regulatory proposals that would have 

established a uniform standard for 

‘‘clear and conspicuous’’ disclosures 

under Regulations B, E, M, Z, and DD. 

69 FR 35541, June 25, 2004. Instead of 

adopting general definitions or 

standards that would apply across the 

five regulations, the Board decided to 

focus on individual disclosures and to 

consider ways to make specific 

improvements to the effectiveness of 

each disclosure. The Board noted that 

the effort to review individual 

disclosures would be undertaken in 

connection with the Board’s periodic 

review of its regulations, commencing 

with the issuance of an ANPR to review 

the rules for open-end credit accounts 

under TILA and Regulation Z. Although 

the proposals defining ‘‘clear and 

conspicuous’’ were withdrawn, they 

reflected principles that will guide the 

Board in reviewing individual 

disclosures and revising the regulation 

and the Board’s model forms and 

clauses. 

In the questions that follow, the Board 

seeks comment on ways to make the 

disclosures for open-end credit accounts 

more understandable and noticeable. 

Commenters are specifically requested 

to identify any particular concerns 

relating to the format of electronic 

disclosures. 

Account-opening disclosures. TILA’s 

account-opening disclosures are 

provided to consumers before the plan 

is opened (or before the first 

transaction). 15 U.S.C. 1637(a); 12 CFR 

226.5(b)(1). Creditors typically provide 

the TILA disclosures in an account 

agreement that also contains contract 

terms and state-law disclosures. The 

agreement is typically a lengthy 

document in a small type size. 

A primary purpose of the accountopening disclosures is to allow 

consumers to have key information 

about the account before they use the 

plan at all. Because consumers’ use of 

the plan may change over time, 

however, these disclosures remain 

important over the life of the plan. 

Consumers may also refer to their 

account-opening disclosures when 

comparing the terms of their existing 

account to offers subsequently received 

from other card issuers. As stated above, 

data from a 2001 survey indicate that a 

significant number of consumers 

respond to solicitations for new credit 

card accounts. 

Data from the 2001 survey of 

consumers with general purpose credit 

cards reveals that about two thirds of 

the respondents said that useful 

information on credit terms was either 

‘‘very easy’’ or ‘‘somewhat easy’’ to 

obtain.4 However, about three-fourths of 

consumers also agree (strongly or 

somewhat) with the statement that TILA 

statements ‘‘are complicated.’’ Nearly 

one-third suggested improvements 

could be made to the format and clarity 

of Truth in Lending disclosures at 

account opening or on monthly bills for 

general purpose credit cards, such as by 

providing information that is ‘‘clearer, 

simpler, easier to understand, written in 

lay terms, or in larger print.’’

The Board has received comments 

about the format of account-opening 

disclosures in connection with recent 

rulemakings. The views of the members 

of the Board’s Consumer Advisory 

Council (CAC) have also been solicited. 

Many who commented believe that 

much of the information considered to 

be important is already contained in the 

disclosures; because a lot of information 

is provided at account opening, 

however, there is the potential for 

information overload, which can impair 

the disclosures’ effectiveness. 

Accordingly, in connection with the 

review of Regulation Z, the Board 

proposes to consider ways to ease 

consumers’ ability to navigate through 

the disclosures. 

Several format changes have been 

suggested that might assist in this 

regard. Some members of the CAC 

believe that disclosures would be 

improved by including a page-one 

‘‘executive summary’’ paragraph or a 

disclosure table to highlight key features 

and terms of the account, similar to the 

Schumer box disclosure provided with 

credit card solicitations. Such an 

executive summary need not be limited 

to information included in the Schumer 

box, but could incorporate other 

information, such as abbreviated 

description of items that, based on 

consumer surveys, are considered to be 

most important to consumers (e.g., an 

annual fee, potential rate changes, 

amount of credit line, minimum 

monthly payment, special account 

benefits). Either as a part of this notion, 

or as a stand-alone change, consumers 

might benefit from a directory or ‘‘table 

of contents’’ box that would highlight 

for readers where specific terms might 

be found, to assist consumers in 

navigating through the document (for 

example, ‘‘Late fees * * * see 

paragraphs 12, 14’’). This concept 

addresses the anecdotal evidence that 

consumers often choose not to read the 

entire disclosure at once, but seek out 

information on specific terms from time 

Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 70929

5Colin Wheildon, Type & Layout; How 

Typography and Design Can Get Your Message 

Across—or Get in the Way,’’ Berkley: Strathmoor 

Press; Revised edition (March 1, 1995).

to time, at the outset of the account 

relationship and subsequently. 

Q2. What formatting rules would 

enhance consumers’ ability to notice 

and understand account-opening 

disclosures? Are rules needed to 

segregate certain key disclosures from 

contractual terms or other information 

so the disclosures are more clear and 

conspicuous? Should the rules require 

that certain disclosures be grouped 

together or appear on the same page? 

Are minimum type-size requirements 

needed, and if so, what should the 

requirements be? 

Q3. Are there ways to use formatting 

tools or other navigational aids for 

TILA’s account-opening disclosures that 

will make the disclosures more effective 

for consumers throughout the life of the 

account? If so, provide suggestions. 

Periodic statements. TILA and 

Regulation Z contain few formatting 

rules for disclosures provided on 

periodic statements. Periodic statement 

disclosures provide information about 

account activity during the statement 

period; but consumers might also use 

information on the statements to make 

decisions about payments and the future 

use of their account, which affects the 

overall cost of credit. The Board solicits 

comment on the general need for format 

requirements for periodic statements, 

including the following: 

Q4. Format rules could require certain 

disclosures to be grouped together or 

appear on the same page where it would 

aid consumer’s understanding. For 

example, some card issuers disclose a 

25-day grace period on the back of the 

periodic statement that can be used to 

calculate the payment due date; the 

same card issuer might also show a 

‘‘please pay by date’’ on the front of the 

periodic statement that is based on a 20-

day period. Some consumers might 

assume the 20-day period reflects the 

due date; other consumers may 

ascertain the actual due date by looking 

on the back of the statement. Potential 

consumer confusion might be reduced 

by requiring creditors to disclose the 

grace period or the actual due date on 

the first page of the statement, adjacent 

to the ‘‘please pay by’’ date. Is such a 

rule desirable? Are there other 

disclosures that should be grouped 

together on the same page?

Q5. Could the cost of credit be more 

effectively presented on periodic 

statements if less emphasis were placed 

on how fees are labeled, and all fees 

were grouped together on the periodic 

statement? Are there other approaches 

the Board should consider? If so, 

provide suggestions. 

Q6. How could the use of formatting 

tools or other navigational aids make the 

disclosures on periodic statements more 

effective for consumers? 

Credit card application disclosures 

(the ‘‘Schumer box’’). The disclosures 

required for credit card solicitations and 

applications have the most regimented 

format requirements. TILA disclosures 

must be presented in a table (known as 

the ‘‘Schumer box’’) with headings 

substantially similar to those published 

in the Board’s model forms. (Format 

requirements for ‘‘take-one’’

applications are quite flexible; card 

issuers have the option to use the format 

required for direct-mail applications.) 

In 2000, the Board revised the format 

requirements for these tabular 

disclosures. 65 FR 58903, October 3, 

2000. The regulation’s sole type-size 

requirement applies to direct-mail 

application disclosures; the APR for 

purchases must be in at least 18-point 

type size. 12 CFR 226.5a(b)(1). Also, the 

‘‘clear and conspicuous’’ standard is 

interpreted to mean that application 

disclosures must be ‘‘in a reasonably 

understandable form and readily 

noticeable to the consumer.’’

Disclosures that are printed in a 12-

point type size have a safe harbor in the 

regulation under this standard. 

Comment 5a(a)(2)–1. 

Q7. Is the ‘‘Schumer box’’ effective as 

currently designed? Are there format 

issues the Board should consider? If so, 

provide suggestions. 

Q8. Balance transfer fees and cash 

advance fees may be disclosed inside 

the ‘‘Schumer box’’ or clearly and 

conspicuously elsewhere on or with the 

application. 12 CFR 226.5a(a)(2)(i). 

Given the prevalence of balance transfer 

promotions in credit card applications 

and solicitations, should balance 

transfer fees be included in the Schumer 

box? 

Subsequent disclosures. Creditors 

have great flexibility under TILA and 

Regulation Z in disclosing changes in 

account terms and the terms for new 

credit features or access devices offered 

after the account is opened. 

Q9. Are there formatting tools or 

navigational aids that could more 

effectively link information in the 

account-opening disclosures with the 

information provided in subsequent 

disclosures, such as those 

accompanying convenience checks and 

balance transfer checks? If so, provide 

suggestions. 

Model forms and clauses. The Board 

publishes model forms and model 

clauses to ease compliance. Creditors 

are not required to use these forms or 

clauses, but creditors that use them 

properly are deemed to be in 

compliance with the regulation 

regarding those disclosures. See 15 

U.S.C. 1604(b). The Board has few 

model clauses and forms for accountopening or periodic statement 

disclosures. 

Q10. Should existing clauses and 

forms be revised to improve their 

effectiveness? If so, provide specific 

suggestions. 

Q11. Would additional model clauses 

or forms be helpful? If so, please 

identify the types of new model clauses 

and forms that the Board should 

consider developing. 

Q12. In developing any proposed 

revisions or additions to the model 

forms or clauses, the Board plans to 

utilize consumer focus groups and other 

research. The Board is aware of studies 

suggesting that, for example, bolded 

headings that convey a message are 

helpful, but using all capital letters is 

not.5 Is there additional information on 

the navigability and readability of 

different formats, and on ways in which 

formatting can improve the effectiveness 

of disclosures?

B. How Can the Content of Disclosures 

Be Improved or Simplified To Enhance 

Consumers’ Understanding of the Cost 

of Credit? 

TILA is designed to provide 

consumers with information about costs 

and terms to enable them to make 

comparisons among creditors and 

different credit programs, or determine 

whether they should use the credit line 

at all. In the questions that follow, the 

Board solicits comment generally on 

how the content of disclosures can be 

improved to enhance consumers’

understanding about costs and terms. In 

addition, comment is specifically 

requested on how disclosures can be 

simplified while ensuring that 

consumers have the information they 

need to make informed decisions about 

the use of their credit accounts. 

Can the Rules for Classifying and 

Labeling Fees as ‘‘Finance charges’’ and 

‘‘Other Charges’’ Be Improved? 

How a particular fee is classified 

affects when and how the fee is 

disclosed under TILA. Creditors offering 

open-end credit must disclose fees that 

are ‘‘finance charges’’ as well as ‘‘other 

charges’’ that are part of the credit plan. 

A ‘‘finance charge’’ is broadly defined 

as any charge payable directly or 

indirectly by the consumer and imposed 

directly or indirectly by the creditor, as 

an incident to or a condition of the 

extension of credit. 15 U.S.C. 1605; 12 

CFR 226.4. Interest, cash advance fees, 

70930 Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 

and balance transfer fees are examples 

of finance charges. Finance charges 

must be disclosed in the accountopening statement. If imposed in a 

particular billing cycle, finance charges 

must be disclosed on the periodic 

statement, where the fee must be labeled 

as a ‘‘finance charge.’’ If a finance 

charge fee increases, a change-in-terms 

notice is generally required. If imposed 

in a particular billing cycle, a finance 

charge must also be included in the 

effective (or ‘‘historical’’) APR, which 

expresses the total finance charge, not 

just interest, as an annual rate. 15 U.S.C. 

1606(a)(2). Non-recurring loan fees, 

points, or similar finance charges 

related to the opening, renewing, or 

continuing of an open-end account are 

excluded from the effective APR. 12 

CFR 226.14(c)(3), footnote 33, comment 

14(c)–7. 

If the fee is not a finance charge, but 

is significant and imposed as part of the 

plan, it is an ‘‘other charge’’ and must 

be disclosed at account-opening; on 

each applicable statement, though not 

with any particular label; and, for some 

but not all ‘‘other charges,’’ on a changein-terms notice when the amount of the 

fee increases. 15 U.S.C. 1637(a)(5), 12 

CFR 226.6(b), 7(h); comment 6(b)–1. 

Examples of ‘‘other charges’’ are penalty 

fees for late payment or exceeding a 

credit limit, and periodic membership 

or participation fees that are payable 

whether or not the consumer actually 

uses the credit plan. 

If the fee is neither a finance charge 

nor an ‘‘other charge’’ (for example, 

returned check fees), TILA does not 

require that it be disclosed initially. If 

such a fee is charged to the consumer 

and billed to the account, the fee must 

be disclosed on the relevant periodic 

statement just as any other transaction 

item must be disclosed. 

For the credit card industry as a 

whole, fee income has grown 

significantly in importance. With that 

trend, the types of fees creditors charge 

on open-end consumer credit accounts 

have grown in number and variety. As 

creditors charge new fees that are not 

specifically addressed by Regulation Z, 

creditors are sometimes unsure if the fee 

should be disclosed under TILA, and if 

so, whether it should be characterized 

as a finance charge or ‘‘other charge.’’

The rules for open-end accounts provide 

no tolerance for errors in disclosing the 

finance charge. In reviewing Regulation 

Z, the Board plans to consider whether 

there are ways to provide more clarity 

for creditors as to how particular fees 

should be classified. 

Regulation Z follows TILA in giving 

the terms ‘‘finance charge’’ and ‘‘other 

charge’’ broad and flexible meanings. 

This ensures that the rules are adaptable 

to changing conditions, but also creates 

some degree of uncertainty. Regulation 

Z and the staff commentary diminish 

the uncertainty somewhat by expressly 

identifying examples of charges that 

constitute finance charges and types 

that do not. 15 U.S.C. 1605; 12 CFR 

226.4(b) and (c). Nevertheless, rules that 

specifically address every fee generated 

in the marketplace are not practicable. 

In response to a December 2002 staff 

proposal to clarify the status of two new 

fees in the staff commentary, many 

industry commenters called for a 

different approach to cost disclosures 

that would provide more certainty about 

fees’ proper classification. 67 FR 72618, 

December 6, 2002; 68 FR 16185, April 

3, 2003. Some industry commenters 

suggested that more certainty could be 

provided, for example, if fees were 

classified as finance charges based on 

whether payment of the fee is required 

as a condition to obtaining credit. They 

asserted that this standard would ease 

compliance and reduce litigation risks 

and promote comparison shopping by 

decreasing the risk that creditors might 

disclose the same fee differently.

Q13. How could the Board provide 

greater clarity on characterizing fees as 

finance charges or ‘‘other charges’’

imposed as part of the credit plan? 

Under Regulation Z, finance charges 

include fees imposed as a condition of 

the credit as well as fees imposed 

‘‘incident to’’ the credit. This includes 

‘‘service, transaction, activity, and 

carrying charges.’’ 12 CFR 226.4(b)(2). 

What types of fees imposed in 

connection with open-end accounts 

should be excluded from the finance 

charge, and why? How would these fees 

be disclosed to provide uniformity in 

creditors’ disclosures and facilitate 

compliance? 

Q14. How do consumers learn about 

the fees that will be imposed in 

connection with services related to an 

open-end account, and any changes in 

the applicable fees? 

Q15. What significance do consumers 

attach to the label ‘‘finance charge,’’ as 

opposed to ‘‘fee’’ or ‘‘charge’’? 

Q16. Some industry representatives 

have suggested a rule that would 

classify fees as finance charges only if 

payment of the fee is required to obtain 

credit. How would creditors determine 

if a particular fee was optional? Would 

costs for certain account features be 

excluded from the finance charge 

provided that the consumer was also 

offered a credit plan without that 

feature? Would such a rule result in 

useful disclosures for consumers? 

Would consumers be able to compare 

the cost of the different plans? Would 

such a rule be practicable for creditors? 

Q17. Some industry representatives 

have suggested a rule that would 

classify a fee as a finance charge based 

on whether the fee affects the amount of 

credit available or the material terms of 

the credit. How would such a standard 

operate in practice? For example, how 

would creditors distinguish finance 

charges from ‘‘other charges’’? What 

terms of a credit plan would be 

considered material? 

Q18. TILA requires the identification 

of other charges that are not finance 

charges and may be imposed as part of 

the plan. The staff commentary 

interprets the rule as applying to 

‘‘significant charges’’ related to the plan. 

Has that interpretation been effective in 

furthering the purposes of the statute? 

Would another interpretation be more 

effective? Criteria that have been 

suggested as relevant to determining 

whether the Board should identify a 

charge as an ‘‘other charge’’ include: the 

amount of the charge; the frequency 

with which a consumer is likely to incur 

the charge; the proportion of consumers 

likely to incur the charge; and when and 

how creditors disclose the charge, if at 

all. Are those factors relevant? Are there 

other relevant factors? 

Q19. What other issues should the 

Board consider as it addresses these 

questions? For instance, in classifying 

fees for open-end plans generally, do 

home equity lines of credit present 

unique issues? 

Q20. How important is it that the 

rules used to classify fees for open-end 

accounts mirror the classification rules 

for closed-end loans? For example, the 

approach of excluding certain finance 

charges from the effective APR for openend accounts is not consistent with the 

approach recommended by the Board 

for closed-end loans. In a 1998 report to 

the Congress concerning reform of 

closed-end mortgage disclosures, the 

Board endorsed an approach that would 

include ‘‘all required fees’’ in the 

finance charge and APR. (The report is 

at http://www.federalreserve.gov/

boarddocs/press/boardacts/1998.) 

Over-the-credit-limit fees. Anecdotal 

evidence indicates that ‘‘penalty’’ fees 

imposed on open-end credit accounts, 

such as over-the-credit-limit fees and 

late-payment fees, have increased in 

recent years. Adequate disclosure of 

over-the-credit-limit fees may be of 

particular importance to consumers who 

have low-limit credit card accounts.

Fees for paying late or exceeding a 

credit limit are disclosed with credit 

card applications and solicitations; in 

account-opening statements; and on 

periodic statements for billing cycles 

Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 70931

when the fees are imposed. Although 

TILA does not specifically address the 

characterization of these fees, 

Regulation Z provides that the fees are 

not ‘‘finance charges’’ but must be 

disclosed as ‘‘other charges.’’ 12 CFR 

226.4(c)(2); comment 6(b)–1. In a recent 

case involving the disclosure of an overthe-credit-limit fee, the United States 

Supreme Court upheld the Board’s 

regulation excluding such fees from the 

finance charge. See Household Credit 

Services v. Pfennig, 541 U.S. 232 (2004). 

Concerns have been raised about 

some card issuers’ practice of allowing 

consumers to remain over their credit 

limit for multiple billing cycles. For 

example, a creditor may establish an 

initial credit limit, but once that limit is 

exceeded the creditor might not require 

the consumer to bring the account 

balance below the originally established 

credit limit. As a result, the creditor 

may impose an over-the-credit-limit fee 

on a continuing basis for each month 

the consumer carries a balance in excess 

of the original credit limit. 

Q21. The staff commentary to 

Regulation Z provides guidance on 

when a fee is properly excluded from 

the finance charge as a bona fide late 

payment charge, and when it is not. See

Comment 4(c)(2)–1. Is there a need for 

similar guidance with respect to fees 

imposed for exceeding a credit limit, for 

example, where the creditor does not 

require the consumer to bring the 

account balance below the originally 

established credit limit, but imposes an 

over-the-credit-limit fee each month on 

a continuing basis? 

Q22. Because of technical limitations 

or other practical concerns, credit card 

transactions may be authorized in 

circumstances that do not allow the 

merchant or creditor to determine at the 

moment of the transaction whether the 

transaction will cause the consumer to 

exceed the previously established credit 

limit. How do card issuers explain to 

consumers their practice of approving 

transactions that might result in the 

consumer’s exceeding the previously 

established credit limit for the account 

and being charged an over-the-creditlimit fee? When are over-the credit-limit 

fees imposed; at the time of an approved 

transaction, or later such as at the end 

of the billing cycle? The Board 

specifically requests comments on 

whether additional disclosures are 

needed regarding the circumstances in 

which over-the-credit-limit fees will be 

imposed. 

How Do Consumers Use the ‘‘Effective’’

or ‘‘Historical’’ Annual Percentage Rate 

Disclosed on Periodic Statements? 

Under TILA the finance charge is also 

disclosed as an annualized rate, the 

APR. The APR is based on the periodic 

rate (interest) for purposes of credit card 

solicitations and applications, accountopening disclosures, and advertisements 

for open-end plans. But for periodic 

statements, creditors must also disclose 

an ‘‘effective’’ or ‘‘historical’’ APR that 

includes any finance charges other than 

interest imposed during the billing cycle 

(such as cash advance fees). TILA 

requires non-interest finance charges to 

be amortized over one billing cycle for 

purposes of calculating the effective 

APR, and as a result, such fees can 

result in a high double-digit (or 

sometimes, triple-digit) effective APR on 

periodic statements. That is why under 

the regulation and staff commentary, 

non-recurring loan fees, points, or 

similar finance charges related to the 

opening, renewing, or continuing of an 

open-end account are currently 

excluded from the effective APR that is 

disclosed for a particular billing cycle.

The utility of disclosing the effective 

APR, which is mandated by the statute, 

is controversial. The legislative history 

of TILA suggests that Congress adopted 

the effective APR for open-end credit to 

ensure that the cost of credit in the form 

of transaction charges or minimum or 

fixed finance charges was fully and 

uniformly disclosed. The history also 

indicates that Congress was aware that 

the effective APR would vary from the 

nominal APR, possibly substantially, 

when such charges were imposed. 

Moreover, in at least one hearing 

Congress heard testimony that an 

effective APR would not be useful to 

consumers, and might confuse them. 

Consumer advocates believe the 

effective APR is a key disclosure. They 

contend that a sharp rise in the APR 

caused by the imposition of a fee makes 

consumers more likely to notice the fee 

and, therefore, to understand that their 

action triggering the fee increased the 

overall cost of credit. Consumer 

advocates have also stated that the 

effective APR should be used by 

consumers in evaluating their credit 

options and how they might avoid such 

charges in the future. Consumer 

advocates sometimes refer to this theory 

as the ‘‘shock value’’ of the APR. 

Over the years, industry 

representatives have provided 

comments questioning the value to 

consumers of disclosing the effective 

APR on periodic statements. They 

believe the effective APR could be 

eliminated without diminishing 

consumer protections because in their 

view it confuses consumers who do not 

understand how it differs from the APR 

based on the periodic interest rate. 

Industry representatives also assert that 

the effective APR overstates the cost of 

cash advances because it is based on 

amortizing the fees over one billing 

cycle even though some consumers may 

carry the advance for a longer period. 

Q23. Have changes in the market and 

in consumers’ use of open-end credit 

since the adoption of TILA affected the 

usefulness of the historical APR 

disclosure? If so, how? The Board seeks 

data relevant to determining the extent 

to which consumers understand and use 

the historical APR disclosed on periodic 

statements. Is there data on how 

disclosure of the historical APR affects 

consumer behavior? Is it useful to 

consumers to include in the historical 

APR transaction charges such as cash 

advance fees and fees to transfer 

balances from other accounts? 

Q24. Are there ways to improve 

consumers’ understanding of the 

effective APR, such as by providing 

additional context for the disclosure? 

For example, should consumers be 

informed that the effective APR 

includes fees as well as interest, and 

that it assumes the fees relate to credit 

that was extended only for a single 

billing period? 

Q25. Are there alternative frameworks 

for disclosing the costs of credit on 

periodic statements that might be more 

effective than disclosing individual fees 

and the effective APR? For example, 

would consumers benefit from a 

disclosure of the total dollar amount of 

all account-related fees assessed during 

the billing cycle, or the total dollar 

amount of fees by type? Would a 

cumulative year-to-date total for certain 

fees be useful for consumers? 

Disclosures about rate changes. Under 

Regulation Z, some changes to the terms 

of an open-end plan require additional 

notice. (The statute does not address 

changes in terms to open-end plans.) 

The general rule is that 15 days’

advance notice is required to increase 

the finance charge (including the 

interest rate) or an annual fee. 12 CFR 

226.9(c)(1). However, advance notice is 

not required in all cases. For example, 

if the interest rate or other finance 

charge increases due to a consumer’s 

default or delinquency, notice is 

required, but need not be given in 

advance. 12 CFR 226.9(c)(1); comment 

9(c)(1)–3. And no change-in-terms 

notice is required if the creditor 

specifies in advance the circumstances 

under which an increase to the finance 

charge or an annual fee will occur. 

Comment 9(c)–1. For example, some 

70932 Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 

credit card account agreements permit 

the card issuer to increase the interest 

rate if the consumer pays late, or if card 

issuer learns the consumer paid late on 

another credit account, even if the 

consumer has always paid the card 

issuer on time. Under Regulation Z, 

because the circumstances are specified 

in advance in the account agreement, 

the creditor need not provide a changein-terms notice 15 days in advance of 

the increase; the new rate will appear on 

the periodic statement for the cycle in 

which the increase occurs. 

Consumer advocates have expressed 

concerns that consumers who have 

triggered certain penalty rates may not 

be aware of the possibility of the 

increase, and thus are unable to shop for 

alternative financing before the 

increased rate takes effect. 

Q26. Is mailing a notice 15 days 

before the effective date of a change in 

interest rates adequate to provide timely 

notice to consumers? 

Q27. How are account-holders alerted 

to increased interest rates due to 

consumers’ default on this account or 

another credit account? Are existing 

disclosure rules for increases to interest 

rates and other finance charges adequate 

to enable consumers to make timely 

decisions about how to manage their 

accounts? If not, provide suggestions.

Do Consumers Need Additional 

Information About Other Factors That 

Affect the Cost of Credit? 

In addition to rates and fees, the cost 

of credit can also be affected by the 

creditor’s method of calculating the 

outstanding credit balance; the size of 

the consumer’s monthly payment; and 

the creditor’s allocation of that payment 

among different charges and 

transactions. As explained below, the 

Board seeks comment on the need for 

regulatory revisions to enhance 

consumers’ understanding of the effect 

of these factors on the cost of credit. 

Balance calculation methods. Under 

TILA and Regulation Z, consumers 

receive information on how account 

balances are calculated for open-end 

accounts although TILA does not govern 

which calculation methods creditors 

must use. Creditors may identify 

common balance calculation methods 

by name on credit card application 

disclosures. The method is described in 

more detail in account-opening 

disclosures and on periodic statements. 

See 15 U.S.C. 1637(a)(2), (b)(7), 

(c)(1)(A)(iv); 12 CFR 226.5a(b)(6), 

226.6(a)(3), 226.7(e). The Board has 

published model clauses for some 

common balance calculation methods. 

12 CFR 226, Appendix G–1. 

The balance calculation method used 

by a creditor can affect the cost of credit. 

For example, for purposes of assessing 

finance charges on unpaid balances, 

some creditors include balances from 

the previous cycle, although some do 

not. Others may include purchases 

made during the current cycle, although 

not all do. 

Q28. How significantly does the 

balance calculation method affect the 

cost of credit given typical account use 

patterns? 

Q29. Do consumers understand that 

different balance calculation methods 

affect the cost of credit, and do they 

understand which balance calculation 

methods are more or less favorable for 

consumers? Would additional 

disclosures at account-opening assist 

consumers and, if so, what type of 

disclosures would be useful? 

Q30. Explanations of balance 

calculation methods are complex and 

may include contractual terms such as 

rounding rules. Precise explanations are 

required on account-opening 

disclosures and on periodic statements. 

Should the Board permit more 

abbreviated descriptions on periodic 

statements, along with a reference to 

where consumers can obtain further 

information about the calculation 

method, such as the credit agreement or 

a toll-free telephone number? 

Disclosing the effects of making only 

minimum payments. Subject to any 

required minimum payment, consumers 

are free to decide each billing period 

how much to pay on outstanding 

balances. The consumer’s payment 

amount each period affects the overall 

cost of credit, and can result in negative 

amortization if the payments are 

insufficient to cover the accrued interest 

charges. Furthermore, if a consumer’s 

account balance exceeds the established 

credit limit and the consumer’s payment 

is not large enough to bring the balance 

below the limit, an over-the-credit-limit 

fee might be assessed even if the 

payment satisfied the minimum amount 

specified by the creditor. 

TILA and Regulation Z do not require 

disclosures associated with payment 

amounts, except to require an advance 

notice when a change in the method of 

calculating the minimum payment will 

increase it. 12 CFR 226.9(c)(1). 

Minimum-payment amounts are set by 

agreement and disclosed in the periodic 

statement at the creditor’s option or 

because of other applicable law. The 

banking agencies, through the Federal 

Financial Institutions Examination 

Council, have provided guidance to card 

issuers on safety-and-soundness issues 

relating to minimum payments, but the 

guidance does not mandate particular 

consumer disclosures. See the Board’s 

Division of Banking Supervision and 

Regulation SR 03–1, Account 

Management and Loss Allowance 

Methodology for Credit Card Lending, 

January 8, 2003. 

In recent years, consumer advocates 

have raised concerns about whether 

consumers understand the effects of 

making only minimum payments on 

their open-end accounts. Provisions in 

certain proposed bankruptcy reform 

bills before Congress would require 

creditors to provide standardized 

examples of the time it would take to 

pay off an assumed balance if the 

consumer makes only the minimum 

payment. See, for example, Sec. 1301 of 

H.R. 975, 108th Congress. The bills 

would allow consumers to obtain an 

estimate of how long it would take to 

pay their actual account balance by 

calling a toll-free telephone number 

established by the creditor. Industry 

representatives note that disclosures 

based on the status of individual 

accounts are burdensome; they also say 

that the disclosure would not be helpful 

to consumers because it would be based 

on an unrealistic assumption that the 

consumer has stopped using the account 

for new extensions of credit. 

Consumer advocates have also 

expressed concerns about open-end 

accounts that are specifically 

established to finance a single purchase 

that is equal to or nearly equal to the 

credit limit, because consumers do not 

receive disclosures about the total 

payment amount and the time it will 

take to repay the debt based on the 

minimum payment. But industry 

representatives have noted that 

requiring separate disclosures at 

account opening in such cases would 

unfairly disadvantage merchants’ credit 

plans because issuers of general purpose 

credit cards would not provide such 

disclosures at the point of sale for an 

identical transaction. 

Q31. Is it appropriate for the Board to 

consider whether Regulation Z should 

be amended to require: (1) Periodic 

statement disclosures about the effects 

of making only the minimum payment 

(such as, disclosing the amortization 

period for their actual account balance 

assuming that the consumer makes only 

the minimum payment, or disclosing 

when making the minimum payment 

will result in a penalty fee for exceeding 

the credit limit); (2) account-opening 

disclosures showing the total of 

payments when the credit plan is 

specifically established to finance 

purchases that are equal or nearly equal 

to the credit limit (assuming only 

minimum payments are made)? Would 

such disclosures benefit consumers? 

Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 70933

Q32. Is information about the 

amortization period for an account 

readily available to creditors based on 

current accounting systems, or would 

new systems need to be developed? 

What would be the costs of 

implementing such a rule? 

Q33. Is there data on the percentage 

of consumers, credit cardholders in 

particular, that regularly or continually 

make only the minimum payments on 

open-end credit plans? 

Payment allocation. Some accounts 

that have multiple features apply 

different periodic rates to particular 

features such as purchases, cash 

advances, and balance transfers. How a 

consumer’s payment is allocated to the 

balance for each feature affects the 

consumer’s cost of credit. For example, 

assume a consumer has a $100 

outstanding balance for purchases 

carrying a 0% promotional APR, and a 

$150 outstanding balance from cash 

advances carrying an 18% APR. If the 

consumer makes a $100 payment, and 

the payment is allocated first to the 

balance carrying the lowest rate (the 

purchase balance), the consumer will 

pay finance charges on $150, the entire 

cash advance balance. Had the creditor 

allocated the consumer’s payment to the 

cash advance, the consumer would 

incur finance charges only on the 

remaining cash advance balance of $50.

A creditor’s method for allocating 

payment may be included in the credit 

contract, but neither TILA nor 

Regulation Z requires a creditor to use 

a particular payment allocation method 

or to disclose the method it uses. 

Indeed, the staff commentary expressly 

indicates that disclosure of the 

allocation of payments is not required. 

Comment 6(a)(3)-2. 

Q34. What are the common methods 

of payment allocation and how much do 

they affect the cost of credit for the 

typical consumer? 

Q35. Do creditors typically disclose 

their allocation methods, and if so, 

how? 

Q36. Is it appropriate for the Board to 

consider whether Regulation Z should 

be amended to require disclosure of the 

payment allocation method on the 

periodic statement? Would such a 

disclosure materially benefit 

consumers? Some creditors offer a low 

promotional rate, such as a 0% APR for 

cash advances for a limited time and a 

higher APR for purchases. Creditors 

typically do not allocate any payments 

to purchases until the entire cash 

advance is paid off. Are additional 

disclosures needed to avoid consumer 

confusion or misunderstanding? What 

would the cost be to creditors of 

providing such a disclosure? What level 

of detail would provide useful 

information while avoiding information 

overload? 

Tolerances 

TILA authorizes the Board to permit 

tolerances for numerical disclosures 

other than the APR. 15 U.S.C. 1631(d). 

Such tolerances are required to be 

narrow enough to prevent the tolerance 

from resulting in misleading disclosures 

or disclosures that circumvent the 

purposes of TILA. 

Q37. What tolerances should the 

Board consider adopting pursuant to 

this provision? Should the Board 

expressly permit an overstatement of the 

finance charge on open-end credit? 

Would that adequately address concerns 

over proper disclosure of fees? How 

narrow should any tolerance be to 

ensure TILA’s goal of uniformity is 

preserved? 

Other Questions Regarding the Content 

of Disclosures 

Q38. In considering changes to the 

disclosures required by Regulation Z, 

the Board seeks data relevant to the 

costs and benefits of the proposed 

revisions. Accordingly, commenters 

proposing revisions to the disclosure 

requirements are requested to provide 

data estimating the cost difference in 

complying with the existing rules 

compared to any proposed alternatives, 

including any one-time costs to 

implement the changes. 

Q39. Are there particular types of 

open-end credit accounts, such as 

subprime or secured credit card 

accounts, that warrant special 

disclosure rules to ensure that 

consumers have adequate information 

about these products? 

Q40. Are there additional issues the 

Board should consider in reviewing the 

content of open-end disclosures? For 

example, in 2000, the Board revised the 

requirements for disclosures that 

accompany credit card applications and 

solicitations. 65 FR 58903, October 3, 

2000. Is the information currently 

provided with credit card applications 

and solicitations adequate and effective 

to assist consumers in deciding whether 

or not to apply for an account?

Q41. Are there classes of transactions 

for which the Board should exercise its 

exemption authority under 15 U.S.C. 

1604(a) to effectuate TILA’s purpose, 

facilitate compliance or prevent 

circumvention or evasion, or under 15 

U.S.C. 1604(f) of TILA because coverage 

does not provide a meaningful benefit to 

consumers in the form of useful 

information or protection? If so, please 

address the factors that the Board is 

required to consider under the statute. 

Q42. Should the Board exercise its 

authority under 15 U.S.C. 1604(g) to 

provide a waiver for certain borrowers 

whose income and assets exceed the 

specified amounts? 

C. Is There a Need To Modify the Rules 

That Implement TILA’s Substantive 

Protections for Open-End Accounts? 

TILA and Regulation Z provide 

protections to consumers who obtain 

open-end credit. Some protections 

apply only to transactions involving 

credit cards; others apply to all 

extensions of credit under an open-end 

plan. Protections involving billing 

disputes generally allow consumers to 

avoid paying the disputed amount while 

the card issuer investigates the matter, 

and prohibit card issuers from assessing 

finance charges on the disputed amount 

or reporting the amount as delinquent 

until the investigation is completed. To 

summarize the rules: 

• Consumers using an open-end 

credit plan may assert a billing error, 

which triggers creditors’ duty to 

investigate the allegation within 

prescribed time limits. A ‘‘billing error’’

includes a periodic statement that 

reflects an extension of credit for 

property or services: (1) Not authorized 

by the consumer; or (2) not accepted by 

the consumer, or not delivered to the 

consumer as agreed (for example, when 

clothing is sent in the wrong size or 

color). A billing error also includes 

creditors’ failure to credit payments or 

to deliver statements to a consumer’s 

address of record. 15 U.S.C. 1666; 12 

CFR 226.13. 

• A cardholder may assert against the 

card issuer a claim or defense for 

defective goods or services purchased 

with a credit card, as to unpaid balances 

for the goods or services, if the merchant 

honoring the card fails to resolve the 

dispute. This right is limited to disputes 

exceeding $50 for purchases made in 

the consumer’s home state or within 100 

miles. 15 U.S.C. 1666i; 12 CFR 

226.12(c). 

• Cardholders’ liability for the 

unauthorized use of a credit card is 

capped at $50. But cardholders have no 

liability for charges made after 

notification is given to the card issuer, 

or charges made when the card itself (or 

other sufficient means of identifying the 

cardholder) is not presented. 15 U.S.C. 

1643; 12 CFR 226.12(b). 

• Credit cards may be issued to 

consumers only upon request. One or 

more credit cards may be issued to 

cardholders in renewal of, or 

substitution for, an accepted card, with 

some conditions. 15 U.S.C. 1642; 12 

CFR 226.12(a). 

70934 Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 

6For convenience checks, the Uniform 

Commercial Code (UCC) provisions governing 

checks apply; under the UCC a consumer generally 

has no liability for a forged check. UCC 4–401, 3–

401.

• Payments received from a consumer 

on an open-end credit plan must be 

posted promptly to the consumer’s 

account. Under Regulation Z, payments 

generally must be credited to a 

consumer’s account as of the date of 

receipt, except when a delay in 

crediting does not result in a finance 

charge or ‘‘other charge’’ being imposed. 

Creditors may specify requirements for 

the consumer to follow in making 

payments. 15 U.S.C. 1666c; 12 CFR 

226.10. 

Q43. The Board solicits comments on 

whether there is a need to revise the 

provisions implementing TILA’s 

substantive protections for open-end 

credit accounts. For example, are the 

existing rules adequate, and if not, why 

not? Are creditors’ responsibilities 

under the rules clear? Do the existing 

rules need to be updated to address 

particular types of accounts or practices, 

or to address technological changes? 

Accessing credit card accounts. TILA 

defines a credit card as ‘‘any card, plate, 

coupon book or other credit device 

existing for the purpose of obtaining 

money, property, labor, or services on 

credit.’’ 15 U.S.C. 1602(k). In addition, 

Regulation Z provides that a credit card 

must be a device ‘‘that may be used 

from time to time to obtain credit.’’12 

CFR 226.2(a)(15). 

It is increasingly common for 

consumers to access their credit card 

plans without presenting the card, for 

example, in making purchases over the 

Internet and by telephone. Credit card 

transactions conducted by telephone or 

Internet receive all of TILA’s 

protections, even though the physical 

device is not presented to the merchant 

when the account number is 

transmitted. 

Q44. Information is requested on 

whether industry has developed, or is 

developing, open-end credit plans that 

allow consumers to conduct 

transactions using only account 

numbers and do not involve the 

issuance of physical devices 

traditionally considered to be credit 

cards. If such plans exist, what policies 

do such creditors have for resolving 

accountholder claims when disputes 

arise? 

‘‘Convenience checks.’’ Credit card 

issuers also provide account-holders 

with ‘‘convenience checks’’ that can be 

used to obtain cash, purchase goods or 

services, or pay the outstanding balance 

on another account. Convenience 

checks are mailed to consumers 

unsolicited, sometimes with consumers’

monthly statements. The amount of 

each check issued by the consumer will 

be billed to the consumers’ credit card 

account. Convenience checks allow 

consumers to use their credit card 

account to finance the purchase of 

goods or services at merchants that do 

not accept credit cards. Anecdotal 

evidence also suggests convenience 

checks are used for large-dollar 

transactions, such as college tuition 

payments. 

Currently, a convenience check is not 

treated as a credit card under Regulation 

Z because it can be used only once and 

not ‘‘from time to time.’’ Although the 

rules for resolving billing errors apply to 

all transactions conducted under an 

open-end plan, including those 

involving convenience checks, TILA’s 

protections regarding merchant 

disputes, unauthorized use of the 

account, and the prohibition against 

unsolicited issuance apply only to 

credit cards and do not cover 

transactions using convenience checks.6

In discussing the issue at the October 

2003 meeting of the Board’s Consumer 

Advisory Council, some members stated 

that Regulation Z’s protections for credit 

cards should be revised to apply to all 

credit extended under a credit card 

account, whether the card itself or 

another device, such as a convenience 

check, is used. They noted that the 

Board could cover convenience checks 

by revising the regulation’s definition of 

a ‘‘credit card’’ for this purpose, to 

eliminate the requirement that the 

device be usable ‘‘from time to time.’’

But others stated that convenience 

checks should not be covered by TILA’s 

protections and should be treated the 

same way as a check drawn on a deposit 

account. 

Q45. Have consumers experienced 

problems with convenience checks 

relating to unauthorized use or 

merchant disputes, for example? Should 

the Board consider extending any of 

TILA’s protections for credit card 

transactions to other extensions on 

credit card accounts and, in particular, 

convenience checks?

Unsolicited issuance of credit cards.

Limitations on issuing unsolicited credit 

cards were added to TILA in 1970 to 

address concerns about theft, 

inconvenience to consumers, and 

consumers’ management of their 

personal finances. TILA generally 

prohibits creditors from issuing credit 

cards except in response to a request or 

application but exempts cards issued as 

renewals or substitutions to replace an 

accepted card. 15 U.S.C. 1642. 

In 2003, Board staff revised the 

commentary to the relevant provision of 

Regulation Z, § 226.12(a), to allow card 

issuers to replace an accepted card with 

more than one card, subject to certain 

conditions. 68 FR 16185, April 3, 2003. 

Based on the revisions, card issuers can, 

for example, issue credit cards using a 

new format or technology to existing 

accountholders, even though the new 

card is intended to supplement rather 

than replace the traditional card. Based 

on the public comments, staff stated it 

planned to recommend that the Board 

consider amending § 226.12(a) to allow 

the unsolicited issuance of additional 

cards on an existing account even when 

the accountholder’s existing card is not 

being replaced, under certain 

conditions. 

Q46. Should the Board consider 

revising Regulation Z to allow creditors 

to issue additional credit cards on an 

existing account at any time, even when 

there is no renewal or substitution of a 

previously issued card? If so, what 

conditions or limitations should apply? 

For example, should the Board require 

that the additional cards be sent 

unactivated? If activation is required, 

should the Board allow issuers to use 

alternative security measures in lieu of 

activation, such as providing advance 

written notice to consumers that 

additional cards will be sent? 

Prompt Crediting of Payments 

Payments received from a consumer 

on an open-end credit plan must be 

credited to the account as of the date the 

payment is received by the creditor. 

Creditors cannot impose a finance 

charge or ‘‘other charge’’ if the creditor 

has received payment in a readily 

identifiable form in the amount, 

manner, location, and time indicated by 

the creditor to avoid the imposition of 

the charge. 12 CFR 226.10(a). Creditors 

may specify requirements for making 

payments such as setting a cut-off hour 

for payment to be received, but the 

requirements must be reasonable and it 

should not be difficult for most 

consumers to make conforming 

payments. Comments 10(b)–1, –2. 

Consumer advocates have raised 

concerns about the reasonableness of 

card issuers’ cut-off hours. They note 

that some creditors’ service centers are 

open 24 hours 7 days a week to receive 

mail delivery and electronic payments 

continuously. In addition, questions 

have arisen concerning creditors’ use of 

third-party payments processors, and 

whether the receipt of payments by the 

third-party is deemed to be receipt by 

the creditor. 

Q47. What are the cut-off hours used 

by most issuers for receiving payments? 

How do issuers determine the cut-off 

hours? 

Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 70935

Q48. Do card issuers’ payment 

instructions and cut-off hours differ 

according to whether the consumer 

makes the payment by check or 

electronic fund transfer, or by using the 

telephone or Internet? What is the 

proportion of consumers who make 

payments by mail as opposed to using 

expedited methods, such as electronic 

payments? 

Q49. Do the existing rules and 

creditors’ current disclosure practices 

clearly inform cardholders of the date 

and time by which card issuers must 

receive payment to avoid additional 

fees? If not, how might disclosure 

requirements be improved?

Q50. Do the operating hours of thirdparty processors differ from those of 

creditors, and if so, how? Do creditors 

treat payments received by a third-party 

processor as if the payment was 

received by the creditor? What 

guidance, if any, is needed concerning 

creditors’ obligation in posting and 

crediting payments when third-party 

processors are used? 

Q51. Should the Board issue a rule 

requiring creditors to credit payments as 

of the date they are received, regardless 

of the time? 

VI. Request for Comment on Additional 

Issues 

In addition to responding to the 

Board’s request for comments on the 

open-end credit issues identified above, 

the Board invites the public to discuss 

other ways that Regulation Z might be 

improved and to provide specific 

suggestions for implementing those 

changes, including: 

Q52. Providing guidance not expressly 

addressed in existing rules. Board staff 

is asked to provide informal oral advice 

on an ongoing basis about how Truth in 

Lending rules may apply to new 

products and circumstances not 

expressly addressed in Regulation Z and 

its official staff commentary. The Board 

invites the public to identify issues 

where they believe staff’s informal 

advice should be formalized or 

addressed anew. Should such changes 

be adopted after notice and public 

comment, they would apply 

prospectively and compliance would 

become mandatory after an appropriate 

implementation period. 

Q53. Adjusting exceptions based on 

de minimis amounts. To facilitate 

compliance, the Board has provided a 

number of exceptions based on de 

minimis dollar amounts. For example, 

TILA’s open-end rules require creditors 

to transmit periodic statements at the 

end of billing cycles in which there is 

an outstanding balance or a finance 

charge is imposed; the regulation 

relieves creditors of that duty if the 

outstanding debit or credit balance is $1 

or less (and no finance charge is 

imposed). 15 U.S.C. 1637(b); 12 CFR 

226.5(b)(2)(i). Similarly, the Board 

provides for a simplified way to 

calculate the effective APR on periodic 

statements when a minimum finance 

charge is assessed and is 50 cents or 

less. 12 CFR 226.14(c)(4). Should de 

minimis amounts such as these be 

adjusted, and if so, to what extent? 

Q54. Improving plain language and 

organization; identifying technical 

revisions. The Board is required to use 

‘‘plain language’’ in all proposed and 

final rules published after January 1, 

2000. 12 U.S.C. 4809. The Board invites 

comments on whether the existing rules 

are clearly stated and effectively 

organized, and how, in the upcoming 

review of Regulation Z, the Board might 

consider making the text of Regulation 

Z and its official staff commentary 

easier to understand. Are there technical 

revisions to the regulation or 

commentary that should be addressed? 

Q55. Deleting obsolete rules or 

guidance. A goal of the Regulation Z 

review is to delete provisions that have 

become obsolete due to technological or 

other developments. Are there any such 

provisions? 

Q56. Recommendations for legislative 

changes. Are there any legislative 

changes to TILA the Board should 

consider recommending to the 

Congress? For example, where a rule is 

based on a dollar amount established by 

the statute, the Board seeks comment on 

whether to recommend adjustments of 

those dollar amounts to the Congress, 

and if so, the amount of such 

adjustments.

Q57. Recommendations for 

nonregulatory approaches. In addition 

to requesting comment on suggestions 

for regulatory or statutory changes, the 

Board seeks comment on nonregulatory 

approaches that may further the Board’s 

goal of improving the effectiveness of 

TILA’s disclosures and substantive 

protections. Such approaches could 

include guidance in the form of best 

practices or consumer education efforts. 

For example, calculation tools are 

widely available on the Internet. How 

might the availability of those tools be 

used to address concerns that 

consumers need better information 

about the effects of making only 

minimum payments on their account? 

Are there any data that indicate the 

extent to which consumers access 

calculation tools that are publicly 

available? 

Q58. Reviewing other aspects of 

Regulation Z. Although the Board is 

proposing to focus the review primarily 

on the rules for open-end credit, are 

there other areas or particular sections 

of Regulation Z that should be included 

in this initial stage of the review? For 

example: 

(a) Definitions and rules of 

construction. Are changes needed to the 

definitions or rules of construction in 

§ 226.2 of the regulation? Unless defined 

in the regulation, terms have the 

meaning given to them by state law or 

contract. Are there specific terms that 

are not defined in Regulation Z that 

should be? For example, the Board’s 

staff has received questions about 

§ 226.20, which generally requires 

creditors to provide new TILA 

disclosures when a closed-end loan is 

refinanced. Under the regulation and 

staff commentary, a ‘‘refinancing’’ is 

generally deemed to occur when an 

existing obligation has been satisfied 

and replaced by a new obligation, 

‘‘based on the parties’’ contract and 

applicable law.’’ See Comment 20(a)–1. 

Concerns have been raised about the 

current approach, and whether it results 

in uniform application of Regulation Z 

because different states are free to draw 

different conclusions about when a 

particular set of circumstances 

constitutes a ‘‘satisfaction and 

replacement.’’ Courts may take a caseby-case approach to ascertain the 

parties’ intent before deciding whether 

a new promissory note satisfied and 

replaced the original note, or whether 

the new note merely ‘‘relates back’’ to 

the original note that is not deemed to 

be extinguished. The issue raised is 

whether the Board should consider 

adopting a definition of ‘‘refinancing’’

that does not rely on state law and seeks 

to create a more uniform approach in 

determining when new disclosures are 

required. 

(b) Exempt transactions. Section 

226.3 of Regulation Z implements the 

provisions of 15 U.S.C. 1603, which 

specifies classes of transactions not 

covered by TILA. Do rules 

implementing 15 U.S.C. 1603 need to be 

updated? 

VII. Plans for Reviewing Other Areas 

Although the focus of this ANPR is 

TILA and Regulation Z’s rules for openend credit not secured by a home, the 

Board has the following plans for 

reviewing other areas of Regulation Z: 

• Predatory mortgage lending. Issues 

related to predatory mortgage lending 

will be examined in public hearings 

held pursuant to the Home Ownership 

and Equity Protection Act (HOEPA), 

which amended TILA in 1994. HOEPA 

uses rate and fee triggers to identify a 

class of high-cost closed-end mortgage 

loans, and it provides consumers 

70936 Federal Register / Vol. 69, No. 235 / Wednesday, December 8, 2004 / Proposed Rules 

entering into these transactions with 

additional disclosures and special 

protections. HOEPA requires that the 

Board periodically hold public hearings 

on home-equity lending and the 

adequacy of protections under HOEPA. 

After holding hearings in 2000, the 

Board amended the rules implementing 

HOEPA, which became effective on 

October 1, 2002. Board staff plans to ask 

the Board to consider holding further 

hearings under HOEPA during 2006. 

• Closed-end mortgage credit. From 

1996 to 1998, the Board and HUD 

studied possible regulatory changes to 

TILA and the Real Estate Settlement 

Procedures Act (RESPA) to improve 

mortgage-related disclosures. The Board 

concluded that meaningful changes to 

the disclosures required legislative 

action. The Board and HUD submitted 

a joint report to the Congress outlining 

a framework that could be used as a 

starting point for considering legislative 

changes. Although legislation has not 

been enacted, in 2002 HUD commenced 

a rulemaking that sought to adopt many 

of the changes recommended in the 

Board-HUD joint report. HUD’s proposal 

was not finalized, and HUD has 

announced that it will issue a revised 

proposal for public comment in the near 

future. The Board believes that 

significant changes to mortgage 

disclosures under TILA would best be 

considered in connection with HUD’s 

future rulemaking. 

• Home-equity lines of credit and 

adjustable-rate mortgage loans. Staff 

plans to initiate a separate review, in 

2005, of Regulation Z’s rules requiring 

brochures and generic disclosures when 

consumers obtain applications for 

closed-end adjustable-rate mortgages 

(ARMs) and open-end home-equity lines 

of credit (HELOCs). The issues to be 

considered deal mainly with variablerate mortgage lending, which are 

distinct from issues affecting general 

open-end credit rules. The ARM rules 

would be reviewed in consultation with 

the other federal agencies. Because the 

HELOC and ARM rules are similar, 

these rules are best reviewed 

simultaneously to maximize 

consistency.

By order of the Board of Governors of the 

Federal Reserve System.

Dated: December 3, 2004. 

Jennifer J. Johnson, 

Secretary of the Board.

[FR Doc. 04–26935 Filed 12–7–04; 8:45 am] 

BILLING CODE 6210–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration 

14 CFR Part 39

[Docket No. FAA–2004–19812; Directorate 

Identifier 2003–NM–197–AD] 

RIN 2120–AA64

Airworthiness Directives; Boeing 

Model 747–100, –100B, –100B SUD, 

–200B, –200C, –200F, and –300 Series 

Airplanes; and Model 747SP and 

747SR Series Airplanes; Equipped 

With Pratt and Whitney Model JT9D–3 

or –7 (except –70) Series Engines

AGENCY: Federal Aviation 

Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: The FAA proposes to adopt a 

new airworthiness directive (AD) for 

certain Boeing transport category 

airplanes. This proposed AD would 

require repetitive detailed inspections to 

detect cracking of the aft and forward 

surfaces of the bulkhead web at nacelle 

station 180, and repair if necessary. This 

proposed AD is prompted by reports of 

cracking of the web bulkhead at nacelle 

station 180. We are proposing this AD 

to detect and correct fatigue cracking of 

the web bulkhead, and consequent loss 

of the load path of the bulkhead at 

nacelle station 180, which when 

combined with the loss of the midspar 

load path, could result in the in-flight 

separation of the engine and strut. Such 

separation may result in secondary 

damage to the airplane and consequent 

reduced controllability of the airplane.

DATES: We must receive comments on 

this proposed AD by January 24, 2005.

ADDRESSES: Use one of the following 

addresses to submit comments on this 

proposed AD. 

• DOT Docket Web site: Go to

http://dms.dot.gov and follow the 

instructions for sending your comments 

electronically. 

• Government-wide rulemaking Web 

site: Go to http://www.regulations.gov

and follow the instructions for sending 

your comments electronically. 

• Mail: Docket Management Facility, 

U.S. Department of Transportation, 400 

Seventh Street, SW., Nassif Building, 

room PL–401, Washington, DC 20590. 

• By fax: (202) 493–2251. 

• Hand Delivery: Room PL–401 on 

the plaza level of the Nassif Building, 

400 Seventh Street, SW., Washington, 

DC, between 9 a.m. and 5 p.m., Monday 

through Friday, except Federal holidays. 

For service information identified in 

this proposed AD, contact Boeing 

Commercial Airplanes, P.O. Box 3707, 

Seattle, Washington 98124–2207. 

You can examine the contents of this 

AD docket on the Internet at http://

dms.dot.gov, or in person at the Docket 

Management Facility, U.S. Department 

of Transportation, 400 Seventh Street, 

SW., room PL–401, on the plaza level of 

the Nassif Building, Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Technical information: Tamara 

Anderson, Aerospace Engineer, 

Airframe Branch, ANM–120S, FAA, 

Seattle Aircraft Certification Office, 

1601 Lind Avenue, SW., Renton, 

Washington 98055–4056; telephone 

(425) 917–6421; fax (425) 917–6590. 

Plain language information: Marcia 

Walters, marcia.walters@faa.gov.

SUPPLEMENTARY INFORMATION: 

Docket Management System (DMS) 

The FAA has implemented new 

procedures for maintaining AD dockets 

electronically. As of May 17, 2004, new 

AD actions are posted on DMS and 

assigned a docket number. We track 

each action and assign a corresponding 

directorate identifier. The DMS AD 

docket number is in the form ‘‘Docket 

No. FAA–2004–99999.’’ The Transport 

Airplane Directorate identifier is in the 

form ‘‘Directorate Identifier 2004–NM–

999–AD.’’ Each DMS AD docket also 

lists the directorate identifier (‘‘Old 

Docket Number’’) as a cross-reference 

for searching purposes. 

Comments Invited 

We invite you to submit any relevant 

written data, views, or arguments 

regarding this proposed AD. Send your 

comments to an address listed under 

ADDRESSES. Include ‘‘Docket No. FAA–

2004–19812; Directorate Identifier 

2003–NM–197–AD’’ in the subject line 

of your comments. We specifically 

invite comments on the overall 

regulatory, economic, environmental, 

and energy aspects of the proposed AD. 

We will consider all comments 

submitted by the closing date and may 

amend the proposed AD in light of those 

comments. 

We will post all comments we 

receive, without change, to http://

dms.dot.gov, including any personal 

information you provide. We will also 

post a report summarizing each 

substantive verbal contact with FAA 

personnel concerning this proposed AD. 

Using the search function of that Web 

site, anyone can find and read the 

comments in any of our dockets, 

including the name of the individual 

who sent the comment (or signed the 

comment on behalf of an association, 

business, labor union, etc.). You can