43428 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Regulation Z; Docket No. R–1367] 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Proposed rule; request for 

public comment. 

SUMMARY: The Board proposes to amend 

Regulation Z, which implements the 

Truth in Lending Act (TILA), and the 

Official Staff Commentary to the 

regulation, following a comprehensive 

review of TILA’s rules for open-end 

home-secured credit, or home-equity 

lines of credit (HELOCs). 

The Board proposes changes to the 

format, timing, and content 

requirements for the four main types of 

HELOC disclosures required by 

Regulation Z: disclosures at application; 

disclosures at account opening; periodic 

statements; and change-in-terms notices. 

The Board proposes to replace 

disclosures required at the time that a 

consumer applies for a HELOC with a 

one-page, Board-published summary of 

basic information and risks regarding 

HELOCs. The Board also proposes to 

move the timing of disclosures 

regarding a creditor’s HELOC plan from 

the time of application to within three 

business days after application, and to 

require the disclosures to include 

significant transaction-specific rates and 

terms. 

The Board also proposes to provide 

additional guidance on when a creditor 

may temporarily suspend advances on a 

HELOC or reduce the credit limit, and 

what a creditor’s obligations are 

concerning reinstating such accounts. In 

addition, the proposal would limit the 

ability of a creditor to terminate a 

HELOC for payment-related reasons; a 

creditor could do so only if the 

consumer failed to make a required 

minimum payment more than 30 days 

after the due date for that payment. 

Changes to disclosure requirements 

related to suspension of HELOC 

advances, reduction of the credit limit, 

and account terminations are also 

proposed. 

DATES: Comments must be received on 

or before December 24, 2009. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1367, 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. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/

foia/ProposedRegs.cfm as submitted, 

unless modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. Public comments 

may also be viewed electronically or in 

paper 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: 

Lorna M. Neill, Attorney; John Wood or 

Krista Ayoub, Counsel; or Jelena 

McWilliams, Attorney, 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: The Board 

proposes changes to the format, timing, 

and content requirements for the four 

main types of home equity line of credit 

(HELOC) disclosures required by 

Regulation Z: (1) Disclosures at 

application; (2) disclosures at account 

opening; (3) periodic statements; and (4) 

change-in-terms notices. The Board 

proposes to replace disclosures required 

at the time that a consumer applies for 

a HELOC with a one-page, Boardpublished summary of basic information 

and risks regarding HELOCs. The Board 

also proposes to move the timing of 

disclosures regarding a creditor’s 

HELOC plan from the time of 

application to within three business 

days after application, and to require the 

disclosures to include significant 

transaction-specific rates and terms. At 

the time of account opening, the 

creditor would be required to provide a 

disclosure with formatting similar to 

that provided within three business 

days after application, but with certain 

changes such as additional information 

regarding fees. Formatting and other 

changes are proposed for the periodic 

statement, such as elimination of the 

requirement to disclose the effective 

annual percentage rate (APR) and a 

requirement to disclose the total of 

interest and fees for both the period and 

the year to date. HELOC creditors would 

be required to give consumers notice of 

a change in a HELOC term at least 45 

days in advance of the effective date of 

the change. 

The Board also proposes to provide 

additional guidance on when a creditor 

may temporarily suspend advances on a 

HELOC or reduce the credit limit, and 

what a creditor’s obligations are 

concerning reinstating such accounts. In 

addition, the proposal would limit the 

ability of a creditor to terminate a 

HELOC for payment-related reasons; a 

creditor could do so only if the 

consumer failed to make a required 

minimum payment more than 30 days 

after the due date for that payment. 

Changes to disclosure requirements 

related to suspension of HELOC 

advances, reduction of the credit limit, 

and account terminations are also 

proposed. 

I. Background 

A. TILA and Regulation Z 

Congress enacted TILA based on 

findings that economic stability would 

be enhanced and competition among 

consumer credit providers strengthened 

by the informed use of credit resulting 

from consumers’ awareness of the cost 

of credit. The purposes of TILA are (1) 

to provide meaningful disclosure of 

credit terms to enable consumers to 

compare 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. 

TILA’s disclosures differ depending 

on whether consumer credit is an openend (revolving) plan or a closed-end 

(installment) loan. TILA also contains 

procedural and substantive protections 

for consumers. TILA is implemented by 

the Board’s Regulation Z. An Official 

Staff Commentary interprets the 

requirements of Regulation Z. By 

statute, creditors that follow in good 

faith Board or official staff 

interpretations are insulated from civil 

liability, criminal penalties, or 

administrative sanction. 

B. TILA and Regulation Z Provisions on 

Open-end Credit Secured by a 

Consumer’s Dwelling 

In 1989, the Board revised Regulation 

Z to implement the Home Equity Loan 

Consumer Protection Act of 1988 (Home 

Equity Loan Act) (Pub. L. 100–709, 

enacted on Nov. 23, 1988). See 15 U.S.C. 

1637a, 1647, implemented by 54 FR 

24670 (June 9, 1989) (1989 HELOC Final 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43429 

1 Glenn Canner, Charles Luckett, and Thomas 

Durken, ‘‘Home Equity Lending,’’ Federal Reserve 

Bulletin (May 1989). 2Brian Bucks, Arthur Kennickell, Traci Mach, 

Kevin Moore, ‘‘Changes in U.S. Family Finances 

from 2004 to 2007: Evidence from the Survey of 

Consumer Finances,’’ Federal Reserve Bulletin (Feb. 

2009) and accompanying tables at http:// 

www.federalreserve.gov/Pubs/OSS/oss2/2007/ 

scf2007home.html. 

3 Id. 

4 Glenn Canner, Charles Luckett, and Thomas 

Durken, ‘‘Recent Developments in Home Equity 

Lending,’’ Federal Reserve Bulletin (April 1998); 

see also Brian Bucks, Arthur Kennickell, Traci 

Mach, Kevin Moore, ‘‘Changes in U.S. Family 

Finances from 2004 to 2007: Evidence from the 

Survey of Consumer Finances,’’ Federal Reserve 

Bulletin (Feb. 2009) and accompanying tables at 

http://www.federalreserve.gov/Pubs/OSS/oss2/ 

2007/scf2007home.html. 

5 Id. 

6Supra note 2. 

7 Id. 

8 Id. 

9 Id. 

Rule). The 1989 revisions required 

creditors to disclose extensive 

information about HELOCs to 

consumers at the time of application 

and again when consumers open a 

HELOC plan. They also imposed 

substantive limitations on HELOC 

creditors—principally by prohibiting 

changing the interest rate and other 

terms except under very limited 

circumstances. Since 1989, the Board 

has revised the HELOC provisions in the 

regulation and staff commentary from 

time to time as necessary, although the 

disclosure requirements and substantive 

limitations have remained substantially 

the same. See, e.g., 56 FR 13751 (April 

4, 1991); 60 FR 15463 (March 24, 1995); 

63 FR 16669 (April 6, 1998); 66 FR 

17329 (March 30, 2001); 72 FR 63462 

(November 9, 2007). 

In January 2009, the Board published 

final rules regarding open-end (not 

home-secured) credit (74 FR 5244 

(January 29, 2009)) (January 2009 

Regulation Z Rule), which were the 

result of the Board’s comprehensive 

review of Regulation Z’s open-end (not 

home-secured) credit rules. At that time, 

the Board indicated that it was also 

reviewing open-end home-secured 

credit rules. This proposal reflects the 

Board’s review of all aspects of 

Regulation Z and accompanying Official 

Staff Commentary related to open-end 

home-secured credit, or HELOCs. The 

Board is not at this time, however, 

specifically addressing issues related to 

rescinding HELOCs, and requests 

comment in the proposal on any needed 

changes to Regulation Z provisions and 

commentary regarding reverse 

mortgages. 

C. HELOC Market Trends 

Board and other research has tracked 

a number of changes in the HELOC 

market since 1989. One important trend 

is that HELOCs have become much 

more popular with consumers: in 1988, 

5.6% of homeowners had HELOCs; 1 in 

1998, 10.6% of homeowners had 

HELOCs; and by 2007, the percentage of 

homeowners with HELOCs had jumped 

to 18.4%.2 A number of factors may 

have contributed to this trend, such as 

low interest rates compared with other 

forms of consumer credit, appreciation 

in home values, the deductibility of 

interest payments on mortgage debt, and 

changes in mortgage practices.3 The 

uses of HELOCs have remained 

relatively constant, with the highest 

uses in the areas of home improvement 

and debt consolidation.4 Beginning in 

the late 1990s, consumers increased 

their use of HELOCs for expenses such 

as vehicle purchases, education, and 

vacations.5 Many HELOC consumers 

today, as in the past, use their lines as 

an emergency source of funds.6

As home prices rose in the past 

decade, more creditors entered the 

HELOC market and creditors became 

more willing to extend HELOCs to 

consumers with little equity in their 

homes.7 When the Board published the 

1989 HELOC Final Rule, it was 

commonly expected that most HELOC 

borrowers would, at their maximum 

credit line limit, retain around 20 

percent of their home equity. See 

comment 5b(f)(3)(vi)–6. By the mid2000s, more creditors were willing to 

lend HELOCs at a combined loan-tovalue ratio of 100 percent or more, and, 

despite home value appreciation, the 

overall percentage of equity remaining 

in homes was appreciably lower than in 

earlier years.8 The Board’s Survey of 

Consumer Finances indicates that the 

average outstanding dollar amount of a 

HELOC grew from $24,000 in 1998 to 

$39,000 in 2007.9

The recent economic downturn, a 

central component of which has been 

declining property values, has 

dampened the availability of HELOCs 

and reversed some of the overall trends 

in the HELOC market. The Board 

believes, however, that a resurgence of 

these trends may occur once property 

values stabilize. The Board expects that 

factors such as the flexibility HELOC 

borrowers have to draw on a line as 

needed and the tax deductibility of 

interest on home-secured debt should 

continue to make HELOCs appealing to 

consumers over the long term. 

Finally, in response to the economic 

challenges of the last few years, 

creditors have relied more than in the 

past on provisions in Regulation Z that 

allow them to terminate HELOC plans, 

suspend advances on lines, and reduce 

the credit limit. As a result, many 

questions regarding the requirements 

and limitations of these provisions have 

been raised with the Board. 

II. Summary of Major Proposed 

Changes 

The Board proposes content, format, 

and timing changes to the four main 

types of HELOC disclosures governed by 

Regulation Z: (1) Disclosures at 

application; (2) disclosures at account 

opening; (3) periodic statements; and (4) 

change-in-terms notices. The proposal 

also provides additional guidance and 

protections, as well as revised 

disclosure requirements, related to 

account terminations, line suspensions 

and credit limit reductions, and 

reinstatement of accounts. 

Disclosures at Application. Format, 

timing, and content changes are 

proposed to make the disclosures 

currently required at application more 

meaningful and easy for consumers to 

use. The proposed changes include: 

• Eliminating the requirement to 

provide a multiple-page disclosure of 

generic rates and terms of the creditor’s 

HELOC products, as well as the 

requirement to provide the Boardpublished brochure explaining HELOC 

products and risks entitled, ‘‘What You 

Should Know about Home Equity Lines 

of Credit.’’ (HELOC brochure) 

• Requiring creditors to provide a 

new one-page Board publication 

summarizing basic information and 

risks regarding HELOCs entitled, ‘‘Key 

Questions to Ask about Home Equity 

Lines of Credit.’’ 

• Replacing the application 

disclosure of generic rates and terms 

with a transaction-specific disclosure 

that must be given within three days 

after application. This disclosure 

would: 

• Provide information about rates and 

fees, payments, and risks in a tabular 

format. 

• Highlight whether the consumer 

will be responsible for a balloon 

payment. 

• Present payment examples based on 

both the current rate available and the 

maximum possible rate for the HELOC. 

Disclosures at Account Opening. The 

proposal would retain the existing 

requirement to provide consumers with 

transaction-specific information about 

rates, terms, payments, and risks at the 

time of account opening. To facilitate 

comparison between terms provided 

within three business days after 

application and terms available at 

account-opening, the proposal would 

prescribe formatting for this information 

similar to that of the proposed 


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43430 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

10The review was initiated pursuant to 

requirements of section 303 of the Riegle 

Community Development and Regulatory 

Improvement Act of 1994, section 610(c) of the 

Regulatory Flexibility Act of 1980, and section 2222 

of the Economic Growth and Regulatory Paperwork 

Reduction Act of 1996. An announced notice of 

proposed rulemaking is published to obtain 

preliminary information prior to issuing a proposed 

rule or, in some cases, deciding whether to issue a 

proposed rule. 

disclosure to be provided within three 

business days after application. 

Periodic Statements. To make 

disclosures on periodic statements more 

understandable, the proposal would 

revise the format and content of the 

periodic statement for HELOCs, largely 

conforming to the periodic statement 

provisions finalized in the January 2009 

Regulation Z Rule for credit cards. The 

proposed changes include: 

• Eliminating the disclosure of the 

effective APR. 

• Grouping fees and interest charges 

separately, and requiring disclosure of 

separate totals of interest and fees for 

both the period and the year to date. 

Change-in-Terms Notices. The 

proposal would revise the format and 

content of the change-in-terms notice, 

largely conforming to the change-interms provisions finalized in the 

January 2009 Regulation Z Rule. To 

improve consumer protection, proposed 

changes include: 

• Expanding the circumstances under 

which advance written notice of a rate 

change is required. 

• Increasing advance notice of a 

change in a HELOC term from 15 to 45 

days in advance of the effective date of 

the change. 

Account Terminations. The proposal 

would prohibit creditors from 

terminating an account for paymentrelated reasons until the consumer has 

failed to make a required minimum 

periodic payment more than 30 days 

after the due date for that payment. The 

Board is requesting comment on 

whether a delinquency threshold of 

more than 30 days or some other time 

period is appropriate. 

Suspensions and Credit Limit 

Reductions. The proposal contains a 

number of additional consumer 

protections related to temporary 

suspensions of advances and credit 

limit reductions. The proposed changes 

include: 

• Establishing a new safe harbor for 

suspending or reducing a line of credit 

based on a ‘‘significant’’ decline in 

property value. For HELOCs with a 

combined loan-to-value ratio at 

origination of 90 percent or higher, a 

five percent decline in the property 

value would be ‘‘significant.’’ 

• Providing additional guidance 

regarding the information on which a 

creditor may rely to take action based on 

a material change in the consumer’s 

financial circumstances, such as the 

type of credit report information that 

would be appropriate to consider. 

Reinstatement of Accounts. The 

proposal contains additional 

requirements regarding reinstating 

accounts that have been temporarily 

suspended or reduced. The proposed 

changes include: 

• Requiring additional information in 

notices of suspension or reduction about 

consumers’ ongoing right to request 

reinstatement and creditors’ obligation 

to investigate this request. 

• Requiring creditors to complete an 

investigation of a request for 

reinstatement within 30 days of 

receiving a request for reinstatement 

and to give a notice of the investigation 

results to consumers whose lines will 

not be reinstated. 

III. The Board’s Review of Open-End 

Credit Rules 

A. Advance Notices of Proposed 

Rulemakings 

December 2004 ANPR. The Board’s 

current review of Regulation Z’s openend credit rules was initiated in 

December 2004 with an advance notice 

of proposed rulemaking.10 69 FR 70925 

(December 8, 2004). At that time, the 

Board announced its intent to conduct 

its review of Regulation Z in stages, 

focusing first on the rules for open-end 

(revolving) credit accounts that are not 

home-secured, chiefly general-purpose 

credit cards and retailer credit card 

plans. The December 2004 ANPR sought 

public comment on a variety of specific 

issues relating to three broad categories: 

the format of open-end credit 

disclosures, the content of those 

disclosures, and the substantive 

protections provided for open-end 

credit under the regulation. The 

December 2004 ANPR solicited 

comment on the scope of the Board’s 

review, and also requested commenters 

to identify other issues that the Board 

should address in the review. 

October 2005 ANPR. The Bankruptcy 

Abuse Prevention and Consumer 

Protection Act of 2005, Public Law 109– 

8, enacted on April 20, 2005 (the 

Bankruptcy Act) primarily amended the 

federal bankruptcy code, but also 

contained several provisions amending 

TILA. The Bankruptcy Act’s TILA 

amendments principally deal with 

open-end credit accounts and require 

new disclosures on periodic statements, 

on credit card applications and 

solicitations, and in advertisements. 

In October 2005, the Board published 

a second ANPR to solicit comment on 

implementing the Bankruptcy Act 

amendments (October 2005 ANPR). 70 

FR 60235, October 17, 2005. In the 

October 2005 ANPR, the Board stated its 

intent to implement the Bankruptcy Act 

amendments as part of the Board’s 

ongoing review of Regulation Z’s openend credit rules. 

B. Notices of Proposed Rulemakings 

June 2007 Proposal. The Board 

published proposed amendments to 

Regulation Z’s rules for open-end plans 

that are not home-secured in June 2007. 

72 FR 32948 (June 14, 2007). The goal 

of the proposed amendments was to 

improve the effectiveness of the 

disclosures that creditors provide to 

consumers at application and 

throughout the life of an open-end (not 

home-secured) account. In developing 

the proposal, the Board conducted 

consumer research, in addition to 

considering comments received on the 

two ANPRs. Specifically, the Board 

retained a research and consulting firm 

(ICF Macro) to assist the Board in using 

consumer testing to develop proposed 

model forms. The proposal would have 

made changes to format, timing, and 

content requirements for the five main 

types of open-end credit disclosures 

governed by Regulation Z: (1) Credit and 

charge card application and solicitation 

disclosures; (2) account-opening 

disclosures; (3) periodic statement 

disclosures; (4) change-in-terms notices; 

and (5) advertising provisions. 

May 2008 Proposal. In May 2008, the 

Board published revisions to several 

disclosures in the June 2007 Proposal 

(May 2008 Proposal). 73 FR 28866 (May 

19, 2008). In developing these revisions 

the Board conducted additional 

consumer testing in consultation with 

ICF Macro. In addition, the May 2008 

Proposal contained proposed 

amendments to Regulation Z that 

complemented a proposal published by 

the Board, along with the Office of 

Thrift Supervision and the National 

Credit Union Administration, to adopt 

rules prohibiting specific unfair acts or 

practices regarding credit card accounts 

under their authority under the Federal 

Trade Commission Act. See 15 U.S.C. 

57a(f)(1). 73 FR 28904 (May 19, 2008). 

May 2009 Proposal. In May 2009, the 

Board issued proposals to clarify 

provisions of the January 2009 Final 

Rule (see below). 74 FR 20784 (May 5, 

2009). Along with other federal banking 

agencies, the Board also issued 

proposals to clarify provisions of the 

January 2009 UDAP Final Rule (see 

below). 74 FR 20804 (May 5, 2009). 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43431 

C. Final Rulemakings 

January 2009 Final Rule. In January 

2009, the Board issued final rules for 

open-end credit that is not homesecured (i.e., the January 2009 

Regulation Z Rule). The goal of the 

amendments to Regulation Z was to 

improve the effectiveness of the 

disclosures that creditors provide to 

consumers at application and 

throughout the life of an open-end (not 

home-secured) account. The Board 

adopted changes to format, timing, and 

content requirements for the five main 

types of open-end credit disclosures 

governed by Regulation Z: (1) Credit and 

charge card application and solicitation 

disclosures; (2) account-opening 

disclosures; (3) periodic statement 

disclosures; (4) change-in-terms notices; 

and (5) advertising provisions. Certain 

additional protections for consumers 

were adopted as well. 

January 2009 UDAP Final Rule. In 

January 2009, the Board and other 

federal banking agencies jointly issued 

rules to prohibit institutions from 

engaging in certain acts or practices 

regarding consumer credit card 

accounts. 74 FR 5498 (January 29, 2009). 

D. Consumer Testing 

A principal goal for the Regulation Z 

review is to produce revised and 

improved disclosures that consumers 

will be more likely to understand and 

use in their decisions, while at the same 

time not creating undue burdens for 

creditors. Currently, Regulation Z 

requires HELOC creditors to provide 

generic disclosures regarding various 

terms and features of the creditor’s 

HELOC plans at application, along with 

a lengthy, Board-published brochure 

explaining HELOC products. The 

creditor does not have to provide a 

transaction-specific disclosure for 

HELOCs until the consumer opens the 

account. During the life of the plan, the 

creditor is required to provide periodic 

statements and change-in-terms notices 

as applicable. 

In 2007, the Board retained ICF 

Macro, a research and consulting firm 

that specializes in designing and testing 

documents to conduct consumer testing 

to help the Board’s review of Regulation 

Z’s disclosures. Beginning in the fall of 

2008, ICF Macro worked closely with 

the Board to conduct several tests on 

HELOC disclosures in different cities 

throughout the United States. The 

HELOC testing consisted of five rounds 

of one-on-one cognitive interviews. The 

goals of these interviews were to learn 

more about what information consumers 

read when they receive HELOC 

disclosures, to research how easily 

consumers can find various pieces of 

information in these disclosures, and to 

test consumers’ understanding of certain 

HELOC-related words and phrases. 

Some of the key methods and findings 

of the consumer testing are summarized 

below. ICF Macro also issued a report of 

the results of the testing for HELOCs, 

which is available on the Board’s public 

Web site: http://www.federalreserve.gov. 

Development and testing of 

Regulation Z disclosures. The Board 

worked with ICF Macro to develop and 

test several types of disclosures, 

including: 

• A Board publication to be provided 

at application, entitled ‘‘Key Questions 

to Ask about Home Equity Lines of 

Credit’’; 

• A transaction-specific TILA 

disclosure to be provided within three 

business days of application, but no 

later than at account-opening; and 

• A transaction-specific TILA 

disclosure to be provided at the time the 

consumer opens the account. 

The Board revised two additional 

HELOC disclosures: a periodic 

statement and a change-in-terms notice 

that must be provided after account 

opening as applicable. The Board 

intends to test these two disclosures 

during the comment period. In addition, 

the Board developed model clauses for 

proposed notices required in connection 

with terminating, suspending or 

reducing a HELOC, as well as 

reinstating suspended or reduced 

HELOCS, and may test these clauses 

during the comment period. 

Testing. The primary goal of the 

Board’s consumer testing was to 

develop clear and conspicuous model 

HELOC disclosure forms that would 

enable borrowers easily to identify 

material terms of the plan and to 

compare such terms among various 

plans in order to make informed 

decisions about HELOCs. The Board 

also wanted to gain a better 

understanding of what information 

consumers need to receive early in the 

process when shopping for HELOCs, 

when such information should be 

provided, what form it should take, and 

how it can be integrated into the overall 

shopping process to facilitate informed 

consumer decision-making regarding 

HELOCs. 

Beginning in the fall of 2008, five 

rounds of one-on-one cognitive 

interviews with a total of 50 participants 

were conducted in different cities 

throughout the United States. The 

consumer testing groups comprised 

participants representing a range of 

ethnicities, ages, educational levels, and 

levels of experience with home equity 

borrowing. Each round of testing 

involved testing a set of model 

disclosure forms, including currently 

required disclosures described above. 

Interview participants were asked to 

review model forms and provide their 

reactions, and were then asked a series 

of questions designed to test their 

understanding of the content. Data were 

collected on which elements and 

features of each form were most 

successful in providing information 

clearly and effectively. The findings 

from each round of interviews were 

incorporated in revisions to the model 

forms for the following round of testing. 

Cognitive interviews on existing 

disclosures. Participants in the first two 

rounds of testing were shown an 

application disclosure based on a 

sample disclosure conforming to the 

existing HELOC application disclosure 

samples in Appendix G of Regulation Z 

and currently used by a financial 

institution. This form provided required 

information in a mostly narrative 

format. The goals of these interviews 

were to learn more about what 

information consumers read when they 

receive current disclosures; to research 

how easily consumers can find various 

pieces of information in these 

disclosures; and to test consumers’ 

understanding of certain HELOC-related 

words and phrases. 

Participants found this form difficult 

to read and understand, and their 

responses to follow-up questions 

showed that it was also difficult for 

them to identify information in the text. 

For example, several participants in the 

first two rounds of testing became 

confused when reviewing the 

application disclosure because they 

could not find their interest rate, and 

were surprised when told that the rate 

was not on the form. Other participants 

incorrectly assumed that one of the rates 

shown in a payment example on the 

application disclosure was being offered 

to them, when in fact that rate was used 

for illustrative purposes. When the same 

information was presented in a tabular 

format, participants commented that the 

information was easier to understand 

and had more success answering 

comprehension questions. As a result, 

after the second round of testing, the 

decision was made to use a tabular 

format for all model disclosure forms. 

1. Initial design of disclosures for 

testing. The results from the first two 

rounds of testing, and similar findings 

from testing of closed-end mortgage 

disclosures conducted by the Board at 

the same time, called into question the 

usefulness of the current generic 

application disclosures for consumers. 

As a result, three new types of 

disclosure were developed and tested: 


sroberts on DSKD5P82C1PROD with PROPOSALS
43432 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

11The report by ICF Macro summarizing the 

findings from the consumer testing is available on 

the Board’s Web site at http:// 

www.federalreserve.gov. 

(1) A one-page disclosure developed 

by the Board entitled, ‘‘Key Questions to 

Ask about Home Equity Lines of Credit’’ 

(‘‘Key Questions’’ document) that 

summarized the most important 

information in the HELOC brochure in 

a shorter, question-and-answer format 

found effective with consumers; 

(2) A disclosure to be provided not 

later than three business days after 

application that would include 

information about the terms and 

features of the creditor’s HELOC plans 

currently required at application, but 

also transaction-specific information; 

and 

(3) A similar form that would be 

provided when the consumer opens the 

account. The content of the new 

transaction-specific HELOC disclosure 

that would be provided three days after 

application would be similar to that of 

the current application disclosure, 

except that it would include 

information specific to the consumer 

based on initial underwriting—most 

notably, the specific APR and credit 

limit. The content of the account 

opening disclosure would be similar, 

except that it would provide additional 

information about fees. 

2. Additional cognitive interviews and 

revisions to disclosures. The ‘‘Key 

Questions’’ document tested very well 

in subsequent rounds; all participants 

indicated that they would find it useful, 

and most found it very clear and easyto-read. As a result, the Board is 

proposing to require lenders to provide 

the ‘‘Key Questions’’ document to 

prospective borrowers instead of the 

HELOC brochure. 

Model forms for the transactionspecific HELOC disclosures to be 

provided three days after application 

were first tested in the third round and 

participants overwhelmingly indicated 

that they would prefer to receive a 

transaction-specific disclosure soon 

after application, even if it meant that 

they would not receive a disclosure of 

terms before they applied. The 

remaining two rounds of testing focused 

on developing, testing and refining the 

two transaction-specific disclosures 

(i.e., that would be provided within 

three business days of application and 

at account opening), rather than 

variations of the generic application 

disclosure currently required. 

Testing results. Specific findings from 

the consumer testing are discussed in 

detail throughout the SUPPLEMENTARY

INFORMATION where relevant.11 This 

section highlights certain key findings. 

Consumer testing showed that 

consumers seldom contact more than 

one loan originator when looking for a 

HELOC and generally go to their current 

mortgage provider, a prior lender, or a 

bank with which they have an existing 

banking relationship. Consumer testing 

indicated that consumers generally do 

not comprehend how HELOCs work, 

especially the draw and repayment 

periods. Consumer comprehension of 

the costs and effects of various terms 

significantly increased when consumers 

reviewed model forms developed by the 

Board and ICF Macro. Most participants 

agreed that they would prefer to receive 

specific information about the HELOC 

terms that would apply to them shortly 

after application rather a generic 

disclosure currently provided to all 

borrowers on or with the application. 

Consumer testing also showed that 

consumers prefer to receive a detailed 

breakdown of fees required to open the 

account early in the application process 

to help them understand what costs to 

anticipate in obtaining a HELOC. Thus, 

the Board is proposing to replace the 

generic program disclosure required at 

application with disclosures that 

include key terms specific to the 

consumer, such as the APR and credit 

limit, within three business days after 

application. 

Most consumers tested found the 

generic HELOC program disclosures and 

HELOC brochure required at application 

too dense and difficult to understand. 

When the same information was 

presented in plain language, segregated 

in a tabular format, participants found 

the information easier to understand 

and had more success answering 

comprehension questions. Thus, under 

the proposal, the revised TILA 

disclosure would explain more 

complicated terms in plain language 

and present them in a tabular format. 

A large number of participants 

erroneously concluded that the rate and 

payment information shown in the 

currently required historical example 

table showed their exact monthly 

payments when in fact it showed how 

the interest rate and monthly payments 

fluctuated over the preceding 15 years 

based on a $10,000 example. Most 

participants identified the interest rate 

fluctuation as the most important 

information in the historical payment 

example. For these reasons, the 

proposed disclosures include a 

statement providing the high and low 

interest rates for the preceding 15 years 

but do not include the table showing the 

interest rate and corresponding monthly 

payments for each year. 

Creditors typically incorporate 

disclosures required at the time a 

HELOC account is opened into the 

account agreement. Consumer testing 

indicated, however, that consumers 

commonly do not review their account 

agreements, which are often in small 

print and dense prose. When consumers 

were presented with a revised accountopening disclosure based on the tabular 

format of the revised early disclosure, 

their comprehension of complex terms 

significantly increased. Thus, the 

proposal would require creditors to 

provide a table summary of key terms 

applicable to the account at account 

opening, with similar formatting as the 

disclosure proposed to be provided 

within three days after application. 

Consumer testing showed that setting 

apart the most important terms in this 

way better ensures that consumers are 

apprised of those terms. Moreover, the 

similarity in presentation and structure 

of the early and account-opening 

disclosures enables consumers to focus 

on and compare key terms at both stages 

of the process. 

The Board did not test model periodic 

statement and change-in-terms notices 

for HELOCs, but intends to do so during 

the comment period for this proposal. 

The Board worked with ICF Macro, 

however, to develop model periodic 

statements and change-in-terms notices 

for HELOCs largely based on the results 

of consumer testing conducted for credit 

cards for the Board’s January 2009 

Regulation Z rule. Many consumers 

more easily noticed the number and 

amount of fees when the fees were 

itemized and grouped together with 

interest charges. Consumers also noticed 

fees and interest charges more readily 

when they were located near the 

disclosure of the transactions on the 

account. Thus, under the proposal, 

creditors would be required to group all 

charges together and describe them in a 

manner consistent with consumers’ 

general understanding of costs (‘‘interest 

charge’’ or ‘‘fee’’), without regard to 

whether the charges would be 

considered ‘‘finance charges,’’ ‘‘other 

charges’’ or neither under the 

regulation. 

Regarding change-in-terms notices, 

consumer testing for the Board’s January 

2009 Regulation Z Rule on credit cards 

indicated that, much like the accountopening disclosures, consumers may not 

typically read such notices because they 

are often in small print and dense prose. 

To enhance the effectiveness of changein-terms notices, the proposed rules 

would require the creditor to include a 

table summarizing any changed terms. 

Consumer testing indicates that 

consumers may not typically look at the 

notices if they are provided as separate 

inserts given with periodic statements. 


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12Surveys reviewed include: Brian Bucks, Arthur 

Kennickell, Traci Mach, Kevin Moore, ‘‘Changes in 

U.S. Family Finances from 2004 to 2007: Evidence 

from the Survey of Consumer Finances,’’ Federal 

Reserve Bulletin (Feb. 2009); Alan Greenspan and 

James Kennedy, ‘‘Sources and Uses of Equity 

Extracted from Homes,’’ Finance and Economics 

Discussion Series, Divisions of Research & Statistics 

and Monetary Affairs, Federal Reserve Board (2007– 

20); Glenn Canner et al., ‘‘Recent Developments in 

Home Equity Lending,’’ Federal Reserve Bulletin 

(April 1998); Consumer Bankers Ass’n, ‘‘Home 

Equity Loan Study’’ (2005, 2007); and American 

Bankers Ass’n, ‘‘ABA Home Equity Lending Survey 

Report’’ (2005). 

Thus, under the proposal, a table 

summarizing the change would have to 

appear on the periodic statement, where 

consumers are more likely to notice the 

changes. 

Additional testing during and after 

comment period. During the comment 

period, the Board will work with ICF 

Macro to conduct additional testing of 

model disclosures. After receiving 

comments from the public on the 

proposal and the proposed disclosure 

forms, the Board will work with ICF 

Macro to further revise model 

disclosures based on comments 

received, and to conduct additional 

rounds of cognitive interviews to test 

the revised disclosures. After the 

cognitive interviews, quantitative 

testing will be conducted. The goal of 

the quantitative testing is to measure 

consumers’ comprehension of the 

newly-developed disclosures relative to 

existing disclosures and formats. 

E. Other Outreach and Research 

Throughout the review process 

leading to this proposal, the Board met 

or conducted conference calls with 

industry and consumer group 

representatives, as well as consulted 

with other federal banking agencies. The 

Board also reviewed HELOC disclosures 

currently used by creditors, internal 

Board research on home equity lending, 

and surveys on HELOC usage and 

trends.12

F. Reviewing Regulation Z in Stages 

Based on the comments received and 

its own analysis, the Board is 

proceeding with a review of Regulation 

Z in stages. In January 2009, the Board 

published final rules regarding openend (not home-secured) credit (74 FR 

5244 (January 29, 2009) (January 2009 

Regulation Z Rule), which were the 

result of the Board’s comprehensive 

review of Regulation Z’s open-end (not 

home-secured) credit rules. At that time, 

the Board indicated that it was also 

reviewing open-end home-secured 

credit rules. This proposal reflects the 

Board’s review of all aspects of 

Regulation Z and accompanying Official 

Staff Commentary related to open-end 

home-secured credit. The Board is not at 

this time, however, specifically 

addressing issues related to rescinding 

HELOCs, and requests comment in the 

proposal on any needed changes to 

Regulation Z provisions and 

commentary regarding reverse 

mortgages. 

G. Implementation Period 

The Board contemplates providing 

creditors sufficient time to implement 

any revisions that may be adopted. The 

Board seeks comment on an appropriate 

implementation period. 

IV. The Board’s Rulemaking Authority 

TILA mandates that the Board 

prescribe regulations to carry out the 

purposes of the act. TILA also 

specifically authorizes the Board, among 

other things, to do the following: 

• Issue regulations that contain such 

classifications, differentiations, or other 

provisions, or that provide for such 

adjustments and exceptions for any 

class of transactions, that in the Board’s 

judgment are necessary or proper to 

effectuate the purposes of TILA, 

facilitate compliance with the act, or 

prevent circumvention or evasion. 15 

U.S.C. 1604(a). 

• Exempt from all or part of TILA any 

class of transactions if the Board 

determines that TILA coverage does not 

provide a meaningful benefit to 

consumers in the form of useful 

information or protection. The Board 

must consider factors identified in the 

act and publish its rationale at the time 

it proposes an exemption for comment. 

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

• Require additional disclosures for 

HELOC plans. 15 U.S.C. 1637(a)(8), 

1637a(a)(14). 

In the course of developing the 

proposal, the Board has considered 

information gathered from industry and 

consumer representatives during 

outreach meetings and calls, 

consultations with other federal banking 

agencies, the Board’s experience in 

implementing and enforcing Regulation 

Z, and the results obtained from testing 

various disclosure options in controlled 

consumer tests. For the reasons 

discussed in this proposal, the Board 

believes this proposal is appropriate 

pursuant to the authorities noted above. 

V. Discussion of Major Proposed 

Revisions 

The goal of the proposed revisions is 

to improve the effectiveness of the 

Regulation Z disclosures that must be 

provided to consumers for open-end 

credit transactions secured by the 

consumer’s dwelling, and to strengthen 

substantive protections for HELOC 

consumers. To shop for and understand 

the cost of credit, consumers must be 

able to identify and understand the key 

terms of a HELOC, which can be very 

complex. The proposed revisions to 

Regulation Z are intended to provide the 

most essential information to consumers 

when the information would be most 

useful to them, as clearly and 

conspicuously as possible. The 

proposed revisions are expected to 

improve consumers’ ability to make 

informed credit decisions and enhance 

competition among HELOC originators. 

Many of the changes are based on 

consumer testing for this proposal and 

the Board’s overall review of Regulation 

Z. 

In considering the proposed revisions, 

the Board sought to ensure that the 

proposal would not reduce access to 

credit, and sought to balance the 

potential benefits for consumers with 

the compliance burdens imposed on 

creditors. For example, the proposed 

revisions seek to provide greater 

certainty to creditors in identifying what 

costs must be disclosed for HELOCs, 

and how those costs must be disclosed. 

More effective disclosures may also 

reduce confusion and 

misunderstanding, which may ease 

creditors’ costs relating to consumer 

complaints and inquiries. 

A. Disclosures at Application 

Regulation Z requires creditors to 

provide to the consumer two types of 

disclosures at the time of application: a 

set of disclosures describing various 

features of a creditor’s HELOC plans 

(the ‘‘application disclosures’’) and a 

home-equity brochure published by the 

Board (the ‘‘HELOC brochure’’), which 

provides information about how 

HELOCs work. Neither contains 

transaction-specific information about 

the terms of the HELOC dependent on 

underwriting, such as the APR or credit 

limit. 

Summary of Proposed Revisions 

The proposal would require a creditor 

to provide to consumers at application 

a new one-page document published by 

the Board entitled, ‘‘Key Questions to 

Ask about Home Equity Lines of Credit’’ 

(the ‘‘Key Questions’’ document). The 

Board proposes eliminating the 

requirement for creditors to provide the 

HELOC brochure at application. In 

addition, the proposal would replace 

the application disclosures with 

transaction-specific HELOC disclosures 

(‘‘early HELOC disclosures’’) that must 

be given within three business days 

after application (but no later than 

account opening). 


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‘‘Key Questions’’ document. 

Currently, a creditor is required to 

provide to a consumer the HELOC 

brochure or a suitable substitute at the 

time an application for a HELOC is 

provided to the consumer. The HELOC 

brochure is around 20 pages long and 

provides general information about 

HELOCs and how they work, as well as 

a glossary of relevant terms and a 

description of various features that can 

apply to HELOCs. 

The proposal would eliminate the 

requirement for creditors to provide to 

consumers the HELOC brochure with 

applications. The Board’s consumer 

testing on HELOC disclosures has 

shown that consumers are unlikely to 

read the HELOC brochure because of its 

length. Instead, the proposal would 

require a creditor to provide the new 

‘‘Key Questions’’ document that would 

be published by the Board. This onepage document is intended to be a 

simple, straightforward and concise 

disclosure informing consumers about 

HELOC terms and risks that are 

important to consider when selecting a 

home-equity product, including 

potentially risky features such as 

variable rates and balloon payments. 

The ‘‘Key Questions’’ document was 

designed based on consumers’ 

preference for a question-and-answer 

tabular format, and refined in several 

rounds of consumer testing. 

B. Disclosures Within Three Days After 

Application 

Regulation Z currently requires the 

disclosures that must be provided on or 

with an application to contain 

information about the creditor’s HELOC 

plans, including the length of the draw 

and repayment periods, how the 

minimum required payment is 

calculated, whether a balloon payment 

will be owed if a consumer only makes 

minimum required payments, payment 

examples, and what fees are charged by 

the creditor to open, use, or maintain 

the plan. These disclosures do not 

include information dependent on a 

specific borrower’s creditworthiness or 

the value of the dwelling, such as a 

credit limit or the APRs offered to the 

consumer, because the application 

disclosures are provided before 

underwriting takes place. 

Summary of Proposed Revisions 

The Board’s consumer testing on 

HELOC disclosures has shown that, 

because the current application 

disclosures do not contain transactionspecific information applicable to the 

consumer, these disclosures may not 

provide meaningful information to 

consumers to enable them to compare 

different HELOC products and to make 

informed decisions about whether to 

open an HELOC plan. Thus, the 

proposal would replace the application 

disclosures with transaction-specific 

‘‘early HELOC disclosures’’ that must be 

given within three business days after 

application (but no later than account 

opening), and revise the format and 

content of the disclosures to make them 

more clear and conspicuous. 

Content of proposed early HELOC 

disclosures. The proposal would require 

creditors to include several additional 

disclosures in the early HELOC 

disclosures not currently required to be 

disclosed as part of the application 

disclosures, such as (1) the APRs and 

credit limit being offered; (2) a 

statement that the consumer has no 

obligation to accept the terms disclosed 

in the early HELOC disclosures; and (3) 

if the creditor has a provision for the 

consumer’s signature, a statement that a 

signature by the consumer only 

confirms receipt of the disclosure 

statement. Based on consumer testing 

conducted by the Board on HELOC 

disclosures, the Board believes that 

these new disclosures would provide 

meaningful information to consumers in 

deciding whether to open a HELOC 

plan. 

The proposal would not require 

creditors to provide certain disclosures 

currently required to be disclosed as 

part of the application disclosures. For 

example, currently creditors must 

disclose a 15-year historical payment 

example table, a statement that the APR 

does not include costs other than 

interest, and a statement of the earliest 

time the maximum rate could be 

reached. Based on consumer testing, the 

Board believes that these disclosures do 

not provide meaningful information to 

consumers in deciding whether to open 

a HELOC plan. Other information that 

consumer testing demonstrated would 

be helpful to consumers, however, 

would be required to be disclosed. 

Moreover, the proposal would revise 

certain information currently required 

to be disclosed in the application 

disclosures. For example, the 

application disclosures currently must 

include several payment examples 

based on a $10,000 outstanding balance. 

Under the proposal, the Board would 

require in the early HELOC disclosures 

payment examples based on the full 

credit line. Also, to prevent 

‘‘information overload’’ for consumers, 

the proposal would allow a creditor to 

disclose information about only two 

payment plan options. Based on 

consumer testing, the Board believes 

that the above revisions to the payment 

examples, and other revisions to the 

existing application disclosures, would 

effectively provide meaningful 

information to consumers in deciding 

whether to open a HELOC plan. 

Format requirements for the proposed 

early HELOC disclosures. The proposal 

would impose stricter format 

requirements for the proposed early 

HELOC disclosures than currently are 

required for the application disclosures. 

The application disclosures may be 

provided in a narrative form; under the 

proposal, the early HELOC disclosures 

must be provided in the form of a table 

with headings, content, and format 

developed through multiple rounds of 

consumer testing. In consumer testing, 

participants found information in a 

structured, tabular format easier to 

understand and had more success 

answering comprehension questions 

than when these participants reviewed 

application disclosures in a narrative 

form. 

C. Disclosures at Account Opening 

Regulation Z requires creditors to 

disclose costs and terms before the first 

transaction is made for a HELOC. The 

disclosures must specify the 

circumstances under which a ‘‘finance 

charge’’ may be imposed and how it will 

be determined, including charges such 

as interest, transaction charges, 

minimum charges, each periodic rate of 

interest that may be applied to an 

outstanding balance (e.g., for purchases 

or cash advances) as well as the 

corresponding APR. In addition, 

creditors must disclose the amount of 

certain charges other than finance 

charges, such as a late-payment charge. 

Currently, few format requirements 

apply to account-opening disclosures; 

typically they are interspersed among 

other contractual terms in the creditor’s 

account agreement. 

Summary of Proposed Revisions 

The proposal would revise the 

account-opening disclosure 

requirements in two significant ways. 

First, the proposal would require a 

tabular summary of key terms. Second, 

the proposal would reform how and 

when cost disclosures must be made. 

Account-opening summary table. The 

proposal seeks to make the cost 

disclosures provided at account opening 

more conspicuous and easier to read. 

Accordingly, the proposal identifies 

specific costs and terms that creditors 

would be required to summarize in a 

table. This account opening table would 

be substantially similar to the early 

HELOC disclosure table that would be 

provided within three business days 

after application, with two major 

exceptions. First, the account-opening 


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table would show only the payment 

plan chosen by the consumer, rather 

than a maximum of two plans required 

in the early HELOC disclosures. Second, 

the account-opening table would 

contain transaction fees and penalty fees 

not required to be disclosed in the early 

HELOC disclosure table. Despite these 

differences between the two tables, the 

Board believes that consumers could 

use the new table provided at account 

opening to compare the terms of their 

accounts to the early HELOC disclosure 

table. Consumers would no longer be 

required to search for the information in 

the credit agreement. 

How charges are disclosed. Under the 

current rules, a creditor must disclose 

any ‘‘finance charge’’ or ‘‘other charge’’ 

in the written account-opening 

disclosures. In addition, the regulation 

identifies fees that are not considered to 

be either ‘‘finance charges’’ or ‘‘other 

charges’’ and, therefore, need not be 

included in the account-opening 

disclosures. The distinctions among 

finance charges, other charges, and 

charges that do not fall into either 

category are not always clear. Examples 

of included or excluded charges are in 

the regulation and commentary, but 

these examples cannot provide 

definitive guidance in all cases. This 

uncertainty can pose legal risks for 

creditors that act in good faith to 

comply with the law. Creditors are 

subject to civil liability and 

administrative enforcement for underdisclosing the finance charge or 

otherwise making erroneous 

disclosures, so the consequences of an 

error can be significant. Furthermore, 

over-disclosure of rates and finance 

charges is not permitted by Regulation 

Z for open-end credit. 

The fee disclosure rules also have 

been criticized as being outdated and 

impractical. These rules require 

creditors to provide fee disclosures at 

account opening, which may be months, 

and possibly years, before a particular 

disclosure is relevant to the consumer, 

such as when the consumer calls the 

creditor to request a service for which 

a fee is imposed. In addition, an 

account-related transaction may occur 

by telephone, when a written disclosure 

is not feasible. 

The proposed rule is intended to 

respond to these criticisms while still 

giving full effect to TILA’s requirement 

to disclose credit charges before they are 

imposed. Accordingly, under the 

proposal, the revised rules would (1) 

specify precisely the charges that 

creditors must disclose in writing at 

account opening (e.g., interest, accountopening fees, transaction fees, annual 

fees, and penalty fees such as for paying 

late), which would be listed in the 

summary table, and; (2) permit creditors 

to disclose certain optional charges 

orally or in writing before the consumer 

agrees to or becomes obligated to pay 

the charge. These proposed changes 

correspond to amendments adopted in 

the January 2009 Regulation Z Rule 

applicable to open-end (not homesecured) credit, but would not change 

current substantive restrictions on 

permissible changes in HELOC terms. 

D. Periodic Statements 

Currently, Regulation Z requires 

creditors to provide periodic statements 

reflecting the account activity for the 

billing cycle (typically, one month). In 

addition to identifying each transaction 

on the account, creditors must identify 

each ‘‘finance charge’’ using that term, 

and each ‘‘other charge’’ assessed 

against the account during the statement 

period. Creditors must disclose the 

periodic rate that applies to an 

outstanding balance and its 

corresponding APR. Creditors also must 

disclose an ‘‘effective’’ or ‘‘historical’’ 

APR for the billing cycle, which 

includes not just interest but also 

finance charges imposed in the form of 

fees. 

Summary of Proposed Revisions 

The proposal contains a number of 

significant revisions to periodic 

statement disclosures. First, the Board 

recommends eliminating the 

requirement to disclose the effective 

APR for HELOCs. Second, creditors 

would no longer be required to 

characterize particular costs on the 

periodic statement as ‘‘finance charges.’’ 

Instead, costs would be described either 

as ‘‘interest’’ or as a ‘‘fee.’’ Third, 

interest charges and fees imposed as 

part of the plan must be grouped 

together and totals disclosed for the 

statement period and year to date. To 

facilitate compliance, the proposal 

would include sample forms illustrating 

the revisions. 

The effective APR. The ‘‘effective’’ 

APR disclosed on periodic statements 

reflects the cost of interest and certain 

other finance charges imposed during 

the statement period. For example, for a 

cash advance, the effective APR reflects 

both interest and any flat or 

proportional fee assessed for the 

advance. For the reasons discussed 

below, the Board recommends 

eliminating the requirement to disclose 

the effective APR. 

In general, creditors believe that the 

effective APR should be eliminated. 

They believe that consumers do not 

understand the effective APR, including 

how it differs from the corresponding 

(interest rate) APR, why it is often 

‘‘high,’’ and which fees the effective 

APR reflects. Creditors say that they 

find it difficult, if not impossible, to 

explain the effective APR to consumers 

who call them with questions or 

concerns. They note that callers 

sometimes believe, erroneously, that the 

effective APR signals a prospective 

increase in their interest rate, and they 

may make uninformed decisions as a 

result. And, creditors say, even if the 

consumer does understand the effective 

APR, the disclosure does not provide 

any more information than a disclosure 

of the total dollar costs for the billing 

cycle. Moreover, creditors say the 

effective APR is arbitrary and inherently 

inaccurate, principally because it 

amortizes the cost for credit over only 

one month (billing cycle) even though 

the consumer may take several months 

(or longer) to repay the debt. 

Consumer groups acknowledge that 

the effective APR is not well 

understood, but argue that it 

nonetheless serves a useful purpose by 

showing the higher cost of some credit 

transactions. They contend the effective 

APR helps consumers decide each 

month whether to continue using the 

account, to shop for another credit 

product, or to use an alternative means 

of payment such as a debit card. 

Consumer groups also contend that 

reflecting costs, such as cash advance 

fees, in the effective APR creates a 

‘‘sticker shock’’ and alerts consumers 

that the overall cost of a transaction for 

the cycle is high and exceeds the 

advertised corresponding APR. This 

shock, they say, may persuade some 

consumers not to use certain features on 

the account, such as cash advances, in 

the future. In their view, the utility of 

the effective APR would be maximized 

if it reflected all costs imposed during 

the cycle (rather than only some costs as 

is currently the case). 

As part of consumer testing 

conducted by the Board on credit cards 

in relation to the January 2009 

Regulation Z Rule, consumer awareness 

and understanding of the effective APR 

was evaluated, as well as whether 

changes to the presentation of the 

disclosure could increase awareness and 

understanding. The overall results of 

this testing demonstrated that most 

consumers do not correctly understand 

the effective APR. 

Based on this consumer testing and 

other factors, the Board proposes to 

eliminate the requirement to disclose 

the effective APR. Under this proposal, 

creditors offering HELOCs would be 

required to disclose interest and fees in 

a manner that is more readily 

understandable and comparable across 


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institutions. The Board believes that this 

approach can more effectively further 

the goals of consumer protection and 

the informed use of credit for HELOCs. 

Fees and interest costs. Currently, 

creditors must identify on periodic 

statements any ‘‘finance charges’’ that 

have been added to the account during 

the billing cycle; creditors typically list 

these charges with other transactions, 

such as purchases or cash advances, 

chronologically on the statement. The 

finance charges must be itemized by 

type. Thus, interest charges might be 

described as ‘‘finance charges due to 

periodic rates.’’ Charges such as latepayment fees, which are not ‘‘finance 

charges,’’ are typically disclosed 

individually and interspersed among 

other transactions. 

The Board drew on consumer testing 

for open-end (not home-secured) credit, 

the results of which the Board believes 

apply equally to HELOCs, to 

recommend a number of changes to the 

required HELOC disclosures related to 

finance charges. As under rules adopted 

in the January 2009 Regulation Z Rule 

for open-end (not home-secured) credit, 

this proposal would require HELOC 

creditors to group all charges together 

and describe them in a manner 

consistent with consumers’ general 

understanding of costs (‘‘interest 

charge’’ or ‘‘fee’’), without regard to 

whether the charges would be 

considered ‘‘finance charges,’’ ‘‘other 

charges,’’ or neither. If different periodic 

rates apply to different types of 

transactions, creditors would be 

required to itemize interest charges for 

the statement period by type of 

transaction (for example, interest on 

cash advances) or group of transactions 

subject to different periodic rates. 

In addition, the proposal would 

require creditors to disclose the (1) total 

fees and (2) total interest imposed for 

the cycle, as well as year-to-date totals 

for interest charges and fees. The yearto-date figures are intended to help 

consumers understand annualized costs 

and the overall cost of their HELOC 

better than does the effective APR. The 

Board intends to conduct consumer 

testing of periodic statement notices for 

HELOCs during the comment period for 

this proposal. 

E. Change-in-Terms Notices 

Currently, Regulation Z requires 

creditors to send, in most cases, notices 

15 days before the effective date of 

certain changes in the account terms. 

Advance notice is not required in all 

cases; for example, if an interest rate 

increases due to a consumer’s default or 

delinquency, notice has been required, 

but not in advance of the rate increase. 

In addition, no notice (either advance or 

contemporaneous) has been required if 

the specific change is set forth in the 

account agreement. 

Summary of Proposed Revisions 

The Board proposes to revise the 

change-in-terms rules for HELOCs to 

parallel in most respects the revisions 

adopted for open-end (not homesecured) credit in the January 2009 

Regulation Z Rule, including the 

content, timing, and format of such 

notices. The Proposed revisions to 

change-in-terms notice requirements for 

HELOCs are intended to improve 

consumers’ awareness about changes to 

their account terms or increased rates 

due to delinquency, default, or other 

reason disclosed in the agreement, and 

to enhance consumers’ ability to make 

alternative financial choices if 

necessary. 

There are three major components of 

the proposal regarding change-in-terms 

notices. First, the proposal would 

expand the circumstances in which 

consumers receive advance notice of 

changed terms, including increased 

rates. Second, the proposal would 

provide consumers with earlier notice— 

45 days in advance of the effective date 

of the change rather than 15 days. Third, 

the proposal would introduce format 

requirements to make the disclosures 

about changes in terms, including 

increased rates, more effective. 

Rate increases. Currently, a changein-terms notice is not required if the 

agreement between the consumer and 

the creditor specifically sets forth the 

change and the specific triggering event. 

In the January 2009 Regulation Z Rule, 

the Board expressed concern that the 

imposition of penalty rates might come 

as a costly surprise to consumers who 

are not aware of, or do not understand, 

what behavior constitutes a default 

under the credit agreement. The Board 

also stated that it believed that 

consumers would be the most likely to 

notice and be motivated to act to avoid 

the imposition of the penalty rate if they 

receive a specific notice alerting them of 

an imminent rate increase, rather than a 

general disclosure stating the 

circumstances when a rate might 

increase. 

The Board believes that the same 

reasoning applies in the case of 

HELOCs, although the circumstances 

under which a penalty rate may be 

imposed on a HELOC are more 

restricted than for credit cards. The 

HELOC proposal would also require 

advance notice of any increased rates 

due to a triggering event specified in the 

agreement, such as loss of an employee 

preferred rate because the consumer 

leaves the creditor’s employ. 

Timing. The Board proposes that the 

requirement for notice 15 days in 

advance of the effective date of a change 

be changed to require notice 45 days in 

advance, for the same reasons the Board 

adopted this requirement for open-end 

(not home-secured) credit. As discussed 

in the January 2009 Regulation Z Rule, 

shorter notice periods, such as 30 days 

or one billing cycle, may not provide 

consumers with sufficient time to shop 

for and possibly obtain alternative 

financing, or to make other financial 

adjustments. The 45-day advance notice 

requirement refers to when the changein-terms notice must be sent, but it may 

take several days for the consumer to 

receive the notice. As a result, the Board 

believes that the 45-day advance notice 

requirement would give consumers, in 

most cases, at least one calendar month 

after receiving a change-in-terms notice 

to seek alternative financing or 

otherwise to mitigate the impact of an 

unexpected change in terms. 

The Board is soliciting comment on 

whether it may be more difficult to seek 

alternative financing or otherwise 

mitigate the impact of a change in terms 

for HELOCs than for credit cards. The 

Board is also soliciting comment on 

whether, because changes in terms are 

more narrowly restricted for HELOCs 

than for credit card accounts, the impact 

on consumers of term changes for 

HELOCs is likely to be less severe than 

for credit cards and thus whether the 

proposed time period is likely adequate. 

Format. Few format requirements 

apply to change-in-terms disclosures. As 

with account-opening disclosures, 

creditors commonly intersperse changein-terms notices with other amendments 

to the account agreement, and both are 

provided in pamphlets in small print 

and dense prose. Consumer testing 

conducted for the January 2009 

Regulation Z Rule suggests that 

consumers tend to set aside change-interms notices when they are presented 

as a separate pamphlet inserted in the 

periodic statement. Testing also 

revealed that consumers are more likely 

to identify the changes to their account 

correctly if the changes in terms are 

summarized in a tabular format. 

The Board therefore proposes that if a 

changed term is one that must be 

provided in the account-opening 

summary table, creditors must also 

provide that change in a summary table 

to enhance the effectiveness of the 

change-in-terms notice. Further, if a 

notice enclosed with a periodic 

statement discusses a change to a term 

that must be disclosed in the accountopening summary table, or announces 


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that a default rate will be imposed on 

the account, a table summarizing the 

impending change would have to 

appear on the periodic statement. The 

Board intends to conduct consumer 

testing of change-in-terms notices with 

a tabular format during the comment 

period for this proposal. 

F. Additional Protections 

Account Terminations. Regulation Z 

currently permits a creditor to terminate 

a HELOC for several reasons, including 

when the consumer has ‘‘fail[ed] to meet 

the repayment terms of the agreement 

for any outstanding balance.’’ The 

proposal would revise this provision to 

provide that a creditor may not 

terminate a HELOC plan for paymentrelated reasons unless the consumer has 

failed to make a required minimum 

periodic payment more than 30 days 

after the due date for that payment. The 

Board is requesting comment on 

whether a delinquency threshold of 

more than 30 days is appropriate, or 

whether some other time period would 

better achieve the purposes of TILA. 

The proposal is principally intended 

to protect consumers from so-called 

‘‘hair-trigger’’ terminations based on 

minor payment infractions. Overall, the 

proposal is intended to strike a more 

equitable balance between creditors’ 

authority to protect themselves against 

risk (and, for depositories, to ensure 

their safety and soundness) and 

effective protection of HELOC 

consumers from constraints on their 

credit privileges that do not correspond 

with reasonable expectations. 

Suspensions and credit limit 

reductions based on a significant 

decline in the property value. 

Regulation Z permits a creditor 

temporarily to suspend advances or 

reduce a credit line on a HELOC if ‘‘the 

value of the dwelling that secures the 

plan declines significantly below the 

dwelling’s appraised value for purposes 

of the plan.’’ The commentary provides 

a ‘‘safe harbor’’ standard for determining 

whether a decline is significant: 

specifically, a decline in value is 

significant if it results in the initial 

difference between the credit limit and 

the available equity (the ‘‘equity 

cushion’’) diminishing by 50 percent. 

Concerns have been expressed to the 

Board that the existing safe harbor may 

not be a viable standard for the higher 

combined loan-to-value (CLTV) HELOCs 

made in recent years. For loans nearing 

or exceeding 100 percent CLTV when 

originated, for example, a decline in 

value of a few dollars could result in 

more than a 50 percent decline in the 

creditor’s equity cushion, because the 

equity cushion was zero or close to zero 

at origination. For these higher CLTV 

loans in particular, creditors have 

indicated uncertainty about how to 

determine whether a decline in value is 

‘‘significant.’’ For their part, consumer 

advocates have expressed concerns that 

the lack of guidance on the proper 

application of the safe harbor allows 

creditors to take action based on 

nominal declines in value. 

To address these concerns, the 

proposal would revise the staff 

commentary to delineate two ‘‘safe 

harbors’’ on which creditors could rely 

to determine whether a decline in 

property value is ‘‘significant’’: 

• First, for plans with a CLTV at 

origination of 90 percent or higher, a 

five (5) percent reduction in the 

property value on which the HELOC 

terms were based would constitute a 

significant decline in value. 

• Second, for plans with a CLTV at 

origination of under 90 percent, the 

existing safe harbor would be retained, 

under which a decline in the value of 

the property securing the plan is 

significant if, as a result of the decline, 

the creditor’s equity cushion is reduced 

by 50 percent. 

Suspensions and credit limit 

reductions based on a material change 

in the consumer’s financial 

circumstances. Regulation Z permits a 

creditor to suspend advances or reduce 

the credit limit of a HELOC when ‘‘the 

creditor reasonably believes that the 

consumer will be unable to fulfill the 

repayment obligations of the plan 

because of a material change in the 

consumer’s financial circumstances.’’ 

Some creditors appear uncertain about 

when action is permissible under this 

provision, and many have requested 

more detailed guidance. Consumer 

advocates have expressed dissatisfaction 

with the guidance on this provision as 

well, voicing concerns that the lack of 

clear guidance may enable some 

creditors to take action when consumers 

are fully capable of meeting their 

repayment obligations. 

The proposal is intended to protect 

consumers by ensuring that creditors 

exercise prudent judgment in relying on 

this provision. Revised commentary 

would clarify that evidence of a material 

change in financial circumstances may 

include credit report information 

showing late payments or nonpayments 

on the part of the consumer, such as 

delinquencies, defaults, or derogatory 

collections or public records related to 

the consumer’s failure to pay other 

obligations. The proposed commentary 

would clarify that any payment failures 

relied on to show a material change in 

the consumer’s financial circumstances 

would need to have occurred within a 

reasonable time from the date of the 

creditor’s review of the consumer’s 

credit performance. A six-month safe 

harbor for this ‘‘reasonable time’’ is 

proposed. 

The proposed commentary would 

retain the existing commentary’s 

guidance stating that evidence 

supporting a creditor’s reasonable 

believe that a consumer is ‘‘unable’’ to 

meet the repayment terms may include 

the consumer’s nonpayment of debts 

other than the HELOC. Under the 

proposal, these payment failures would 

have to have occurred within a 

reasonable time from the date of the 

creditor’s review of the consumer’s 

credit performance, with a proposed sixmonth safe harbor. The Board is 

requesting comment on whether late 

payments of 30 days or fewer would be 

adequate evidence of a failure to pay a 

debt for purposes of this provision, and 

whether and under what circumstances 

credit score declines alone might satisfy 

the requirements of this provision. 

Reinstatement of accounts. Regulation 

Z requires creditors to reinstate credit 

privileges once no circumstances 

permitting a freeze or credit limit 

reduction under the statute or regulation 

exist. Recently, due to declining 

property values and for other reasons, 

HELOCs have been suspended and 

credit limits reduced more often than in 

the past. Consumer groups and other 

federal agencies have raised concerns 

about whether consumers are properly 

informed about the creditor’s obligation 

to reinstate credit lines and consumers’ 

rights to request reinstatement, and the 

Board independently researched the 

reinstatement practices of several 

creditors. As a result, the Board has 

determined that additional guidance is 

appropriate. The proposed changes are 

intended to ensure that consumers have 

a meaningful opportunity to request 

reinstatement and to have this request 

investigated. Major proposed revisions 

include the following: 

• Requiring additional information in 

notices of suspension or reduction about 

consumers’ ongoing right to request 

reinstatement and creditors’ obligation 

to investigate this request. 

• Requiring creditors to complete an 

investigation of a request within 30 days 

of receiving the request and to provide 

notice of the results to consumers whose 

credit privileges will not be restored. 

• Requiring creditors to cover the 

costs associated with investigating the 

first reinstatement request by the 

consumer. 

VI. Section-by-Section Analysis 

Other than in the section-by-section 

analysis of § 226.5b, unless otherwise 


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indicated, references to the ‘‘current’’ or 

‘‘existing’’ regulation and staff 

commentary refer to the version of 

Regulation Z and staff commentary 

finalized in the January 2009 Regulation 

Z Rule. The regulation text and 

commentary in the January 2009 

Regulation Z Rule will not go into effect 

until July 1, 2010, and certain changes 

to both the substance and effective date 

of these have been made by the Credit 

Card Accountability, Responsibility and 

Disclosure Act of 2009 (Credit Card 

Act), Public Law 111–24, enacted on 

May 22, 2009. The Board determined, 

however, that it is appropriate for this 

proposed rulemaking to refer to rules 

that have been finalized and will go into 

effect in the near future, rather than the 

version of Regulation Z and the 

commentary now in effect but that will 

soon be obsolete. The section-by-section 

analysis of § 226.5b and references to 

§ 226.5b refer to the version of 

Regulation Z and accompanying staff 

commentary currently in effect. 

Section 226.2 Definitions and Rules of 

Construction 

2(a)(6) Definition of Business Day 

Currently, § 226.2(a)(6) contains two 

definitions of ‘‘business day.’’ Under the 

general definition, a ‘‘business day’’ is a 

day on which the creditor’s offices are 

open to the public for carrying on 

substantially all of its business 

functions. However, for some purposes 

a more precise definition applies; 

‘‘business day’’ means all calendar days 

except Sundays and specified federal 

legal public holidays for purposes of 

determining when disclosures are 

received under §§ 226.15(e), 

226.19(a)(1)(ii), 226.23(a), and 

226.31(c)(1) and (2). The Board also 

recently adopted the more precise 

definition for purposes of the 

presumption in § 226.19(a)(2) that 

consumers receive corrected disclosures 

three business days after they are mailed 

and for other timing determinations. See 

74 FR 23289 (May 19, 2009). As 

discussed more fully below in the 

section-by-section analysis under 

proposed §§ 226.5b(e) and 226.9(j)(2), 

the Board is proposing to use the more 

precise definition of business day in 

providing presumptions of when 

consumers receive mailed disclosures 

required under proposed §§ 226.5b(b) 

and 226.9(j)(1). 

Section 226.4 Finance Charge 

Various provisions of TILA and 

Regulation Z specify how and when the 

cost of consumer credit expressed as a 

dollar amount, the ‘‘finance charge,’’ is 

to be disclosed. The rules for 

determining which charges make up the 

finance charge are set forth in TILA 

Section 106 and Regulation Z § 226.4. 

15 U.S.C. 1605. In the January 2009 

Regulation Z Rule, the Board made 

several revisions to § 226.4. Some of the 

revisions, such as those relating to 

transaction charges imposed by credit 

card issuers for obtaining cash advances 

from automated teller machines (ATMs) 

or making purchases in foreign 

currencies or foreign countries, affect all 

open-end credit, including HELOCs as 

well as open-end (not home-secured) 

credit. Other revisions made in the 

January 2009 rule affect only open-end 

(not home-secured) credit. 

Charges for Credit Insurance or Debt 

Cancellation or Suspension Coverage 

In the case of charges for credit 

insurance, debt cancellation coverage, 

and debt suspension coverage, some of 

the revisions affect all open-end credit, 

while others affect only open-end (not 

home-secured) credit. The Board is now 

proposing to revise § 226.4 as it applies 

to HELOCs in a manner generally 

paralleling the latter category of 

revisions, as discussed further below. 

In addition to the proposed revisions 

to § 226.4 discussed in this HELOC 

proposal, the Board is separately 

proposing a number of other revisions to 

§ 226.4 and other sections of Regulation 

Z, regarding finance charge, credit 

insurance, and debt cancellation or 

suspension coverage, in its proposal 

regarding closed-end mortgage lending 

under Regulation Z, published today 

elsewhere in this Federal Register. 

Some of these proposed revisions would 

affect HELOCs as well as closed-end 

mortgage loans. These other proposals 

are discussed below; for a detailed 

discussion, see the Board’s separate 

Federal Register notice. The proposed 

regulatory text and proposed staff 

commentary for § 226.4, as well as other 

affected sections, appear in the Board’s 

separate Federal Register notice. 

Premiums or other charges for credit 

life, accident, health, or loss-of-income 

insurance are finance charges if the 

insurance or coverage is ‘‘written in 

connection with’’ a credit transaction. 

15 U.S.C. 1605(b); § 226.4(b)(7). 

Creditors may exclude from the finance 

charge premiums for credit insurance if 

they disclose the cost of the insurance 

and the fact that the insurance is not 

required to obtain credit. In addition, 

the statute requires creditors to obtain 

an affirmative written indication of the 

consumer’s desire to obtain the 

insurance, which, as implemented in 

§ 226.4(d)(1)(iii), requires creditors to 

obtain the consumer’s initials or 

signature. 15 U.S.C. 1605(b). In 1996, 

the Board expanded the scope of the 

rule to include plans involving charges 

or premiums for debt cancellation 

coverage. See § 226.4(b)(10) and (d)(3). 

61 FR 49237 (September 19, 1996.) 

The January 2009 Regulation Z Rule 

amended the regulation to treat debt 

suspension coverage in the same way as 

debt cancellation coverage. Debt 

suspension is the creditor’s agreement 

to suspend, on the occurrence of a 

specified event, the consumer’s 

obligation to make the minimum 

payment(s) that would otherwise be 

due. During the suspension period, 

interest may continue to accrue or it 

may be suspended as well, depending 

on the plan. Thus, under § 226.4(b)(10), 

charges for debt suspension coverage 

written in connection with a credit 

transaction are finance charges, unless 

excluded under § 226.4(d)(3). However, 

to exclude the cost of debt suspension 

coverage from the finance charge, 

creditors are also required to inform 

consumers, as applicable, that the 

obligation to pay loan principal and 

interest is only suspended, and that 

interest will continue to accrue during 

the period of suspension. These 

revisions apply to all open-end plans 

(both HELOCs and open-end (not homesecured) credit), as well as to closed-end 

credit transactions. 

Insurance or coverage sold after 

opening of an account. One of the 

revisions made in the January 2009 

Regulation Z Rule affecting only openend (not home-secured) credit involves 

the meaning of the phrase ‘‘written in 

connection with a credit transaction.’’ 

Prior to the January 2009 rule, credit 

insurance or debt cancellation or 

suspension coverage sold after 

consummation of a closed-end credit 

transaction or after the opening of an 

open-end plan and upon a consumer’s 

request was considered not to be 

‘‘written in connection with the credit 

transaction,’’ and, therefore, a charge for 

such insurance or coverage was not a 

finance charge. See comment 4(b)(7) and 

(8)–2. The Board stated in its 2007 

proposal for open-end (not homesecured) credit (72 FR 32945 (June 14, 

2007) (June 2007 Regulation Z Proposal) 

that it believed this approach remained 

sound for closed-end transactions, 

which typically consist of a single 

transaction with a single advance of 

funds. However, in an open-end plan, 

where consumers can engage in credit 

transactions after the opening of the 

plan, a creditor may have a greater 

opportunity to influence a consumer’s 

decision whether or not to purchase 

credit insurance or debt cancellation or 

suspension coverage than in the case of 

closed-end credit. Accordingly, the 


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disclosure and consent requirements are 

important in open-end plans, even after 

the opening of the plan, to ensure that 

the consumer is fully informed about 

the offer of insurance or coverage and 

that the decision to purchase it is 

voluntary. Therefore, the Board adopted 

in the January 2009 Regulation Z Rule 

amendments to comment 4(b)(7) and 

(8)–2, to state that insurance purchased 

after an open-end (not home-secured) 

plan is opened is considered to be 

written ‘‘in connection with a credit 

transaction.’’ New comment 4(b)(10)–2 

provides the same treatment to 

purchases of debt cancellation or 

suspension coverage. Therefore, 

purchases of voluntary insurance or 

debt cancellation or suspension 

coverage after account opening trigger 

disclosure and consent requirements. 

This amendment does not apply to 

HELOCs; the Board stated that it 

intended to consider this issue when the 

home-equity credit plan rules are 

reviewed in the future. 

The Board proposes to apply the same 

rule to HELOCs. Thus, comments 4(b)(7) 

and (8)–2 and 4(b)(10)–2 would be 

amended to state that credit insurance 

or debt cancellation or suspension 

coverage purchase after any open-end 

plan is opened is considered to be 

written in connection with a credit 

transaction, and therefore charges for 

such insurance or coverage would be 

finance charges unless the disclosure 

and consent requirements under 

§ 226.4(d)(1) and (3) are met. The Board 

believes that the same reasons for 

extending the ‘‘written in connection 

with’’ rule to insurance or coverage 

purchased after the opening of an openend (not home-secured) plan exist with 

regard to insurance or coverage 

purchased after the opening of a 

HELOC. Although the creditors’ ability 

to terminate or restrict HELOC accounts 

is more limited than in the case of openend (not home-secured) accounts, 

consumers may not be aware of this 

difference and therefore consumers’ 

decisions about whether to purchase 

insurance or coverage may be 

influenced by concern about their 

continued access to credit, or about 

possible adverse changes to the terms 

and conditions of the account. 

Telephone sales of insurance or 

coverage. Another of the revisions made 

in the January 2009 Regulation Z Rule 

affecting only open-end (not homesecured) credit involves sales of credit 

insurance or debt cancellation or 

suspension coverage by telephone. 

Under § 226.4(d)(1) and (d)(3), creditors 

may exclude from the finance charge 

credit insurance premiums and debt 

cancellation or suspension charges if the 

consumer signs or initials an affirmative 

written request for the insurance or 

coverage, after disclosure of the fact that 

the insurance or coverage is optional 

and of the cost. 

In the June 2007 Regulation Z 

Proposal the Board proposed, and in the 

January 2009 Regulation Z Rule 

adopted, an exception to the 

requirement to obtain a written 

signature or initials for telephone 

purchases of credit insurance or debt 

cancellation and debt suspension 

coverage on an open-end (not homesecured) plan. Under new § 226.4(d)(4), 

for telephone purchases, the creditor is 

permitted to make the disclosures orally 

and the consumer may affirmatively 

request the insurance or coverage orally, 

provided that the creditor (1) maintains 

evidence that demonstrates that the 

consumer, after being provided the 

disclosures orally, affirmatively elected 

to purchase the insurance or coverage; 

and (2) mailed the disclosures under 

§ 226.4(d)(1) or (d)(3) within three 

business days after the telephone 

purchase. Comment 4(d)(4)–1 provides 

that a creditor does not satisfy the 

requirement to obtain an affirmative 

request if the creditor uses a script with 

leading questions or negative consent. 

This new rule is consistent with rules 

published by the federal banking 

agencies to implement Section 305 of 

the Gramm-Leach-Bliley Act regarding 

the sale of insurance products by 

depository institutions, as well as 

guidance published by the Office of the 

Comptroller of the Currency regarding 

the sale of debt cancellation and 

suspension products. See 12 CFR 208.81 

et seq. regarding insurance sales; 12 CFR 

part 37 regarding debt cancellation and 

debt suspension products. HELOCs 

subject to § 226.5b were not affected by 

this revision. 

The Board adopted this approach 

pursuant to its exception and exemption 

authorities under TILA Section 105. 

Section 105(a) authorizes the Board to 

make exceptions to TILA to effectuate 

the statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uniformed use of 

credit. 15 U.S.C. 1601(a), 1604(a). 

Section 105(f) authorizes the Board to 

exempt any class of transactions from 

coverage under any part of TILA if the 

Board determines that coverage under 

that part does not provide a meaningful 

benefit to consumers in the form of 

useful information or protection. 15 

U.S.C. 1604(f)(1). Section 105(f) directs 

the Board to make this determination in 

light of specific factors. 15 U.S.C. 

1604(f)(2). These factors are (1) the 

amount of the loan and whether the 

disclosure provides a benefit to 

consumers who are parties to the 

transaction involving a loan of such 

amount; (2) the extent to which the 

requirement complicates, hinders, or 

makes more expensive the credit 

process; (3) the status of the borrower, 

including any related financial 

arrangements of the borrower, the 

financial sophistication of the borrower 

relative to the type of transaction, and 

the importance to the borrower of the 

credit, related supporting property, and 

coverage under TILA; (4) whether the 

loan is secured by the principal 

residence of the borrower; and (5) 

whether the exemption would 

undermine the goal of consumer 

protection. 

The Board stated in the January 2009 

Regulation Z Rule that it considered 

each of these factors carefully, and 

based on that review, believed it is 

appropriate to exempt, for open-end 

(not home-secured) plans, telephone 

sales of credit insurance or debt 

cancellation or debt suspension plans 

from the requirement to obtain a written 

signature or initials from the consumer. 

Requiring a consumer’s written 

signature or initials is intended to 

evidence that the consumer is 

purchasing the product voluntarily; the 

rule contains safeguards intended to 

insure that oral purchases are voluntary. 

Under the rule, creditors must maintain 

tapes or other evidence that the 

consumer received required disclosures 

orally and affirmatively requested the 

product. Comment 4(d)(4)–1 indicates 

that a creditor does not satisfy the 

requirement to obtain an affirmative 

request if the creditor uses a script with 

leading questions or negative consent. 

In addition to oral disclosures, under 

the proposal consumers will receive 

written disclosures shortly after the 

transaction. 

The Board proposes to extend the 

telephone sales rule for credit insurance 

and debt cancellation or suspension 

coverage, as adopted in the January 

2009 Regulation Z Rule, to HELOCs. 

Section 226.4(d)(4) would be amended 

to apply to all open-end credit, not only 

open-end (not home-secured) credit. 

The Board proposes this approach 

pursuant to its exception and exemption 

authorities under TILA Section 105, and 

has considered the factors specified in 

Section 105(f) as discussed above. The 

proposed rule contains safeguards to 

ensure that the purchase is voluntary. In 

addition, other proposed safeguards 

regarding eligibility restrictions and 

revised disclosures, discussed in the 

Board’s separate proposal regarding 

closed-end mortgage lending provisions 

of Regulation Z and published today 


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43440 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

elsewhere in the Federal Register, 

would apply to HELOCs as well as 

closed-end mortgage loans. 

The fee for the credit insurance or 

debt cancellation or debt suspension 

coverage would also appear on the first 

monthly periodic statement after the 

purchase, and, as applicable, thereafter. 

As discussed in the section-by-section 

analysis under § 226.7, under the 

proposal fees, including insurance and 

debt cancellation or suspension 

coverage charges, would be better 

highlighted on statements. Consumers 

who are billed for insurance or coverage 

they did not purchase may dispute the 

charge as a billing error. At the same 

time, the proposed amendments should 

facilitate the convenience to both 

consumers and creditors of conducting 

transactions by telephone. The proposed 

amendments, therefore, have the 

potential to better inform consumers 

and further the goals of consumer 

protection and the informed use of 

credit. 

Proposals Regarding Finance Charge 

and Credit Insurance, Debt Cancellation 

Coverage, and Debt Suspension 

Coverage Published in Separate Federal 

Register Notice 

As noted above, in addition to the 

proposed amendments discussed above, 

the Board is separately proposing a 

number of amendments to the rules in 

§ 226.4 regarding finance charge, and to 

the rules in § 226.4 and other sections 

of Regulation Z regarding credit 

insurance and debt cancellation or 

suspension coverage. These other 

proposed amendments are discussed in 

detail in the Board’s separate Federal 

Register notice, published today and 

appearing elsewhere in this Federal 

Register. Also, the regulatory and staff 

commentary text for these proposed 

amendments appears in the Board’s 

separate Federal Register notice. A brief 

discussion of these other proposed 

amendments follows. 

‘‘All-in’’ finance charge. The Board is 

proposing to adopt, for closed-end 

mortgage lending under Regulation Z 

only, an ‘‘all-in’’ finance charge concept, 

under which all fees payable directly or 

indirectly by the consumer and imposed 

directly or indirectly by the creditor as 

an incident to or condition of the 

extension of credit would be included 

in the finance charge. Thus, many of the 

exclusions from the finance charge 

under § 226.4(a), (c), (d), and (e) would 

no longer apply to closed-end mortgage 

loans. For example, for closed-end 

mortgage loans, charges for credit 

insurance and debt cancellation or 

suspension coverage would be 

considered finance charges, whether or 

not the insurance or coverage is optional 

and even though revised disclosures 

would be required. 

The Board is not proposing this ‘‘allin’’ finance charge approach for credit 

other than closed-end mortgage loans. 

Thus, the proposed approach would not 

apply, for example, to closed-end nonmortgage credit, or to HELOCs or other 

open-end credit. As discussed below in 

the section-by-section analysis under 

§§ 226.5 and 226.7, disclosures for 

HELOCs would no longer be required to 

use the term ‘‘finance charge,’’ and 

would no longer be required to contain 

a disclosure of the effective APR (i.e., an 

APR that includes not only interest but 

also other fees that constitute finance 

charges). In the January 2009 Regulation 

Z Rule, the Board adopted these changes 

for open-end (not home-secured) credit. 

Therefore, the Board believes that 

changing the definition of finance 

charge for HELOC accounts would not 

have a material effect on the HELOC 

disclosures and accordingly is 

unnecessary. However, the Board 

requests comment on whether there are 

reasons why consideration should be 

given to changing the definition of 

finance charge for HELOCs. For a 

detailed discussion of the Board’s 

proposals regarding the ‘‘all-in’’ finance 

charge for closed-end mortgage loans, 

see the Board’s separate Federal 

Register notice published today. 

Age or employment eligibility criteria. 

The Board is proposing to add new 

§ 226.4(d)(1)(iv) and (d)(3)(v) to permit 

creditors to exclude a credit insurance 

premium or debt cancellation or 

suspension charge from the finance 

charge only if the creditor determines at 

the time of enrollment that the 

consumer meets any applicable age or 

employment eligibility criteria for the 

insurance or coverage. These provisions 

would apply to all open-end credit, 

including HELOCs, as well as to closedend (non-real-property) credit. The 

Board is proposing these new provisions 

because some creditors offer credit 

insurance or debt cancellation or 

suspension products with eligibility 

restrictions, but may not evaluate 

whether applicants actually meet the 

criteria at the time the applicants 

request the product. As a result, many 

consumers may not discover until they 

file a claim that they were paying for a 

product for which they were not 

eligible. For a detailed discussion of this 

proposal, see the Board’s separate 

Federal Register notice published 

today. Note that, for HELOCs and other 

open-end credit in which the telephone 

purchase rule under § 226.4(d)(4) could 

be used, the new conditions under 

proposed § 226.4(d)(1)(iv) and (d)(3)(v) 

would still apply. 

Revised disclosures for insurance or 

coverage. The Board is proposing to add 

model clauses that would provide 

clearer information to consumers about 

the optional nature and costs of credit 

insurance or debt cancellation or 

suspension coverage. The model clauses 

would apply to open-end as well as 

closed-end credit transactions, and 

appear in Appendix G–16(C) for openend credit and Appendix H–17(C) for 

closed-end credit. The disclosure 

language is based on consumer testing 

conducted by the Board to determine 

whether consumers understood the 

optional nature and costs of credit 

insurance or debt cancellation or 

suspension coverage. In addition, the 

disclosures would contain language 

about eligibility restrictions and a 

reference to the Board’s Web site to 

learn more about the product. These 

model clauses would be in addition to 

the Debt Suspension Model Clause 

found at Appendix G–16(A) for openend credit and Appendix H–17(A) for 

closed-end credit. For a detailed 

discussion of this proposal, see the 

Board’s separate Federal Register notice 

published today. 

Section 226.5 General Disclosure 

Requirements 

Section 226.5 contains the general 

requirements for open-end credit 

disclosures under Regulation Z, both for 

credit cards and other open-end (not 

home-secured) credit and for HELOCs 

subject to § 226.5b. Section 226.5 

addresses, among other requirements, 

that disclosures be clear and 

conspicuous, in writing, and in a form 

the consumer can keep, as well as 

requirements concerning terminology, 

formats for disclosures, and timing of 

disclosures. In the January 2009 

Regulation Z Rule, the Board adopted a 

number of changes to the general 

disclosure requirements for open-end 

(not home-secured) credit, but did not 

change the requirements applicable to 

HELOCs. The Board is now proposing to 

revise the format and other disclosure 

requirements for HELOCs in a manner 

generally paralleling the revisions in the 

requirements for open-end (not homesecured) credit. 

In addition to the proposed changes to 

the specific rules for disclosures, the 

Board proposes to adopt a new 

comment 5–1 that would provide 

guidance in situations where a creditor 

is uncertain whether an open-end credit 

plan is covered by the § 226.5b rules for 

HELOCs or the rules for open-end (not 

home-secured) credit. The Board 

understands that there is uncertainty for 


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creditors that offer open-end credit 

secured by real property, where it is 

unclear whether that property is, or 

remains, the consumer’s dwelling. Such 

creditors may be uncertain how they 

should comply with the January 2009 

Regulation Z Rule. The Board solicited 

comment on this issue in the May 2009 

proposal regarding technical revisions 

and other changes to open-end (not 

home-secured) credit rules. 74 FR 20784 

(May 5, 2009) (May 2009 Regulation Z 

Proposal). The comment period ended 

on June 4, 2009. Financial institutions 

commenters suggested that creditors be 

permitted to treat all open-end credit 

secured by residential property as 

covered by § 226.5b, rather than the 

rules for open-end (not home-secured) 

credit, regardless of whether the 

property is the consumer’s dwelling. 

Consumer group commenters did not 

address this issue. 

Proposed comment 5–1 generally 

permits creditors to assume that the 

property securing the line of credit is 

the principal residence or a second or 

vacation home of the consumer and, 

therefore, that the line of credit is 

covered by the HELOC rules. (The 

HELOC rules cover not only credit 

secured by consumer’s principal 

residence, but also credit secured by 

vacation and second homes, assuming 

the credit is for personal, family, or 

household purposes.) However, 

creditors are also permitted to 

investigate the actual use of the 

property. If the creditor ascertains that 

the property is not the consumer’s 

principal residence or a second or 

vacation home, the creditor may comply 

with the rules applicable to open-end 

(not home-secured) credit under 

Regulation Z. In this case, if the credit 

plan is accessible by credit card, the 

creditor must comply with, in addition 

to the rules applicable to open-end 

credit generally, the rules for open-end 

(not home-secured) credit card plans 

under § 226.5a and associated sections 

in the regulation. The Board requests 

comment on whether the proposed 

comment provides useful and 

appropriate guidance. 

5(a) Form of Disclosures 

5(a)(1) General 

Paragraph 5(a)(1)(i) 

Section 226.5(a)(1)(i) requires that 

disclosures required under the 

regulation be clear and conspicuous. 

Comment 5(a)(1)–1 states that the ‘‘clear 

and conspicuous’’ standard generally 

requires that disclosures be in a 

reasonably understandable form. The 

comment further states that disclosures 

for credit card applications and 

solicitations under § 226.5a, and related 

disclosures such as those required to be 

in a tabular format under § 226.6(b)(1), 

must also be readily noticeable to the 

consumer. Comment 5(a)(1)–3 explains 

that the disclosures subject to the 

readily noticeable standard must be 

given in a minimum of 10-point font 

and cross-references the rule that the 

APR for purchases in an open-end (not 

home-secured) plan under 

§§ 226.5a(b)(1) and 226.6(b)(2)(i) must 

be in a minimum 16-point font. 

The Board proposes to revise 

comments 5(a)(1)–1 and –3 to apply the 

same standards to home-equity plan 

disclosures as those applicable to the 

comparable disclosures for credit cards 

and other open-end (not home-secured) 

credit. Specifically, the Board proposes 

to revise comments 5(a)(1)–1 and –3 to 

require that the following home-equity 

disclosures be readily noticeable to the 

consumer, meaning that they must be 

provided in a minimum font size of 10- 

point: disclosures required to be given 

in a tabular format within three business 

days after application (§ 226.5b(b)); 

disclosures required to be given in a 

tabular format at account opening 

(§ 226.6(a)(1)); change-in-terms 

disclosures required to be given in a 

tabular format (§ 226.9(c)(1)(iii)(B)); and 

disclosures required to be given in a 

tabular format when a rate is increased 

due to delinquency or default under 

§ 226.5b(f)(2) (§ 226.9(i)(4)). The 

proposal also adds a cross-reference to 

the 16-point minimum font size 

requirement for the APR in a homeequity plan under proposed 

§§ 226.5b(c)(10) and 226.6(a)(2)(vi). 

The Board believes that the same 

reasoning underlying the minimum font 

size requirements for open-end (not 

home-secured) plan disclosures applies 

to the comparable home-equity plan 

disclosures. In the June 2007 Regulation 

Z Proposal, the Board stated its belief 

that special formatting requirements, 

such as a tabular format and font size 

requirements, are needed to highlight 

for consumers the importance and 

significance of certain disclosures 

required at application or solicitation 

for a credit card, and at the opening of 

a credit card account. Similarly, for 

disclosures that may appear on periodic 

statements, such as the change-in-terms 

disclosures under § 226.9(c)(2)(iii)(B) 

and disclosures when a rate is increased 

due to delinquency, default or as a 

penalty under § 226.9(g)(3)(ii), the Board 

stated that highlighting these 

disclosures by using a minimum 10- 

point font size is important because 

consumers do not expect to see these 

disclosures each billing cycle and 

because the changes may have a 

significant impact on the consumer. 

Consumer comments on the June 2007 

Regulation Z Proposal noted that credit 

card disclosures are in fine print and 

argued that disclosures should be given 

in a larger font. Many consumer and 

consumer group commenters suggested 

that the regulation require a minimum 

12-point font for disclosures. In 

consumer testing conducted by the 

Board in the open-end (not homesecured) credit review demonstrated 

that participants were able to read and 

notice information in a 10-point font. 

Consumer testing conducted by the 

Board in the home-equity credit review 

showed the same result. Accordingly, 

the Board proposes to require that the 

HELOC disclosures discussed above 

must be provided in a minimum 10- 

point font size. 

Paragraph 5(a)(1)(ii) 

Paragraph 5(a)(1)(ii)(A) 

Section 226.5(a)(1)(ii) requires that 

disclosures required by the regulation 

be given in writing and in a form that 

the consumer may keep. Section 

226.5(a)(1)(ii)(A) specifies several 

exceptions to the requirement that 

disclosures be in writing, including 

account-opening disclosures of charges 

imposed as part of an open-end (not 

home-secured) plan that are not 

required to be disclosed in a tabular 

format under § 226.6(b)(2) and related 

change-in-terms disclosures under 

§ 226.9(c)(2)(ii)(B), when such charges 

change. The Board proposes to add a 

parallel exception, applicable to homeequity plans, for disclosures of certain 

charges not required to be given in 

tabular format at the time of account 

opening and for related change-in-terms 

disclosures. 

The Board believes that the same 

reasoning underlying the exception to 

the written disclosure requirement for 

certain open-end (not home-secured) 

plan disclosures applies to home-equity 

plan disclosures. As discussed in the 

January 2009 Regulation Z Rule, in 

permitting certain charges in open-end 

(not home-secured) credit to be 

disclosed either orally or in writing (and 

after account opening, as discussed 

further under § 226.5(b)(1)(ii) below), 

the Board’s goal was to better ensure 

that consumers receive disclosures at a 

time and in a manner in which they 

would be likely to notice them. At 

account opening, both for open-end (not 

home-secured) plans and for HELOCs, 

written disclosure has obvious merit 

because account opening is a time when 

a consumer must assimilate information 

that may influence major decisions by 


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the consumer about how, or even 

whether, to use the account. During the 

life of an account, however, a consumer 

may sometimes need to decide whether 

to purchase a single service from the 

creditor that may not be central to the 

consumer’s use of the account, such as 

an expedited telephone payment 

service. The consumer may have 

become accustomed to purchasing 

similar services by telephone for other 

financial products, such as credit cards, 

and expect to receive an oral disclosure 

of the charge for the service during the 

same telephone call. Permitting oral 

disclosure of charges that are not central 

to the consumer’s use of the account 

would be consistent with consumer 

expectations and with the business 

practices of creditors. 

Accordingly, the Board proposes to 

exempt from the written disclosure 

requirement the following HELOC 

disclosures: charges not required to be 

in given in tabular format at account 

opening under § 226.6(a)(2) (i.e., charges 

that are not the most significant charges 

related to the plan) and related changein-terms notices under 

§ 226.9(c)(1)(ii)(B). A creditor would not 

be permitted to increase the APR 

(assuming a rate increase were 

permissible at all) without providing 

written notice, because the APR is a 

disclosure required to be given in 

tabular format. Of course, any change in 

terms in a HELOC subject to § 226.5b 

would have to be permissible under 

§ 226.5b(f). For example, the charge for 

an expedited telephone payment service 

would not be permitted to be increased; 

however, the charge could be decreased, 

or a new optional telephone payment 

service, with its associated charge, 

could be introduced, because these 

would be beneficial changes permitted 

under § 226.5b(f). 

The most significant charges would 

not be covered by the proposed 

exemption and would continue to have 

to be disclosed in writing at account 

opening, because these charges would 

be required to be shown in the tabular 

account-opening disclosures. For 

example, the annual fee, early 

termination fee, penalty fees such as late 

payment and over-the-credit-limit fees, 

and fees to use the account such as 

transaction fees would have to be 

disclosed in writing at account opening 

in the tabular disclosure. Further, any 

changes in these charges (assuming a 

change were permissible at all, which in 

most cases it would not be) would be 

required to be disclosed in a written 

change-in-terms notice under § 226.9(c). 

Paragraph 5(a)(1)(ii)(B) 

Application disclosures. Section 

226.5(a)(1)(ii)(B) lists several exceptions 

to the requirement that disclosures be in 

a form that the consumer may keep, 

including the disclosures required to be 

given at the time of application for a 

HELOC under § 226.5b(d) (to be 

redesignated § 226.5b(c) under the 

proposal). The Board proposes to 

eliminate this exception because, as 

discussed in greater detail below in this 

section-by-section analysis under 

§§ 226.5(b)(4) and 226.5b(b), the Board 

is proposing to change the timing and 

content of HELOC disclosures under 

§ 226.5b(c). Under the proposal, these 

disclosures would be required to show 

the terms and conditions that would 

apply to the particular consumer, rather 

than only describing the creditor’s plans 

in general terms. In addition, § 226.5b(c) 

disclosures would be given within three 

business days after application rather 

than at the time of application. 

The purpose of the existing exception 

to the retainability requirement was to 

avoid requiring creditors to give 

consumers a separate disclosure 

document, in addition to the application 

form itself. When proposing and 

adopting in final form the amendments 

to Regulation Z implementing the 1988 

Home Equity Loan Act (cited above), the 

Board noted that the exception from the 

retainability requirement would permit 

the creditor to place the disclosures on 

the application form that the consumer 

would return to the creditor to apply for 

the plan. 54 FR 3063 (January 23, 1989); 

54 FR 24670 (June 9, 1989). This 

purpose for the exception from the 

retainability requirement would not 

apply under the proposal because the 

relevant disclosures would be not be 

provided at the time of application, but 

instead within three business days later. 

Home-equity brochure. The current 

regulation does not exempt the homeequity brochure required under 

§ 226.5b(e) from the retainability 

requirement under the current 

regulation, even though the brochure is 

required to be provided to a consumer 

at the time of application. One reason is 

that the brochure is not easily 

incorporated into the application form 

itself. As discussed under § 226.5b(a) 

below, the Board is proposing to replace 

the brochure with a shorter disclosure 

serving the same purpose of informing 

consumers generally about home-equity 

plan features and risks (‘‘Key Questions 

to Ask about Home Equity Lines of 

Credit’’ or ‘‘Key Questions’’ document). 

The retainability requirement would 

continue to apply to this disclosure; it 

would be a form developed and 

specifically prescribed by the Board, 

and therefore would not necessarily be 

readily incorporated into the 

application form itself. 

Paragraph 5(a)(1)(iii) 

Under § 226.5(a)(1)(iii), a creditor may 

give a consumer open-end credit 

disclosures in electronic form, as long as 

the creditor complies with the consumer 

notice and consent procedures and 

other applicable provisions of the 

Electronic Signatures in Global and 

National Commerce Act (E-Sign Act) (15 

U.S.C. 7001 et seq.). Under certain 

circumstances, however, the disclosures 

required at application for a homeequity plan under § 226.5b (as well as 

the application and solicitation 

disclosures for credit cards under 

§ 226.5a and disclosures in open-end 

credit advertising under § 226.16) may 

be provided to a consumer in electronic 

form without regard to the requirements 

of the E-Sign Act. Section 226.5b(a)(3) 

(proposed to be redesignated 

§ 226.5b(a)(2)), in turn, requires that for 

the § 226.5b disclosures to be provided 

in electronic form, the application must 

be accessed by the consumer in 

electronic form and the disclosures 

must be provided on or with the 

application. The Board proposes to 

continue to apply this exception from 

the E-Sign consumer notice and consent 

requirements to the disclosure that 

would be provided to a consumer at 

application under proposed § 226.5b(a) 

(i.e., ‘‘Key Questions’’ document). 

The purpose of these exceptions from 

the E-Sign Act’s notice and consent 

requirements is to facilitate credit 

shopping. When proposing these 

exceptions, the Board stated its belief 

that the exceptions would eliminate a 

potentially significant burden on 

electronic commerce without increasing 

the risk of harm to consumers: requiring 

consumers to follow the notice and 

consent procedures of the E-Sign Act to 

access an online application, 

solicitation, or advertisement is 

potentially burdensome and could 

discourage consumers from shopping 

for credit online; at the same time, there 

appears to be little, if any, risk that the 

consumer will be unable to view the 

disclosures online when they are 

already able to view the application, 

solicitation, or advertisement online. 72 

FR 63462 (November 9, 2007). 

This exception would not be extended 

to the disclosures that would be 

provided within three business days 

after application under proposed 

§ 226.5b(b). The credit shopping process 

takes place primarily when a consumer 

reviews applications and associated 

disclosures and decides whether to 


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submit an application. Three business 

days after the consumer has submitted 

an application, the consumer may have 

completed the credit shopping process. 

Requiring compliance with the E-Sign 

Act’s notice and consent procedures for 

disclosures at this point would not 

likely hinder credit shopping, and 

would ensure that the consumer is able 

and willing to receive disclosures in 

electronic form. In addition, compliance 

with the E-Sign Act for disclosures 

provided within three business days 

after application should not be unduly 

burdensome, because the time between 

application and three days later should 

be sufficient for the creditor to carry out 

the E-Sign Act notice and consent 

procedures. 

5(a)(2) Terminology 

Paragraph 5(a)(2)(ii) 

‘‘Finance charge’’ and ‘‘annual 

percentage rate.’’ Section 226.5(a)(2) 

relates to terminology used in 

disclosures. Section 226.5(a)(2)(ii) 

requires that for HELOCs subject to 

§ 226.5b, the terms ‘‘finance charge’’ and 

‘‘annual percentage rate,’’ when 

required to be disclosed with a 

corresponding amount or percentage 

rate, must be more conspicuous than 

any other required disclosure, with 

some exceptions. This regulatory 

provision implements section 122(a) of 

TILA; 15 U.S.C. 1632(a). 

In the January 2009 Regulation Z 

Rule, the Board eliminated the ‘‘more 

conspicuous’’ rule for open-end (not 

home-secured) credit, using the Board’s 

authority under TILA Section 105(a) to 

make ‘‘such adjustments and exceptions 

for any class of transactions, as in the 

judgment of the Board are necessary or 

proper to effectuate the purposes of this 

title, to prevent circumvention or 

evasion thereof, or to facilitate 

compliance therewith.’’ 15 U.S.C. 

1604(a). The Board concluded that 

requiring the terms ‘‘annual percentage 

rate’’ and ‘‘finance charge’’ to be more 

conspicuous than other disclosures was 

unnecessary, because creditors would 

be required to emphasize APRs and 

certain other finance charges by 

disclosing them in a tabular format with 

a minimum 10-point font size (or 16- 

point font size as required for the APR 

for purchases). Furthermore, the Board 

noted that the use of the term ‘‘finance 

charge’’ in disclosures for open-end (not 

home-secured) plans is no longer 

required; as a result, creditors would in 

many cases not use the term ‘‘finance 

charge’’ at all. 

The Board believes that the same 

reasoning applies to the terms ‘‘finance 

charge’’ and ‘‘annual percentage rate’’ 

when disclosed for home-equity plans. 

As for open-end (not home-secured) 

credit, for HELOCs subject to § 226.5b 

the Board is proposing to require 

creditors to disclose the APR and 

certain other finance charges in a 

tabular format with a minimum 10-point 

font size (or 16-point font size for the 

APR the first time it appears in the 

table). The Board is also proposing to 

eliminate the requirement that creditors 

use the term ‘‘finance charge’’ in 

disclosures for HELOCs subject to 

§ 226.5b (see discussion in this sectionby-section analysis under § 226.7). 

Accordingly, under the Board’s 

authority in TILA Section 105(a) 

discussed above, the Board proposes to 

revise § 226.5(a)(2)(ii) to eliminate the 

‘‘more conspicuous’’ rule for the terms 

‘‘finance charge’’ and ‘‘annual 

percentage rate’’ for home-equity plans. 

Comments 5(a)(2)–1, –2, and –3, 

providing guidance on the ‘‘more 

conspicuous’’ rule, would be deleted, 

and comment 5(a)(2)–4 would be 

renumbered as 5(a)(2)–1. 

‘‘Borrowing period,’’ ‘‘repayment 

period,’’ and ‘‘balloon payment.’’ The 

Board also proposes to revise 

§ 226.5(a)(2)(ii) to require the use of the 

terms ‘‘borrowing period,’’ ‘‘repayment 

period,’’ and ‘‘balloon payment’’ in 

disclosures required to be given in 

tabular format in HELOCs subject to 

§ 226.5b, as applicable. In consumer 

testing conducted by the Board to 

develop the proposed revised homeequity plan disclosures, consumers 

understood these terms. In particular, 

consumers overall understood that the 

term ‘‘borrowing period’’ referred to the 

part of a HELOC term during which 

consumers could obtain funds, whereas 

they did not clearly understand the 

alternative term ‘‘draw period,’’ which 

is used in the existing regulation’s 

home-equity sample disclosures 

(Appendices G–14A and G–14B). 

‘‘Required’’ for required credit 

insurance or debt cancellation or 

suspension coverage. Section 

226.5(a)(2)(ii) would also be revised to 

require that, if credit insurance or debt 

cancellation or suspension coverage is 

required as part of the plan, the term 

‘‘required’’ must be used and the 

program must be identified by its name. 

This would be parallel to the 

requirement adopted in the January 

2009 Regulation Z Rule for open-end 

(not home-secured) credit under 

§ 226.5(a)(2)(iii) discussed below. 

Paragraph 5(a)(2)(iii) 

Section 226.5(a)(2)(iii) contains three 

terminology requirements adopted in 

the January 2009 Regulation Z Rule for 

open-end (not home-secured) credit. 

First, if credit insurance or debt 

cancellation or suspension coverage is 

required as part of the plan, the term 

‘‘required’’ must be used and the 

program must be identified by its name. 

This requirement is proposed to apply 

to HELOCs subject to § 226.5b as well 

(under proposed § 226.5(a)(2)(ii), as 

discussed above). 

Second, § 226.5(a)(2)(iii) requires a 

creditor to use the term ‘‘penalty APR’’ 

as applicable. Third, § 226.5(a)(2)(iii) 

prohibits a creditor from using the term 

‘‘fixed’’ to describe a rate unless the 

creditor also specifies a time period 

during which the rate will be fixed and 

the rate will not increase during that 

period, or, if the creditor does not 

disclose a time period during which the 

rate will be fixed, the rate will not 

increase while the plan is open. 

These latter two rules would not be 

applied to HELOCs subject to § 226.5b; 

accordingly, § 226.5(a)(2)(iii) would be 

revised to exclude home-equity plans 

from the terminology requirements 

relating to the terms ‘‘penalty APR’’ and 

‘‘fixed.’’ Regarding the ‘‘penalty APR’’ 

requirement, the Board’s review of 

home-equity plans and HELOC creditor 

practices indicates that most HELOCs 

do not have penalty rates. Even if a 

penalty rate could apply, under 

§ 226.5b(f) such a rate could apply to 

balances (both outstanding and future) 

only if an event permitting termination 

and acceleration of the plan, such as a 

significant payment default (more than 

30 days late), has occurred. See 

proposed § 226.5b(f)(2)(ii) and comment 

5b(f)(2)(ii)–1. In general, rate increases 

of any kind, including application of 

penalty rates, are much more restricted 

for HELOCs subject to § 226.5b than for 

credit card accounts, in which penalty 

rates can be applied even for minor 

defaults (although only on future 

transactions). For these reasons, the 

disclosures required for HELOCs, unlike 

those for credit card accounts, do not 

include penalty rates; see the discussion 

of this issue under §§ 226.5b and 226.6, 

below. Therefore, a terminology 

requirement relating to penalty rates is 

inapplicable. 

Regarding using the term ‘‘fixed’’ to 

describe a rate, the Board believes that 

the reason for the prohibition applicable 

to credit card accounts does not exist for 

HELOCs. Credit card accounts have 

been marketed as having ‘‘fixed’’ rates 

even though rates could be increased at 

any time and for any reason. The rates 

of HELOCs subject to § 226.5b generally 

may only be changed in accordance 

with a publicly available index not 

under the control of the creditor or due 

to a circumstance permitting 

termination and acceleration. Thus, 


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HELOC rates are generally variable, and 

would not be marketed as ‘‘fixed.’’ 

5(a)(3) Specific Formats 

Section 226.5(a)(3) contains 

formatting requirements applicable to 

credit card and other open-end (not 

home-secured) credit, including tabular 

format requirements for applications 

and solicitations under § 226.5a, 

account-opening disclosures under 

§ 226.6(b), disclosures accompanying 

checks that access a credit card account 

under § 226.9(b)(3), change-in-terms 

notices under § 226.9(c)(2), and notices 

of application of a penalty rate under 

§ 226.9(g). Section 226.5(a)(3) also 

includes formatting requirements for 

periodic statements under § 226.7(b)(6) 

and (b)(13). In addition, this provision 

sets forth formatting requirements for 

HELOC disclosures at application under 

§ 226.5b(b), but does not require use of 

a tabular format for these or any other 

HELOC disclosures. 

The Board proposes to adopt tabular 

format requirements for HELOC 

disclosures, paralleling requirements 

adopted for credit card and other openend (not home-secured) credit in the 

January 2009 Regulation Z Rule. Section 

226.5(a)(3)(ii) would be revised to 

require a tabular format for HELOC 

disclosures currently required to be 

provided at the time of application. (The 

timing of these disclosures would be 

changed from at application to within 

three business days after application. 

See the discussion in this section-bysection analysis under §§ 226.5(b)(4) 

and 226.5b(b) below.) The tabular 

format requirement is discussed in 

detail under § 226.5b(b)(2)) below. The 

proposal would also revise § 226.5(a)(3) 

to eliminate the requirement that certain 

disclosures must precede other 

disclosures, as discussed below under 

§ 226.5b(b)(2). Similarly, 

§ 226.5(a)(3)(iii), (iv), (vi), and (vii) 

would be revised to impose formatting 

requirements comparable to those 

applicable to credit card and other 

open-end (not home-secured) credit for 

home-equity plan account-opening 

disclosures (§ 226.6(a)(1)), periodic 

statements (§ 226.7(a)(6)), change-interms notices (§ 226.9(c)(1)(iii)(B)), and 

notices of application of a penalty rate 

(§ 226.9(i)(4)), as discussed in this 

section-by-section analysis below under 

those disclosure provisions. 

5(b) Time of Disclosures 

5(b)(1) Account-Opening Disclosures 

5(b)(1)(ii) Charges Imposed as Part of an 

Open-End Plan 

In the January 2009 Regulation Z 

Rule, the Board adopted new 

§ 226.5(b)(1)(ii) to provide, for open-end 

(not home-secured) credit, an exception 

to the requirement to provide accountopening disclosures before the first 

transaction under the plan. The 

exception applies to charges that are 

imposed as part of an open-end (not 

home-secured) credit plan but that are 

not required to be disclosed in a tabular 

format in the account-opening 

disclosures under § 226.6(b)(2). Under 

§ 226.5(a)(1)(ii), these disclosures do not 

have to be provided in writing. Thus, a 

creditor may disclose these charges 

orally or in writing, after account 

opening but before the consumer agrees 

to pay or becomes obligated to pay for 

the charge, as long as the creditor 

discloses them at a time and in a 

manner such that a consumer would be 

likely to notice them. 

As discussed above, the Board is 

proposing to revise § 226.5(a)(1)(ii) to 

apply the same exception to the written 

disclosure requirement to HELOCs 

subject to § 226.5b. For the reasons 

discussed above under § 226.5(a)(1)(ii), 

the Board also proposes to revise 

§ 226.5(b)(1)(ii) to except the same 

charges from the general timing 

requirements. These are charges that are 

not required to be provided in a tabular 

format in the account-opening 

disclosures in a home-equity plan, and 

therefore would be expected to be less 

significant. Further, as discussed above, 

disclosure of these charges at the time 

a consumer agrees to pay the charge 

may be more useful to the consumer, 

because the disclosure would come at a 

time when the consumer would be more 

likely to notice the disclosure. 

Comment 5(b)(1)(ii)–1, which 

provides guidance on compliance with 

the provisions of § 226.5(b)(1)(ii), would 

be revised to apply to HELOCs as well 

as open-end (not home-secured) plans. 

New comment 5(b)(1)(ii)–2 would be 

added to explain the relationship of the 

provisions of § 226.5(b)(1)(ii) to the 

restrictions on changes in terms of 

HELOCs under § 226.5b(f). The 

comment states that even if certain 

charges may be disclosed at a time later 

than account opening, the creditor 

would not be permitted to impose a 

charge for a feature or service previously 

available under the plan for no charge, 

or to increase a fee for a service 

previously available under the plan for 

a lower charge. 

5(b)(1)(iv) Membership Fees 

Section 226.5(b)(1)(iv)(A) provides 

that in general, a creditor may not 

collect any fee before account-opening 

disclosures are given. However, this 

provision allows creditors to collect a 

membership fee at an earlier time, as 

long as the consumer may, after 

receiving the disclosures, reject the plan 

and have the fee refunded. Section 

226.5(b)(1)(iv)(B) provides that this 

provision does not apply to HELOCs, 

because separate rules about collection 

and refunds of fees apply under 

§§ 226.5b(g) and (h) and 226.15, which 

would cover membership fee 

reimbursements. Section 226.5b(g) 

requires that a creditor refund all fees 

paid if a term changes after application 

and the consumer decides not to open 

a HELOC account; § 226.5b(h) requires a 

refund of all fees upon the consumer’s 

request within three business days after 

receipt of the application disclosures. 

(Under the proposal, § 226.5b(g) and (h) 

would be redesignated § 226.5b(d) and 

(e), respectively.) Section 

226.5(b)(1)(iv)(B) would be revised by 

adding a cross-reference to §§ 226.5b(d) 

and (e) and 226.15, to ensure that users 

of the regulation are aware that even 

though the fee refundability rules of 

§ 226.5(b)(1)(iv)(A) do not apply, homeequity plans are subject to other rules 

regarding refunds of fees. 

5(b)(1)(v) Application Fees 

Section 226.5(b)(1)(v) provides that 

application fees excludable from the 

finance charge under § 226.4(c)(1) are 

subject to the same rules regarding 

collection and refundability as other 

membership fees under § 226.5(b)(1)(iv). 

To clarify that HELOCs are not subject 

to these rules, but instead are subject to 

the separate rules about collection and 

refunds of fees under §§ 226.5b(d) and 

(e) and 226.15, § 226.5(b)(1)(v) would be 

redesignated § 226.5(b)(1)(v)(A), and a 

new § 226.5(b)(1)(v)(B) would be added, 

parallel to § 226.5(b)(1)(iv)(B). 

5(b)(2) Periodic Statements 

Paragraph 5(b)(2)(ii) 

Section 226.5(b)(2)(ii) requires that 

the creditor mail or deliver a periodic 

statement at least 14 days before the end 

of any period allowing the consumer to 

pay to avoid the imposition of finance 

or other charges. Section 106(b) of the 

2009 Credit Card Act (cited above), 

amends TILA Section 163 (15 U.S.C. 

1666b) to require that the period 

between the mailing of the statement 

and the due date to avoid finance or 

other charges must be at least 21 days. 

On July 15, 2009, the Board published 

an interim final rule amending 

§ 226.5(b)(2)(ii) to implement this 

provision of the Credit Card Act, which 

under the legislation becomes effective 

90 days after enactment. Accordingly, 

no proposed amendments to 

§ 226.5(b)(2)(ii) are in this proposal. 

When this proposal is adopted into a 


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final rule, § 226.5(b)(2)(ii) will reflect 

the amendments made to implement the 

Credit Card Act. 

5(b)(4) Home-Equity Plan Application 

and Three Days After Application 

Disclosures 

Section 226.5(b)(4) states that the 

disclosures required at the time of an 

application for a home-equity plan must 

be provided in accordance with the 

timing requirements of § 226.5b. As 

discussed under § 226.5b below, the 

Board is proposing to change the timing 

requirements for home-equity plan 

disclosures; some disclosures would be 

required at the time of application, and 

additional disclosures would be 

required three business days after 

application. Accordingly, § 226.5(b)(4) 

would be revised to reflect the new 

timing requirements for the disclosures 

under § 226.5b, and to correct the crossreference to the applicable paragraphs 

in that section. See the discussion of the 

proposed changes in the disclosure 

timing requirements under § 226.5b 

below. 

Section 226.5b Requirements for 

Home-Equity Plans 

Summary of Proposed Disclosure 

Requirements 

Current § 226.5b, which implements 

TILA Section 127A, generally requires 

creditors to provide to the consumer 

two types of disclosures at the time an 

application for a HELOC is provided: 

‘‘application disclosures’’ and a homeequity brochure published by the Board 

(the ‘‘HELOC brochure’’). 15 U.S.C. 

1637a. The application disclosures and 

HELOC brochure provide information 

about the creditor’s HELOC plans and 

how HELOCs work; neither contains 

transaction-specific information about 

the terms of the HELOC offered by a 

creditor to a consumer, such as the 

credit limit or APR. 

Application disclosures. The 

application disclosures that a creditor 

generally must provide to a consumer 

on or with an application for a HELOC 

plan must contain details about the 

creditor’s HELOC plan, including the 

length of the draw and repayment 

periods, how the minimum required 

payment is calculated, whether a 

balloon payment will be owed if a 

consumer only makes minimum 

required payments, payment examples, 

and what fees are charged by the 

creditor to open, use, or maintain the 

plan. Again, they do not include 

information that is dependent on the 

value of the dwelling or a borrower’s 

creditworthiness, such as a credit limit 

or the APRs offered to the consumer, 

because the application disclosures are 

provided before underwriting takes 

place. 

The Board proposes to replace the 

application disclosures with 

transaction-specific HELOC disclosures 

(‘‘early HELOC disclosures’’) that must 

be given within three business days 

after application (but no later than 

account opening). Under the proposal, 

the information required to be disclosed 

in the early HELOC disclosures would 

differ from the information required to 

be disclosed as part of the current 

application disclosures. For example, 

the Board proposes to require creditors 

to include several additional disclosures 

in the early HELOC disclosures that are 

not currently required to be disclosed as 

part of the application disclosures, such 

as the credit limit and the APRs being 

offered to the consumer. In addition, the 

Board proposes not to require creditors 

to provide certain disclosures in the 

early HELOC disclosures that are 

currently required to be disclosed as 

part of the application disclosures. For 

example, creditors generally would not 

be required to disclose as part of the 

early HELOC disclosures certain 

information related to variable rates 

currently required in the application 

disclosures under § 226.5b(d)(12), such 

as the historical payment example table. 

Moreover, the Board proposes to revise 

the disclosure requirements for other 

information currently required to be 

disclosed in the application disclosures 

and included in the proposed early 

HELOC disclosures. For example, the 

application disclosures currently must 

include several payment examples 

based on a $10,000 outstanding balance. 

Under the proposal, the Board would 

require payment examples in the early 

HELOC disclosures, but would revise 

the payment examples to assume the 

consumer borrowed the full credit line 

offered to the consumer (as disclosed in 

the early HELOC disclosures) at the 

beginning of the draw period and drew 

no additional advances. 

Moreover, the Board proposes stricter 

format requirements for the proposed 

early HELOC disclosures than currently 

are required for the application 

disclosures. Currently, the application 

disclosures may be provided in a 

narrative form, as shown in the current 

model forms for the application 

disclosures (see current Home-equity 

Samples G–14A and G–14B of 

Appendix G). Under the proposal, the 

early HELOC disclosures generally must 

be provided in the form of a table with 

headings, content, and format 

substantially similar to any of the 

applicable tables found in proposed G– 

14 in Appendix G. 

HELOC brochure. Currently, a creditor 

is required to provide to a consumer the 

HELOC brochure or a suitable substitute 

at the time an application for a HELOC 

is provided to the consumer. The 

HELOC brochure is around 20 pages 

long and provides general information 

about HELOCs and how they work, as 

well as a glossary of relevant terms and 

a description of various features that can 

apply to HELOCs. The Board proposes 

to eliminate the requirement for 

creditors to provide to consumers the 

HELOC brochure with applications for 

HELOCs. Instead, the Board proposes to 

require that a creditor must provide a 

new document published by the Board 

entitled, ‘‘Key Questions to Ask about 

Home Equity Lines of Credit’’ (the ‘‘Key 

Questions’’ document) to a consumer 

when a HELOC application is given to 

the consumer. This ‘‘Key Questions’’ 

document would be a one-page 

document that is designed to contain 

simple, straightforward and concise 

information about HELOCs, including 

potentially risky features. 

Current Comments 5b–2 and 5b–3 

Current comments 5b–2 and 5b–3 

provide transaction rules that were 

included in the commentary when 

§ 226.5b was added to Regulation Z in 

1989. Specifically current 5b–2 provides 

that the notice rules of § 226.9(c) apply 

if, by written agreement under 

§ 226.5b(f)(3)(iii), a creditor changes the 

terms of a HELOC plan entered into on 

or after November 7, 1989 at or before 

the plan’s scheduled expiration (for 

example, by renewing the plan on 

different terms). A new plan results, 

however, if the plan is renewed (with or 

without changes to the terms) after the 

scheduled expiration. The new plan is 

subject to all open-end credit rules, 

including §§ 226.5b, 226.6, and 226.15. 

The Board proposes a technical 

revision to this comment to delete the 

reference to November 7, 1989, as 

obsolete. Thus, this proposed comment 

provides that the notice rules of 

§ 226.9(c) applies if, by written 

agreement under § 226.5b(f)(3)(iii), a 

creditor changes the terms of a HELOC 

plan at or before its scheduled 

expiration (for example, by renewing 

the plan on different terms). A new plan 

would result, however, if the plan is 

renewed (with or without changes to the 

terms) after the scheduled expiration. 

The new plan would be subject to all 

open-end credit rules, including 

§§ 226.5b, 226.6, and 226.15. 

Current comment 5b–3 provides that 

the requirements of § 226.5b do not 

apply to HELOC plans entered into 

before November 7, 1989. The 

requirements of § 226.5b also do not 


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apply if the original consumer, on or 

after November 7, 1989, renews a plan 

entered into prior to that date (with or 

without changes to the terms). If, on or 

after November 7, 1989, a security 

interest in the consumer’s dwelling is 

added to a line of credit entered into 

before that date, the substantive 

restrictions of § 226.5b apply for the 

remainder of the plan, but no new 

disclosures are required under § 226.5b. 

The Board proposes to delete this 

comment as obsolete. 

5b(a) Home-Equity Document Provided 

on or With the Application 

5b(a)(1) General 

Current § 226.5b(b) and (e), which 

implement TILA Section 127A(b)(1)(A) 

and (e), require a creditor to provide the 

HELOC brochure published by the 

Board, or a suitable substitute, to a 

consumer when a HELOC application is 

given to the consumer. 15 U.S.C. 

1637a(b)(1)(A) and (e). Pursuant to 

Section 4 of the Home Equity Loan Act 

cited earlier, the Board’s HELOC 

brochure must contain (1) a general 

description of HELOC plans and the 

terms and conditions on which such 

plans are generally extended; and (2) a 

discussion of the potential advantages 

and disadvantages of such plans. As 

discussed above, the current HELOC 

brochure is around 20 pages long and 

provides general information about 

HELOCs and how they work, as well as 

a glossary of relevant terms, and a 

description of various features that can 

apply to HELOCs. 

‘‘Key Questions’’ document. The 

Board proposes to eliminate the 

requirement in current § 226.5b(b) and 

(e) for creditors to provide to consumers 

the HELOC brochure on or with 

applications for HELOCs. Instead, the 

Board proposes in new § 226.5b(a)(1) to 

require a creditor to provide a new 

document published by the Board 

entitled ‘‘Key Questions to Ask about 

Home Equity Lines of Credit’’ (the ‘‘Key 

Questions’’ document) to a consumer 

when a HELOC application is given to 

the consumer. The Board proposes this 

rule pursuant to its authority in TILA 

Section 105(a) to make adjustments and 

exceptions to the requirements in TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 

ability to compare credit terms and 

helping consumers avoid the uniformed 

use of credit. See 15 U.S.C. 1601(a), 

1604(a). TILA also gives the Board 

authority to require a brochure with 

content ‘‘substantially similar’’ to that 

required in Section 4 of the Home 

Equity Loan Act. 15 U.S.C. 1637(e)(2). In 

consumer testing conducted by the 

Board on HELOC disclosures, the Board 

asked participants to review the HELOC 

brochure, and indicate whether the 

brochure provides useful information 

and whether they would be likely to 

read the brochure if it were given to 

them with a HELOC application. In this 

consumer testing, some participants 

found the HELOC brochure useful, 

particularly if they had little experience 

with HELOCs or home-equity products 

in general. However, a significant 

number of participants indicated that 

the HELOC brochure is too long, and, as 

a result, they would be unlikely to read 

it. In the consumer testing, most 

participants had obtained a HELOC in 

the past, but none of the participants 

recalled reading the HELOC brochure 

when they applied for a HELOC. Some 

participants recommended that a 

shorter, more concise version of the 

HELOC brochure would be more useful 

and easier to read and comprehend. 

In many respects, the ‘‘Key 

Questions’’ document (included in this 

SUPPLEMENTARY INFORMATION as 

Attachment A) satisfies the statutory 

requirements for the HELOC brochure, 

which, as noted, must include a general 

description of HELOC plans and the 

terms and conditions on which such 

plans are generally extended; and a 

discussion of the potential advantages 

and disadvantages of such plans. This 

one-page document would inform 

consumers about certain HELOC terms 

that are important for consumers to 

consider when selecting a home-equity 

product, including potentially risky 

features such as variable rates and 

balloon payments. As shown in 

Attachment A, the ‘‘Key Questions’’ 

document would contain answers to the 

following questions: ‘‘Can my interest 

rate increase?,’’ ‘‘Can my minimum 

payment increase?,’’ ‘‘When can I 

borrow money?,’’ ‘‘How soon do I have 

to pay off my balance?,’’ ‘‘Will I owe a 

balloon payment?’’, ‘‘Do I have to pay 

any fees?,’’ and ‘‘Should I get a home 

equity loan instead of a line of credit?’’ 

The ‘‘Key Questions’’ document also 

would provide a link to the Board’s Web 

site for further information, which 

currently contains an electronic version 

of the HELOC brochure. The ‘‘Key 

Questions’’ document was designed 

based on consumers’ preference for a 

question-and-answer tabular format, and 

refined in several rounds of consumer 

testing. In the consumer testing, the 

‘‘Key Questions’’ document tested well 

with participants: all indicated that they 

would find it useful, most found it very 

clear and easy to read, and the majority 

indicated that they would read a onepage disclosure, such as the ‘‘Key 

Questions’’ document, when 

considering a HELOC. 

As a result, proposed § 226.5b(a)(1) 

requires a creditor to provide the 

Board’s ‘‘Key Questions’’ document to a 

consumer at the time an application is 

provided to the consumer. Proposed 

§ 226.5b(a)(1) requires creditors to 

provide this document ‘‘as published.’’ 

Proposed comment 5b(a)(1)–9 clarifies 

that a creditor may not revise the ‘‘Key 

Questions’’ document. The Board 

believes that requiring creditors to 

provide the ‘‘Key Questions’’ document 

without revision would benefit 

consumers. Consumers would receive 

consistent information about certain 

HELOC terms that are important to 

consider when selecting a home-equity 

product; this information would be 

provided in a question-and-answer 

format using language proven to be 

useful to consumers through consumer 

testing. 

HELOC applications contained in 

magazines or other publications, or 

when the application is received by 

telephone or through an intermediary 

agent or broker. Under footnote 10a, 

which implements TILA Section 

127A(b)(1)(A), the application 

disclosures and HELOC brochure may 

be delivered or placed in the mail not 

later than three business days following 

receipt of a consumer’s application that 

was in a magazine or other publication, 

or when the application is received by 

telephone or through an intermediary 

agent or broker. 15 U.S.C. 

1637a(b)(1)(A). Current comment 5b(b)– 

6 provides a cross reference to comment 

19(b)–3 for guidance on determining 

whether or not an application involves 

an ‘‘intermediary agent or broker.’’ 

Current comment 19(b)–3 provides that 

an example of an ‘‘intermediary agent or 

broker’’ is a broker who (1) customarily 

within a brief time after receiving an 

application inquires about the credit 

terms of several creditors with whom 

the broker does business and submits 

the application to one of them; and (2) 

is responsible for only a small 

percentage of the applications received 

by that creditor. During the time the 

broker has the application, the broker 

might request a credit report and an 

appraisal (or even prepare an entire loan 

package if customary in that particular 

area). (In the proposal issued by the 

Board on closed-end mortgages 

published elsewhere in today’s Federal 

Register, the Board proposes to move 

current comment 19(b)–3 to proposed 

comment 19(d)(3)–3.) 

The Board proposes to revise and 

move the contents of footnote 10a 

related to telephone applications and 

applications received through 


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intermediary agents and brokers to 

proposed § 226.5b(a)(1)(ii). Specifically, 

proposed § 226.5b(a)(1)(ii) provides that 

for telephone applications and 

applications received through an 

intermediary agent or broker, the ‘‘Key 

Questions’’ document must be delivered 

or mailed within three business days 

following receipt of a consumer’s 

application by the creditor (but no later 

than account opening). In these cases, 

the ‘‘Key Questions’’ document must be 

provided along with the early HELOC 

disclosures (which are discussed in 

more detail in the section-by-section 

analysis to proposed § 226.5b(b)(1)). In 

addition, current comment 5b(b)–6 (that 

provides a cross reference to current 

comment 19(b)–3 for guidance on 

determining whether an application 

involves an ‘‘intermediary agent or 

broker’’) would be moved to proposed 

comment 5b(a)(1)–7 with technical 

revisions. The Board also proposes to 

add new comment 5b(a)(1)–8 to cross 

reference the definition of ‘‘business 

day’’ contained in § 226.2(a)(6). 

The Board proposes, however, to 

delete the contents of footnote 10a 

related to applications contained in 

magazines or other publications. 

Specifically, current footnote 10a 

permits a creditor not to provide 

application disclosures and the HELOC 

brochure with applications that a 

creditor makes available to consumers 

in magazine or other publications. 

Instead, the creditor may provide these 

disclosures within three business days 

following receipt of a consumer’s 

application. The rationale for this 

approach was that requiring a creditor 

to provide the application disclosures 

and HELOC brochure with applications 

available to consumers in magazines or 

other publications would overly burden 

creditors because these disclosures 

would take up many pages in a 

magazine or other publication. 

Nonetheless, the Board proposes 

under new § 226.5b(a)(1) to require a 

creditor to provide the ‘‘Key Questions’’ 

document with applications that the 

creditor makes available to consumers 

in magazines or other publications, 

rather than providing the pamphlet 

within three days of application as 

required by TILA 127A(b)(1)(A). 15 

U.S.C. 1637a(b)(1)(A). The Board 

proposes this rule pursuant to its 

authority in TILA Section 105(a) to 

make adjustments and exceptions to the 

requirements in TILA to effectuate the 

statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uniformed use of 

credit. See 15 U.S.C. 1601(a), 1604(a). 

Unlike the application disclosures and 

the HELOC brochure that could take up 

multiple pages in a magazine or other 

publication, the ‘‘Key Questions’’ 

document would be one page. Thus, the 

Board believes that requiring the ‘‘Key 

Questions’’ document to be disclosed 

with applications in magazines or other 

publications would not place undue 

burdens on creditors. In addition, 

requiring the ‘‘Key Questions’’ 

document to be given with applications 

in magazines or other publications 

would benefit consumers by providing 

with the application, information about 

HELOC terms that are important for 

consumers to consider when selecting a 

home-equity product. The Board solicits 

comments on this approach. 

Mail applications. Current comment 

5b(b)–1 provides that if a creditor sends 

an application through the mail, the 

application disclosures and the HELOC 

brochure must accompany the 

application. In addition, as discussed 

above, if an application is taken over the 

telephone, the application disclosures 

and HELOC brochure may be delivered 

or mailed within three business days of 

taking the application. If an application 

is mailed to the consumer following a 

telephone request, however, the creditor 

also must send the application 

disclosures and a HELOC brochure 

along with the application. The Board 

proposes to move this comment to 

proposed comment 5b(a)(1)–1 and to 

apply this comment to disclosure of the 

‘‘Key Questions’’ document. 

Specifically, proposed comment 

5b(a)(1)–1 provides that if the creditor 

sends an application through the mail, 

the ‘‘Key Questions’’ document must 

accompany the application. In addition, 

proposed comment 5b(a)(1)–1 provides 

that if an application is taken over the 

telephone, the ‘‘Key Questions’’ 

document must be delivered or mailed 

within three business days of taking the 

application (but not later than account 

opening). If an application is mailed to 

the consumer following a telephone 

request, however, the creditor would be 

required to send the ‘‘Key Questions’’ 

document along with the application. 

General purpose applications. Current 

comment 5b(b)–2 provides that the 

application disclosures and the HELOC 

brochure need not be provided when a 

general purpose application is given to 

a consumer unless (1) the application or 

materials accompanying it indicate that 

it can be used to apply for a HELOC 

plan, or (2) the application is provided 

in response to a consumer’s specific 

inquiry about a HELOC plan. If a general 

purpose application is provided in 

response to a consumer’s specific 

inquiry only about credit other than a 

HELOC plan, the application 

disclosures and HELOC brochure need 

not be provided even if the application 

indicates it can be used for a HELOC 

plan, unless it is accompanied by 

promotional information about HELOC 

plans. 

The Board proposes to move this 

comment to proposed comment 

5b(a)(1)–2 and to apply this comment to 

disclosure of the ‘‘Key Questions’’ 

document. Specifically, proposed 

comment 5b(a)(1)–2 provides that the 

‘‘Key Questions’’ document need not be 

provided when a general purpose 

application is given to a consumer 

unless (1) the application or materials 

accompanying it indicate that it can be 

used to apply for a HELOC plan or (2) 

the application is provided in response 

to a consumer’s specific inquiry about a 

HELOC plan. Proposed comment 

5b(a)(1)–2 also provides that if a general 

purpose application is provided in 

response to a consumer’s specific 

inquiry only about credit other than a 

HELOC plan, the ‘‘Key Questions’’ 

document need not be provided even if 

the application indicates it can be used 

for a HELOC, unless it is accompanied 

by promotional information about 

HELOC plans. 

Publicly-available applications. 

Current comment 5b(b)–3 addresses 

applications for HELOCs that are 

available without the need for a 

consumer to request them, such as socalled ‘‘take-one forms’’. This comment 

provides that these applications must be 

accompanied by the application 

disclosures and the HELOC brochure, 

such as by attaching the application 

disclosures and the HELOC brochure to 

the application form. The Board 

proposes to move this comment to 

proposed comment 5b(a)(1)–3 and to 

apply this comment to disclosure of the 

‘‘Key Questions’’ document. 

Specifically, proposed comment 

5b(a)(1)–3 provides that a creditor must 

include the ‘‘Key Questions’’ document 

with applications that are available 

without the need for a consumer to 

request them, such as take-ones, and 

that a creditor may provide this 

document by attaching it to the 

application. 

Response cards. Current comment 

5b(b)–4 states that sometimes a creditor 

may solicit consumers for its HELOC 

plan by mailing a response card which 

the consumer returns to the creditor to 

indicate interest in the plan. If the only 

action taken by the creditor upon 

receipt of the response card is to send 

the consumer an application form or to 

telephone the consumer to discuss the 

plan, the creditor need not send the 

application disclosures and the HELOC 

brochure with the response card. The 


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43448 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

Board proposes to move this comment 

to proposed comment 5b(a)(1)–4 and to 

apply this comment to disclosure of the 

‘‘Key Questions’’ document. 

Specifically, proposed comment 

5b(a)(1)–4 provides that a creditor is not 

required to send the ‘‘Key Questions’’ 

document with a response card if the 

only action taken by the creditor upon 

receipt of the response card is to send 

the consumer an application form or to 

telephone the consumer to discuss the 

plan. If the creditor sends the consumer 

an application form in response to 

receiving a response card, proposed 

comment 5b(a)(1)–1 provides that a 

creditor must provide the ‘‘Key 

Questions’’ document with the 

application form. In addition, if a 

creditor calls the consumer in response 

to receiving a response card and an 

application is taken over the phone, 

proposed comment 5b(a)(1)–1 provides 

that the ‘‘Key Questions’’ document 

must be delivered or mailed within 

three business days of taking the 

application (but not later than account 

opening). 

Denial or withdrawal of application. 

Current comment 5b(b)–5 provides that 

in situations where current footnote 10a 

permits the creditor a three-day delay in 

providing application disclosures and 

the HELOC brochure, if the creditor 

determines within that period that an 

application will not be approved, the 

creditor need not provide the consumer 

with the application disclosures or 

HELOC brochure. Similarly, if the 

consumer withdraws the application 

within this three-day period, the 

creditor need not provide the 

application disclosures or the HELOC 

brochure. The Board proposes to move 

this comment to proposed comment 

5b(a)(1)–5 and to apply this comment to 

the ‘‘Key Questions’’ document. 

Specifically, proposed comment 

5b(a)(1)–5 provides that in situations 

where proposed § 226.5b(a)(1)(ii) allows 

a creditor to delay providing the ‘‘Key 

Questions’’ document until three 

business days following receipt of a 

consumer’s application—namely, for 

telephone applications and applications 

received through an intermediary agent 

or broker—if the creditor determines 

within that three-day period that an 

application will not be approved, the 

creditor would not need to provide the 

‘‘Key Questions’’ document. Similarly, 

under this proposed comment, if a 

consumer withdraws the application 

within this three-day period, the 

creditor would not need to provide the 

‘‘Key Questions’’ document. 

Prominent location. Current § 226.5b 

provides that the application 

disclosures and the HELOC brochure 

must be provided on or with the 

application. See current § 226.5b(a)(1), 

(b) and (e). Current comment 5b(a)(1)– 

5 contains guidance on providing the 

application disclosures and the HELOC 

brochure on or with a blank application 

that is made available to the consumer 

in electronic form, such as on a 

creditor’s Internet Web site. Current 

comment 5a(a)(1)–5 provides creditors 

with flexibility in satisfying the 

requirement to provide the application 

disclosures and the HELOC brochure on 

or with a blank application that is made 

available to the consumer in electronic 

form. Methods creditors could use to 

satisfy the requirement include, but are 

not limited to, the following examples. 

First, the application disclosures and 

HELOC brochure could automatically 

appear on the screen when the 

application appears. Second, the 

application disclosures and the HELOC 

brochure could be located on the same 

Web page as the application (whether or 

not they appear on the initial screen), if 

the application contains a clear and 

conspicuous reference to the location of 

the application disclosures and the 

HELOC brochure and indicates that the 

application disclosures contain rate, fee, 

and other cost information, as 

applicable. Third, creditors could 

provide a link to the electronic 

application disclosures and HELOC 

brochure on or with the application as 

long as consumers cannot bypass the 

application disclosures and HELOC 

brochure before submitting the 

application. The link would take the 

consumer to the application disclosures 

and HELOC brochure, but the consumer 

need not be required to scroll 

completely through the application 

disclosures or HELOC brochure. Fourth, 

the application disclosures and HELOC 

brochure could be located on the same 

Web page as the application without 

necessarily appearing on the initial 

screen, immediately preceding the 

button that the consumer will click to 

submit the application. Whatever 

method is used, a creditor need not 

confirm that the consumer has read the 

application disclosures and HELOC 

brochure. 

Under proposed § 226.5b(a)(1), 

creditors would be required to provide 

the ‘‘Key Questions’’ document in a 

prominent location on or with the 

application. Proposed comment 

5b(a)(1)–6 provides guidance to 

creditors for how to comply with the 

prominent location requirement when 

the document is given in either paper or 

electronic form. Proposed comment 

5b(a)(1)–6.i provides that when the 

‘‘Key Questions’’ document is provided 

in paper form, the document is 

prominently located, for example, if the 

document is on the same page as an 

application. If the document appears 

elsewhere, it is deemed to be 

prominently located if the application 

contains a clear and conspicuous 

reference to the location of the 

document and indicates that the 

document provides information about 

HELOCs. 

With respect to disclosure of the ‘‘Key 

Questions’’ document in electronic 

form, the Board proposes to move 

current comment 5b(a)(1)–5, which 

provides guidance on providing the 

application disclosures and the HELOC 

brochure on or with a blank application 

that is made available to the consumer 

in electronic form, to proposed 

comment 5b(a)(1)–6.ii and to apply this 

guidance to the ‘‘Key Questions’’ 

document. In particular, proposed 

comment 5b(a)(1)–6.ii provides that 

generally, creditors must provide the 

‘‘Key Questions’’ document in a 

prominent location on or with a blank 

application that is made available to the 

consumer in electronic form, such as on 

a creditor’s Internet Web site. Creditors 

would have flexibility in satisfying this 

requirement. Under proposed comment 

5b(a)(1)–6, methods creditors could use 

to satisfy the requirement include, but 

are not limited to, the following 

examples. First, the ‘‘Key Questions’’ 

document could automatically appear 

on the screen when the application 

appears. Second, the ‘‘Key Questions’’ 

document could be located on the same 

Web page as the application (whether or 

not they appear on the initial screen), if 

the application contains a clear and 

conspicuous reference to the location of 

the document and indicates the 

document includes information about 

HELOCs. Third, creditors could provide 

a link to the electronic ‘‘Key Questions’’ 

document on or with the application as 

long as consumers cannot bypass the 

document before submitting the 

application. The link would take the 

consumer to the document, but the 

consumer need not be required to scroll 

completely through the document. 

Fourth, the ‘‘Key Questions’’ document 

could be located on the same Web page 

as the application without necessarily 

appearing on the initial screen, 

immediately preceding the button that 

the consumer will click to submit the 

application. Whatever method is used, a 

creditor would not need to confirm that 

the consumer has read the ‘‘Key 

Questions’’ document. 

5b(a)(2) Electronic Disclosures 

Current § 226.5b(a)(3) provides that 

for an application accessed by the 


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consumer in electronic form, the 

application disclosures and HELOC 

brochure may be provided to the 

consumer in electronic form on or with 

the application. Current comment 

5b(a)(3)–1 provides guidance on when 

the application disclosures and HELOC 

brochure must be in electronic form. 

Specifically, current comment 5b(a)(3)– 

1 provides that if a consumer accesses 

a HELOC application electronically 

(other than as described below), such as 

online at a home computer, the creditor 

must provide the application 

disclosures and HELOC brochure in 

electronic form (such as with the 

application form on its Web site) in 

order to meet the requirement to 

provide disclosures in a timely manner 

on or with the application. If the 

creditor instead mailed paper 

disclosures to the consumer, this 

requirement would not be met. In 

contrast, if a consumer is physically 

present in the creditor’s office, and 

accesses a HELOC application 

electronically, such as via a terminal or 

kiosk (or if the consumer uses a terminal 

or kiosk located on the premises of an 

affiliate or third party that has arranged 

with the creditor to provide applications 

to consumers), the creditor may provide 

the application disclosures and HELOC 

brochure in either electronic or paper 

form, provided the creditor complies 

with the timing, delivery, and 

retainability requirements of the 

regulation. 

The Board proposes to move current 

§ 226.5b(a)(3) and current comment 

5b(a)(3)–1 to proposed § 226.5b(a)(2) 

and proposed comment 5b(a)(2)–1, 

respectively, and to apply these 

provisions to the ‘‘Key Questions’’ 

document. Specifically, proposed 

§ 226.5b(a)(2) provides that for an 

application accessed by the consumer in 

electronic form, the ‘‘Key Questions’’ 

document may be provided to the 

consumer in electronic form on or with 

the application. In addition, proposed 

comment 5b(a)(2)–1 provides guidance 

on when the ‘‘Key Questions’’ document 

must be in electronic form. Specifically, 

proposed comment 5b(a)(2)–1 provides 

that if a consumer accesses a HELOC 

application electronically (other than as 

described below), such as online at a 

home computer, the creditor must 

provide the ‘‘Key Questions’’ document 

in electronic form (such as with the 

application form on its Web site) in 

order to meet the requirement to 

provide the document in a timely 

manner on or with the application. If 

the creditor instead mailed the ‘‘Key 

Questions’’ document in paper form to 

the consumer, the requirement that the 

‘‘Key Questions’’ document be provided 

on or with the application would not be 

met. In contrast, if a consumer is 

physically present in the creditor’s 

office, and accesses a HELOC 

application electronically, such as via a 

terminal or kiosk (or if the consumer 

uses a terminal or kiosk located on the 

premises of an affiliate or third party 

that has arranged with the creditor to 

provide applications to consumers), the 

creditor may provide the ‘‘Key 

Questions’’ document in either 

electronic or paper form, provided the 

creditor complies with the timing, 

delivery, and retainability requirements 

of the regulation. 

5b(a)(3) Duties of Third Parties 

Current § 226.5b(c), which 

implements TILA Section 127A(c), 

provides that persons other than the 

creditor who provide applications to 

consumers for HELOC plans generally 

must provide the HELOC brochure at 

the time an application is provided. 15 

U.S.C. 1637a(c). If such persons have 

the application disclosures for a 

creditor’s HELOC plan, they also must 

provide the disclosures at the time an 

application is provided. Current 

comment 5b(c)–1 clarifies that although 

third parties who give applications to 

consumers for HELOC plans must 

provide the HELOC brochure in all 

cases, such persons are required to 

provide the application disclosures only 

in certain instances. A third party has 

no duty to obtain application 

disclosures about a creditor’s HELOC 

plan or to create a set of disclosures 

based on what it knows about a 

creditor’s plan. If, however, a creditor 

provides the third party with 

application disclosures along with its 

application form, the third party must 

give the disclosures to the consumer 

with the application form. Current 

comment 5b(c)–1 also provides that the 

duties under current § 226.5b(c) are 

those of the third party; the creditor is 

not responsible for ensuring that a third 

party complies with those obligations. 

Current comment 5b(c)–1 further 

provides that if an intermediary agent or 

broker takes an application over the 

telephone or receives an application 

contained in a magazine or other 

publication, current footnote 10a 

permits that person to mail the 

application disclosures and the HELOC 

brochure within three business days of 

receipt of the application. In addition, 

current comment 5b(e)–2 provides that 

if a creditor determines that third party 

has provided a consumer with the 

required HELOC brochure, the creditor 

need not give the consumer a second 

brochure. 

The Board proposes to delete current 

§ 226.5b(c) and current 5b(c)–1 as 

obsolete. As discussed above and in 

more detail in the section-by-section 

analysis to proposed § 226.5b(b)(1), the 

Board proposes to delete the 

requirement that the application 

disclosures and HELOC brochure be 

provided on or with an application for 

a HELOC plan. Regarding obligations on 

third parties to provide disclosures on 

or with HELOC applications, the Board 

proposes in new § 226.5b(a)(3) to 

require persons other than the creditor 

who provide applications to consumers 

for HELOC plans to provide the ‘‘Key 

Questions’’ document on or with 

HELOC applications (except for 

telephone applications, discussed 

below). This proposed requirement on 

third parties generally to provide the 

‘‘Key Questions’’ document on or with 

HELOC applications is consistent with 

the requirement in current § 226.5b(c) 

that third parties must provide the 

HELOC brochure on or with HELOC 

applications. 

Nonetheless, unlike current 

§ 226.5b(c), which does not require a 

third party to provide the HELOC 

brochure with applications the third 

party makes available in magazines and 

other publications, proposed 

§ 226.5b(a)(3) requires third parties to 

provide the ‘‘Key Questions’’ document 

with these HELOC applications. As 

discussed above regarding a creditor’s 

duty to provide the ‘‘Key Questions’’ 

document with HELOC applications in 

magazines or other publications, the 

Board believes that requiring the ‘‘Key 

Questions’’ document to be disclosed 

with applications in magazines or other 

publications would not place undue 

burdens on third parties because the 

‘‘Key Questions’’ document is a single 

page. In addition, requiring the ‘‘Key 

Questions’’ document to be given with 

applications in magazines or other 

publications would benefit consumers 

by providing with the application 

information about HELOC terms that are 

important for consumers to consider 

when selecting a home-equity product. 

The Board solicits comments on this 

approach. 

Under proposed § 226.5b(a)(3), third 

parties would not be required to provide 

the ‘‘Key Questions’’ document with 

respect to telephone applications. 

Proposed comment 5b(a)(3)–3 clarifies 

that for telephone applications taken by 

a third party, the creditor would have 

the duty to provide the ‘‘Key Questions’’ 

document within three days following 

receipt of the consumer’s application by 

the creditor (but not later than account 

opening). The Board believes that 

imposing a separate duty on a third 


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party to provide the ‘‘Key Questions’’ 

document for telephone applications is 

unnecessary, because the creditor would 

be required under proposed 

§ 226.5b(a)(1) to provide the ‘‘Key 

Questions’’ document and the early 

HELOC disclosures (as discussed in 

more detail in the section-by-section 

analysis to proposed § 226.5b(b)(1)) 

within three days after the application 

has been received by the creditor (but 

not later than account opening). 

Proposed comment 5b(a)(3)–1 

provides that the duties to provide the 

‘‘Key Questions’’ document under 

proposed § 226.5b(a)(3) are those of the 

third party; the creditor would not 

responsible for ensuring that a third 

party complies with those obligations. 

This proposed comment is consistent 

with current guidance in current 

comment 5b(c)–1. Proposed comment 

5b(a)(3)–2 provides that if a creditor 

determines that a third party has 

provided a consumer with the ‘‘Key 

Questions’’ document, the creditor need 

not give the consumer a second copy of 

the document. This proposed comment 

is consistent with current guidance in 

comment 5b(e)–2 regarding disclosure 

of the HELOC brochure. 

5b(b) Home-Equity Disclosures Provided 

No Later Than Account-Opening or 

Three Business Days After Application, 

Whichever Is Earlier 

5b(b)(1) Timing 

Current § 226.5b(b), which 

implements TILA Section 

127A(b)(1)(A), generally requires 

creditors to provide to the consumer 

two types of disclosures at the time an 

application for a HELOC is provided: 

Application disclosures and the HELOC 

brochure. 15 U.S.C. 1637a(b)(1)(A). The 

Board proposes to delete current 

§ 226.5b(b). As discussed in more detail 

above in the section-by-section analysis 

to proposed § 226.5b(a), the Board 

proposes no longer to require creditors 

to disclose the HELOC brochure to 

consumers on or with HELOC 

applications. In addition, as discussed 

below, the Board proposes to replace the 

application disclosures with 

transaction-specific HELOC disclosures 

(the ‘‘early HELOC disclosures’’) that 

must be given within three business 

days after application (but no later than 

account opening). See proposed 

§ 226.5b(b)(1). 

The application disclosures that a 

creditor generally must provide to a 

consumer on or with an application for 

a HELOC plan must contain details 

about the creditor’s HELOC plan, 

including the length of the draw and 

repayment periods, how the minimum 

required payment is calculated, whether 

a balloon payment will be owed if a 

consumer only makes minimum 

required payments, payment examples, 

and what fees are charged by the 

creditor to open, use, or maintain the 

plan. The application disclosures do not 

include information dependent on the 

value of the dwelling or a borrower’s 

creditworthiness, such as a credit limit 

or the APRs offered to the consumer, 

because the application disclosures are 

provided before underwriting takes 

place. 

In the proposed rule implementing 

the Mortgage Disclosure Improvement 

Act of 2008 (contained in Sections 

2501–2503 of the Housing and 

Economic Recovery Act of 2008, Pub. L. 

110–289, enacted on July 30, 2008, as 

amended by the Emergency Economic 

Stabilization Act of 2008, Pub. L. 110– 

343, enacted on October 3, 2008) 

(MDIA), the Board solicited comment on 

the timing of HELOC disclosures. 73 FR 

74989 (December 10, 2008). MDIA, 

which applies only to closed-end 

mortgage transactions, requires that 

early mortgage disclosures be provided 

no later than three business days after 

application and seven business days 

before consummation of the loan. The 

Board noted that the timing of HELOC 

application disclosures is not affected 

by MDIA, but solicited comment on 

whether it would be necessary or 

appropriate to change the timing of the 

HELOC application disclosures and, if 

so, what changes should be made. The 

Board asked whether transactionspecific disclosures (such as the APR, 

an itemization of fees, and potential 

payment amounts) should be required 

after application and earlier than 

account opening, at least in some 

circumstances. The Board noted that 

many consumers take a major draw on 

the account immediately upon opening 

it, to fund a home purchase, for 

example, or pay for an immediate large 

expense such as a college tuition bill. 

The Board asked commenters to address 

whether a requirement to disclose the 

final HELOC terms, including the APR 

and fees, three days before account 

opening would substantially benefit 

consumers who plan to take a draw 

immediately. The Board also requested 

comment on whether the potential costs 

of such a requirement would outweigh 

the potential benefits. 

Financial institution commenters 

opposed requiring disclosures based on 

the amount of an initial draw on the line 

of credit to be given in advance of 

account opening. Commenters 

contended that it would be 

impracticable to provide disclosures 

based on the amount of an initial draw, 

because the creditor, at the time 

disclosures would be required, would 

have no way of knowing the amount of 

the draw, or even whether the consumer 

planned to take a draw immediately 

upon account opening. Commenters 

argued that it would be difficult for 

creditors to discern the consumer’s 

intent prior to account opening. The 

consumer might not have plans at the 

time of the disclosures regarding the 

initial draw; thus, even if the creditor 

asked the consumer, the creditor might 

still be unable to obtain this 

information. Commenters also 

contended that consumers might need 

funds soon and that in such cases the 

enforced three-day waiting period 

would be more disadvantageous than 

beneficial to consumers. 

Another commenter discussed the 

possibility of two separate timing 

requirements—one for cases in which 

the amount of the initial draw is known, 

and another in which this amount is not 

known—but argued that such a rule 

would be difficult for creditors to 

manage correctly. Other commenters 

argued generally that existing 

disclosures provide adequate 

information for consumers and that 

imposing the suggested timing 

requirement would impose undue 

burdens and costs on creditors. 

Consumer group commenters argued 

that HELOCs are widely used by 

creditors in place of closed-end second 

mortgages, and that some creditors use 

HELOCs for first mortgages as well, to 

avoid having to provide closed-end 

TILA disclosures. Accordingly, these 

commenters argued that HELOC 

creditors should be required to disclose 

the expected total of payments, finance 

charge, and payment schedule. One 

consumer group commenter stated that 

the differences in content and timing 

between closed-end mortgage 

disclosures and HELOC disclosures 

makes it difficult for consumers 

effectively to comparison shop between 

these two types of credit, and thus 

difficult to make meaningful choices. 

The commenter also argued that since 

creditors must revise their systems to 

comply with MDIA for closed-end 

mortgage loans, complying with the 

same rules for HELOCs would cause 

little additional expense. 

The Board believes that providing 

disclosures that would be transactionspecific, based on the amount of an 

initial draw, or on expected amounts of 

draws and payments over the life of the 

plan, would not be practicable. In 

addition, the Board believes that 

requiring the account-opening HELOC 

disclosures to be provided some period, 

such as three or seven business days, in 


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13An American Bankers Association (ABA) 

survey reported that the average business days 

between application and closing for HELOCs and 

home equity loans ranged from 8 days for larger 

institutions to 10 days for smaller institutions. 

American Bankers Ass’n, ‘‘ABA Home Equity 

Lending Survey Report’’ (2005), pp. 18 and 71. 

14The rules regarding refundability of fees, 

discussed in more detail in the section-by-section 

analysis to §§ 226.5b(d) and (e) below, would 

permit consumers to obtain a refund of such fees 

in some cases; however, most participants were not 

aware of this fact when they expressed their 

preference for the more transaction-specific 

disclosure. 

15Remarks of Rep. Price on H.R. 3011, the Home 

Equity Loan Consumer Protection Act of 1988, Pub. 

L., 100–709, enacted on Nov. 23, 1988, Congr. Rec., 

H4472 (June 20, 1988). 

advance of account opening could 

unnecessarily delay the process of 

opening a HELOC in some cases and 

thus could disadvantage some 

consumers.13

The Board nevertheless believes that 

consumers could benefit from receiving 

early HELOC disclosures that are more 

transaction-specific than the application 

disclosures provided under the current 

regulation. Therefore, the proposal 

provides for early HELOC disclosures to 

be given within three business days 

after application or no later than 

account opening, whichever is earlier. 

The Board anticipates that in most cases 

account opening will not occur prior to 

three business days after application, 

and the early HELOC disclosures will be 

given at least some days in advance of 

account opening. Further, as discussed 

in more detail in the section-by-section 

analysis to proposed § 226.5b(c), the 

proposal requires early HELOC 

disclosures to be based on (1) the actual 

APR for which the consumer qualifies 

(unlike the application disclosures, 

which do not include a consumerspecific APR) and (2) the amount of the 

credit limit for which the consumer 

likely qualifies (unlike the current 

application disclosures, which include 

disclosures based on a hypothetical 

draw of $10,000). The Board proposes 

this rule pursuant to its authority in 

TILA Section 105(a) to make 

adjustments and exceptions to the 

requirements in TILA to effectuate the 

statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uniformed use of 

credit. See 15 U.S.C. 1601(a), 1604(a). 

The Board believes that to assure a 

meaningful disclosure of the credit 

terms of a HELOC, so that consumers 

can fully understand the terms offered 

on the HELOC, it is necessary and 

proper to adjust the timing of the 

HELOC disclosures from at-application 

to within three business days after 

application (but no later than account 

opening). 

Consumer testing conducted by the 

Board on HELOC disclosures supports 

this proposed approach. In the first two 

rounds of testing, some participants 

reviewing a disclosure based on the 

current requirements for the application 

disclosures either tried to find an 

interest rate applicable to their plan and 

were surprised to learn that such a rate 

is not contained in the disclosure, or 

incorrectly assumed that one of the rates 

shown in the disclosure (which are 

hypothetical, not actual, rates) was the 

rate that was being offered to them. In 

subsequent testing of a disclosure form 

with more transaction-specific 

information (including the APR and 

credit limit for which the consumer 

qualified), participants indicated they 

would prefer to receive a transactionspecific disclosure, as opposed to a 

more generic disclosure at application 

(such as the one provided under the 

current regulation), even if this choice 

meant that the consumer would not 

receive any disclosure of HELOC plan 

terms at the time of application. 

Participants indicated that the APR and 

the credit limit offered on a HELOC plan 

are two of the most important pieces of 

information that they want to know in 

deciding whether to open a HELOC. The 

participants said that they would still 

prefer to receive transaction-specific 

disclosures soon after application rather 

than generic disclosures at application 

even if they were required to pay an 

application fee before receiving the 

later, more transaction-specific 

disclosure.14 These findings are 

consistent with the findings in the 

Board’s testing of closed-end mortgage 

disclosures, as discussed in the proposal 

issued by the Board on closed-end 

mortgages published elsewhere in 

today’s Federal Register. 

The proposal regarding the early 

HELOC disclosures is also supported by 

the legislative history of the Home 

Equity Loan Act. The chief sponsor of 

the Act, Representative David Price, 

explained that the disclosure provisions 

of the bill (H.R. 3011) were enacted to 

address concerns about the then-current 

law on HELOC disclosures, under 

which ‘‘a consumer may never be 

advised about the essential features of 

his or her home-equity loan until it’s 

time to sign the full agreement.’’ 15 It 

appears that the intent of the legislation 

was to provide the consumer 

information about the consumer’s 

particular HELOC, based on the belief 

that transaction-specific information 

could be given at the time of 

application. Because transactionspecific information is not available 

until after application, the Board 

believes that the proposed approach of 

requiring disclosures to contain more 

transaction-specific information, and to 

be given within three business days 

after application, is in accord with the 

congressional intent. 

The Board notes that delaying the 

early HELOC disclosures until three 

days after application would not result 

in added cost to a consumer, because as 

noted above, and as further discussed in 

the section-by-section analysis to 

proposed § 226.5b(d) and (e), the 

consumer has the right to a refund of 

any fees paid in connection with the 

HELOC for three business days after the 

consumer receives the disclosures. In 

addition, if the disclosed terms change 

after the early HELOC disclosures are 

provided but before the plan is opened, 

the consumer has the right to a refund 

of any fees at any time before account 

opening. 

Substitution of account-opening 

disclosures for early HELOC disclosures. 

Proposed § 226.5b(b)(1) provides that 

the early HELOC disclosures must be 

provided within three business days 

after application, but no later than 

account opening. Account opening 

might be unlikely to occur sooner than 

three business days after application, 

but this situation could arise. In that 

event, under the proposal, a creditor 

would be required to provide both the 

early HELOC disclosures under 

proposed § 226.5b(b)(1) and accountopening disclosures under proposed 

§ 226.6. As discussed in more detail in 

the section-by-section analysis to 

proposed § 226.6, the Board proposes 

that certain account-opening disclosures 

must be disclosed in a tabular format. 

Under the proposal, the accountopening summary table would not be 

identical to the table containing the 

early HELOC disclosures. For example, 

the table containing the early HELOC 

disclosures would show and compare 

two payment options offered on the 

HELOC (unless a creditor offers only 

one), while the account-opening 

summary table would show only the 

payment plan chosen by the consumer. 

In addition, the table containing the 

early HELOC disclosures contains a 

summary of fees, while the accountopening summary table shows fees in 

greater detail. 

The Board solicits comment on 

whether, and if so in what 

circumstances, creditors should be 

permitted to substitute the accountopening summary table for the table 

containing the early HELOC disclosures 

in situations where the early HELOC 

disclosures are required to be given at 

the time the account is opened (because 


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43452 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

account opening occurs within three 

business days after application). For 

example, the regulation could provide 

that, because the account-opening 

summary table shows only one HELOC 

payment plan, the account-opening 

summary table would be permitted to be 

used in place of the early HELOC 

disclosures only if the creditor offers 

only one payment plan or the consumer 

had already chosen a plan before 

account opening. The Board also 

requests comment on how frequently 

account opening for HELOCs occurs 

within three business days after 

application. 

Denial or withdrawal of application. 

Current footnote 10a provides that the 

application disclosures and HELOC 

brochure may be delivered or placed in 

the mail not later than three business 

days following receipt of a consumer’s 

application for applications in 

magazines or other publications, or 

when the application is received by 

telephone or through an intermediary 

agent or broker. Current comment 5b(b)– 

5 provides that in situations where 

current footnote 10a permits the creditor 

a three-day delay in providing 

application disclosures and the HELOC 

brochure, if the creditor determines 

within that period that an application 

will not be approved, the creditor need 

not provide the consumer with the 

application disclosures or HELOC 

brochure. Similarly, if the consumer 

withdraws the application within this 

three-day period, the creditor need not 

provide the application disclosures or 

the HELOC brochure. 

The Board proposes to move this 

comment to proposed comment 

5b(b)(1)–1 and apply this comment to 

disclosure of the early HELOC 

disclosures. As discussed above, 

§ 226.5b(b)(1) provides that creditors 

must deliver or mail the early HELOC 

disclosures to a consumer not later than 

account opening or three business days 

following receipt of a consumer’s 

application by the creditor, whichever is 

earlier. The Board also proposes to add 

new comment 5b(b)(1)–2 to cross 

reference the definition of ‘‘business 

day’’ contained in § 226.2(a)(6). 

Proposed comment 5b(b)(1)–1 provides 

that if the creditor determines within 

this three-day period that an application 

will not be approved, the creditor would 

not need to provide the early HELOC 

disclosures. Similarly, under this 

proposed comment, if a consumer 

withdraws the application within this 

three-day period, the creditor would not 

need to provide the early HELOC 

disclosures. 

5b(b)(2) Form of Disclosures; Tabular 

Format 

Tabular format. Current 

§ 226.5b(a)(1), which implements TILA 

Section 127A(b)(2)(B), provides that the 

application disclosures must be made 

clearly and conspicuously and generally 

must be grouped together and 

segregated from all unrelated 

information. 15 U.S.C. 1637a(b)(2)(B). 

Nonetheless, several application 

disclosures are not required to be 

grouped together with other application 

disclosures. Specifically, current 

§ 226.5b(a)(1), which in part implements 

TILA Section 127A(b)(2)(D), provides 

that disclosures about variable rates 

offered on an HELOC plan that are 

required to be disclosed as part of the 

application disclosures may be grouped 

together with the other application 

disclosures, or may be provided 

separately from the other application 

disclosures. 15 U.S.C. 1637a(b)(2)(D). In 

addition, under current § 226.5b(a)(1), a 

disclosure of conditions under which a 

creditor can take certain actions under 

the plan, such as terminating the plan, 

described in current § 226.5b(d)(4)(iii), 

and an itemization of fees imposed by 

third parties to open the HELOC plan 

described in current § 226.5b(d)(8) also 

may be grouped together with the other 

application disclosures or may be 

disclosed separately. 

Current comment 5b(a)(1)–3 provides 

that while most of the application 

disclosures must be grouped together 

and segregated from all unrelated 

information, a creditor is permitted to 

include with the application disclosures 

information that explains or expands on 

the required disclosures. This comment 

also provides guidance on what types of 

information explain or expand on the 

required disclosures. 

Although the application disclosures 

generally must be grouped together and 

segregated from all unrelated 

information, current § 226.5b(a)(1) does 

not require the application disclosures 

to be disclosed in a tabular format. 

Currently, creditors generally provide 

the application disclosures in a 

narrative form, consistent with the 

current sample forms for the application 

disclosures set forth in current G–14A 

and G–14B of Appendix G. 

Proposal. The Board proposes to 

delete current § 226.5b(a)(1) and current 

5b(a)(1)–3. As described above, the 

Board proposes to delete the 

requirement that creditors must provide 

the application disclosures required 

under current § 226.5b. Instead, the 

Board proposes to require creditors to 

provide early HELOC disclosures within 

three business days following receipt of 

the consumer’s application by the 

creditor (but not later than account 

opening). In addition, the Board 

proposes stricter format requirements 

for the proposed early HELOC 

disclosures than currently are required 

for the application disclosures. 

Specifically, proposed § 226.5b(b)(2)(i) 

requires that the early HELOC 

disclosures generally must be provided 

in the form of a table with headings, 

content, and format substantially similar 

to any of the applicable tables found in 

proposed G–14 in Appendix G. 

Proposed comment 5b(b)(2)–1 clarifies 

that proposed § 226.5b(b)(2)(i) generally 

requires that the headings, content and 

format of the tabular disclosures be 

substantially similar, but need not be 

identical, to the applicable tables in 

proposed G–14 to Appendix G. Under 

the proposal, creditors would not be 

allowed to include in the table 

information that is not specifically 

required or permitted to be disclosed in 

the table, as set forth in proposed 

§ 226.5b(c)(4)(ii) through (c)(19). 

Creditors would be required to place 

certain information, such as the name 

and address of the borrower, directly 

above the table, in a format substantially 

similar to any of the applicable tables 

found in proposed G–14 in Appendix G. 

See proposed § 226.5b(b)(2)(iii). 

Creditors would be required to place 

certain information, such as a statement 

that the consumer is not required to 

accept the disclosed terms, directly 

below the table, in a format 

substantially similar to any of the 

applicable tables found in proposed G– 

14 in Appendix G. See proposed 

§ 226.5b(b)(2)(iv). Creditors could 

include other information outside the 

table. See proposed § 226.5b(b)(2)(v). 

The Board proposes this rule pursuant 

to its authority in TILA Section 105(a) 

to make adjustments and exceptions to 

the requirements in TILA to effectuate 

the statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uninformed use of 

credit. See 15 U.S.C. 1601(a), 1604(a). 

The proposed requirements that the 

early HELOC disclosures must be 

provided in a table (or directly above or 

below the table) and no other 

information may be disclosed in the 

table is consistent with TILA Section 

127A(b)(2)(B), which generally requires 

the application disclosures to be 

segregated from all unrelated 

information. 

As discussed above, creditors 

typically provide the application 

disclosures in a narrative form, 

consistent with the model forms for the 


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application disclosures set forth in 

current Home-equity Samples G–14A 

and G–14B of Appendix G. In the 

consumer testing conducted by the 

Board on HELOC disclosures, the Board 

tested application disclosures in a 

narrative form, designed to simulate 

those currently in use. Participants in 

consumer testing found this form 

difficult to read and understand, and 

their responses to follow-up questions 

showed that they also had difficulty 

identifying specific information in the 

text. Participants who saw forms that 

were structured in a tabular format, on 

the other hand, commented that the 

information was easier to understand 

and had more success answering 

comprehension questions. These results 

regarding the benefit of disclosing 

information in a tabular format are 

consistent with the results of research 

that the Board conducted on credit card 

disclosures in relation to the January 

2009 Regulation Z Rule. (See 

§§ 226.5a(a)(2), 226.6(b)(1), 226.9(b)(3), 

226.9(c)(2)(iii)(B) and 226.9(g)(3)(iii) for 

certain disclosures applicable to openend (not home-secured) credit that must 

be disclosed in a tabular format.) For 

these reasons, the Board proposes to 

require that the early HELOC 

disclosures generally must be provided 

in the form of a table with headings, 

content, and format substantially similar 

to any of the applicable tables found in 

proposed G–14 in Appendix G. 

Unlike with current § 226.5b(a)(1), 

under the proposal, creditors would not 

be allowed to disclose information 

about variable rates pursuant to 

proposed § 226.5b(c)(10) separately from 

the other early HELOC disclosures. See 

proposed § 226.5b(b)(2)(i) and (c)(10). 

The Board proposes to require the 

variable-rate information to be disclosed 

in the table with the other early HELOC 

disclosures. The Board proposes this 

rule pursuant to its authority in TILA 

Section 105(a) to make adjustments and 

exceptions to the requirements in TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 

ability to compare credit terms and 

helping consumers avoid the uniformed 

use of credit. See 15 U.S.C. 1601(a), 

1604(a). In the consumer testing 

conducted by the Board on HELOC 

disclosures, participants indicated that 

information about the current rate on 

the plan (based on the current value of 

the index and margin) was one of the 

most important pieces of information 

that the participants wanted to know as 

part of the early HELOC disclosures. 

Requiring creditors to disclose the 

current rate offered on the plan, along 

with other variable-rate information, in 

the table, as proposed, would better 

ensure that consumers are aware of and 

understand those terms. As discussed 

above, in the consumer testing on 

HELOC disclosures, participants were 

more likely to notice and understand 

information when it was presented in a 

tabular format, than when it was 

presented in a narrative form. In 

addition, as discussed in more detail 

below in the section-by-section analysis 

to proposed § 226.5b(c)(9)(iii), 

information about sample payments is 

required to be disclosed in the table, 

and these sample payments are 

calculated using the rates applicable to 

the HELOC plan. Requiring information 

about rates and certain other variablerate information to be disclosed in the 

table would allow consumers to 

understand how the sample payments 

relate to the rates offered on the plan. 

In addition, unlike current 

§ 226.5b(a)(1), the Board proposes to 

require that information about one-time 

fees imposed by third parties to open 

the HELOC plan must be disclosed in 

the table provided as part of the early 

HELOC disclosures. See proposed 

§ 226.5b(b)(2)(i) and (c)(11). Again, 

participants in the consumer testing 

conducted by the Board on HELOC 

disclosures indicated that information 

about fees to open the HELOC account 

was important information that they 

want to know as part of the early 

HELOC disclosures. Requiring creditors 

to disclose information about one-time 

fees imposed by third parties to open 

the HELOC plan in the table would 

better ensure that consumers are aware 

of these fees. In addition, as discussed 

in more detail below in the section-bysection analysis to proposed 

§ 226.5b(c)(11), under the proposal, 

creditors would be required to disclose 

in the table one-time fees imposed by 

the creditor to open the HELOC plan. 

Requiring creditors to disclose all onetime fees to open the HELOC plan in the 

table, regardless of whether they are 

charged by the creditor or by a third 

party, would enable consumers to 

understand better the total fees that they 

would be required to pay to open the 

HELOC plan. In addition, the Board 

believes that highlighting all one-time 

fees to open the HELOC plan in the 

table may facilitate consumer shopping 

for HELOC plans, by helping consumers 

to compare easily these fees from one 

HELOC plan to another. 

As discussed above, current 

§ 226.5b(a)(1) provides that a disclosure 

of the conditions under which a creditor 

may take certain actions under the plan, 

such as terminating the plan, described 

in current § 226.5b(d)(4)(iii) may be 

disclosed with the application 

disclosures that must be segregated or 

disclosed separately from the segregated 

application disclosures. As discussed in 

more detail in the section-by-section 

analysis to proposed § 226.5b(c)(7), 

under the proposal, a creditor would not 

be allowed to include in the table a 

disclosure of the conditions under 

which a creditor can take certain actions 

under the plan, such as terminating the 

plan, as described in proposed 

§ 226.5b(c)(7) (although the fact that the 

creditor may take these actions under 

certain circumstances must be disclosed 

in the table under proposed 

§ 226.5b(c)(7)). The Board believes that 

including a disclosure of the conditions 

in the table could lead to ‘‘information 

overload’’ for consumers and could 

distract from other information in the 

table. The conditions under which a 

creditor may take certain actions, such 

as terminating the HELOC plan, will 

likely not change from creditor to 

creditor, and thus this information may 

not be useful to consumers in 

comparing one HELOC plan to another. 

A creditor would be permitted to 

include this information with the early 

HELOC disclosures table, as long as it is 

outside the table. See proposed 

§ 226.5b(b)(2)(v). 

Precedence of certain disclosures. 

Current § 226.5b(a)(2), in implementing 

TILA Section 127A(b)(2)(C), provides 

that the following application 

disclosures must precede all other 

required application disclosures: (1) A 

statement that the consumer should 

make or otherwise retain a copy of the 

application disclosures; (2) a statement 

of the time by which the consumer must 

submit an application to obtain specific 

terms disclosed, an identification of any 

disclosed term that is subject to change 

prior to opening the plan, and an 

explanation of the right to refund of all 

fees paid in connection with the 

application if a disclosed term changes 

prior to opening the plan and the 

consumer therefore elects not to open 

the plan; (3) a statement that the 

creditor will acquire a security interest 

in the consumer’s dwelling and that loss 

of the dwelling may occur in the event 

of default; and (4) a statement that, 

under certain conditions, the creditor 

may terminate the plan and require 

payment of the outstanding balance in 

full in a single payment and impose fees 

upon termination; prohibit additional 

extensions of credit or reduce the credit 

limit; and, as specified in the initial 

agreement, implement certain changes 

in the plan, and a statement that the 

consumer may receive, upon request, 

information about the conditions under 

which such actions may occur. 


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43454 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

The Board proposes no longer to 

require the above statutorily required 

disclosures to precede other information 

provided as part of the proposed early 

HELOC disclosures. The Board proposes 

this rule pursuant to its authority in 

TILA Section 105(a) to make 

adjustments and exceptions to the 

requirements in TILA to effectuate the 

statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uninformed use of 

credit. See 15 U.S.C. 1601(a), 1604(a). 

As discussed below, based on consumer 

testing, the Board believes that this 

information is more effectively 

presented when grouped together with 

related information. As discussed in 

more detail below in the section-bysection analysis to proposed § 226.5b(c), 

the Board also proposes to delete the 

statement that the consumer should 

make or otherwise retain a copy of the 

disclosures because under the proposal, 

the early HELOC disclosures must be 

given in a retainable form. In addition, 

as discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.5b(c)(4), the statement of the time 

by which the consumer must submit an 

application to obtain specific terms 

disclosed also would be deleted as 

unnecessary because the early HELOC 

disclosures would be given after the 

application has been submitted. 

1. Disclosure of which terms in the 

table are subject to change prior to the 

consumer opening the plan: Under the 

proposal, a creditor would be required 

to disclose which terms in the table, if 

any, are subject to change prior to the 

consumer opening the plan. Under the 

proposal, this information must be 

provided directly below the table with 

other general information that a 

consumer may want to consider when 

deciding whether to open the HELOC 

plan being offered (in contrast to 

information in the table that provides 

specific information about the terms 

being offered on the HELOC plan). 

Specifically, this disclosure must be 

grouped with the following disclosures: 

(1) A disclosure informing the consumer 

that he or she is not required to accept 

the terms described in the table; (2) a 

statement that the consumer may be 

entitled to a refund of all fees paid if the 

consumer decides not to open the plan, 

(3) a cross reference to the disclosure in 

the table of a consumer’s right to a 

refund of fees paid by the consumer if 

the consumer decides not to open the 

HELOC plan for any reason within three 

business days of receiving the early 

HELOC disclosures, or any time before 

the plan is opened if any of the 

disclosed terms change (except for the 

APR), (4) a statement that if the 

consumer does not understand any 

disclosure shown in the table in the 

consumer should ask questions; and (5) 

a statement that the consumer may 

obtain additional information at the 

Web site of the Board, and a reference 

to the Board’s Web site. To help ensure 

that the statement about which terms in 

the table may change prior to account 

opening is noticeable to consumers, the 

Board proposes to require that this 

statement be disclosed in bold text, as 

discussed in more detail below. 

2. Disclosure of right to a refund of 

fees if terms change before account 

opening: Under the proposal, the 

explanation of the right to a refund of 

fees if terms change before account 

opening and the consumer decides not 

to open the plan would be grouped 

together with information about another 

right of a consumer to receive a refund 

of fees if the consumer notifies the 

creditor that he or she does not want to 

open the HELOC account within three 

business days of receiving the early 

HELOC disclosures. Under the proposal, 

these explanations about the two rights 

to a refund of fees would be placed in 

the ‘‘Fees’’ section of the table. In the 

consumer testing conducted by the 

Board on HELOC disclosures, the Board 

tested a version of the early HELOC 

disclosures where the explanations of 

the two rights to a refund of fees were 

located directly above the table near the 

top of the early HELOC disclosures. The 

Board also tested a version of the early 

HELOC disclosures where the 

explanation was disclosed in the table 

in the ‘‘Fees’’ section. Participants were 

more likely to notice and understand 

information about the refundability of 

fees when it was provided in the table 

in the ‘‘Fees’’ section, rather than 

directly above the table near the top of 

the early HELOC disclosures. 

3. Statement about risk of loss of 

home and statement about certain 

actions that a creditor may take with 

respect to the plan: Under the proposal, 

the information about risk of loss of the 

home in case of default and the 

information about certain actions that a 

creditor may take with respect to the 

plan, such as terminating the plan, are 

identified as ‘‘risks’’ to the consumer 

and are grouped together under the 

heading ‘‘Risks,’’ along with information 

about the deductibility of interest for tax 

purposes. In consumer testing 

conducted by the Board on HELOC 

disclosures, the Board tested versions of 

the application disclosures (in a 

narrative format) where the information 

about risk of loss of the home in case of 

default and the information about 

certain actions that a creditor may take 

with respect to the plan, such as 

terminating the plan, were placed near 

the top of the application disclosures, 

but were not grouped together under a 

common heading. The Board also tested 

versions of the application disclosures 

and the early HELOC disclosures (in a 

tabular format) where the information 

was grouped in the ‘‘Risks’’ section as 

discussed above. Grouping these 

disclosures in a single ‘‘Risks’’ section 

made them more noticeable to 

participants, and made it easier for 

participants to review the information 

quickly and efficiently. 

Under the proposal, the ‘‘Risks’’ 

section would be placed at the bottom 

of the table on the second page of the 

early HELOC disclosures. In consumer 

testing by the Board on HELOC 

disclosures, the Board tested several 

different locations for the ‘‘Risks’’ 

section in the table, namely, (1) at the 

top of the table on the first page of the 

early HELOC disclosures, (2) in the 

middle of the table at the bottom of the 

first page of the early HELOC 

disclosures, and (3) at or near the 

bottom of the table on the second page 

of the early HELOC disclosures. In each 

round of the consumer testing, 

participants were asked questions to 

determine whether they noticed and 

understood the information about risk of 

the loss of the home if a consumer 

defaulted on the plan, and about the 

creditors’ right to terminate the plan in 

certain circumstances. In several rounds 

of the consumer testing, participants 

also were asked their views on the 

placement of the ‘‘Risks’’ section in the 

table. While some participants indicated 

that they preferred to have the ‘‘Risks’’ 

section displayed at the top of the table 

on the first page because of the 

importance of the information, other 

participants preferred to have the 

‘‘Risks’’ section lower down in the table 

or at the bottom of the table on the 

second page because they were more 

interested in the specific terms of their 

line of credit, such as the APRs and the 

credit limit offered on the plan. 

Regardless of the placement of the 

‘‘Risks’’ section in the table, most 

participants noticed and understood the 

disclosure about the risk of loss of the 

home in case of default and the 

disclosure about a creditor’s right to 

terminate the plan in certain 

circumstances. 

The Board proposes to place the 

‘‘Risks’’ section at the bottom of the 

table on page two of the early HELOC 

disclosures. The information contained 

in the ‘‘Risks’’ section may not be as 

useful to the consumers as other 

information contained in the table for 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43455 

comparing one HELOC to another, such 

as the APRs and credit limit offered on 

the plan, because the information about 

risks is likely to be the same among all 

creditors. The Board seeks comment on 

this aspect of the proposal. 

Highlighting of certain disclosures. 

Proposed § 226.5b(b)(2)(vi) would 

require that certain early HELOC 

disclosures must be disclosed in bold 

text. The Board proposes this rule 

pursuant to its authority in TILA 

Section 105(a) to make adjustments and 

exceptions to the requirements in TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 

ability to compare credit terms and 

helping consumers avoid the uniformed 

use of credit. See 15 U.S.C. 1601(a), 

1604(a). 

Under the proposal, certain 

disclosures must be disclosed below the 

table because they provide general 

information that a consumer may want 

to consider when deciding whether to 

open the HELOC plan being offered (in 

contrast to information in the table that 

provides specific information about the 

terms being offered on the HELOC plan). 

To help consumers notice the 

statements that are below the table, the 

Board proposes that the following 

statements must be disclosed in bold 

text: (1) A statement that the consumer 

is not required to accept the terms 

disclosed in the table, as required under 

proposed § 226.5b(c)(2); (2) if the 

creditor has a provision for the 

consumer’s signature, a statement that a 

signature by the consumer only 

confirms receipt of the disclosure 

statement, as required under proposed 

§ 226.5b(c)(2); (3) a statement 

identifying any disclosed term that is 

subject to change prior to opening the 

plan, as required under proposed 

§ 226.5b(c)(4)(i); (4) a statement that if 

the consumer does not understand any 

disclosure required by this section the 

consumer should ask questions, as 

required under proposed 

§ 226.5b(c)(20); (5) a statement that the 

consumer may obtain additional 

information at the Web site of the Board, 

and a reference to the Board’s Web site, 

as required under proposed 

§ 226.5b(c)(21); and (6) a statement that 

the consumer may be entitled to a 

refund of all fees paid if the consumer 

decides not to open the plan, as 

required under proposed 

§ 226.5b(c)(22)(i). 

In addition, proposed § 226.5b(c) 

generally requires that certain 

information about rates, fees, the credit 

limit, and certain limitations or 

requirements on transactions, such as 

any minimum outstanding balance or 

minimum draw requirements, 

applicable to the HELOC plan must be 

disclosed to the consumer as part of the 

early HELOC disclosures. This 

information includes not only the 

percentage or dollar amounts that will 

apply, but also explanatory information 

that gives context to these figures. The 

Board seeks to enable consumers to 

identify easily the rates, fees, the credit 

limit and the dollar amounts related to 

any limitations or requirements on 

transactions disclosed in the table. 

Thus, the Board generally proposes to 

require the percentage or dollar amounts 

related to those disclosures to be 

disclosed in bold text. 

Nonetheless, the Board proposes 

several exceptions to the general rule 

that fees disclosed in the early HELOC 

disclosures table must be disclosed in 

bold text. First, while the total amount 

of account-opening fees disclosed under 

proposed § 226.5b(c)(11) would be 

required to be disclosed in bold text, the 

itemization of those fees also required to 

be disclosed under proposed 

§ 226.5b(c)(11) must not be disclosed in 

bold text. See proposed comment 

5b(b)(2)–5 provides that a creditor 

would be deemed to provide the 

itemization of the account-opening fees 

clearly and conspicuously if the creditor 

provides this information in a bullet 

format as shown in proposed Samples 

G–14(C), G–14(D) and G–14(E) in 

Appendix G. The Board believes that 

the bullet format properly highlights the 

itemization of the account-opening fees, 

and that requiring these fees also to be 

disclosed in bold text would detract 

from the total amount of accountopening fees that is disclosed in bold 

text in the same row. 

Second, under the proposal, periodic 

fees imposed by the creditor for 

availability of the plan pursuant to 

proposed § 226.5b(b)(12) that are not an 

annualized amount must not be 

disclosed in bold. Proposed comment 

5b(b)(2)–3.ii provides guidance on this 

exception for periodic fees. For 

example, if a creditor imposes a $10 

monthly maintenance fee for a HELOC 

plan, the creditor would be required to 

disclose in the table that there is a $10 

monthly maintenance fee, and that the 

fee is $120 on an annual basis. In this 

example, under the proposal, the $10 

fee disclosure must not be disclosed in 

bold, but the $120 annualized amount 

must be disclosed in bold. Under the 

proposal, the periodic fee would be 

disclosed in the same row as the 

annualized amount of the fee. The 

Board believes that requiring the 

periodic fee to be in bold text would 

detract from the annualized amount of 

the fee that is disclosed in bold text in 

the same row. The Board proposes to 

highlight in the table the annualized 

amount of a periodic fee (rather than the 

amount of the periodic fees) because the 

Board believes this annualized amount 

will be more useful to consumers in 

understanding the costs of the HELOC 

plan and deciding whether to open the 

HELOC plan offered by the creditor. 

Proposed § 226.5b(b)(2)(vi)(E) 

provides that when a creditor is 

required to disclose certain payment 

terms under proposed § 226.5b(c)(9) in a 

format substantially similar to the 

format used in any of the applicable 

tables found in proposed Samples G– 

14(C), G–14(D) and G–14(E) in 

Appendix G, the creditor must provide 

in bold text any terms and phrases that 

are shown in bold text for that 

disclosure in the applicable tables. 

Proposed comment 5b(b)(2)–3.iii 

provides guidance on this requirement. 

For example, proposed § 226.5b(c)(9) 

provides that a creditor must 

distinguish payment terms applicable to 

the draw period and payment terms 

applicable to the repayment period by 

using the heading ‘‘Borrowing Period’’ 

for the draw period and ‘‘Repayment 

Period’’ for the repayment period in a 

format substantially similar to the 

format used in any of the applicable 

tables found in proposed Samples G– 

14C) and G–14(E) in Appendix G. See 

the section-by-section analysis to 

proposed § 226.5b(c)(9). The tables 

found in proposed Samples G–14(C) and 

G–14(E) in Appendix G show the 

headings ‘‘Borrowing Period’’ and 

‘‘Repayment Period’’ in bold text, thus, 

a creditor must disclose these headings 

in bold text in providing the table. 

In addition, proposed § 226.5b(c)(9)(i) 

provides that when the length of the 

plan is definite, a creditor must disclose 

the length of the plan, the length of the 

draw period and the length of the 

repayment period, if any, in a format 

substantially similar to the format used 

in any of the applicable tables found in 

proposed Samples G–14(C) and G–14(D) 

in Appendix G. The length of the draw 

period and any repayment period are 

shown in bold text in the applicable 

tables; thus, a creditor would be 

required to provide these disclosures in 

bold text. Moreover, proposed 

§ 226.5b(c)(9)(iii)(D) requires a creditor 

to provide the sample payments and 

related information required to be 

disclosed under proposed 

§ 226.5b(c)(9)(iii) in a format 

substantially similar to the format used 

in any of the applicable tables found in 

proposed Samples G–14(C), G–14(D) 

and G–14(E) in Appendix G. Certain 

information related to these sample 

payments is shown in bold text in the 

applicable table; thus, a creditor would 


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43456 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

be required to disclose this same 

information in bold text in providing 

the table. 

As discussed in more detail below in 

the section-by-section analysis to 

proposed § 226.5b(c)(9), in the 

consumer testing conducted by the 

Board on HELOC disclosures, the Board 

found that certain formats set forth in 

the tables in proposed Samples G–14(C), 

G–14(D) and G–14(E) to Appendix G, 

such as headings to distinguish payment 

terms applicable to the draw period and 

the repayment period, were effective in 

helping participants identify and 

understand the payment terms offered 

on the plan. Thus, the Board proposes 

to require the use of these formats, and 

to require the bold text that is used in 

the formats. 

Terminology. As discussed in the 

section-by-section analysis to proposed 

§ 226.5(a)(2), the Board proposes that 

creditors offering HELOCs subject to 

§ 226.5b must use certain terminology 

when disclosing the draw period, any 

repayment period, and certain other 

terms in the early HELOC disclosures 

table. See proposed 226.5(a)(2)(ii). 

Proposed comment 5b(b)(2)–1 provides 

a cross reference to the terminology 

requirements set forth in proposed 

§ 226.5(a)(2). 

Clear and conspicuous standard. As 

discussed in the section-by-section 

analysis to proposed § 226.5(a)(1), the 

Board proposes a clear and conspicuous 

standard applicable to § 226.5b 

disclosures. Proposed comment 

5b(b)(2)–4 provides a cross reference to 

the clear and conspicuous standard 

applicable to the disclosures in 

proposed § 226.5b(b), as set forth in 

proposed comment 5(a)(1)–1. 

Other format requirements. Generally, 

the format requirements applicable to 

the early HELOC disclosures would be 

set forth in proposed § 226.5b(b)(2). 

Nonetheless, proposed § 226.5b(c)(9) 

contains formatting requirements 

applicable to certain payment terms that 

must be disclosed in the early HELOC 

disclosures table. See section-by-section 

analysis to proposed § 226.5b(c)(9). In 

addition, proposed 

§ 226.5b(c)(10)(i)(A)(1) contains 

formatting requirements applicable to 

disclosure of variable rates in the early 

HELOC disclosures table. Proposed 

comment 5b(b)(2)–2 provides a cross 

reference to the formatting requirements 

set forth in proposed § 226.5b(c)(9) and 

(c)(10). In addition, this proposed 

comment cross references proposed 

formatting requirements that would be 

applicable to information that a creditor 

would be required to provide to a 

consumer upon his or her request prior 

to account opening, as described in 

more detail in the section-by-section 

analysis to proposed § 226.5b(c)(7), 

(c)(9), (c)(14), and (c)(18). 

Electronic disclosures. Current 

§ 226.5b(a)(3) provides that for an 

application accessed by the consumer in 

electronic form, the application 

disclosures and HELOC brochure may 

be provided to the consumer in 

electronic form on or with the 

application. Guidance on providing the 

required disclosures on or with an 

application accessed by the consumer in 

electronic form is found in current 

comments 5b(a)(1)–5 and 5b(a)(3)–1. As 

discussed in the section-by-section 

analysis to proposed § 226.5b(a)(2), the 

Board proposes to move the provisions 

in current § 226.5b(a)(3) and current 

comments 5b(a)(1)–5 and 5b(a)(3)–1 to 

proposed § 226.5b(a)(2) and proposed 

comments 5b(a)(1)–6.ii and 5b(a)(2)–1, 

respectively, and to make revisions to 

those provisions. Under the proposal, 

the provisions related to electronic 

disclosures would only apply to the 

disclosure of the ‘‘Key Questions’’ 

document published by the Board that 

a creditor generally is required to 

provide with an application under 

proposed § 226.5b(a). As discussed in 

more detail in the section-by-section 

analysis to proposed § 226.5(a)(1)(iii), 

the Board is not proposing specific 

provisions on providing the early 

HELOC disclosures required under 

proposed § 226.5b(b) in electronic form. 

Thus, creditors would be required to 

obtain the consumer’s consent, in 

accordance with the E-Sign Act, to 

provide the early HELOC disclosures in 

electronic form, or else provide written 

disclosures. This proposal not to 

provide specific provisions for 

providing the early HELOC disclosures 

required under proposed § 226.5b(b) in 

electronic form is consistent with the 

Board’s prior decisions on electronic 

disclosures of early mortgage 

disclosures that are given after 

application but before consummation of 

the loan under § 226.19(a). In particular, 

in its rulemaking on electronic 

disclosures issued in November 2007, 

the Board did not include specific 

provisions for providing these early 

mortgage disclosures in electronic form, 

and thus, creditors are required to 

obtain the consumer’s consent, in 

accordance with the E-Sign Act, to 

provide the early mortgage disclosures 

in electronic form, or else provide 

written disclosures. 72 FR 63462 

(November 9, 2007); 72 FR 71058 

(December 14, 2007). 

Retainable form. Current comment 

5b(a)(1)–1 provides that the current 

application disclosures must be clear 

and conspicuous and in writing, but 

need not be in a form the consumer can 

keep. As discussed in the section-bysection analysis to § 226.5(a)(1), the 

Board proposes to require that the early 

HELOC disclosures must be provided in 

a retainable form. See proposed 

§ 226.5(a)(1)(ii)(B). Thus, the Board 

proposes to delete current comment 

5b(a)(1)–1 as obsolete. 

Disclosure of APR—more conspicuous 

requirement. Current comment 5b(a)(1)– 

2 provides a cross reference to current 

§ 226.5(a)(2), which provides that when 

the term ‘‘annual percentage rate’’ is 

required to be disclosed with a number 

in the application disclosures, the term 

‘‘annual percentage rate’’ must be more 

conspicuous than other required 

disclosures. As discussed in the sectionby-section to proposed § 226.5(a)(2), the 

Board proposes to delete the 

requirement that the term ‘‘annual 

percentage rate’’ be more conspicuous 

than other required disclosures when 

disclosed with a number. Thus, the 

Board proposes to delete current 

comment 5b(a)(1)–2 as obsolete. 

Method of providing disclosures. 

Current comment 5b(a)(1)–4 provides 

that in providing the application 

disclosures, a creditor may provide a 

single disclosure form for all of its 

HELOC plans, as long as the disclosure 

describes all aspects of the plans. For 

example, if the creditor offers several 

payment options, all payment options 

must be disclosed. Alternatively, a 

creditor has the option of providing 

separate disclosure forms for multiple 

options or variations in features. For 

example, a creditor that offers two 

payment options for the draw period 

may prepare separate disclosure forms 

for the two payment options. 

The Board proposes to delete current 

comment 5b(a)(1)–4 as obsolete. As 

discussed in more detail in the sectionby-section analysis to proposed 

§ 226.5b(c)(9), under the proposal, 

creditors would not be allowed to 

disclose all aspects of the plan in the 

table. For example, proposed § 226.5b(c) 

provides that in making the early 

HELOC disclosures, a creditor generally 

must not disclose terms applicable to a 

fixed-rate and -term payment feature 

offered during the draw period of the 

plan, unless that payment feature is the 

only payment plan offered during the 

draw period of the plan. 

In addition, as discussed in more 

detail in the section-by-section analysis 

to proposed § 226.5b(c)(9)(ii), a creditor 

would not be allowed to provide 

separate early HELOC disclosures for 

each payment option offered on the 

HELOC. Specifically, if a creditor offers 

two or more payment plans on the 

HELOC plan (excluding the fixed-rate 


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and -term payment plans described 

above unless those are the only payment 

plans offered during the draw period), a 

creditor may not provide separate early 

HELOC disclosures for each payment 

plan, but instead must disclose only two 

payment plans in the table, in 

accordance with the requirements in 

proposed § 226.5b(c)(9)(ii)(B). (Under 

the proposal, a creditor would be 

required to disclose to a consumer other 

payment plans offered by the creditor 

upon request of the consumer. See 

proposed comments 5b(c)(9)(ii)–5 and 

5b(c)(18)–2.) 

5b(b)(3) Disclosures Based on a 

Percentage 

As discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.5b(c)(11), current § 226.5b(d)(7) 

requires a creditor to provide in the 

application disclosures an itemization 

of certain fees imposed by the creditor 

to open, use, or maintain the plan, and 

these fees may be stated as a dollar 

amount or percentage of another amount 

(such as disclosing the amount of a fee 

as ‘‘2% of the credit limit’’). In addition, 

current § 226.5b(d)(10) requires a 

creditor to disclose in the application 

disclosures any limitations on the 

number of extensions of credit and the 

amount of credit that may be obtained 

during any time period, as well as any 

minimum outstanding balance and 

minimum draw requirements, stated as 

dollar amounts or percentages. In 

contrast, current § 226.5b(d)(8) requires 

a creditor to disclose in the application 

disclosures a good-faith estimate of the 

total amount of fees that may be 

imposed by third parties to open a plan 

and the creditor must disclose that total 

as either a single dollar amount or 

range. 

Under the proposal, except for 

disclosing one-time fees imposed to 

open the plan, if the amount of any fee 

required to be disclosed in the table is 

determined on the basis of a percentage 

of another amount, the percentage used 

and the identification of the amount 

against which the percentage is applied 

may be disclosed instead of the amount 

of the fee. In addition, any limitations 

on the number of extensions of credit 

and the amount of credit that may be 

obtained during any time period, as well 

as any minimum outstanding balance 

and minimum draw requirements, 

required to be disclosed under proposed 

§ 226.5b(c)(16) may be disclosed as 

dollar amounts or percentages. See 

proposed § 226.5b(b)(3). 

As discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.5b(c)(11), a creditor would be 

required to disclose in the table as part 

of the early HELOC disclosures a total 

of one-time fees to open the account, 

and this total must include fees imposed 

by the creditor and any third party. In 

addition, a creditor would be required 

to disclose an itemization of all onetime fees to open the account, regardless 

of whether those fees are imposed by a 

creditor or a third party. Both the total 

of one-time fees to open the account and 

the itemization of the fees must be 

disclosed as a dollar amount (or a range 

of dollar amounts) and may not be 

disclosed as a percentage of another 

amount. See proposed § 226.5b(b)(3) 

and (c)(11). The Board believes that 

requiring the one-time fees that are 

imposed to open the account to be 

disclosed as dollar amounts, instead of 

a percentage of another amount, would 

aid consumers’ understanding of the 

account-opening fees and may aid 

consumers in comparison shopping for 

HELOC plans. In consumer testing 

conducted on credit card disclosures in 

relation to the January 2009 Regulation 

Z Rule, the Board found that consumers 

generally understand dollar amounts 

better than percentages. As a result, the 

Board believes that requiring account 

opening fees to be disclosed as dollar 

amounts instead of percentages of 

another amount would better enable 

consumers to understand the start up 

costs of opening the HELOC plan. In 

addition, consumers could more easily 

compare the dollar amount of one-time 

account-opening fees on different 

HELOC plans if all HELOC plans are 

required to disclose the dollar amount. 

Otherwise, consumers would need to 

calculate the dollar amount themselves 

for some HELOC plans if the accountopening fees were presented as a 

percentage of another amount. 

Consistent with current § 226.5b(d)(7), 

however, under the proposal, if the 

amount of other fees that a creditor must 

disclose in the table—namely, fees 

imposed by the creditor for the 

availability of the plan, fees imposed by 

the creditor for early termination of the 

plan by the consumer and fees imposed 

for required insurance, debt cancellation 

or suspension coverage—are determined 

on the basis of a percentage of another 

amount, the percentage used and the 

identification of the amount against 

which the percentage is applied may be 

disclosed instead of the amount of the 

fee. Similarly, consistent with current 

§ 226.5b(d)(10), the proposal would 

permit a creditor to disclose the amount 

of any limitations on the number of 

extensions of credit, the amount of 

credit that may be obtained during any 

time period, any minimum outstanding 

balance and minimum draw 

requirements, required to be disclosed 

under proposed § 226.5b(c)(16) as either 

a dollar amount or percentage. The 

Board believes that allowing these fees 

and transaction requirements to be 

disclosed as a percentage of another 

amount is appropriate because these 

fees or transaction requirements 

generally would be imposed during the 

life of the plan, and thus, it may be 

difficult for a creditor to estimate a 

dollar amount for these fees or 

transaction requirements at the time that 

the early HELOC disclosures are made. 

5b(c) Content of Disclosures 

Currently, § 226.5b(d) sets forth the 

content for the application disclosures 

that a creditor must provide on or with 

the application. As explained above, 

other than the ‘‘Key Questions’’ 

document required under proposed 

§ 226.5b(a), the Board proposes to delete 

the requirement that creditors provide 

disclosures to consumers on or with 

HELOC applications. Instead, the Board 

proposes that a creditor must provide 

the early HELOC disclosures (generally 

in the form of a table) to a consumer 

within three business days following 

receipt of the consumer’s application by 

the creditor (but not later than at 

account opening). Under the proposal, 

proposed § 226.5b(c) sets forth the 

content for the early HELOC 

disclosures. 

Fixed-rate and -term feature during 

draw period. HELOC plans typically 

offer the ability to obtain advances that 

must be repaid based on a variable 

interest rate that applies to all 

outstanding balances. Some HELOC 

plans, however, also offer a fixed-rate 

and -term payment feature, where a 

consumer is permitted to repay all or 

part of the balance during the draw 

period at a fixed rate (rather than a 

variable rate) and over a specified time 

period. The Board understands that for 

most HELOC plans, consumers must 

take active steps to access the fixed-rate 

and -term payment feature; this feature 

is not automatically accessed when a 

consumer obtains advances from the 

HELOC plan. 

Current comment 5b(d)(5)(ii)–2, 

which implements TILA Section 

127A(a)(1), (a)(2), (a)(3), and (a)(8), 

provides that a creditor generally must 

disclose in the application disclosures 

terms that apply to the fixed-rate and 

-term payment feature, including the 

period during which the feature can be 

selected, the length of time over which 

repayment can occur, any fees imposed 

for the feature, and the specific rate or 

a description of the index and margin 

that will apply upon exercise of the 


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feature. 15 U.S.C. 1637a(a)(1), (a)(2), 

(a)(3), and (a)(8). 

The Board proposes to delete current 

comment 5b(d)(5)(ii)–2. The Board 

proposes that if a HELOC plan offers a 

variable-rate feature and a fixed-rate and 

-term feature during the draw period, a 

creditor generally must not disclose in 

the table the terms applicable to the 

fixed-rate and -term feature, except as 

discussed below. See proposed 

§ 226.5b(c) and proposed comment 

5b(c)–4. Instead, a creditor may disclose 

detailed information relating to the 

fixed-rate and -term feature outside of 

the table. See proposed § 226.5b(b)(2)(v). 

However, if a HELOC plan does not 

offer a variable-rate feature during the 

draw period, but only offers a fixed-rate 

and -term feature during that period, a 

creditor must disclose in the table 

information related to the fixed-rate and 

-term feature when making the 

disclosures required by proposed 

§ 226.5b(c). The Board proposes this 

rule pursuant to its authority in TILA 

Section 105(a) to make adjustments and 

exceptions to the requirements in TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 

ability to compare credit terms and 

helping consumers avoid the uniformed 

use of credit. See 15 U.S.C. 1601(a), 

1604(a). 

The Board believes that including 

information about the variable-rate 

feature and the fixed-rate and -term 

feature in the table would create 

‘‘information overload’’ for consumers. 

The terms that apply to the fixed-rate 

and -term features often differ 

significantly from the terms that apply 

to the variable-rate feature. For example, 

different APRs, fees, length of 

repayment periods, limitations on the 

number of transactions, and minimum 

transactions amounts may apply to the 

fixed-rate and -term feature than the 

variable-rate feature. In addition, 

creditors often provide consumers with 

several options related to the fixed-rate 

and -term feature, such as providing 

several lengths of repayment period 

(e.g., 3, 5, or 7 years) from which a 

consumer may choose for a particular 

advance under the fixed-rate and -term 

feature. The Board believes that 

requiring a creditor to provide all of 

these details about the fixed-rate and 

-term feature in the table would add to 

the length and complexity of the table, 

and would create ‘‘information 

overload’’ for consumers. 

Instead of requiring that all the details 

of the fixed-rate and -term feature be 

disclosed in the table, the Board 

proposes to require a creditor offering 

this payment feature (in addition to a 

variable-rate feature) to disclose in the 

table the following: (1) A statement that 

the consumer has the option during the 

draw period to borrow at a fixed interest 

rate; (2) the amount of the credit line 

that the consumer may borrow at a fixed 

interest rate for a fixed term; and (3) as 

applicable, either a statement that the 

consumer may receive, upon request, 

further details about the fixed-rate and 

-term payment feature, or, if information 

about the fixed-rate and -term payment 

feature is provided with the table, a 

reference to the location of the 

information. See proposed 

§ 226.5b(c)(18). Thus, under the 

proposal, a consumer would be notified 

in the table about the fixed-rate and 

-term payment feature, and could 

request additional information about 

this payment feature (if a creditor chose 

not to provide additional information 

about this feature outside of the table). 

In responding to a consumer’s 

request, prior to account opening, for 

additional information about the fixedrate and -term feature, a creditor would 

be required to provide this additional 

information as soon as reasonably 

possible after the request. See proposed 

comment 5b(c)–2. Additional 

information disclosed about the fixedrate and -term payment feature upon 

request (or outside the early HELOC 

disclosures table) would have to include 

in the form of a table, (1) information 

about the APRs and payment terms 

applicable to the fixed-rate and -term 

payment feature, and (2) any fees 

imposed related to the use of the fixedrate and -term payment feature, such as 

fees to exercise the fixed-rate and -term 

payment option or to convert a balance 

under a fixed-rate and -term payment 

feature to a variable-rate feature under 

the plan. See proposed comment 

5b(c)(18)–2. The Board believes that the 

above approach to providing 

information to consumers about the 

fixed-rate and -term feature enables 

consumers interested in this feature to 

obtain additional information about this 

optional feature easily and quickly, but 

does not contribute to ‘‘information 

overload’’ for consumers in general. 

Duty to respond to requests for 

information. Current comment 5b(d)–2 

provides that if the consumer, prior to 

opening a plan, requests information as 

described in the application disclosures, 

such as the current index value or 

margin, the creditor must provide this 

information as soon as reasonably 

possible after the request. The Board 

proposes to move this comment to 

proposed comment 5b(c)–2 and apply it 

to requests for additional information 

described in the early HELOC 

disclosures, namely requests for 

additional information about the 

following: (1) Fees applicable to the 

plan under proposed § 226.5b(c)(14); (2) 

the conditions under which a creditor 

may take certain actions under the plan, 

such as terminating the plan, under 

proposed § 226.5b(c)(7); (3) payment 

plans offered on the plan not described 

as part of the early HELOC disclosures 

(other than fixed-rate and -term 

payment plans unless those are the only 

payment plans offered during the draw 

period) required under proposed 

§ 226.5b(c)(9)(ii); and (4) fixed-rate and 

-term payment plans under proposed 

§ 226.5b(c)(18). The Board proposes to 

revise this comment to update the 

examples of information that a 

consumer may receive upon request 

(such as additional information on fees 

applicable to the plan or the conditions 

under which the creditor may take 

certain actions on the plan) and to 

provide a cross reference to comments 

that specifically discuss a consumer’s 

right to request the four types of 

additional information listed above. 

Disclosure of repayment phase— 

applicability of requirements. Some 

HELOC plans provide in the initial 

agreement for a repayment period 

during which no further draws may be 

taken and repayment of the amount 

borrowed is required. Current comment 

5b–4 provides that a creditor must 

disclose information relating to the 

repayment period, as well as the draw 

period, when providing the application 

disclosures. Thus, for example, a 

creditor must provide payment 

information about any repayment phase 

as well as about the draw period in the 

application disclosures, as required by 

current § 226.5b(d)(5). The Board 

proposes to move the relevant part of 

this comment to proposed 5b(c)–3, and 

to make technical revisions to the 

comment. Under the proposal, a creditor 

would be required to disclose in the 

table as part of the early HELOC 

disclosures information relating to any 

repayment period, as well as the draw 

period. 

Disclosures given as applicable. 

Current comment 5b(d)–1 provides that 

a creditor may provide the application 

disclosures described in current 

§ 226.5b(d) as applicable. For example, 

if negative amortization cannot occur in 

a HELOC plan, a reference to it need not 

be made under current § 226.5b(d)(9). 

The Board proposes to move this 

comment to proposed 5b(c)–1 and revise 

the comment to refer to the following 

proposed exceptions to the general rule 

that a creditor is only required to 

include a disclosure required under 

proposed § 226.5b(c) as applicable: 

specifically, proposed 5b(c)–1 cross 

references proposed 


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§ 226.5b(c)(9)(ii)(B)(3) and 

(c)(9)(iii)(C)(4), which provide that a 

creditor in certain circumstances must 

state that a balloon payment will not 

result for plans in which no balloon 

payment would occur; in addition, 

proposed comment 5b(c)–1 cross 

references proposed 

§ 226.5b(c)(10)(i)(A)(5), which provides 

that if there are no annual or other 

periodic limitations on changes in the 

APR, a creditor must state that no 

annual limitation exists. 

5b(c)(1) Identification Information 

Currently, a creditor is not required to 

disclose identification information 

about the creditor and the borrower as 

part of the application disclosures. 

Pursuant to the Board’s authority in 

TILA Section 127A(a)(14) to require 

additional disclosures for HELOC plans, 

the Board proposes to require that a 

creditor disclose as part of the early 

HELOC disclosures the following 

identification information: (1) The 

consumer’s name and address; (2) the 

identity of the creditor making the 

disclosure; (3) the date the disclosure 

was prepared; and (4) the loan 

originator’s unique identifier, as defined 

by the Secure and Fair Enforcement for 

Mortgage Licensing Act of 2008 (‘‘SAFE 

Act’’) Sections 1503(3) and (12), 12 

U.S.C. 5102(3) and (12). 15 U.S.C. 

1637a(a)(14). Under the proposal, these 

disclosures must be placed directly 

above the table provided as part of the 

early HELOC disclosures, in a format 

substantially similar to any of the 

applicable tables found in G–14(C), G– 

14(D) and G–14(E) in Appendix G. See 

proposed § 226.5b(b)(2)(iii). Proposed 

comment 5b(c)(1)–1 clarifies that in 

identifying the creditor making the 

disclosure, use of the creditor’s name 

would be sufficient, but the creditor 

may also include an address and/or 

telephone number. In transactions with 

multiple creditors, any one of them 

would be allowed to make the 

disclosures; the one doing so must be 

identified in the early HELOC 

disclosures. The Board solicits comment 

on whether the creditor making the 

disclosures should be required to 

disclose its contact information, such as 

its address and/or telephone number. 

The Board believes that this 

identification information would 

provide context for the disclosures 

provided in the table. For example, the 

date the disclosure was prepared would 

provide consumers information about 

the date on which the terms in the table 

were accurate. In addition, the Board 

believes it is important to disclose the 

creditor’s identity so that consumers can 

easily identify the appropriate entity. 

Loan originator’s unique identifier. 

On July 30, 2008, the SAFE Act, 12 

U.S.C. 5101–5116, was enacted to create 

a Nationwide Mortgage Licensing 

System and Registry of loan originators 

to increase uniformity, reduce fraud and 

regulatory burden, and enhance 

consumer protection. 12 U.S.C. 5102. 

Under the SAFE Act, a ‘‘loan originator’’ 

is defined as ‘‘an individual who (i) 

takes a residential mortgage loan 

application; and (ii) offers or negotiates 

terms of a residential mortgage loan for 

compensation or gain.’’ 12 U.S.C. 

5102(3)(A)(i). Each loan originator is 

required to obtain a unique identifier 

through the Nationwide Mortgage 

Licensing System and Registry. 12 

U.S.C. 5103(a)(2). The term ‘‘unique 

identifier’’ is defined as ‘‘a number or 

other identifier that (i) permanently 

identifies a loan originator; (ii) is 

assigned by protocols established by the 

Nationwide Mortgage Licensing System 

and Registry and the Federal banking 

agencies to facilitate electronic tracking 

of loan originators and uniform 

identification of, and public access to, 

the employment history of and the 

publicly adjudicated disciplinary and 

enforcement actions against loan 

originators; and (iii) shall not be used 

for purposes other than those set forth 

under this title.’’ 15 U.S.C. 5102(12)(A). 

The system is intended to provide 

consumers with easily accessible 

information to research a loan 

originator’s history of employment and 

any disciplinary or enforcement actions 

against him or her. 12 U.S.C. 5101(7). 

To facilitate the use of the Nationwide 

Mortgage Licensing System and Registry 

and promote the informed use of credit, 

pursuant to the Board’s authority under 

TILA Section 127A(a)(14) to require 

additional disclosures for HELOC plans, 

the Board proposes in new 

§ 226.5b(c)(1) to require that a loan 

originator to disclose as part of the early 

HELOC disclosures his or her unique 

identifier, as defined by the SAFE Act. 

15 U.S.C. 1637a(a)(14). Proposed 

comment 5b(c)(1)–2 clarifies that in 

transactions with multiple loan 

originators, each loan originator’s 

unique identifier must be listed on the 

early HELOC disclosures. For example, 

in a transaction where a mortgage broker 

meets the SAFE Act definition of loan 

originator, the identifiers for the broker 

and for its employee loan originator 

meeting that definition would need to 

be listed on the early HELOC 

disclosures. 

The Board notes that the Board, FDIC, 

OCC, OTS, NCUA, and Farm Credit 

Administration have published a 

proposed rule to implement the SAFE 

Act. See 74 FR 27386 (June 9, 2009). In 

this proposed rule, the federal banking 

agencies have requested comment on 

whether there are mortgage loans for 

which there may be no mortgage loan 

originator. For example, the agencies 

query whether there are situations 

where a consumer applies for and is 

offered a loan through an automated 

process without contact with a mortgage 

loan originator. See id. at 27397. The 

Board solicits comments on the scope of 

this problem and its impact on the 

requirements of proposed § 226.5b(c)(1). 

Statement About Retaining a Copy of 

the Disclosures 

The Board proposes to delete current 

§ 226.5b(d)(1), which implements TILA 

Section 127A(a)(6)(C), and current 

comment 5b(d)(1)–1 as obsolete. Current 

§ 226.5b(d)(1) provides that a creditor 

must disclose as part of the application 

disclosures a statement that the 

consumer should make or otherwise 

retain a copy of the application 

disclosures. Current comment 5b(d)(1)– 

1 provides that a creditor need not 

disclose that the consumer should make 

or otherwise retain a copy of the 

disclosures if they are retainable—for 

example, if the disclosures are not part 

of an application that must be returned 

to the creditor to apply for the plan. As 

discussed in more detail in the sectionby-section analysis to § 226.5(a)(1), 

however, the Board proposes to require 

a creditor to provide the early HELOC 

disclosures in a retainable form. 

5b(c)(2) No Obligation Statement 

Pursuant to the Board’s authority in 

TILA Section 127A(a)(14) to require 

additional disclosures for HELOC plans, 

the Board proposes in new 

§ 226.5b(c)(2) to require a creditor to 

disclose as part of the early HELOC 

disclosures a statement that the 

consumer has no obligation to accept 

the terms disclosed in the table. 15 

U.S.C. 1637a(a)(14). In addition, under 

proposed § 226.5b(c)(2), if a creditor 

provides space for the consumer to sign 

or initial the early HELOC disclosures, 

the creditor would be required to 

include a statement that a signature by 

the consumer only confirms receipt of 

the disclosure statement. A creditor 

would be required to provide these 

proposed disclosures directly below the 

table provided as part of the early 

HELOC disclosures, in a format 

substantially similar to any of the 

applicable tables found in proposed 

Samples G–14(C), G–14(D) and G–15(E) 

in Appendix G. See proposed 

§ 226.5b(b)(2)(iv). 

As discussed in the proposal issued 

by the Board on closed-end mortgages 

published elsewhere in today’s Federal 


sroberts on DSKD5P82C1PROD with PROPOSALS
43460 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

Register, in consumer testing conducted 

by the Board on closed-end mortgage 

products, participants reviewed mock 

ups of mortgage disclosures that would 

be given within three business days 

after a consumer’s application has been 

received by the creditor for a mortgage 

loan. These participants were asked 

whether they would be obligated to 

accept the loan terms described in the 

disclosures because they had submitted 

an application for a mortgage. Most 

participants initially understood in 

reviewing the tested mortgage 

disclosures that they would not be 

required to accept the loan terms 

described in the disclosures. However, 

some participants later believed they 

would be obligated to accept the loan 

upon signing or initialing the 

disclosure. Based on this consumer 

testing, the Board is concerned that 

although consumers may initially 

understand they are not obligated to 

accept the terms of the HELOC plan, 

this belief may be diminished if a 

creditor requires a consumer to sign or 

initial receipt of the early HELOC 

disclosures. This may further discourage 

negotiation and shopping among 

HELOC products and creditors. Thus, 

the Board proposes to require a creditor 

to disclose as part of the early HELOC 

disclosures a statement that the 

consumer has no obligation to accept 

the terms disclosed in the table. In 

addition, if a creditor provides space for 

the consumer to sign or initial the early 

HELOC disclosures, the creditor would 

be required to include a statement that 

a signature by the consumer only 

confirms receipt of the disclosure 

statement. 

5b(c)(3) Identification of Plan as a 

Home-Equity Line of Credit 

Pursuant to the Board’s authority in 

TILA Section 127A(a)(14) to require 

additional disclosures with respect to 

HELOC plans, the Board proposes in 

new § 226.5b(c)(3) to require that 

creditors as part of the early HELOC 

disclosures disclose above the table a 

statement that the consumer has applied 

for a home-equity line of credit. 15 

U.S.C. 1637a(a)(14). 

In consumer testing the Board 

conducted on HELOCs disclosures, most 

participants had obtained a HELOC in 

the past, but some participants were 

also recruited who had considered 

obtaining a HELOC but opted instead for 

a home-equity loan. A few participants 

had never obtained a home-equity loan 

or HELOC, but had considered opening 

a HELOC in the past five years. In the 

consumer testing, during the initial 

portion of the interview, several 

participants appeared not to understand 

the difference between a home-equity 

loan and a HELOC. For example, one 

person initially indicated that she had a 

home-equity loan, but after the 

difference was explained to her she 

realized that she actually had a HELOC. 

Based on this consumer testing, the 

Board proposes to take several steps to 

address potential confusion by 

consumers about the differences 

between these two types of home-equity 

products. First, as discussed in the 

section-by-section analysis to 

§ 226.5b(a), the ‘‘Key Questions’’ 

document that would be required to be 

given with applications for HELOCs 

(except for telephone applications 

where this document must be given 

with the early HELOC disclosures) 

includes information describing the 

relative advantages and disadvantages of 

a HELOC and a home-equity loan. 

Second, as noted, under proposed 

§ 226.5b(c)(3) creditors would be 

required as part of the early HELOC 

disclosures to disclose above the table 

that the consumer has applied for a 

home-equity line of credit. This 

statement will identify clearly for the 

consumer that he or she has applied for 

a HELOC, and may help a consumer 

who mistakenly thought he or she was 

applying for a home-equity loan. 

5b(c)(4) Conditions for Disclosed Terms 

Current § 226.5b(d)(2)(i), which 

implements TILA Section 127A(a)(6)(A), 

provides that creditors must disclose as 

part of the application disclosures a 

statement of the time by which the 

consumer must submit an application to 

obtain specific terms disclosed in the 

application disclosures and an 

identification of any disclosed term that 

is subject to change prior to opening the 

plan. 15 U.S.C. 1637a(a)(6)(A). Current 

comment 5b(d)(2)(i)–1 provides that the 

requirement that a creditor disclose the 

time by which an application must be 

submitted to obtain the disclosed terms 

does not require the creditor to 

guarantee any terms. If a creditor 

chooses not to guarantee any terms, it 

must disclose that all of the terms are 

subject to change prior to opening the 

plan. The creditor also is permitted to 

guarantee some terms and not others, 

but must indicate which terms are 

subject to change. Current comment 

5b(d)(2)(i)–2 provides that if a creditor 

chooses to guarantee terms disclosed in 

the application disclosures, a creditor 

may disclose either a specific date or a 

time period for obtaining the guaranteed 

terms. If the creditor discloses a time 

period, the consumer must be able to 

determine from the disclosure the 

specific date by which an application 

must submitted to obtain any 

guaranteed terms. 

Under current § 226.5b(d)(2)(ii), 

which implements TILA Section 

127A(a)(6)(B), a creditor also must 

provide as part of the application 

disclosures a statement that if a 

disclosed term changes (other than a 

change due to fluctuations in the index 

in a variable-rate plan) prior to opening 

the plan and the consumer therefore 

elects not to open the plan the consumer 

may receive a refund of all fees paid in 

connection with the application. 15 

U.S.C. 1637a(a)(6)(B). Current comment 

5b(d)(2)(ii)–1 provides that a creditor 

should consult the rules in current 

§ 226.5b(g) regarding refund of fees 

when terms change. 

Proposal. The Board proposes to 

move the provisions in current 

§ 226.5b(d)(2) to proposed § 226.5b(c)(4) 

and to revise those provisions. 

Specifically, because the early HELOC 

disclosures would be given after the 

application has been submitted by the 

consumer, the Board proposes to delete 

as obsolete (1) the requirement in 

current § 226.5b(d)(2), which 

implements TILA Section 127A(a)(6)(A), 

that a creditor provide a statement of the 

time by which the consumer must 

submit an application to obtain specific 

terms disclosed in the application 

disclosures, and (2) guidance for 

providing that statement in current 

comment 5b(d)(2)(i)–2. 15 U.S.C. 

1637a(a)(6)(A). The Board proposes this 

rule pursuant to its authority in TILA 

Section 105(a) to make adjustments and 

exceptions to the requirements in TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 

ability to compare credit terms and 

helping consumers avoid the uniformed 

use of credit. See 15 U.S.C. 1601(a), 

1604(a). 

Consistent with current 

§ 226.5b(d)(2)(i), the Board proposes in 

new § 226.5b(c)(4)(i) to require that a 

creditor disclose directly below the 

table as part of the early HELOC 

disclosures an identification of any 

disclosed term that is subject to change 

prior to opening the plan. The Board 

also proposes to move the provisions in 

current comment 5b(d)(2)(i)–1 that 

relate to this disclosure to proposed 

comment 5b(c)(4)(i)–1. Specifically, 

proposed comment 5b(c)(4)(i)–1 

provides that if a creditor chooses not to 

guarantee any terms, it must disclose 

that all of the terms are subject to 

change prior to opening the plan. The 

creditor also would be permitted to 

guarantee some terms and not others, 

but would be required to indicate which 

terms are subject to change. 


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16TILA Section 127A(a)(7) does not specifically 

require that a creditor disclose as part of the 

application disclosures a statement that under 

certain conditions the creditor may impose fees 

upon termination or may implement certain 

changes in the plans as specified in the initial 

agreement. The Board included these disclosures in 

current § 226.5b(d)(4)(i) pursuant to its authority in 

TILA Section 127A(a)(14) to required additional 

disclosures for HELOC plans. 

The Board proposes in new 

§ 226.5b(c)(4)(ii) to require that a 

creditor disclose in the table as part of 

the early HELOC disclosures a statement 

that, if a disclosed term changes (other 

than a change due to fluctuations in the 

index in a variable-rate plan) prior to 

opening the plan and the consumer 

elects not to open the plan, the 

consumer may receive a refund of all 

fees paid. The language in new 

§ 226.5b(c)(4)(ii) differs from current 

§ 226.5b(d)(2)(ii), to reflect proposed 

changes in proposed § 226.5b(d). 

Currently § 226.5b(g) contains the 

substantive right of a consumer to 

receive a refund if terms change and the 

consumer decides not to open the 

HELOC plan. As discussed in more 

detail in proposed § 226.5b(d), the 

Board proposes to move the substantive 

right to a refund of fees if terms change 

from current § 226.5b(g) to proposed 

§ 226.5b(d) and to revise those 

provisions. The language in proposed 

§ 226.5b(c)(4)(ii) reflects the proposed 

changes in § 226.5b(d). 

In addition, the Board proposes to 

move guidance on disclosing the 

statement about refundability of fees if 

terms change from current comment 

5b(d)(2)(ii)–1 to proposed comment 

5b(c)(4)(ii)–1, and to make technical 

revisions to the proposed comment. 

5b(c)(5) Statement Regarding Refund of 

Fees Under Proposed § 226.5b(e) 

Current § 226.5b(h) provides that 

neither a creditor nor any other person 

may impose a nonrefundable fee in 

connection with an application until 

three business days after the consumer 

receives the application disclosures and 

the HELOC brochure. Current comment 

5(h)–1 provides that if a creditor collects 

a fee after the consumer receives the 

application disclosures and the HELOC 

brochure and before the expiration of 

the three days, the creditor must notify 

the consumer that the fee is refundable 

for three days. The notice must be clear 

and conspicuous and in writing, and 

may be included with the application 

disclosures or as an attachment to them. 

As discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.5b(e), the Board proposes to move 

current § 226.5b(h) to proposed 

§ 226.5b(e) and revise it. The Board 

proposes to add new § 226.5b(c)(5) to 

require a creditor to disclose in the table 

as part of the early HELOC disclosures 

a statement that the consumer may 

receive a refund of all fees paid, if the 

consumer notifies the creditor within 

three business days of receiving the 

early HELOC disclosures that the 

consumer does not want to open the 

plan. The proposed disclosure would be 

required if a creditor will impose fees 

on the HELOC plan prior to the 

expiration of the three-day period. 

Proposed comment 5(c)(5)–1 provides 

that creditors should consult the rules 

in § 226.5b(e) regarding refund of fees if 

the consumer rejects the plan within 

three business days of receiving the 

early HELOC disclosures. 

5b(c)(6) Security Interest and Risk to 

Home 

Current § 226.5b(d)(3), which 

implements TILA Section 127A(a)(5), 

provides that a creditor must disclose as 

part of the application disclosures a 

statement that the creditor will acquire 

a security interest in the consumer’s 

dwelling and that loss of the dwelling 

may occur in the event of default. 15 

U.S.C. 1637a(a)(5). The Board proposes 

to move this disclosure requirement 

from current § 226.5b(d)(3) to proposed 

§ 226.5b(c)(6). Thus, under the proposal, 

a creditor would be required to disclose 

this statement in the table as part of the 

early HELOC disclosures. 

5b(c)(7) Possible Actions by Creditor 

Current § 226.5b(d)(4)(i), which 

implements TILA Section 127A(a)(7)(A), 

provides that a creditor must disclose as 

part of the application disclosures a 

statement that, under certain conditions, 

the creditor may terminate the plan and 

require payment of the outstanding 

balance in full in a single payment and 

impose fees upon termination; prohibit 

additional extensions of credit or reduce 

the credit limit; and, as specified in the 

initial agreement, implement certain 

changes in the plan.16

The Board proposes to move the 

provisions in current § 226.5b(d)(4)(i) to 

proposed § 226.5b(c)(7)(i) and to revise 

those provisions. Specifically, proposed 

§ 226.5b(c)(7)(i) provides that a creditor 

must disclose in the table as part of the 

early HELOC disclosures a statement 

that, under certain conditions, the 

creditor may terminate the plan and 

require payment of the outstanding 

balance in full in a single payment and 

impose fees upon termination; prohibit 

additional extensions of credit or reduce 

the credit limit; and make other changes 

in the plan. Current comment 

5b(d)(4)(i)–1 provides guidance on 

when a creditor must provide the 

statement that a creditor under certain 

conditions may impose fees upon 

termination of the plan. This comment 

would be moved to proposed comment 

5b(c)(7)(i)–1. 

The circumstances in which a creditor 

must provide the disclosure regarding 

implementing ‘‘changes in the plan’’ 

would be broader under proposed 

§ 226.5b(c)(7)(i) than under current 

§ 226.5b(d)(4)(i). As explained in 

current comment 5b(d)(4)(i)–2, a 

creditor must provide the disclosure 

regarding implementing changes in the 

plan under current § 226.5b(d)(4)(i) only 

if the initial agreement contains specific 

changes that may be made in the plan 

if specific events take place (see 

§ 226.5b(f)(3)(i)), such as provisions in 

the initial agreement that the APR will 

increase a specified amount if the 

consumer leaves the creditor’s 

employment. If no specific changes are 

set forth in the initial agreement 

pursuant to § 226.5b(f)(3)(i), but the 

creditor may make changes in the plan 

under § 226.5b(f)(3)(ii) through (v), such 

as making a change that will 

unequivocally benefit the consumer 

under § 226.5b(f)(3)(iv), a creditor is not 

required under current § 226.5b(d)(4)(i) 

to disclose that the creditor in certain 

circumstances may make certain 

changes in the plan. 

As explained in proposed comment 

5b(c)(7)(i)–2, under proposed 

§ 226.5b(c)(7)(i), a creditor would be 

required to disclose in the table as part 

of the early HELOC disclosures a 

statement that the creditor under certain 

conditions may make changes in the 

plan, if the creditor may make any 

changes in the plan under 

§ 226.5b(f)(3)(i)–(v), including making a 

change that will unequivocally benefit 

the consumer under § 226.5b(f)(3)(iv), 

even if the creditor does not set forth 

specific changes in the plan for specific 

events in the initial agreement under 

§ 226.5b(f)(3)(i). The Board believes that 

if a creditor may make any changes to 

the plan, consumers should be informed 

generally of this fact. 

Under current § 226.5b(d)(4)(ii), 

which implements TILA Section 

127a(a)(7)(B), a creditor must disclose as 

part of the application disclosures a 

statement that the consumer may 

receive, upon request, information about 

the conditions under which a creditor 

may take certain actions, such as 

terminating the plan, as discussed 

above. 15 U.S.C. 1637a(a)(7)(B). Current 

§ 226.5b(d)(4)(iii) provides a creditor 

may provide a disclosure of the 

conditions in lieu of the statement that 


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17TILA Section 127A(a)(7) does not specifically 

allow a creditor to disclose a statement of the 

conditions in lieu of the statement that a consumer 

may receive that information upon request. The 

Board provided this alternative in current 

§ 226.5b(d)(4) pursuant to the Board authority in 

TILA Section 105(a) to make adjustments to the 

requirements in TILA that are necessary to 

effectuate the purposes of TILA. 

a consumer may receive that 

information upon request.17

The Board proposes to move the 

provisions in current § 226.5b(d)(4)(ii) 

and (iii) to proposed § 226.5b(c)(7)(ii) 

and revise those provisions. In 

particular, under proposed 

§ 226.5b(c)(7)(ii), a creditor may either 

provide a statement that the consumer 

may receive, upon request, information 

about the conditions under which a 

creditor may take certain actions such as 

terminating the plan or disclose those 

conditions with the early HELOC 

disclosures (outside the table). If a 

creditor chooses to provide as part of 

the early HELOC disclosures a statement 

that the consumer may receive, upon 

request, information about the 

conditions, this statement must be 

disclosed in the table. If a creditor 

chooses to provide a disclosure of the 

conditions with the early HELOC 

disclosures, the disclosure of the 

conditions must not be disclosed in the 

table. The disclosure of the conditions 

must be provided outside the table, and 

a creditor must disclose in the table a 

reference to the location of the 

disclosure. 

Current comment 5b(d)(4)(iii)–2 

provides if a creditor chooses to disclose 

the conditions in lieu of providing that 

information upon request, the creditor 

may provide the disclosure of the 

conditions with the other application 

disclosures or apart from them. If the 

creditor elects to provide the disclosure 

of the conditions with the application 

disclosures, this disclosure need not 

comply with the precedence rule in 

current § 226.5b(a)(2). Under the 

proposal, current comment 5b(d)(4)(iii)– 

2 would be deleted. As discussed above, 

under the proposal, a creditor would not 

be allowed to include the disclosure of 

conditions under which a creditor may 

take certain actions, as discussed above, 

in the table. See proposed 

§ 226.5b(c)(7)(ii) and (b)(2)(v). The 

Board believes that including a 

disclosure of the conditions in the table 

could lead to ‘‘information overload’’ for 

consumers, distracting consumers from 

other important information in the table. 

The conditions under which a creditor 

may take certain actions, such as 

terminating the HELOC plan, will likely 

not change from creditor to creditor, and 

thus this information may not be useful 

to consumers in comparing one HELOC 

plan to another. 

Current comment 5b(d)(4)(iii)–1 

provides guidance on how a creditor 

may provide the disclosure of the 

conditions if a creditor is providing this 

information with the application 

disclosures. The Board proposes to 

move the provisions in current 

comment § 226.5b(d)(4)(iii)–1 to 

proposed comment § 226.5b(c)(7)(ii)–1 

and make revisions to the provisions. In 

particular, proposed comment 

5b(c)(7)(ii)–1 would provide guidance 

on how a creditor may provide the 

disclosures of the conditions, either 

upon the request of the consumer prior 

to account opening or with the early 

HELOC disclosures (outside the table). 

5b(c)(8) Tax Implications 

Current § 226.5b(d)(11), which 

implements TILA Section 

127A(a)(13)(A), provides that a creditor 

must disclose as part of the application 

disclosures a statement that the 

consumer should consult a tax advisor 

regarding the deductibility of interest 

and charges under the plan. 15 U.S.C. 

1637a(a)(13)(A). The Board proposes to 

move current § 226.5b(d)(11) to 

proposed § 226.5b(c)(8) and make 

technical revisions. In addition, to 

implement Section 1302 of the 

Bankruptcy Act (cited above), which 

requires disclosure of the tax 

implications for home-secured credit 

that may exceed the dwelling’s fairmarket value, the Board proposes in 

new § 226.5b(c)(8) to require a creditor 

as part of the early HELOC disclosures 

to disclose a statement that the interest 

on the portion of the credit extension 

that is greater than the fair market value 

of the dwelling may not be tax 

deductible for Federal income tax 

purposes and that the consumer should 

consult a tax advisor for further 

information on tax deductibility. 15 

U.S.C. 1637a(a)(13)(B). 

The Board stated its intent to 

implement the Bankruptcy Act 

amendments in an ANPR published in 

October 2005 as part of the Board’s 

ongoing review of Regulation Z (October 

2005 ANPR). 70 FR 60235 (October 17, 

2005). The Board received 

approximately 50 comment letters: 

forty-five letters were submitted by 

financial institutions and their trade 

groups, and five letters were submitted 

by consumer groups. In general, 

creditors asked for flexibility in 

providing the disclosure regarding the 

tax implications for home-secured credit 

that may exceed the dwelling’s fairmarket value, either by permitting the 

notice to be provided to all applicants, 

or to be provided later in the approval 

process after creditors have determined 

whether the disclosure is triggered. 

Creditor commenters asked for guidance 

on loan-to-value calculations and safe 

harbors for how creditors should 

determine property values. Consumer 

advocates favored triggering the 

disclosure when the possibility of 

negative amortization could occur. A 

number of commenters stated that in 

order for the disclosure to be effective 

and useful to the borrower, it should be 

given when the new extension of credit, 

combined with existing credit secured 

by the dwelling (if any), may exceed the 

fair market value of the dwelling. A few 

industry comments took the opposite 

view that the disclosure should be 

limited only to when a new extension 

of credit itself exceeds fair market value, 

citing the difficulty of determining how 

much debt is already secured by the 

dwelling at the time of application. 

The Board implemented Section 1302 

with regard to advertisements in its July 

2008 HOEPA final rule. See 73 FR 

44522 (July 30, 2008). In the 

Supplementary Information to that rule, 

the Board stated its intent to implement 

the application disclosure portion of the 

Bankruptcy Act during its forthcoming 

review of closed-end and HELOC 

disclosures under TILA. 

Proposed § 226.5b(c)(8) would 

implement provisions of the Bankruptcy 

Act by requiring creditors to include in 

the table required under proposed 

§ 226.5b(b) as part of the early HELOC 

disclosures (1) a statement that the 

interest on the portion of the credit 

extension that is greater than the fair 

market value of the dwelling may not be 

tax deductible for Federal income tax 

purposes and (2) a statement that the 

consumer should consult a tax advisor 

for further information on tax 

deductibility. 

The Board proposes to require 

creditors offering HELOCs to provide 

this disclosure to all HELOC applicants 

as part of the early HELOC disclosures, 

even if the particular HELOC plan 

offered to the consumer is not designed 

to allow the consumer to take 

extensions of credit that exceed the fair 

market value of the dwelling. The Board 

recognizes that HELOCs by their very 

nature carry a possibility that 

subsequent draws may exceed the fair 

market value of the dwelling. First, the 

market value of a dwelling may decline 

during the term of a HELOC plan, 

leaving less equity available. Second, 

quite often, consumers who apply for 

HELOCs already have first-lien 

mortgages; the amount of equity that a 

consumer may be able to utilize is 

limited, in part, by how much the 

consumer owes on the first mortgage. 


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For these reasons, the likelihood is 

higher with HELOCs than closed-end 

home-equity loans that the consumer 

may exceed the fair market value of the 

dwelling with subsequent draws. 

5b(c)(9) Payment Terms 

Current § 226.5b(d)(5), which 

implements TILA Section 127A(a)(8), 

provides that a creditor must disclose as 

part of the application disclosures the 

payment terms applicable to the plan, 

and sets forth specific information that 

must be included in this disclosure. As 

discussed below, the Board proposes to 

move the provisions in current 

§ 226.5b(d)(5) to proposed § 226.5b(c)(9) 

and to revise them. 

Format for identifying payment terms 

applicable to the draw period and the 

repayment period. Current comment 

5b–4 provides that a creditor must 

disclose information relating to the 

repayment period, as well as the draw 

period, when providing the application 

disclosures. Thus, for example, a 

creditor must provide payment 

information about any repayment phase 

as well as about the draw period in the 

application disclosures, as required by 

current § 226.5b(d)(5). The Board 

proposes to move the relevant part of 

this comment to proposed 5b(c)–3, and 

to make technical edits to the comment. 

Under the proposal, a creditor would be 

required to disclose in the table as part 

of the early HELOC disclosures 

information relating to any repayment 

period, as well as the draw period. 

In addition, the Board proposes to 

require that when disclosing payment 

terms in the table, a creditor must 

distinguish payment terms applicable to 

the draw period from payment terms 

applicable to the repayment period, by 

using the heading ‘‘Borrowing Period’’ 

for the draw period and ‘‘Repayment 

Period’’ for the repayment period, in a 

format substantially similar to the 

format used in any of the applicable 

tables in proposed Samples G–14(C) and 

G–14(E) in Appendix G. 15 U.S.C. 

1604(a); see proposed § 226.5b(c)(9). 

Thus, under the proposal, a creditor 

would be required to include the 

heading ‘‘Borrowing Period’’ each place 

payment information about the draw 

period is included in the table, and the 

heading ‘‘Repayment Period’’ each place 

payment information about the 

repayment period is included in the 

table, in a format substantially similar to 

the format used in any of the applicable 

tables found in G–14(C) and G–14(E) in 

Appendix G. The Board proposes this 

rule pursuant to its authority in TILA 

Section 105(a) to make adjustments and 

exceptions to the requirements in TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 

ability to compare credit terms and 

helping consumers avoid the uniformed 

use of credit. See 15 U.S.C. 1601(a), 

1604(a). 

In consumer testing conducted by the 

Board on HELOC disclosures, the Board 

tested application disclosures in a 

narrative form, designed to simulate 

those currently in use. When reviewing 

these application disclosures, many 

participants had difficulty 

understanding how the draw period 

differs from the repayment period, and 

what impact these distinctions have on 

required monthly payments. In the 

consumer testing, the Board tested 

versions of the early HELOC disclosures 

where the heading ‘‘Borrowing Period’’ 

was included each place payment 

information about the draw period was 

presented in the table and the heading 

‘‘Repayment Period’’ was included each 

place payment information about the 

repayment period was presented in the 

table. In reviewing these versions of the 

early HELOC disclosures, participants 

were better able to understand the 

differences between the draw period 

and the repayment period, and the 

impact these differences have on 

required monthly payments. Thus, the 

Board proposes to require that a creditor 

use the headings ‘‘Borrowing Period’’ 

and ‘‘Repayment Period’’ in the table to 

distinguish payment terms applicable to 

the draw period from payment terms 

applicable to the repayment period, 

respectively, in a format substantially 

similar to the format used in any of the 

applicable tables in proposed Samples 

G–14(C) and 14(E) in Appendix G. 

Paragraph 5b(c)(9)(i) 

Current § 226.5b(d)(5)(i), which 

implements TILA Section 127A(a)(8)(B), 

requires a creditor to disclose as part of 

the application disclosures the length of 

the draw period and the length of any 

repayment period. 15 U.S.C. 

1637a(a)(8)(B). Current comment 

5b(d)(5)(i)–1 provides that the combined 

length of the draw period and any 

repayment period need not be disclosed 

in the application disclosures. 

For the reasons described below, 

pursuant to its authority in TILA 

Section 127A(a)(14) to require 

additional disclosures for HELOC plans, 

the Board proposes in new 

§ 226.5b(c)(9)(i) to require that a creditor 

disclose in the table as part of the early 

HELOC disclosures the length of the 

plan, as well as the length of the draw 

period and the length of any repayment 

period. 15 U.S.C. 1637a(a)(14). In 

addition, under the proposal, if there is 

no repayment period on the HELOC 

plan, a creditor would be required to 

disclose in the table as part of the early 

HELOC disclosures a statement that 

after the draw period ends, the 

consumer must repay the remaining 

balance in full. 

Length of the HELOC plan is definite. 

Proposed § 226.5b(c)(9)(i) would require 

that when the length of the plan is 

definite, a creditor, when disclosing the 

length of the plan, the length of the 

draw period and the length of any 

repayment period in the table, must 

make those disclosures using a format 

substantially similar to the format used 

in any of the applicable tables found in 

proposed Samples G–14(C) and G–14(D) 

in Appendix G. Proposed comment 

5b(c)(9)(i)–1.i would provide that if a 

maturity date is set forth for the HELOC 

plan, the length of the plan, the length 

of the draw period and the length of any 

repayment period are definite. This 

proposed comment also states that the 

length of the plan must be based on the 

maturity date of the plan, regardless of 

whether the outstanding balance may be 

paid off before or after the maturity date. 

For example, assume that a plan has a 

draw period of 10 years and a maturity 

date of 20 years. If the outstanding 

balance on the plan is not paid off by 

the maturity date, the creditor could 

extend the maturity date of the plan and 

require the consumer to make minimum 

payments until the outstanding balance 

is repaid. In this example, the proposed 

comment clarifies that the creditor must 

disclose the length of the HELOC plan 

as 20 years, the length of the draw 

period as 10 years and the length of the 

repayment period as 10 years. 

In consumer testing conducted by the 

Board on HELOC disclosures, the Board 

tested application disclosures in a 

narrative form, designed to simulate 

application disclosures currently in use. 

In these versions of the application 

disclosures, the length of the draw 

period and the length of the repayment 

period were disclosed, but the total 

length of the plan was not disclosed. 

When reviewing these application 

disclosures, many participants had 

difficulty understanding the timing of 

the draw and repayment periods. For 

example, several participants 

incorrectly thought that the two periods 

ran concurrently, or that the repayment 

period began as soon as money was 

borrowed. 

In the consumer testing, the Board 

also tested versions of the early HELOC 

disclosures developed by the Board 

where the length of the plan was 20 

years, and the length of the draw and 

repayment periods was 10 years each. In 

these tested versions of the early HELOC 

disclosures, the length of the plan was 

disclosed as 20 years, along with a 


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43464 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

statement indicating that this period is 

divided into two periods. The length of 

the draw period was then disclosed as 

‘‘Years (1–10)’’ and the length of the 

repayment period was disclosed as 

‘‘Years (11–20),’’ to indicate that those 

periods would run consecutively and 

not concurrently. In addition, the length 

of the draw period and the length of the 

repayment period were included as part 

of the headings ‘‘Borrowing Period’’ (for 

the draw period) and ‘‘Repayment 

Period’’ (for the repayment period), 

respectively, each time those headings 

were used. In the consumer testing, the 

Board found that including the length of 

the plan in the table and using the above 

format for presenting the length of the 

plan, the length of the draw period and 

the length of the repayment period 

effectively helped participants 

understand the timing of the two 

periods. 

Thus, the Board proposes to require 

creditors to disclose the length of the 

plan in the table, along with the length 

of the draw period and the length of any 

repayment period. In addition, as 

explained in proposed comment 

5b(c)(9)(i)–3, the Board proposes to 

require that creditors use the above 

format in presenting the length of the 

plan, the length of the draw period and 

the length of the repayment period in 

the table for HELOC plans that have a 

definite length and have a draw period 

and a repayment period, as shown in 

proposed Sample G–14(C) in Appendix 

G. Proposed comment 5b(c)(9)(i)–3 also 

specifies that proposed Sample G–14(D) 

in Appendix G shows the format a 

creditor must use to disclose the length 

of the plan and the length of the draw 

period for HELOC plans that have a 

definite length and have a draw period 

but no repayment period. 

Length of plan and length of 

repayment period cannot be determined 

at the time the early HELOC disclosures 

must be given. Current comment 

5b(d)(5)(i)–1 provides that if the length 

of the repayment period cannot be 

determined because, for example, it 

depends on the balance outstanding at 

the beginning of the repayment period, 

the creditor must disclose in the 

application disclosures that the length 

of the repayment period is determined 

by the size of the balance. The Board 

proposes to move this provision in 

current comment 5b(d)(5)(i)–1 to 

proposed comment 5b(c)(9)(i)–1.ii, and 

to revise it. 

Specifically, proposed comment 

5b(c)(9)(i)–1.ii addresses HELOC plans 

that do not have a maturity date, and for 

which the length of the plan and the 

length of the repayment period cannot 

be determined at the time the early 

HELOC disclosures must be given 

because the repayment period depends 

on the balance outstanding at the 

beginning of the repayment period or 

the balance at the time of the last 

advance during the draw period. For 

these plans, the creditor would be 

required to state that the length of the 

plan and the length of the repayment 

period are determined by the size of the 

balance outstanding at the beginning of 

the repayment period or the balance at 

the time of the last advance during the 

draw period, as applicable. 

Proposed comment 5b(c)(9)(i)–1.ii 

provides two illustrations of this rule. 

The first would assume that the plan 

has no maturity date, the draw period is 

10 years, and the minimum payment 

during the repayment period is 1.5 

percent of the outstanding balance at the 

time of the last advance during the draw 

period. Under proposed comment 

5b(c)(9)(i)–1.ii.A, a creditor must 

disclose that the length of the plan and 

the length of the repayment period are 

determined by the size of the 

outstanding balance at the time of the 

last advance during the draw period. 

The second illustration would assume 

that the length of the draw period is 10 

years and the length of the repayment 

period will be 15 years if the balance at 

the beginning of the repayment period 

is less than $20,000, and 30 years if the 

balance is $20,000 or more. Under 

proposed comment 5b(c)(9)(i)–1.ii.B, a 

creditor must disclose that the length of 

the plan will be 25 or 40 years 

depending on the outstanding balance at 

the beginning of the repayment period. 

In addition, the creditor must disclose 

that the repayment period will be 15 

years if the balance is less than $20,000, 

and 30 years if the balance is $20,000 

or more. This proposed comment 

provides that a creditor must not simply 

disclose that the repayment period is 

determined by the size of the balance. 

Guidance on how to disclose the 

information in this illustration is found 

in proposed Sample G–14(E) in 

Appendix G. 

The Board requests comment on 

whether additional guidance is needed 

on how to disclose the length of the 

HELOC plan and the length of the 

repayment period in the table where the 

plan does not have a maturity date and 

the length of the repayment period 

cannot be determined at the time the 

early HELOC disclosures must be given. 

Length of draw period is indefinite. 

Current comment 5b(d)(5)(i)–1 provides 

that if the length of the plan is indefinite 

(for example, because there is no time 

limit on the period during which the 

consumer can take advances), the 

creditor must state that fact in the 

application disclosures when disclosing 

the length of the draw period. The 

Board proposes to move this provision 

from current comment 5b(d)(5)(i)–1 to 

proposed comment 5b(d)(9)(i)–1.iii. 

Thus, under the proposal, a creditor 

would be required to make this 

disclosure in the table as part of the 

early HELOC disclosures, to satisfy the 

requirement in proposed 

§ 226.5b(c)(9)(i) to disclose the length of 

the plan and the length of the draw 

period. The Board requests comment on 

whether additional guidance is needed 

on how to disclose the length of the 

plan and the length of draw period in 

the table when the length of the draw 

period is indefinite. 

Length of the plan and length of the 

draw period are the same. For some 

HELOC plans, the length of the plan and 

the length of the draw period are the 

same because the HELOC plan does not 

have a repayment period. For example, 

some HELOC plans offer a payment plan 

where a consumer would only be 

required to pay interest during the draw 

period. At the end of the draw period, 

the consumer would be required to pay 

the principal balance as a balloon 

payment. Proposed comment 

5b(c)(9)(i)–4 provides that if the length 

of the plan and the length of the draw 

period are the same, a creditor will be 

deemed to satisfy the requirement to 

disclose the length of plan by disclosing 

the length of the draw period. 

No repayment period on the HELOC 

plan. Under proposed § 226.5b(c)(9)(i), 

if there is no repayment period on the 

HELOC plan, a creditor would be 

required to include a statement in the 

table as part of the early HELOC 

disclosures that after the draw period 

ends, the consumer must repay the 

remaining balance in full. Pursuant to 

its authority under TILA Section 

127A(a)(14) to require additional 

disclosures for HELOC plans, the Board 

proposes to add this disclosure to make 

more clear to consumers that there is no 

repayment period on the HELOC being 

offered. 15 U.S.C. 1637a(a)(14). 

Draw period renewal provisions. 

Current comment 5b(d)(5)(i)–2 provides 

that if, under the credit agreement, a 

creditor retains the right to review a line 

at the end of the draw period and 

determine whether to renew or extend 

the draw period of the plan, the 

possibility of renewal or extension— 

regardless of its likelihood—should be 

ignored for the application disclosures. 

For example, if an agreement provides 

that the draw period is five years and 

that the creditor may renew the draw 

period for an additional five years, the 

possibility of renewal should be ignored 

and the draw period should be 


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considered five years. The Board 

proposes to move this comment to 

proposed comment 5b(c)(9)(i)–2, and 

apply it to the early HELOC disclosures. 

Paragraphs 5b(c)(9)(ii) and (c)(9)(iii) 

Current § 226.5b(d)(5)(ii), which 

implements TILA Section 127A(a)(8)(C) 

and (a)(10), provides that a creditor 

must disclose as part of the application 

disclosures an explanation of how the 

minimum periodic payments will be 

determined and the timing of the 

payments (such as whether the 

payments will be due monthly, 

quarterly or on some other periodic 

basis). 15 U.S.C. 1637a(a)(8)(C) and 

(a)(10). In addition, current 

§ 226.5b(d)(5)(ii) provides that if paying 

only the minimum periodic payments 

may not repay any of the principal or 

may repay less than the outstanding 

balance, the creditor must disclose a 

statement of this fact, as well as a 

statement that a balloon payment may 

result. Footnote 10b explains that a 

balloon payment results if paying the 

minimum periodic payments does not 

fully amortize the outstanding balance 

by a specified date or time, and the 

consumer must repay the entire 

outstanding balance at that time. 

Under current § 226.5b(d)(5)(iii), 

which implements TILA Section 

127A(a)(9), a creditor must disclose as 

part of the application disclosures an 

example, based on a $10,000 

outstanding balance and a recent APR, 

of the minimum periodic payments, the 

amount of any balloon payment, and the 

time it would take to repay the $10,000 

outstanding balance if the consumer 

made only those payments and obtained 

no additional extensions of credit. 15 

U.S.C. 1637a(a)(9). In addition, current 

§ 226.5b(d)(12)(x), which implements 

TILA Section 127A(a)(2)(H), provides 

that for each payment option offered on 

a variable-rate HELOC plan, a creditor 

must disclose the minimum periodic 

payments that would be required if the 

maximum APR were in effect for a 

$10,000 outstanding balance. 15 U.S.C. 

1637a(a)(2)(H). 

As discussed in more detail below, 

the Board proposes to move the 

provisions in § 226.5b(d)(5)(ii) to 

proposed § 226.5b(c)(9)(ii) and to revise 

them. The Board also proposes to move 

the provisions in § 226.5b(d)(5)(iii) and 

(d)(12)(x) to proposed § 226.5b(c)(9)(iii) 

and to revise them. In addition, the 

Board proposes to move the contents of 

footnote 10b to proposed comment 

5b(c)(9)–1. 

Multiple payment plans. In some 

cases, creditors may offer more than one 

payment option on a HELOC plan. For 

example, a creditor may provide the 

following two payment options during 

the draw period: (1) minimum monthly 

payments during the draw period will 

cover only interest that accrues each 

month and will not pay down any of the 

principal balance; or (2) minimum 

monthly payments during the draw 

period will cover interest that accrues 

each month plus 1.5 percent of the 

principle balance each month. The 

Board understands that creditors 

typically do not require a consumer to 

choose the payment plan he or she 

wants when applying for a HELOC plan, 

but instead require the consumer to 

choose a payment plan either prior to or 

at account opening. 

Under current comment 5b(a)(1)–4, a 

creditor may provide a single 

application disclosure form for all of its 

HELOC plans, as long as the disclosure 

describes all aspects of the plans. For 

example, if the creditor offers several 

payment options, all such options 

generally must be disclosed, including 

fixed-rate and -term payment features, 

as discussed in more detail above in the 

section-by-section analysis to 

§ 226.5b(c). See also current comment 

5b(d)(5)(ii)–2. Alternatively, a creditor 

has the option of providing separate 

disclosure forms for multiple options or 

variations in features. For example, a 

creditor that offers two payment options 

for the draw period may prepare 

separate disclosure forms for the two 

payment options. A creditor using this 

alternative, however, must include a 

statement on each application 

disclosure form that the consumer 

should ask about the creditor’s other 

HELOC programs. A creditor that 

receives a request for information about 

other available programs prior to 

account opening must provide the 

additional disclosures as soon as 

reasonably possible. 

As discussed in the section-by-section 

analysis to proposed § 226.5b(b)(2), the 

Board proposes to delete current 

comment 5b(a)(1)–4 as obsolete. Under 

the proposal, a creditor would not be 

allowed to disclose more than two 

payment options offered on the HELOC 

in the table. Specifically, under 

proposed § 226.5b(c)(9)(ii)(B), if a 

creditor only offers two payment plans 

(excluding fixed-rate and -term payment 

plans unless these are the only payment 

plans offered during the draw period), 

the creditor would be required to 

disclose both of those payment plans in 

the table. If a creditor offers more than 

two payment plans (excluding fixed-rate 

and -term payment plans unless these 

are the only payment plans offered 

during the draw period), the creditor 

would be allowed to disclose only two 

of the payment plans in the table. See 

proposed comment 5b(c)(9)(ii)–2. 

Proposed comment 5b(c)(9)(ii)–2 

clarifies that the following would be 

considered two payment plans: The 

draw period is 10 years and the 

consumer has the choice between two 

repayment periods—10 and 20 years. 

The two payment plans would be (1) a 

10 year draw period and a 10 year 

repayment period, and (2) a 10 year 

draw period and a 20 year repayment 

period. 

The Board believes that the proposed 

approach of allowing only two payment 

plans to be disclosed in the table would 

benefit consumers by preventing 

‘‘information overload’’ that might 

result if more than two payment options 

were disclosed in the table. In addition, 

the Board believes that requiring a 

creditor to disclose two payment plans 

in the table, instead of allowing the 

creditor to disclose each payment plan 

separately to the consumer, would 

benefit consumers by enabling 

consumers more easily to compare the 

two payment plans. As discussed in 

more detail below, under proposed 

§ 226.5b(c)(9)(iii), a creditor would be 

required to disclose sample payments 

for each payment plan disclosed in the 

table based on the assumption that the 

consumer borrows the full credit line at 

account opening, and does not obtain 

any additional extensions of credit. 

Under the proposal, if a creditor is 

disclosing two payment plans in the 

table, the creditor would be required to 

disclose in the table which plan results 

in the least amount of interest, and 

which plan results in the most amount 

of interest, based on the assumptions 

used to calculate the sample payments. 

See proposed § 226.5b(c)(9)(iii)(C)(3). In 

addition, under the proposal, a creditor 

disclosing two payment plans in the 

table, one in which a balloon payment 

would occur and one in which it would 

not, must disclose that a balloon 

payment will result for the plan in 

which a balloon payment would occur 

and that a balloon payment will not 

result for the plan in which no balloon 

payment would occur. See proposed 

§ 226.5b(c)(9)(iii)(C)(4). In consumer 

testing conducted by the Board on 

HELOC disclosures, the Board tested the 

above disclosures explicitly comparing 

two payment plans; most participants 

responding to questions about this 

information indicated that they found 

this information useful. 

Proposed § 226.5b(c)(9)(ii)(B) also 

provides that if a creditor offers one or 

more payment plans (excluding fixedrate and -term payment plans unless 

those are the only payment plans 

offered during the draw period) where 

a consumer would repay all of the 


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principal by the end of the plan if the 

consumer makes only the minimum 

payments due during that period, the 

creditor would be required to describe 

one of these payment plans in the table. 

For example, if a creditor offers two 

payment plans where a balloon payment 

will result and one payment plan 

(excluding fixed-rate and -term payment 

plans unless those are the only payment 

plans offered during the draw period) 

where a balloon payment will not result, 

the creditor would be required to 

disclose in the table two payments 

plans, one of which must be the plan 

where a balloon payment will not result. 

In consumer testing conducted by the 

Board on HELOC disclosures, the Board 

tested versions of early HELOC 

disclosures where two payment plans 

were shown in the table—one payment 

plan that would result in a balloon 

payment and one payment plan that 

would not result in a balloon payment. 

In this consumer testing, participants 

were asked which of these payment 

plans they would be likely to choose if 

they were opening the HELOC plan. 

Most of the participants indicated that 

they would choose the payment plan 

without the balloon payment because, 

in part, they did not want to owe a 

balloon payment at the end of the plan. 

Thus, the Board believes that requiring 

a creditor to disclose in the table a 

payment plan where a balloon will not 

result (if such a plan is offered by the 

creditor) would benefit consumers by 

informing them that the creditor offers 

such a payment plan. 

Proposed § 226.5b(c)(9)(ii)(B) also 

requires a creditor to include a 

statement in the table indicating that the 

table shows how the creditor determines 

minimum required payments for two 

plans offered by the creditor. If the 

creditor offers more than the two 

payment plans described in the table 

(other than fixed-rate and -term 

payment plans unless those are the only 

payment plans offered during the draw 

period), the creditor would be required 

to disclose that other payment plans are 

available, and that the consumer should 

ask the creditor for additional details 

about these other payment plans. 

Proposed comment 5b(c)(9)(ii)–3 

clarifies that this statement about 

additional payment plans would be 

required only if the creditor offers 

additional payment plans available to 

the consumer. If the only other payment 

plans available are employee preferredrate plans, for example, the creditor 

would be required to provide this 

statement only if the consumer would 

qualify for the employee preferred-rate 

plan. 

Proposed comment 5b(c)(9)(ii)–5 

provides guidance on how a creditor 

must provide additional information on 

other payment plans to a consumer 

upon the consumer’s request prior to 

account opening. This proposed 

comment provides that if a creditor 

offers a payment plan other than the two 

payment plans disclosed in the table as 

part of the early HELOC disclosures 

(except for fixed-rate and -term payment 

plans unless those are the only payment 

plans offered during the draw period), 

and a consumer requests additional 

information about the other plan, the 

creditor must disclose an additional 

table under § 226.5b(b) to the consumer 

with the terms of the other payment 

plan described in the table. See 

proposed comment 5(c)(18)–2 for 

disclosure of additional information 

about fixed-rate and -term payment 

plans upon a consumer’s request. If the 

creditor offers multiple payment plans 

that were not disclosed in the table as 

part of the early HELOC disclosures, the 

creditor would be allowed to disclose 

only one payment plan on each 

additional table given to the consumer. 

Under the proposal, for example, if a 

creditor offers two payment plans (other 

than fixed-rate and -term payment plans 

unless those are the only payment plans 

offered during the draw period) that 

were not disclosed in the table given as 

part of the early HELOC disclosures, the 

creditor would be required to provide 

the consumer, upon request, two 

additional tables—one table for each 

payment plan. A creditor that receives 

a request for information about other 

available payment plans prior to 

account opening would be required to 

provide the additional information as 

soon as reasonably possible after the 

request. See proposed comment 5b(c)–2. 

The Board believes that this proposed 

approach of only allowing two payment 

plans to be disclosed in the table, and 

allowing the consumer easily and 

quickly to receive information about 

additional payment plans upon request, 

strikes the proper balance between 

ensuring that consumers are adequately 

informed about the payment plans that 

are offered on the HELOC plan and 

preventing ‘‘information overload’’ that 

might result if all payment plans were 

disclosed in the table. The Board solicits 

comment on the proposed approach. 

Minimum payment requirements. As 

discussed above, current 

§ 226.5b(d)(5)(ii) provides that a creditor 

must disclose as part of the application 

disclosures an explanation of how the 

minimum periodic payment will be 

determined and the timing of the 

payments (such as whether the 

payments will be due monthly, 

quarterly or on some other periodic 

basis). The Board proposes to move the 

provisions in § 226.5b(d)(5)(ii) to 

proposed § 226.5b(c)(9)(ii) and to revise 

them. Specifically, proposed 

§ 226.5b(c)(9)(ii)(A) provides that if a 

creditor offers to the consumer only one 

payment plan (except for fixed-rate and 

-term payment plans unless those are 

the only payment plans offered during 

the draw period), the creditor must 

disclose in the table an explanation of 

how the minimum periodic payment 

will be determined and the timing of the 

payments. Proposed § 226.5b(c)(9)(ii)(B) 

provides that a creditor disclosing two 

payment plans in the table would be 

required to provide an explanation of 

how the minimum payment will be 

determined for both payment plans and 

the timing of the payments. 

Current comment 5b(d)(5)(ii)–1 

provides that the disclosure of how the 

minimum periodic payment is 

determined need describe only the 

principal and interest components of 

the payment. A creditor, at its option, 

may disclose other charges that may be 

a part of the payment, as well as the 

balance computation method. The 

Board proposes to move this comment 

to proposed comment 5b(c)(9)(ii)–1 and 

revise it. Specifically, proposed 

comment 5b(c)(9)(ii)–1 provides that the 

disclosure of how the minimum 

periodic payment is determined in the 

early HELOC disclosures table must 

describe only the principal and interest 

components of the payment. 

Unlike current comment 5b(d)(5)(ii)– 

1, however, proposed comment 

5b(c)(9)(ii)–1 would not allow a creditor 

to disclose in the table other charges 

that may be a part of the payment or the 

balance computation method. In 

addition, under proposed comment 

5b(c)(9)(ii)–1, a creditor would not be 

allowed to disclose in the table a 

description of any floor payment 

amount, where the payment will not go 

below that amount. The Board believes 

that allowing charges that may be part 

of the payment (other than principal 

and interest components), the balance 

computation method, and any payment 

floor amount to be disclosed in the table 

might create ‘‘information overload’’ for 

consumers. The Board believes that the 

proposed approach to allow creditors to 

disclose information only about the 

principle and interest components of 

the payment in the table strikes the 

proper balance between informing 

consumers about how minimum 

periodic payments will be determined, 

and preventing the ‘‘information 

overload’’ that may result if other details 

were included. The concern about 

‘‘information overload’’ here is that 


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consumers will either not read the 

disclosure or not understand or retain 

the information they do read. 

Payment examples. Current 

§ 226.5b(d)(5)(iii) provides that a 

creditor must disclose as part of the 

application disclosures an example, 

based on a $10,000 outstanding balance 

and a recent APR, showing the 

minimum periodic payments, the 

amount of any balloon payment, and the 

time it would take to repay the $10,000 

outstanding balance if the consumer 

made only those payments and obtained 

no additional extensions of credit. 15 

U.S.C. 1637a(a)(9). To fulfill this 

disclosure requirement, a creditor must 

disclose the number and amount of the 

minimum periodic payments and the 

amount of any balloon payment, 

assuming the consumer borrows 

$10,000 at the beginning of the draw 

period at a recent APR and the 

outstanding balance is reduced 

according to the terms of the plan. A 

creditor must assume no additional 

advances are taken at any time, 

including at the beginning of any 

repayment period. See current comment 

5b(d)(5)(iii)–3. 

A creditor must disclose separate 

hypothetical payments (or ranges of 

payments) for the draw period and the 

repayment period, if minimum periodic 

payments are calculated differently for 

the two periods. See current comment 

5b(d)(5)(iii)–3. In this case, the highest 

payment in the range of payments for 

the draw period would be based on a 

$10,000 balance. The highest payment 

in the range of payment for the 

repayment period would be based on 

the outstanding balance at the beginning 

of the repayment period, which is 

calculated on the assumptions that the 

consumer borrows $10,000 at the 

beginning of the draw period, the 

consumer makes only minimum 

payments during the draw period, and 

the APR does not change during the 

draw period. Footnote 10c and comment 

5b(d)(5)(iii)–1 provide guidance on 

selecting a recent APR to calculate the 

hypothetical payment schedule under 

current § 226.5b(d)(5)(iii). In disclosing 

the hypothetical payment schedule, if 

the amount of the hypothetical 

payments may vary within the draw 

period, or any repayment period, a 

creditor may disclose the hypothetical 

payments as a range of payments. See 

current Home Equity Samples G–14A 

and G–14B in Appendix G. 

Under current comment 5b(d)(5)(iii)– 

2, a creditor may show a hypothetical 

payment schedule either for each 

payment plan disclosed in the 

application disclosures, or for 

representative payment plans. This 

comment also provides guidance how a 

creditor should choose representative 

payment plans. Current Home Equity 

Samples G–14A and G–14B, and Home 

Equity Model Clauses G–15 in 

Appendix G provide model language for 

how to disclose the hypothetical 

payment schedule required by current 

§ 226.5b(d)(5)(iii). 

Current § 226.5b(d)(12)(x) provides 

that for variable-rate HELOC plans, a 

creditor must disclose, as part of the 

application disclosures for each 

payment option offered on the HELOC, 

the minimum periodic payment that 

would be required if the maximum APR 

were in effect for a $10,000 outstanding 

balance. 15 U.S.C. Unlike the payment 

examples required under current 

§ 226.5b(d)(5)(iii) for a recent rate, the 

payment examples required under 

current § 226.5b(d)(12)(x) for the 

maximum rate do not require the 

creditor to disclose a hypothetical 

payment schedule based on the 

maximum APR. Instead, under current 

§ 226.5b(d)(12)(x), a creditor is required 

only to show the minimum required 

payments if the consumer had a $10,000 

balance during the draw period at the 

maximum APR, and the minimum 

required payments if the consumer had 

a $10,000 balance at the beginning of 

the repayment period at the maximum 

APR, assuming the minimum required 

payments are calculated differently in 

the two periods. (If minimum required 

payments are calculated the same in the 

two periods, only one payment example 

need be shown.) See comment 

5b(d)(12)(x)–1. Even if a consumer 

might owe a balloon payment at the end 

of the HELOC, a creditor would not 

need to disclose the amount of the 

balloon payment based on the 

maximum APR. As with the payment 

examples required under current 

§ 226.5b(d)(5)(iii) that are based on a 

recent APR, a creditor may provide the 

hypothetical payments based on the 

maximum APR either for each payment 

plan disclosed in the application 

disclosures, or for representative 

payment plans. See current comment 

5b(d)(12)(x)–1. Current Home Equity 

Samples G–14A and G–14B and Home 

Equity Model Clauses G–15 in 

Appendix G provide model language for 

how to disclose the payment examples 

required by current § 226.5b(d)(12)(x). 

The Board proposes to move the 

provisions on payment examples in 

§ 226.5b(d)(5)(iii) and (d)(12)(x) to 

proposed § 226.5b(c)(9)(iii) and to revise 

them. The Board proposes to streamline 

the payment examples for the current 

APR and the maximum APR so they are 

calculated in a consistent manner. The 

Board proposes this rule pursuant to its 

authority in TILA Section 105(a) to 

make adjustments and exceptions to the 

requirements in TILA to effectuate the 

statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uniformed use of 

credit. See 15 U.S.C. 1601(a), 1604(a). 

Under proposed § 226.5b(c)(9)(iii)(B), a 

creditor would be required to provide 

payment examples for the current and 

maximum APR for each payment plan 

disclosed in the table. These payment 

examples would show the first 

minimum periodic payment for the 

draw period and the first minimum 

periodic payment for any repayment 

period, and the balance outstanding at 

the beginning of any repayment period, 

based on the following assumptions: (1) 

The consumer borrows the maximum 

credit line available (as disclosed in the 

early HELOC disclosures) at account 

opening, and does not obtain any 

additional extensions of credit; (2) the 

consumer makes only minimum 

periodic payments during the draw 

period and any repayment period; and 

(3) the APRs used to calculate the 

sample payments remain the same 

during the draw period and any 

repayment period. Unlike the payment 

examples in current § 226.5b(d)(5)(iii), 

which must be based on a recent APR, 

proposed § 226.5b(c)(9)(iii) would 

require payment examples based on the 

maximum APR possible for the plan, as 

well as the current APR offered to the 

consumer on the HELOC plan. Under 

the proposal, if an introductory APR 

applies, a creditor would be required to 

use the APR that would otherwise apply 

to the plan after the introductory APR 

expires, as described in proposed 

§ 226.5b(c)(10)(ii). Thus, the Board 

proposes to delete the contents of 

footnote 10c and guidance in current 

5b(d)(5)(iii)–1 that relate to selecting a 

recent APR. 

Proposed § 226.5b(c)(9)(iii) also 

requires additional disclosures as part of 

the proposed payment examples. 

Specifically, a creditor would be 

required to disclose the following 

information: (1) A statement that the 

payment examples show the first 

periodic payments at the current and 

maximum APRs if the consumer 

borrows the maximum credit available 

when the account is opened and does 

not borrow any more money; (2) a 

statement that the payment examples 

are not the consumer’s actual payments 

and that the actual payments each 

period will depend on the amount that 

the consumer has borrowed and the 

interest rate that period; (3) if a creditor 

is disclosing two payment plans in the 


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43468 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

18Brian Bucks, et al., Changes in U.S. Family 

Finances from 2004 to 2007: Evidence from the 

Survey of Consumer Finances, Federal Reserve 

Bulletin (February 2009). 

table, the creditor must identify which 

plan results in the least amount of 

interest, and which plan results in the 

most amount of interest, based on the 

assumptions used to calculate the 

payment examples described above; and 

(4) if a consumer may pay a balloon 

payment under a payment plan 

disclosed in the table, the creditor must 

disclose that fact, and the amount of the 

balloon payment based on the 

assumptions used to calculate the 

payment examples described above. If a 

creditor is disclosing two payment plans 

in the table, one in which a balloon 

payment would occur and one in which 

it would not, a creditor must disclose 

that a balloon payment will not result 

for the plan in which no balloon 

payment would occur. The Board also 

proposes in new § 226.5b(c)(9)(iii)(D) to 

require a creditor to provide the new 

payment examples and the other related 

information in a tabular format 

substantially similar to the format used 

in any of the applicable tables found in 

Samples G–14(C), G–14(D) and G–14(E) 

in Appendix G. 

As noted, the proposed payment 

examples for the current and the 

maximum APRs would be based on the 

assumption that the consumer borrows 

the maximum credit available (as 

disclosed in the early HELOC 

disclosures) at account opening, and 

does not obtain any additional 

extensions of credit. The Board 

proposes not to use $10,000 as the 

hypothetical balance for calculating the 

payment examples because of concerns 

that using that balance makes the 

sample payments unrealistically low for 

most consumers. 15 U.S.C. 1604(a). 

Consumers typically may borrow more 

than $10,000 on their HELOC plans. To 

illustrate, the Board’s 2007 Survey of 

Consumer Finances data indicates that 

the median outstanding balance on 

HELOCs (for families that had a balance 

at the time of the interview) was 

$24,000.18

The Board believes that the proposed 

payment examples based on the 

maximum credit available for the 

current and maximum APRs will 

provide more useful information to 

consumers than the existing $10,000 

example. Disclosing the first required 

minimum payment for the draw period 

if the consumer borrows the maximum 

credit available at the current APR 

would provide the consumer with an 

estimate of the actual current payment 

if the consumer borrows the maximum 

credit available at account opening. 

Disclosing the first required minimum 

payment for the draw period if the 

consumer borrowers the maximum 

credit available at the maximum APR 

would show the consumer a ‘‘worst case 

scenario’’ payment. In consumer testing 

conducted by the Board on HELOC 

disclosures, the Board tested versions of 

the early HELOC disclosures that based 

the payment examples on a $10,000 

hypothetical balance, and other versions 

of the disclosures that based the 

payment examples on the maximum 

credit line. In this testing, a number of 

participants preferred payment 

examples based on the maximum credit 

line, indicating that they would like to 

know what would be the highest 

payment they would have to make if 

they borrowed the entire credit limit. 

The proposed payment examples also 

would show the first minimum periodic 

payment during the repayment period 

for both the current and maximum 

APRs. These payment examples would 

be based on the balance outstanding at 

the beginning of the repayment period, 

assuming that the consumer borrows the 

full credit line at the beginning of draw 

period, the consumer makes only 

minimum required payments during the 

draw period and borrows no additional 

money, and the APR does change during 

the draw period. Under the proposal, 

the amount of the balance used to 

calculate the first minimum periodic 

payment during the repayment period 

would be disclosed in the table. The 

Board recognizes that the first payments 

during the repayment period may be 

less useful to the consumer than the first 

payments during the draw period, given 

that the first payments during the 

repayment periods are based on the 

assumptions that the consumer will not 

take any additional advances during the 

draw period and the APR will not 

change during the draw period. 

Nonetheless, for some plans the 

required minimum periodic payments 

in the repayment period may be 

considerably larger than the required 

minimum periodic payments during the 

draw period. For example, some 

HELOCs offer a payment plan in which 

the minimum periodic payments during 

the draw period cover only interest and 

do not pay down any of the principal 

during the draw period, but during the 

repayment period, minimum periodic 

payments cover interest and at least 

some of the principal balance. In these 

plans, the required minimum periodic 

payments during the repayment period 

could be considerably larger than the 

minimum periodic payments during the 

draw period. The Board believes that 

showing the first required minimum 

periodic payment for the repayment 

period will better protect consumers by 

putting them on notice that their 

payments for the repayment period may 

be much larger than the minimum 

periodic payments for the draw period. 

Unlike current § 226.5b(d)(5)(iii), 

proposed § 226.5b(c)(9)(iii) would not 

require a creditor to disclose a full 

hypothetical payment schedule in the 

early HELOC disclosures. Instead, 

proposed § 226.5b(c)(9)(iii) requires a 

creditor to disclose only the first 

minimum periodic payment during the 

draw period and the first minimum 

periodic payment during any repayment 

period. The Board proposes to delete the 

requirement to provide the number of 

hypothetical payments and the range of 

those payments during the draw period 

and any repayment period because of 

concerns that including that information 

in the table may confuse consumers and 

detract from other important 

information. In the consumer testing 

conducted by the Board on HELOC 

disclosures, the Board tested versions of 

the early HELOC disclosures that 

showed a range of payments for the 

draw period and the repayment period. 

In this testing, many participants did 

not understand why the payments 

during the draw period and the 

repayment period were shown as a 

range. In addition, participants spent 

considerable time attempting to 

understand the range of payments at the 

expense of not focusing on other 

pertinent information on the disclosure 

forms. 

In addition, the Board believes that 

showing only the first payments for the 

draw period and the repayment period 

sufficiently informs consumers about 

how large the payments could be under 

the payment plans. If the range of 

payments were shown for the draw 

period, the first payment for the draw 

period would be the highest payment in 

that range. Likewise, if a range of 

payments were shown for the 

repayment period, the first payment for 

the repayment period would be the 

highest payment in the range. 

Current § 226.5(d)(5)(iii) also requires 

that a creditor disclose the time it would 

take to repay a $10,000 advance that is 

taken at the beginning of the draw 

period at a recent rate and is reduced 

according to the terms of the plan. The 

Board proposes not to include the ‘‘time 

to repay’’ disclosure in the early HELOC 

disclosures. The Board proposes this 

rule pursuant to its authority in TILA 

Section 105(a) to make adjustments and 

exceptions to the requirements in TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 


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ability to compare credit terms and 

helping consumers avoid the 

uninformed use of credit. See 15 U.S.C. 

1601(a), 1604(a). In consumer testing 

conducted by the Board on HELOC 

disclosures, the Board tested versions of 

the early HELOC disclosures that 

contained two payment options. In 

disclosing the payment examples for 

each payment option, the forms 

contained a disclosure of the time it 

would take to repay the hypothetical 

balance if the consumer only made 

minimum periodic payments. Although 

a few participants cited the ‘‘time to 

repay’’ as a reason to choose one 

payment plan over another, the Board is 

concerned that if a creditor discloses 

two payment options in the table, the 

time to repay each plan would not 

always be an accurate measure of which 

payment plan is better for consumers. 

The Board believes requiring the ‘‘time 

to repay’’ disclosure in the table may 

distract consumers from considering 

other information in the table that may 

be more useful in comparing the two 

payment plans—namely the disclosures 

of which payment plan results in the 

least amount of interest and whether a 

plan has a balloon payment. 

In addition, the Board understands 

that most HELOCs have a maturity date 

and a definite length for the plan. For 

these HELOCs, the time to repay the 

balance will be the same as the length 

of the plan (which must be disclosed in 

the early HELOC disclosures, see 

proposed § 226.5b(c)(9)(i)), unless the 

HELOC plan has a floor payment 

amount (which may cause the principal 

to be paid off earlier than the maturity 

date). Even if the plan has a floor 

payment amount, the length of the plan 

will inform consumers of the ‘‘worst 

case scenario’’ of how long it will take 

to repay the debt if only minimum 

periodic payments are made. 

Under current comments 5b(d)(5)(iii)– 

2 and 5b(d)(12)(x)–1, a creditor may 

show the hypothetical payment 

examples required to be disclosed under 

current § 226.5b(d)(5)(iii) and (d)(12)(x) 

either for each payment plan disclosed 

in the application disclosures, or for 

representative payment plans. The 

Board proposes to delete these 

comments. Under proposed 

§ 226.5b(c)(9)(iii), a creditor would be 

required to disclose the proposed 

payment examples (as described above) 

for each payment plan disclosed in the 

table. 

The current model clauses for 

disclosing the payment examples under 

current § 226.5b(d)(5)(iii) and (d)(12)(x) 

are contained in current G–15 in 

Appendix G. These model clauses 

provide this information in a narrative 

format. The Board proposes in new 

§ 226.5b(c)(9)(iii)(D) to require a creditor 

to provide the proposed payment 

examples and the other related 

information in a tabular format that is 

substantially similar to the format used 

in any of the applicable tables found in 

proposed Samples G–14(C), G–14(D) 

and G–14(E) in Appendix G. In the 

consumer testing conducted by the 

Board on HELOC disclosures, the Board 

tested versions of the early HELOC 

disclosures where the proposed 

payment examples and related 

information were presented in the 

tabular format shown in proposed 

Samples G–14(C), G–14(D) and G–14(E) 

in Appendix G. This testing showed that 

presenting this information in a tabular 

format more effectively communicated 

payment information to participants 

than the current narrative format. 

Current comment 5b(d)(5)(iii)–1 

provides guidance to creditors on how 

to calculate the hypothetical payment 

schedule required to be disclosed under 

current § 226.5b(d)(5)(iii). Specifically, 

current comment 5b(d)(5)(iii)–1 

provides that the creditor may assume 

that the credit limit as well as the 

outstanding balance is $10,000. (If the 

creditor only offers lines of credit for 

less than $10,000, however, the creditor 

may assume an outstanding balance of 

$5,000 instead of $10,000 in making this 

disclosure.) The example should reflect 

the payment comprised only of 

principal and interest. Creditors may 

provide an additional example 

reflecting other charges that may be 

included in the payment, such as credit 

insurance premiums. Creditors may 

assume that all months have an equal 

number of days, that payments are 

collected in whole cents, and that 

payments will fall on a business day 

even though they may be due on a nonbusiness day. For variable-rate plans, 

the example must be based on the last 

rate in the historical example table 

required in current § 226.5b(d)(12)(xi), 

or a more recent rate. Where the last rate 

shown in the historical example table is 

different from the index value and 

margin (for example, due to a rate cap), 

creditors should calculate the rate by 

using the index value and margin. A 

discounted rate may not be considered 

a more recent rate in calculating this 

payment example for either variable- or 

fixed-rate plans. 

The Board proposes to move this 

comment to proposed comment 

5b(c)(9)(iii)–1 and revise it. Current 

guidance in comment 5b(d)(5)(iii)–1 

related to the hypothetical $10,000 

balance and selecting a recent APR 

would be deleted as obsolete. Unlike 

current comment 5b(d)(5)(iii)–1, 

proposed comment 5b(d)(9)(iii)–1 

would not allow a creditor to provide 

additional payment examples reflecting 

other charges that may be included in 

the payment, such as credit insurance 

premiums, because of concerns that 

allowing these additional payment 

examples would be more information 

than many consumers can effectively 

process and may discourage consumers 

from reviewing the payment examples 

at all. 

The Board also proposes to include in 

proposed comment 5b(c)(9)(iii)–1 

additional guidance for calculating and 

disclosing the proposed payment 

examples in § 226.5b(c)(9)(iii). 

Specifically, proposed comment 

5b(c)(9)(iii)–1 provides that in 

calculating the payment examples, a 

creditor must account for any significant 

terms related to each payment plan, 

such as payment caps or payment floor 

amounts. A creditor must take payment 

floor amounts into account when 

calculating the payment examples even 

though the creditor is not permitted to 

disclose that payment floor in the table 

when describing how minimum 

payments will be calculated. See 

proposed comment 5b(c)(9)(ii)–1. For 

example, assume that under a payment 

plan, the monthly payment for the draw 

period will be calculated as the interest 

accrued during that month, or $50, 

whichever is greater. In the early 

HELOC disclosures table, a creditor 

would be required to disclose that the 

minimum monthly payment during the 

draw period only covers interest. The 

creditor would not be allowed to 

disclose the payment floor of $50 in the 

table as part of the early HELOC 

disclosures. Nonetheless, the creditor 

would be required to take into account 

this $50 payment floor in calculating the 

disclosures shown as part of the 

payment examples. 

In disclosing the payment examples, a 

creditor would be required to assume 

that the consumer borrows the full 

credit line (as disclosed in the early 

HELOC disclosures) at the beginning of 

the draw period and that this advance 

is reduced according to the terms of the 

plan. The proposed comment provides 

that a creditor must not assume that an 

additional advance is taken at any time, 

including at the beginning of any 

repayment period. The examples also 

would be required to reflect the 

payment comprised only of principal 

and interest. The proposed sample 

payments in the table showing the first 

minimum periodic payment for the 

draw period and any repayment period, 

as well as the balance outstanding at the 

beginning of any repayment period, 

must be rounded to the nearest whole 


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43470 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

dollar. The proposed comment provides 

that creditors may assume that all 

months have an equal number of days, 

that payments are collected in whole 

cents, and that payments will fall on a 

business day even though they may be 

due on a non-business day. A creditor 

would be required to assume that the 

APR used to calculate each payment 

example required by § 226.5b(c)(9)(iii) 

would remain the same during the draw 

period and any repayment period as 

specified in proposed 

§ 226.5b(c)(9)(iii)(A)(3) even if that APR 

is a variable rate under the plan. 

Balloon payments. Currently, if a 

balloon payment may be paid by the 

consumer under a payment plan, 

creditors are required to make two 

disclosures relating to the balloon 

payment. 

First, current § 226.5b(d)(5)(ii), which 

implements TILA Section 127A(a)(10), 

provides that if paying only the 

minimum periodic payments may not 

repay any of the principal or may repay 

less than the outstanding balance, the 

creditor must disclose as part of the 

application disclosures a statement of 

this fact, as well as a statement that a 

balloon payment may result. 15 U.S.C. 

1637a(a)(10). Footnote 10b explains that 

a balloon payment results if paying the 

minimum periodic payments does not 

fully amortize the outstanding balance 

by a specified date or time, and the 

consumer must repay the entire 

outstanding balance at such time. 

Current comment 5b(d)(5)(ii)–3 provides 

guidance about disclosing balloon 

payments in the application disclosures. 

This comment provides that in 

programs where the occurrence of a 

balloon payment is possible, a creditor 

must disclose the possibility of a 

balloon payment even if such a payment 

is uncertain or unlikely. This comment 

also provides that in programs where a 

balloon payment will occur, such as 

programs with interest-only payments 

during the draw period and no 

repayment period, the disclosures must 

state that a balloon payment will result. 

Current comment 5b(d)(5)(ii)–3 clarifies 

that in making the disclosure about a 

balloon payment as required by 

§ 226.5b(d)(5)(ii), a creditor is not 

required to use the term ‘‘balloon 

payment’’ and is not required to 

disclose the amount of the balloon 

payment. In addition, this comment 

clarifies that the balloon payment 

disclosure as described in 

§ 226.5b(d)(5)(ii) does not apply in cases 

where repayment of the entire 

outstanding balance would occur only 

as a result of termination and 

acceleration, or if the final payment 

could not be more than twice the 

amount of other minimum payments 

under the plan. 

Second, as discussed above, current 

§ 226.5b(d)(5)(iii) requires disclosure of 

a hypothetical payment schedule, based 

on a $10,000 outstanding balance and a 

recent APR, showing the minimum 

periodic payments, the amount of any 

balloon payment, and the time it would 

take to repay the $10,000 outstanding 

balance if the consumer made only 

those payments and obtained no 

additional extensions of credit. 

1. Disclosure of balloon payments 

when one payment plan is disclosed in 

the early HELOC disclosures. Under the 

proposal, if a creditor is only disclosing 

one payment plan in the early HELOC 

disclosures and under that payment 

plan the consumer may pay a balloon 

payment, a creditor would be required 

to disclose information about the 

balloon payment twice in the table as 

part of the early HELOC disclosures: At 

the beginning of the information about 

payment terms, and as part of the 

payment examples. The Board proposes 

to move the provisions on disclosing a 

balloon payment in § 226.5b(d)(5)(ii) to 

proposed § 226.5b(c)(9)(ii)(A). 

Specifically, proposed 

§ 226.5b(c)(9)(ii)(A) provides that if a 

creditor offers to the consumer only one 

payment plan (except for fixed-rate and 

-term payment plans unless those are 

the only payment plans offered during 

the draw period) and paying only the 

minimum periodic payments may not 

repay any of the principal or may repay 

less than the outstanding balance by the 

end of the HELOC plan, the creditor 

must disclose a statement of this fact, as 

well as a statement that a balloon 

payment may result. Proposed comment 

5b(c)(9)–2 explains that the row 

‘‘Balloon Payment’’ in the ‘‘Borrowing 

and Repayment Terms’’ section of 

proposed Sample G–14(D) in Appendix 

G provides guidance on how to comply 

with the requirements in proposed 

§ 226.5b(c)(9)(ii)(A). Proposed 

§ 226.5b(c)(9)(ii)(A) also specifies that if 

a balloon payment will not result under 

the payment plan, a creditor must not 

disclose in the early HELOC disclosures 

the fact that a balloon payment will not 

result for the plan. The Board believes 

that allowing a creditor to disclose in 

the early HELOC disclosures table that 

a balloon payment will not result for the 

plan might create ‘‘information 

overload’’ for consumers and distract 

consumers from more important 

information in the table because 

consumers are not likely to understand 

a statement that ‘‘a balloon payment 

will not apply’’ without additional 

language defining what a balloon 

payment is, which would add 

complexity to the table. 

In addition, as discussed above, the 

Board proposes to move the payment 

examples in current § 226.5b(d)(5)(iii) to 

proposed § 226.5b(c)(9)(iii) and revise 

them. Regarding disclosure of the 

amount of the balloon payment in the 

proposed payment examples, proposed 

§ 226.5b(c)(9)(iii)(C)(4) provides that if a 

consumer may pay a balloon payment 

under a payment plan disclosed in the 

table, a creditor would be required to 

disclose that fact when disclosing the 

proposed payment examples, as well as 

disclose the amount of the balloon 

payment based on the assumptions used 

the calculate the payment examples as 

described in proposed § 226.5b(c)(9)(iii). 

Proposed comment 5b(c)(9)–2 explains 

that the first paragraph of the ‘‘Sample 

Payments’’ section of proposed Sample 

G–14(D) in Appendix G provides 

guidance on how to comply with the 

requirements in § 226.5b(c)(9)(iii)(C)(4). 

Consistent with proposed 

§ 226.5b(c)(9)(ii)(A), proposed 

§ 226.5b(c)(9)(iii)(C)(4) also specifies 

that if a creditor is disclosing only one 

payment plan in early HELOC 

disclosures, and a balloon payment will 

not occur for that plan, the creditor 

must not disclose as part of the payment 

examples that a balloon payment will 

not result for the plan. 

The Board proposes to move current 

comment 5b(d)(5)(ii)–3 and current 

footnote 10b, which provide guidance 

on disclosing balloon payments, to 

proposed comment 5b(c)(9)–1 and to 

revise these provisions. Like current 

footnote 10b, proposed comment 

5b(c)(9)–1 specifies that a balloon 

payment results if paying the minimum 

periodic payments does not fully 

amortize the outstanding balance by a 

specified date or time, and the 

consumer must repay the entire 

outstanding balance at such time. A 

creditor also would not need to make a 

disclosure about balloon payments if the 

final payment could not be more than 

twice the amount of other minimum 

payments under the plan. Consistent 

with current comment 5b(d)(5)(ii)–3, 

proposed comment 5b(c)(9)–1 specifies 

that the balloon payment disclosures in 

proposed § 226.5b(c)(9)(ii) and (iii) do 

not apply where repayment of the entire 

outstanding balance would occur only 

as a result of termination and 

acceleration. 

Finally, consistent with current 

comment 5b(d)(5)(ii)–3, proposed 

comment 5b(c)(9)–1 specifies that, in 

disclosing a balloon payment under 

§ 226.5b(c)(9)(ii) and (iii), a creditor 

must disclose that a balloon payment 

‘‘may’’ result if a balloon payment under 


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a payment plan is possible, even if such 

a payment is uncertain or unlikely; a 

creditor must disclose a balloon 

payment ‘‘will’’ result if a balloon 

payment will occur under a payment 

plan, such as a payment plan with 

interest-only payments during the draw 

period and no repayment period. 

2. Disclosure of balloon payments 

when two payment plans are disclosed 

in the early HELOC disclosures. Under 

the proposal, a creditor that discloses 

two payment plans in the table as part 

of the early HELOC disclosures and 

under at least one of the plans a 

consumer may pay a balloon payment, 

the creditor must disclose information 

about the balloon payment three times 

in the table: (1) At the beginning of 

information about the payment terms on 

the HELOC plan; (2) with a discussion 

of how the minimum periodic payments 

are determined for each plan; and (3) 

with the payment examples. 

First, proposed § 226.5b(c)(9)(ii)(B)(1) 

provides that if a creditor is disclosing 

two payment options in the table and 

under at least one of the payment plans, 

paying only the minimum periodic 

payments may not repay any of the 

principal or may repay less than the 

outstanding balance by the end of the 

plan, a creditor must disclose in the 

table as part of the early HELOC 

disclosures a statement of this fact, as 

well as a statement that a balloon 

payment may result. If a balloon 

payment would result under one 

payment plan but not both payment 

plans, the creditor must disclose that a 

balloon payment may result depending 

on the terms of the payment plan. If a 

balloon payment would result under 

both payment plans, the creditor must 

disclose that a balloon payment will 

result. If a balloon payment would not 

result under both payment plans, a 

creditor must not disclose in the early 

HELOC disclosures the fact that a 

balloon payment will not result for both 

plans. As noted above with respect to 

proposed § 226.5b(c)(9)(ii)(A), the Board 

believes that allowing a creditor to 

disclose in the early HELOC disclosures 

table that a balloon payment will not 

result for the both payment plans might 

create ‘‘information overload’’ for 

consumers and distract consumers from 

more important information in the table. 

Proposed comment 5b(c)(9)–3 explains 

that the row ‘‘Balloon Payment’’ in the 

‘‘Borrowing and Repayment Terms’’ 

section of proposed Sample G–14(C) in 

Appendix G provides guidance on how 

to comply with the requirements in 

§ 226.5b(c)(9)(ii)(B)(1). 

Second, under proposed 

§ 226.5b(c)(9)(ii)(B)(3), for each payment 

plan described in the early HELOC 

disclosures for which a balloon payment 

may result (or will result as applicable), 

a creditor would be required to disclose 

that a balloon payment may result or 

will result, as applicable, for that plan. 

For example, assume a creditor 

describes two payment plans—Plan A 

and Plan B—in the early HELOC 

disclosures, and a balloon payment will 

result for both plans. Under the 

proposal, a creditor would be required 

to disclose that a balloon payment will 

result for Plan A and disclose that a 

balloon payment will result for Plan B. 

These two statements would be 

disclosed along with the information 

about how minimum payments would 

be calculated for each plan required 

under proposed § 226.5b(c)(9)(ii)(B)(2). 

See the rows ‘‘Plan A’’ and ‘‘Plan B’’ in 

the ‘‘Payment Plans’’ section of 

proposed Sample G–14(C) in Appendix 

G. 

If one of the plans has a balloon 

payment and the other does not, 

proposed § 226.5b(c)(9)(ii)(B)(3) requires 

a creditor to disclose that a balloon 

payment will result for the plan in 

which a balloon payment will occur and 

that a balloon payment will not result 

for the plan in which no balloon 

payment would occur. If under Plan A, 

a consumer would pay a balloon 

payment while under Plan B a 

consumer would not pay a balloon 

payment, the creditor would be required 

to state that a balloon payment will 

result for Plan A and a statement that a 

balloon payment will not result for Plan 

B. Again, these two statements would be 

disclosed along with the information 

about how minimum payments would 

be calculated for each plan required 

under proposed § 226.5b(c)(9)(ii)(B)(2). 

Consistent with proposed 

§ 226.5b(c)(9)(ii)(B)(1), proposed 

§ 226.5b(c)(9)(ii)(B)(3) also specifies that 

if neither payment plan has a balloon 

payment, a creditor must not disclose 

the fact that a balloon payment will not 

result for the each plan. 

Third, proposed 

§ 226.5b(c)(9)(iii)(C)(4) provides that if a 

consumer may pay a balloon payment 

under a payment plan disclosed in the 

table, a creditor would be required to 

disclose that fact when disclosing the 

proposed payment examples, and 

disclose the amount of the balloon 

payment based on the assumptions used 

the calculate the payment examples as 

described in proposed § 226.5b(c)(9)(iii). 

If under both Plan A and Plan B a 

consumer would owe a balloon 

payment, proposed 

§ 226.5b(c)(9)(ii)(B)(4) requires a 

creditor to disclose that a balloon 

payment will result for Plan A and 

disclose the amount of the balloon 

payment based on the assumptions used 

to calculate the payment examples 

described in proposed § 226.5b(c)(9)(iii). 

In addition, a creditor would be 

required to disclose a balloon payment 

will result for Plan B and the amount of 

the balloon payment. These two 

statements would be disclosed along 

with the payment examples in proposed 

§ 226.5b(c)(9)(iii). See the ‘‘Plan A vs. 

Plan B’’ part of the ‘‘Plan Comparison’’ 

section of proposed Sample G–14(C) in 

Appendix G. 

If one of the plans has a balloon 

payment and the other does not, 

proposed § 226.5b(c)(9)(iii)(C)(4) 

requires a creditor to disclose that a 

balloon payment will not result for the 

plan in which no balloon payment 

would occur. In other words, if under 

Plan A, a consumer would pay a balloon 

payment while under Plan B a 

consumer would not pay a balloon 

payment, the creditor would be required 

to disclose a statement that a balloon 

payment will result for Plan A and the 

amount of the balloon payment. In 

addition, a creditor would be required 

to disclose a statement that a balloon 

payment will not result for Plan B. 

These two statements would be 

disclosed along with the payment 

examples in proposed § 226.5b(c)(9)(iii). 

Consistent with proposed 

§ 226.5b(c)(9)(ii)(B)(1), proposed 

§ 226.5b(c)(9)(iii)(C)(4) also specifies 

that if neither payment plan has a 

balloon payment, a creditor must not 

disclose the fact that a balloon payment 

will not result for the each plan. Thus, 

if under both Plan A and Plan B a 

consumer would not owe a balloon 

payment, a creditor must not disclose in 

the early HELOC disclosures that a 

balloon payment would not be paid 

under either plan. 

The Board believes that the above 

approach of disclosing information 

about balloon payments three places in 

the table as part of the early HELOC 

disclosures would help consumer better 

understand that a balloon payment may 

be owed by the consumer at the end of 

HELOC plan if the consumer only 

makes minimum required payments, 

and reinforces for the consumer which 

payments plans carry the possibility of 

a balloon payment. 

Reverse mortgages. Current comment 

5b(d)(5)(iii)–4 provides guidance on 

disclosing terms of reverse mortgages, 

also known as reverse annuity or homeequity conversion mortgages, as part of 

the application disclosures. The Board 

proposes to move current comment 

5b(d)(5)(iii)–4 to proposed comment 

5b(d)(9)(ii)–6, and to make technical 

revisions to conform this guidance to 

proposed revisions in proposed 


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43472 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

§ 226.5b(c). The Board requests 

comment on whether additional 

guidance is needed by creditors offering 

reverse mortgages on how to meet the 

disclosure requirements in proposed 

§ 226.5b(c). 

Paragraph 5b(c)(9)(iv) 

Pursuant to its authority under TILA 

Section 127A(a)(14) to require 

additional disclosures with respect to 

HELOC plans, the Board proposes in 

new § 226.5b(c)(9)(iv) to require a 

creditor to disclose in the table as part 

of the early HELOC disclosures a 

statement that the consumer can borrow 

money during the draw period. 15 

U.S.C. 1637a(a)(14). In addition, if a 

repayment period is provided, the 

creditor would also be required to 

disclose in the table a statement that the 

consumer cannot borrow money during 

the repayment period. Although 

creditors are not specifically required to 

include the above information as part of 

the application disclosures, creditors 

typically include this information in the 

application disclosures. The Board 

believes that consumers should be 

informed about when during the HELOC 

plan they can make withdrawals and 

when they are no longer able to borrow 

money under the plan. 

Paragraph 5b(c)(9)(v) 

As discussed above, current 

§ 226.5b(d)(5)(ii) provides that a creditor 

must disclose as part of the application 

disclosures an explanation of how the 

minimum periodic payments will be 

determined and the timing of the 

payments (such as whether the 

payments will be due monthly, 

quarterly or on some other periodic 

basis). As discussed above, the Board 

proposes to move current 

§ 226.5b(d)(5)(ii) to proposed 

§ 226.5b(c)(9)(ii) and make revisions. 

Nonetheless, consistent with current 

§ 226.5b(d)(5)(ii), the Board proposes in 

new § 226.5b(c)(9)(ii) to require that a 

creditor disclose in the table as part of 

the early HELOC disclosures the timing 

of the payments (such as whether the 

payments will be due monthly, 

quarterly or on some other periodic 

basis.) In addition, the Board proposes 

in new § 226.5b(c)(9)(v) to require a 

creditor to disclose in the table as part 

of the early HELOC disclosures a 

statement indicating whether minimum 

payments are due in the draw period 

and any repayment period. In consumer 

testing conducted by the Board on 

HELOC disclosures, the Board tested 

application disclosures in a narrative 

form, designed to simulate those 

currently in use. When reviewing these 

application disclosures, many 

participants had difficulty 

understanding how the draw period 

differs from the repayment period, and 

what impact these distinctions have on 

required monthly payments. The Board 

believes that requiring a creditor to state 

explicitly whether minimum payments 

are due in the draw period and any 

repayment period will help consumers 

better understand when minimum 

payments will be due under the HELOC. 

5b(c)(10) Annual Percentage Rate 

TILA Section 127A(a)(1) provides that 

a creditor must disclose as part of the 

application disclosures each APR 

imposed in connection with the HELOC 

plan. 15 U.S.C. 1637a(a)(1). Regulation 

Z currently interprets TILA Section 

127A(a)(1) to mean that for fixed-rate 

payment plans, a creditor must disclose 

as part of the application disclosures a 

recent APR imposed under the plan. See 

current § 226.5b(d)(6). Current footnote 

10c provides that a recent APR for fixedrate plans is a rate that has been in effect 

under the plan within the 12 months 

preceding the date that disclosures are 

provided to the consumer. For variable 

rate plans, current § 226.5b(d)(12), 

which implements TILA Section 

127A(a)(2), requires a creditor to 

disclose the index that will be used to 

determine the variable rate. 15 U.S.C. 

1637a(a)(2). In addition, current 

§ 226.5b(d)(12) sets forth a number of 

other disclosures about variable rates 

that must be included as part of the 

application disclosures, such as a 

statement that the consumer should ask 

about the current index value, margin, 

discount or premium, and APR. A 

creditor is not required to disclose in 

the application disclosures the current 

APRs that are offered to the consumer 

on the HELOC plan. 

The Board proposes to require that a 

creditor disclose in the table as part of 

the early HELOC disclosures the current 

APRs that are offered to the consumer 

on the payment plans described in the 

early HELOC disclosures table. 

Specifically, proposed § 226.5b(c)(10) 

requires that a creditor must disclose in 

the table each APR applicable to any 

payment plan disclosed in the early 

HELOC disclosures. The proposal to 

require a creditor to disclose in the table 

the APRs applicable to the payment 

plans disclosed in the table is consistent 

with TILA Section 127A(a)(1), which 

provides that a creditor must disclose 

‘‘each annual percentage rate imposed 

in connection with extensions of credit 

under the plan. * * *’’ 15 U.S.C. 

127A(a)(1). In addition, as discussed in 

more detail above in the section-bysection analysis to proposed § 226.5b(b), 

consumer testing on HELOC disclosures 

shows that the current APRs on the 

HELOC plan are some of the most 

important pieces of information that 

consumers want to know in deciding 

whether to open a HELOC plan. 

Participants in the consumer testing 

overwhelmingly indicated that they 

would prefer to receive transactionspecific disclosures, including the 

current APRs offered to the consumer 

on the HELOC plan, soon after 

application even if it meant that they 

would not receive disclosure of general 

terms before they applied. The Board 

proposes to delete as obsolete current 

§ 226.5b(d)(6) and the contents of 

footnote 10c, which require the 

consumer to disclose for fixed-rate plans 

a recent rate that has been in effect 

within the 12 months preceding the date 

that disclosures are provided to the 

consumer. In addition, the Board 

proposes to move the provisions in 

current § 226.5b(d)(12) relating to 

variable-rate plans to proposed 

§ 226.5b(c)(10) and to make revisions to 

those provisions. 

Rates applicable to payment plans 

disclosed. Proposed comment 5b(c)(10)– 

3 clarifies that under proposed 

§ 226.5b(c)(10), a creditor would only be 

required to disclose in the table as part 

of the early HELOC disclosures the 

APRs applicable to the payment plans 

that are disclosed in the table under 

proposed § 226.5b(c)(9). As discussed in 

more detail in the section-by-section 

analysis to proposed § 226.5b(c), for 

HELOC plans that are variable-rate 

plans but also offer fixed-rate and -term 

payment options during the draw 

period, a creditor may only disclose in 

the table information applicable to the 

variable-rate plan, including the 

applicable APRs. In this case, a creditor 

may not disclose in the table the APRs 

applicable to any fixed-rate and -term 

payment plans offered during the draw 

period. However, if a HELOC plan does 

not offer a variable-rate feature during 

the draw period, but only offers fixedrate and -term features during that 

period, a creditor must disclose in the 

table information related to the fixedrate and -term features when making the 

disclosures required by proposed 

§ 226.5b(c), including the APRs 

applicable to these features. The Board 

believes that requiring disclosure of all 

the APRs applicable to the HELOC plan 

in the table, even those APRs that relate 

to payment plans that are not disclosed 

in the table, would be confusing to 

consumers. 

Nonetheless, under the proposal, a 

creditor would be required to disclose 

the APRs applicable to other payment 

plans when disclosing those payment 

plans to a consumer upon request prior 


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to account opening. In particular, 

proposed comment 5b(c)(9)(ii)–5 

provides guidance on how a creditor 

must provide additional information on 

payment plans that are not disclosed in 

the table as part of the early HELOC 

disclosures (other than fixed-rate and 

-term payment plans unless those are 

the only payment plans offered during 

the draw period) to a consumer upon 

the consumer’s request. This proposed 

comment provides that if a creditor 

offers a payment plan other than the two 

payment plans disclosed in the table as 

part of the early HELOC disclosures 

(except for fixed-rate and -term payment 

plans unless those are the only payment 

plans offered during the draw period), 

and a consumer requests additional 

information about the other plan, the 

creditor must disclose an additional 

table under § 226.5b(b) to the consumer 

with the terms of the other payment 

plan described in the table. Proposed 

comment 5b(c)(10)–3 makes clear that 

this additional table must include the 

APRs applicable to that other payment 

plan. 

In addition, as discussed in more 

detail in the section-by-section analysis 

to proposed § 226.5b(c)(18), proposed 

comment 5b(c)(18)–2 provides guidance 

on how a creditor must provide 

additional information about fixed-rate 

and -term payment plans to a consumer 

upon the consumer’s request prior to 

account opening. This proposed 

comment provides that in disclosing 

additional information about the fixedrate and -term payment plan upon a 

consumer’s request, a creditor must 

disclose in the form of a table (1) the 

information described by proposed 

§ 226.5b(c) applicable to the fixed-rate 

and -term payment plan (including the 

APRs applicable to the fixed-rate and 

-term payment plan) and (2) any fees 

imposed related to the use of the fixedrate and -term payment plan, such as 

fees to exercise the fixed-rate and -term 

payment plan or to convert a balance 

under a fixed-rate and -term payment 

feature to a variable-rate feature under 

the plan. 

Rates changes set forth in initial 

agreement. Current comments 5b(d)(6)– 

1 and 5b(d)(12)(viii)–1 provide that a 

creditor must disclose in the application 

disclosures a disclosure of preferred-rate 

provisions, where the rate will increase 

upon the occurrence of some event, 

such as the borrower-employee leaving 

the creditor’s employ or the consumer 

closing an existing deposit account with 

the creditor. The Board proposes to 

move these comments to proposed 

comment 5b(c)(10)–2 and revise them. 

Specifically, proposed comment 

5b(c)(10)–2 clarifies that proposed 

§ 226.5b(c)(10) requires disclosure of 

any rate changes set forth in the initial 

agreement (as discussed in 

§ 226.5b(f)(3)(i)) applicable to the 

payment plans disclosed in the table 

pursuant to proposed § 226.5b(c)(9). For 

example, a creditor would be required 

to disclose under proposed 

§ 226.5b(c)(10) preferred-rate provisions, 

where the rate will increase upon the 

occurrence of some event, such as the 

borrower-employee leaving the 

creditor’s employ or the consumer 

closing an existing deposit account with 

the creditor. The creditor would be 

required to disclose the preferred rate 

that applies to the plan, and the rate that 

would apply if the event is triggered, 

such as the borrower-employee leaving 

the creditor’s employ or the consumer 

closing an existing deposit account with 

the creditor. Under this proposed 

comment, if the preferred rate and the 

rate that would apply if the event is 

triggered are variable rates, the creditor 

would be required to disclose those 

rates based on the applicable index or 

formula, and disclose other information 

required by proposed § 226.5b(c)(10)(i). 

Penalty APRs. Although under the 

proposal creditors generally would be 

required to disclose in the table as part 

of the early HELOC disclosures the 

APRs applicable to the payment plans 

disclosed in the table, proposed 

§ 226.5b(c)(10) provides that a creditor 

must not disclose in the table any 

penalty rate set forth in the initial 

agreement that may be imposed in lieu 

of termination of the plan. As discussed 

in more detail in the section-by-section 

analysis to § 226.5b(f), the Board 

proposes to restrict creditors offering 

HELOCs subject to § 226.5b from 

imposing a penalty rate or penalty fees 

(except for a contractual late-payment 

fee) on the account for a consumer’s 

failure to pay the account when due, 

unless the consumer is more than 30 

days late in paying the account. Based 

on Board outreach, the Board 

understands that HELOC creditors 

generally do not impose a penalty rate, 

regardless of how late the payment is. 

For this reason, as well as due to the 

very limited circumstances in which a 

penalty rate may be imposed under the 

proposal, the Board believes that 

information about the penalty rate 

would not be useful to consumers in 

deciding whether to open a HELOC plan 

and that including it in the table may 

distract consumers from noticing 

information that is more likely to impact 

them in choosing and using a HELOC. 

Periodic rates. Proposed comment 

5b(c)(10)–1 would clarify that a creditor 

would be allowed to disclose only APRs 

in the table as part of the early HELOC 

disclosures. Periodic rates would not be 

allowed to be disclosed in the table as 

part of the early HELOC disclosures. For 

example, assume a monthly periodic 

rate of 1.5 percent applies to 

transactions on a HELOC account. The 

corresponding APR to this periodic rate 

would be 18 percent. Under the 

proposal, creditors would be required to 

disclose the 18 percent corresponding 

APR in the early HELOC disclosures 

table, but may not disclose the 1.5 

percent periodic rate in the table. The 

Board believes information about 

periodic rates that apply to the HELOC 

would not be useful to consumers in 

deciding whether to open a HELOC 

plan, and including this information in 

the table may distract consumers from 

noticing more important information. 

16-point font. Proposed 

§ 226.5b(c)(10) requires that a creditor 

must provide the APRs disclosed in the 

table as part of the early HELOC 

disclosures in at least 16-point type, 

except for the following: any minimum 

or maximum APRs that may apply; and 

any disclosure of rate changes set forth 

in the initial agreement, except for rates 

that would apply after the expiration of 

an introductory rate. As discussed 

above, in consumer testing conducted 

by the Board on HELOC disclosures, 

participants indicated that the APRs 

offered to the consumer on the HELOC 

plans were some of the most important 

pieces of information in deciding 

whether to open a HELOC plan. Thus, 

the Board proposes generally to 

highlight the APRs in the table. Given 

that the Board proposes to require a 

minimum of 10-point font for the 

disclosures of other terms in the table, 

the Board believes that a 16-point font 

size for the APRs would be effective in 

highlighting the APRs in the table. 

Proposed § 226.5b(c)(10) requires that 

the current APR that will apply to the 

account be disclosed in 16-point font. If 

an introductory rate is offered, a creditor 

would be required to disclose the 

introductory rate and the rate that 

would otherwise apply after the 

introductory rate expires in 16-point 

font. Under the proposal, the 16-point 

font requirement would not apply to 

any minimum or maximum APRs 

disclosed in the table. In addition, the 

16-point font requirement would not 

apply to any disclosure of rate changes 

set forth in the initial agreement except 

for rates that would apply after the 

expiration of an introductory rate. For 

example, the 16-point font requirement 

would not apply to any disclosure of the 

rate that would apply if any preferred 

rate is terminated. The Board believes 

that limiting the 16-point font 

requirement generally to the current 


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43474 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

APRs on the account (or an introductory 

rate and the rate that would otherwise 

apply after the introductory rate expires) 

would highlight for consumers the rates 

that will be most relevant for them at 

account opening. The Board believes 

that requiring all of the APRs disclosed 

in the table to be in 16-point font could 

create ‘‘information overload’’ for 

consumers. 

5b(c)(10)(i) Disclosures for Variable-Rate 

Plans 

Current § 226.5b(d)(12), which 

implements TILA Section 127A(a)(2), 

provides that if a variable-rate feature is 

offered on a HELOC plan, the creditor 

must disclose as part of the application 

disclosures the following information 

about the variable-rate feature: (1) The 

fact that the APRs, payment, or other 

terms may change due to the variablerate feature; (2) the index used in 

making rate adjustments and a source of 

information about the index; (3) an 

explanation of how the APR will be 

determined, including an explanation of 

how the index is adjusted, such as by 

the addition of the margin; (4) the 

frequency of changes in the APR: (5) any 

rules relating to changes in the index 

value and the APR and resulting 

changes in the payment amount, 

including, for example, an explanation 

of payment limitations and rate 

carryover; (6) a statement of any annual 

or more frequent periodic limitations on 

changes in the APR (or a statement that 

no annual limitation exists), as well as 

a statement of the maximum APR that 

may be imposed under each payment 

option; (7) an historical example, based 

on a $10,000 extension of credit, 

illustrating how APRs and payments 

would have been affected by index 

value changes implemented according 

to the terms of the plan (‘‘historical 

example table’’). The historical example 

table must be based on the most recent 

15 years of index values (selected for the 

same time period each year) and must 

reflect all significant plan terms, such as 

negative amortization, rate carryover, 

rate discounts, and rate and payment 

limitations, that would have been 

affected by the index movement during 

the period; (8) the minimum periodic 

payment required when the maximum 

APR for each payment option is in effect 

for a $10,000 outstanding balance, and 

a statement of the earliest date or time 

the maximum rate may be imposed; (9) 

a statement that the APR does not 

include costs other than interest; (10) a 

statement that the consumer should ask 

about the current index value, margin, 

discount or premium, and APR; (11) a 

statement that rate information will be 

provided on or with each periodic 

statement; and (12) as applicable, a 

statement that the initial APR is not 

based on the index and margin used to 

make later rate adjustments, and the 

period of time such initial rate will be 

in effect. As discussed in more detail 

below, the Board proposes to move 

current § 226.5b(d)(12) to proposed 

§ 226.5b(c)(10) and revise it. 

Current comment 5b(d)(12)–1 

provides that sample forms in current 

Appendix G–14 provide illustrative 

guidance on the variable-rate rules. The 

Board proposes to move this comment 

to proposed comment 5b(c)(10)(i)–6 and 

to make technical revisions. Current 

comment 5b–4 provides that if a 

creditor uses an index to determine the 

rate that will apply at the time of 

conversion to the repayment phase— 

even if the rate will thereafter be fixed— 

the creditor must provide the variablerate information in current 

§ 226.5b(d)(12), as applicable. The 

Board proposes to move this provision 

in current comment 5b–4 to proposed 

comment 5b(c)(10)(i)–3 and to make 

technical revisions. 

In addition, the Board proposes to add 

new comment 5b(c)(10)(i)–1, which 

would clarify that a variable-rate 

account exists when rate changes are 

part of the plan and are tied to an index 

or formula. This proposed comment also 

provides a cross reference to comment 

6(a)(4)(ii)–1 for examples of variablerate plans. 

Disclosure that APR may change due 

to the variable-rate feature. Current 

§ 226.5b(d)(12)(i) provides that a 

creditor must include as part of the 

application disclosures a statement that 

the APRs, payment, or other terms may 

change due to the variable-rate feature. 

Consistent with current 

§ 226.5b(d)(12)(i), proposed 

§ 226.5b(c)(9)(i)(A)(1) provides that a 

creditor must disclose in the table as 

part of the early HELOC disclosures the 

fact that the APR may change due to the 

variable-rate feature. The Board believes 

that it is important to highlight for 

consumers that the APR is a variable 

rate. Thus, under the proposal, the 

Board would require a creditor in 

disclosing the variable-rate APR to use 

the term ‘‘variable rate’’ in underlined 

text as shown in any of the applicable 

tables found in proposed Samples 

G–14(C), G–14(D) and G–14(E) in 

Appendix G. Unlike current 

§ 226.5b(d)(12)(i), under the proposal, a 

creditor would not be required to 

disclose explicitly the fact that the 

payment or other terms may change due 

to the variable-rate feature. The Board 

believes that the proposed payment 

examples that would be included in the 

early HELOC disclosures communicate 

effectively to consumers that the 

payments would change when the APR 

changes. In consumer testing conducted 

by the Board on HELOC disclosures, 

participants were asked whether the 

payments on the HELOC plan could 

vary. Most participants understood from 

the payment examples contained in the 

tested forms that the payments on the 

HELOC plan would increase if the APR 

increased. 

Explanation of how APR will be 

determined. Current § 226.5b(d)(12)(iii), 

which implements TILA Section 

127A(a)(2)(B), provides that a creditor 

must include as part of the application 

disclosures the index used in making 

rate adjustments to the variable APR 

and a source of information about the 

index. 15 U.S.C. 1637a(a)(2)(B). Current 

§ 226.5b(d)(12)(iv) provides that a 

creditor also must include as part of the 

application disclosures an explanation 

of how the variable APR will be 

determined, including an explanation of 

how the index is adjusted, such as by 

the addition of a margin. Current 

comment 5b(d)(12)(iv)–1 provides that if 

a creditor adjusts its index through the 

addition of a margin, the disclosure 

might read, ‘‘Your annual percentage 

rate is based on the index plus a 

margin.’’ The creditor is not required to 

disclose a specific value for the margin. 

Consistent with current 

§ 226.5b(d)(12)(iii) and (iv), proposed 

§ 226.5b(c)(9)(i)(A)(2) requires a creditor 

to disclose in the table as part of the 

early HELOC disclosures an explanation 

of how the APR will be determined. 

Consistent with current 

§ 226.5b(d)(12)(iii), under the proposal, 

a creditor would be required to disclose 

in the table the type of index used in 

making rate adjustments to the variable 

APR, such as indicating the current APR 

is based on the ‘‘prime rate.’’ Unlike 

current § 226.5b(d)(12)(iv), under the 

proposal, a creditor also would be 

required to disclose in the table the 

value of the margin. In consumer testing 

conducted on HELOC disclosures, the 

Board tested some versions of the early 

HELOC disclosures that did not contain 

the current value of the margin, but 

instead included only a statement that 

the APR ‘‘would vary monthly with the 

Prime Rate.’’ The Board also tested other 

versions of the early HELOC disclosures 

that included the value of the margin, 

such as by stating that the APR will be 

‘‘a variable rate that will change 

monthly based on the Prime Rate plus 

1.00%.’’ Participants in consumer 

testing consistently indicated that they 

preferred to be shown the value of the 

margin, so that they would have 

detailed information about how their 

APR would be determined over time. 


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Thus, under proposed 

§ 226.5b(10)(i)(A)(2), a creditor would 

be required to disclose in the table the 

type of index used in making rate 

adjustments (such as the prime rate) and 

the value of the margin. Current 

comment 5b(d)(12)(iv)–1 would be 

deleted as obsolete. Under the proposal, 

Samples G–14(C), G–14(D) and G–14(E) 

would provide guidance to creditors on 

how to disclose the fact that the 

applicable rate varies and how it is 

determined. See proposed comment 

5b(c)(10)(i)–2. 

Under the proposal, in providing an 

explanation of how the APR will be 

determined, a creditor would not be 

allowed to disclose in the table as part 

of the early HELOC disclosures the 

current value of the index, such that the 

prime rate is currently 4 percent. See 

proposed comment 5b(c)(10)(i)–2. The 

Board has concerns that requiring the 

current value of the index in the table 

could create ‘‘information overload’’ for 

consumers and could distract 

consumers from noticing more 

important information. As described 

above, the current APR (i.e., the current 

value of the index plus the margin) and 

the value of the margin would be 

disclosed in the table, so a consumer 

who is interested in knowing the 

current value of the index could 

calculate the current value of the index 

from those figures. At the creditor’s 

option, the creditor would be allowed 

under the proposal to disclose the 

current value of the index outside the 

table. See proposed § 226.5b(b)(2)(v). 

Unlike current § 226.5b(d)(12)(iii), 

which implements TILA Section 

127A(a)(2)(B), under the proposal, a 

creditor would not be allowed to 

disclose in the table as part of the early 

HELOC disclosures a source of 

information about the index used in the 

making rate adjustments, such as 

indicating that the prime rate is 

published in the Wall Street Journal. 

15 U.S.C. 1637(a)(2)(B); see proposed 

comment 5b(c)(10)(i)–2. The Board 

proposes no longer to require a creditor 

to provide the source of information 

about the index, pursuant to the Board’s 

exception and exemption authorities 

under TILA Section 105. Section 105(a) 

authorizes the Board to make 

adjustments and exceptions to the 

requirements in TILA to effectuate the 

statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uniformed use of 

credit. See 15 U.S.C. 1601(a), 1604(a). 

Section 105(f) authorizes the Board to 

exempt any class of transactions from 

coverage under any part of TILA if the 

Board determines that coverage under 

that part does not provide a meaningful 

benefit to consumers in the form of 

useful information or protection. See 15 

U.S.C. 1604(f)(1). The Board must make 

this determination in light of specific 

factors. See 15 U.S.C. 1604(f)(2). 

These factors are (1) the amount of the 

loan and whether the disclosure 

provides a benefit to consumers who are 

parties to the transaction involving a 

loan of such amount; (2) the extent to 

which the requirement complicates, 

hinders, or makes more expensive the 

credit process; (3) the status of the 

borrower, including any related 

financial arrangements of the borrower, 

the financial sophistication of the 

borrower relative to the type of 

transaction, and the importance to the 

borrower of the credit, related 

supporting property, and coverage 

under TILA; (4) whether the loan is 

secured by the principal residence of 

the borrower; and (5) whether the 

exemption would undermine the goal of 

consumer protection. 

The Board has considered each of 

these factors carefully, and based on 

that review, believes that the proposed 

exemption is appropriate. The Board 

proposes not to require a creditor to 

include information about the source of 

the index because of concerns of 

‘‘information overload’’ to consumers. 

In consumer testing conducted by the 

Board on HELOC disclosures, the Board 

asked participants whether information 

about the source of the index was 

important information for them to know 

in deciding whether to open a HELOC 

plan. Most participants indicated that 

this information was not useful 

information and would not affect their 

decision about whether to open a 

HELOC plan. At a creditor’s option, the 

creditor would be allowed under the 

proposal to disclose information about 

the source of the index outside of the 

table. See proposed § 226.5b(b)(2)(v). 

Frequency of changes in the APR. 

Current § 226.5b(d)(12)(vii), which 

implements TILA Section 127A(a)(2)(B), 

requires a creditor to disclose as part of 

the application disclosures the 

frequency of changes in the variable-rate 

APR, such as disclosing that the variable 

rate may change on a monthly basis. 

Consistent with current 

§ 226.5b(d)(12)(vii), under proposed 

§ 226.5b(c)(10)(i)(A)(3), a creditor would 

be required to disclose in the table as 

part of the early HELOC disclosures the 

frequency of changes in the variable-rate 

APR. 

Rules relating to changes in the index 

value and the APR and resulting 

changes in the payment amount. 

Current § 226.5b(d)(12)(viii), which 

implements TILA Section 127(a)(2)(B), 

provides that a creditor must disclose as 

part of the application disclosures any 

rules relating to changes in the index 

value and the APR and resulting 

changes in the payment amount, 

including, for example, an explanation 

of payment limitations and rate 

carryover. 15 U.S.C. 127(a)(2)(B). 

Current comment 5b(d)(12)(viii)–1 

clarifies that current § 226.5b(d)(12)(viii) 

requires a creditor to disclose as part of 

the application disclosures any 

preferred-rate provisions, where the rate 

will increase upon the occurrence of 

some event, such as the borroweremployee leaving the creditor’s employ 

or the consumer closing an existing 

deposit account with the creditor. 

Current comment 5b(d)(12)(viii)–2 

provides a cross reference to current 

comment 5b(d)(5)(ii)–2, which discusses 

the disclosure requirement for options 

permitting the consumer to convert from 

a variable rate to a fixed rate. 

Consistent with current 

§ 226.5b(d)(12)(viii), proposed 

§ 226.5b(c)(10)(i)(A)(4) requires a 

creditor to disclose in the table as part 

of the early HELOC disclosures any 

rules relating to changes in the index 

value and the APR and resulting 

changes in the payment amount, 

including, for example, an explanation 

of payment limitations and rate 

carryover. As discussed above, current 

comment 5b(d)(12)(viii)–1 dealing with 

preferred-rate provisions would be 

moved to proposed comment 5b(c)(10)– 

2. 

The Board proposes to delete as 

obsolete current comment 

5b(d)(12)(viii)–2, which deals with 

disclosure of options permitting the 

consumer to convert from a variable rate 

to a fixed rate. As discussed in the 

section-by-section analysis to proposed 

§ 226.5b(c) and (c)(18), under the 

proposal, a creditor generally would not 

be permitted to disclose in the table as 

part of the early HELOC disclosures 

information related to fixed-rate and 

-term payment features, including 

information about how the rates that 

apply to those features are determined. 

Limitations on changes in rates. 

Current § 226.5b(d)(12)(ix), which 

implements TILA Section 127A(a)(2)(E) 

and (F), provides that a creditor must 

disclose as part of the application 

disclosures a statement of any annual or 

more frequent periodic limitations on 

changes in the APR (or a statement that 

no annual limitation exists), as well as 

a statement of the maximum APR that 

may be imposed under each payment 

option. 15 U.S.C. 1637a(a)(2)(E) and (F). 

Under current § 226.5b(d)(12)(ix), a 

creditor is not required to disclose any 

periodic limitations on changes in the 


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APR that are longer than a year—such 

as rate caps that would apply every two 

years. 

Proposed § 226.5b(c)(10)(i)(A)(5) 

requires a creditor to disclose in the 

table as part of the early HELOC 

disclosures a statement of any 

limitations on changes in the APR, 

including the minimum and maximum 

APRs that may be imposed under each 

payment option disclosed in the table. 

In addition, under the proposal, if no 

annual or other periodic limitations 

apply to changes in the APR, a creditor 

would be required in the table to 

include a statement that no annual 

limitation exists. Thus, consistent with 

current § 226.5b(d)(12)(ix), under the 

proposal, a creditor would be required 

to disclose in the table any annual or 

more frequent periodic limitations on 

changes in the APR and to disclose the 

maximum APR that may be imposed 

under each payment option disclosed in 

the table. 

Unlike current § 226.5b(d)(12)(ix), 

however, under the proposal, a creditor 

must disclose in the table any periodic 

limitations on changes in the APR that 

are longer than a year—such as rate caps 

that would apply every two years. In 

addition, unlike current 

§ 226.5b(d)(12)(ix), a creditor also would 

be required to disclose in the table any 

minimum rate that would apply to the 

payment plans disclosed in the table, 

such as a rate floor. The Board proposes 

to add these disclosures pursuant to its 

authority under TILA Section 

127A(a)(14) to require additional 

disclosures with respect to HELOC 

plans. 15 U.S.C. 1637a(a)(14). The Board 

believes that consumers should be 

informed of all rate caps, and rate floors, 

as consumer testing has shown that rate 

information is among the most 

important information to a consumer in 

deciding whether to open a HELOC 

plan. 

Current comment 5b(d)(12)(ix)–1 

clarifies that if a creditor bases its rate 

limitation on 12 monthly billing cycles, 

this limitation should be treated as an 

annual cap. Rate limitations imposed on 

less than an annual basis must be stated 

in terms of a specific amount of time. 

For example, if the creditor imposes rate 

limitations on only a semiannual basis, 

this must be expressed as a rate 

limitation for a six-month time period. 

If the creditor does not impose periodic 

limitations (annual or shorter) on rate 

increases, the fact that there are no 

annual rate limitations must be stated. 

The Board proposes to move this 

comment to proposed comment 

5b(c)(10)(i)–4 and to revise it. 

Specifically, proposed comment 

5b(c)(10)(i)–4 clarifies that under 

proposed § 226.5b(c)(10)(i)(A)(5), a 

creditor would be required to disclose 

any rate limitations that occur, 

including rate limitations that occur in 

a time period of more than one year, 

annually or less than annually. If the 

creditor bases its rate limitation on 12 

monthly billing cycles, this limitation 

would be treated as an annual cap. A 

creditor would be required to state rate 

limitations imposed on more or less 

than an annual basis in terms of a 

specific amount of time. For example, if 

the creditor imposes rate limitations on 

only a semiannual basis, a creditor 

would be required to express this 

limitation as a rate limitation for a sixmonth time period. If a creditor does not 

impose annual or other periodic 

limitations on rate increases, the 

creditor would be required to state this 

fact in the table as part of the early 

HELOC disclosures. 

Regarding disclosure of the maximum 

APR that may be imposed over the term 

of the plan, current comment 

5b(d)(12)(ix)–2 provides that a creditor 

may disclose this rate as a specific 

number (for example, 18 percent) or as 

a specific amount above the initial rate. 

If the creditor states the maximum rate 

as a specific amount above the initial 

rate, the creditor must include a 

statement that the consumer should 

inquire about the rate limitations that 

are currently available. If an initial 

discount is not taken into account in 

applying maximum rate limitations, that 

fact must be disclosed. If separate 

overall limitations apply to rate 

increases resulting from events such as 

the exercise of a fixed-rate conversion 

option or leaving the creditor’s employ, 

those limitations also must be stated. 

The current comment provides that a 

creditor is not required to disclose in 

the application disclosures any legal 

limits in the nature of usury or rate 

ceilings under state or federal statutes or 

regulations. 

The Board proposes to move current 

comment 5b(d)(12)(ix)–2 to proposed 

comment 5b(c)(10)(i)–5 and revise it. 

Specifically, proposed comment 

5b(c)(10)(i)–5 provides that the 

maximum APR that may be imposed 

under each payment option disclosed in 

the table over the term of the plan 

(including the draw period and any 

repayment period provided for in the 

initial agreement) must be provided. If 

separate overall limitations apply to rate 

increases resulting from events such as 

leaving the creditor’s employ, those 

limitations also must be stated. 

Limitations would not include legal 

limits in the nature of usury or rate 

ceilings under state or federal statutes or 

regulations. 

The Board would delete as obsolete 

the guidance in current 5b(d)(12)(ix)–2 

related to disclosing the maximum APR 

as a specific amount above the initial 

rate. Under proposed § 226.5b(c)(10), a 

creditor must disclose the maximum 

APR as a specific number. 

Current comment 5b(d)(12)(ix)–3 

provides that a creditor need not 

disclose each periodic or maximum rate 

limitation that is currently available. 

Instead, the creditor may disclose the 

range of the lowest and highest periodic 

and maximum rate limitations that may 

apply to the creditor’s HELOC plans. 

Creditors using this alternative must 

include a statement that the consumer 

should inquire about the rate limitations 

that are currently available. The Board 

proposes to delete this comment as 

obsolete. Under proposed 

§ 226.5b(c)(10), a creditor would be 

required to disclose the periodic 

limitations and maximum APRs that 

may be imposed under each payment 

option disclosed in the table as part of 

the early HELOC disclosures. 

Disclosure of the lowest and highest 

value of the index in the past 15 years. 

Current § 226.5b(d)(12)(xi), which 

implements TILA Section 127A(a)(2)(G), 

requires a creditor to provide as part of 

the application disclosures a historical 

example, based on a $10,000 extension 

of credit, illustrating how APRs and 

payments would have been affected by 

index value changes implemented 

according to the terms of the plan. 15 

U.S.C. 1637a(a)(2)(G). The historical 

example must be based on the most 

recent 15 years of index values (selected 

for the same time period each year) and 

must reflect all significant plan terms, 

such as negative amortization, rate 

carryover, rate discounts, and rate and 

payment limitations that would have 

been affected by the index movement 

during the period. For ease of reference, 

this SUPPLEMENTARY INFORMATION will 

refer to this disclosure as the ‘‘historical 

example table.’’ Current comments 

5b(d)(12)(xi)–1 through –10 provide 

guidance to creditors on how to provide 

the historical example table. 

For the reasons discussed below, the 

Board proposes not to require that a 

creditor disclose as part of the early 

HELOC disclosures the historical 

example table. Thus, the Board proposes 

to delete current § 226.5b(d)(12)(xi) and 

current comments 5b(d)(12)(xi)–1 

through –10. Instead of requiring a 

creditor to disclose the historical 

example table, the Board proposes to 

require that a creditor disclose in the 

table as part of the early HELOC 

disclosures the lowest and highest 

values of the index used to determine 


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the variable rate on the HELOC plan in 

the past 15 years. 

The Board proposes no longer to 

require a creditor to provide the 

historical example table, pursuant to the 

Board’s exception and exemption 

authorities under TILA Section 105(a) 

and 105(f), as discussed above. The 

Board’s consumer testing of HELOC 

disclosures shows that this disclosure 

may be confusing to consumers, and 

may not provide meaningful 

information to consumers. In consumer 

testing conducted by the Board on 

HELOC disclosures, the Board tested 

versions of the application disclosures 

and the early HELOC disclosures that 

contained a historical example table. 

Many participants misunderstood the 

information provided in the historical 

example table. A large group of 

participants did not understand that the 

information in this table was based on 

the actual historical behavior of interest 

rates; they instead assumed that the data 

shown was a hypothetical example of 

how interest rates and payments might 

fluctuate in the future. More 

significantly, an even larger group of 

participants mistakenly thought that the 

rate and payment information shown in 

the historical example table would 

apply to the HELOC plan going forward, 

and that the table contained information 

on the exact monthly payments that the 

participant would be required to make 

in the future under the HELOC plan. 

Even after the meaning of the table 

was explained to participants, many 

participants indicated that, because the 

rates and payment information in the 

table were based on what had happened 

to the interest rate in the past 15 years, 

the table did not contain valuable 

information that would inform their 

decision about the HELOC for which 

they were applying. These participants 

did not believe that knowing how the 

index had behaved in the past would 

provide them useful information to 

predict how the index might behave in 

the future. A few participants indicated 

that the table did not offer any new 

information that was not already 

communicated in the disclosure, 

namely that the APR and payments may 

vary. 

Based on this consumer testing, the 

Board proposes not to require that 

creditors provide the historical example 

table as part of the early HELOC 

disclosures. However, pursuant to the 

Board’s authority under TILA Section 

127A(a)(14) to require additional 

disclosures for HELOC plans, the Board 

proposes to require a creditor to provide 

in the table as part of the early HELOC 

disclosures the range of the value of the 

index over a 15-year historical period. 

15 U.S.C. 1637a(a)(14). Although many 

participants in the consumer testing 

indicated that the historical example 

table did not provide useful information 

about how interest rates and payment 

may change in the future, some 

participants did indicate that they found 

it helpful to know how the index had 

behaved in the past, so that they would 

have some sense about how it might 

change in the future. In addition, some 

participants found the range of the 

index useful in determining the 

likelihood of the APR reaching the 

maximum APR allowed under the plan. 

The Board believes that the proposed 

disclosure providing the range of the 

value of the index over a 15-year 

historical period will provide the most 

important information from the 

historical example table in a simple and 

efficient way. 

The Board solicits comment on the 

appropriateness of this proposal. The 

Board also solicits comment on whether 

the new proposed disclosure should 

show the range of the APR that would 

have applied to the HELOC plan over 

the past 15 years, calculated based on 

the range of the index value plus the 

margin that is currently offered to the 

consumer, or as proposed, simply show 

the index range. For example, assume 

the index on the HELOC account is the 

prime rate and the prime rate varied 

between 4.25 percent and 10 percent 

over the last 15 years. In addition, 

assume the APR offered to the consumer 

is calculated as the prime rate plus 1.00 

percent. Under the new proposed 

disclosure in proposed 

§ 226.5b(c)(10)(i)(A)(6), a creditor would 

be required to disclose that over the past 

15 years, the prime rate had varied 

between 4.25 percent and 10 percent. 

The Board solicits comment on whether 

the Board should instead require that a 

creditor disclose, based on the example 

above, that over the past 15 years, the 

APR on the HELOC plan offered to the 

consumer would have varied between 

5.25 percent and 11 percent. 

Maximum rate payment example. 

Current § 226.5b(d)(12)(x), which 

implements TILA Section 127A(a)(2)(H), 

provides that a creditor must provide as 

part of the application disclosures the 

minimum periodic payment required 

when the maximum APR for each 

payment option is in effect for a $10,000 

outstanding balance, and a statement of 

the earliest date or time the maximum 

rate may be imposed. 15 U.S.C. 

1637a(a)(2)(H). Current comment 

5b(d)(12)(x)–1 provides guidance for 

creditors on how to provide the 

maximum rate payment example. 

Current comment 5b(d)(12)(x)–2 

provides guidance on how a creditor 

should calculate the earliest date or time 

the maximum rate may be imposed. As 

discussed above in the section-bysection analysis to proposed 

§ 226.5b(c)(9), the Board proposes to 

move current § 226.5b(d)(12)(x) to 

proposed § 226.5b(c)(9)(iii), and to 

delete comment 5b(d)(12)(x)–1 as 

obsolete. 

In addition, the Board proposes not to 

require a creditor to disclose in the table 

as part of the early HELOC disclosures 

a statement of the earliest date or time 

the maximum rate may be imposed, 

pursuant to the Board’s exception and 

exemption authorities under TILA 

Section 105(a) and 105(f), as discussed 

above. Based on consumer testing, the 

Board believes that this disclosure may 

not provide meaningful information to 

consumers, and that including it in the 

table as part of the early HELOC 

disclosures may distract consumers 

from more important information. The 

Board tested versions of the early 

HELOC disclosures which indicated 

that the maximum rate could be reached 

as early as the first month, based on the 

Board’s understanding that this 

statement reflects the terms of most 

HELOC accounts regarding when the 

maximum rate could be reached. 

Participants were asked whether they 

found this information useful in 

deciding whether to open the HELOC 

plan being offered. Many participants 

did not find this statement useful 

because they believed it was extremely 

unlikely that the rate would actually 

increase that quickly. The Board also 

understands that while theoretically the 

maximum rate may be imposed during 

the first month of the HELOC plan, in 

practice this has rarely if ever occurred. 

Statement that the APR does not 

include costs other than interest. 

Current § 226.5b(d)(12)(ii), which 

implements TILA Section 127A(a)(2)(A) 

and (C), provides that a creditor must 

disclose as part of the application 

disclosures that the variable APR does 

not include costs other than interest. 15 

U.S.C. 1637a(a)(2)(A) and (C). (A 

creditor also must make this disclosure 

with respect to disclosure of any fixedrate APR in the application disclosures. 

See current § 226.5b(d)(6).) 

The Board proposes not to require a 

creditor to disclose in the table as part 

of the early HELOC disclosures a 

statement that the APRs applicable to 

the HELOC plan do not include costs 

other than interest, pursuant to the 

Board’s exception and exemption 

authorities under TILA Section 105(a) 

and 105(f), as discussed above. Based on 

consumer testing, the Board believes 

that this disclosure may not provide 

meaningful information to consumers, 


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43478 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

and that including it in the table as part 

of the early HELOC disclosures may 

distract consumers from more important 

information. The Board tested versions 

of the early HELOC disclosures 

indicating that the APRs included in the 

table do not include costs other than 

interest. The purpose of this 

requirement is to make clear to 

consumers that an APR on a HELOC 

cannot be directly compared to an APR 

on a closed-end loan, which includes 

most fees. However, several participants 

misunderstood this sentence; for 

example, some incorrectly thought that 

they would not be charged any fees. Just 

as important, no participants 

understood the purpose of this 

statement, or how they could use the 

information when applying for a homeequity product. Different versions of this 

statement were tested in several rounds 

to give it proper context for maximum 

comprehension, but all attempts were 

unsuccessful in communicating to 

consumer the statement’s intended 

purpose. 

Statement that the consumer should 

ask about the current index value, 

margin, discount or premium, and APR. 

Current § 226.5b(d)(12)(v), which 

implements TILA Section 127A(a)(2)(D), 

provides that a creditor must disclose as 

part of the application disclosures a 

statement that the consumer should ask 

about the current index value, margin, 

discount or premium, and APR. 15 

U.S.C. 127A(a)(2)(D). The Board 

proposes not to require a creditor to 

include this statement in the table as 

part of the early HELOC disclosures, 

pursuant to the Board’s exception and 

exemption authorities under TILA 

Section 105(a) and 105(f), as discussed 

above. This statement is obsolete for the 

early HELOC disclosures. As discussed 

above, a creditor would be required to 

disclose in the table as part of the early 

HELOC disclosures the current APRs 

offered to the consumer (i.e., the current 

value of the index plus the margin) as 

well as the margin, including any 

introductory APR (as discussed below). 

A creditor would not be allowed to 

disclose in the table as part of the early 

HELOC disclosures the current value of 

the index, such that the prime rate is 

currently 4 percent. 

Statement that rate information will 

be provided on or with each periodic 

statement. Current § 226.5b(d)(12)(xii), 

which implements TILA Section 

127A(a)(2)(I), provides that a creditor 

must disclose as part of the application 

disclosures a statement that rate 

information will be provided on or with 

each periodic statement. 15 U.S.C. 

1637a(a)(2)(I). The Board proposes not 

to require a creditor to include this 

statement in the table as part of the early 

HELOC disclosures, pursuant to the 

Board’s exception and exemption 

authorities under TILA Section 105(a) 

and 105(f), as discussed above. Based on 

consumer testing, the Board believes 

that this disclosure may not provide 

meaningful information to consumers, 

and that including it in the table as part 

of the early HELOC disclosures may 

distract consumers from more important 

information. The Board tested versions 

of the early HELOC disclosures 

indicating that monthly statements for 

the HELOC plan would tell the 

consumer each time the rate changes on 

the plan. Participants were asked 

whether they found this information 

useful in deciding whether to open the 

HELOC plan offered. Many participants 

did not find this information useful 

because even in the absence of this 

statement they would assume that they 

would be notified of rate changes on 

their monthly statements. 

Accuracy of variable rates. Proposed 

§ 226.5b(c)(10)(i)(B) provides that a 

variable rate disclosed in the table as 

part of the early HELOC disclosures 

would be considered accurate if it is a 

rate as of a specified date and this rate 

was in effect within the last 30 days 

before the disclosures are provided. The 

Board believes 30 days would provide 

sufficient flexibility to creditors and 

reasonably current information to 

consumers. 

5b(c)(10)(ii) Introductory Initial Rate 

Current § 226.5b(d)(12)(vi), which 

implements TILA Section 127A(a)(2)(C), 

provides that if a creditor offers a 

variable rate on a HELOC account, a 

creditor must disclose as part of the 

application disclosures, as applicable, a 

statement that the initial APR is not 

based on the index and margin used to 

make later rate adjustments, and the 

period of time the initial rate will be in 

effect. 15 U.S.C. 1637a(a)(2)(C). The 

Board proposes to move 

§ 226.5b(d)(12)(vi) to proposed 

§ 226.5b(c)(10)(ii) and revise it. 

Specifically, proposed 

§ 226.5b(c)(10)(ii) provides that if the 

initial rate is an introductory rate, a 

creditor would be required to disclose 

in the table as part of the early HELOC 

disclosures the introductory rate, and 

would be required to use the term 

‘‘introductory’’ or ‘‘intro’’ in immediate 

proximity to the introductory rate. The 

creditor also would be required to 

disclose in the table the time period 

during which the introductory rate will 

remain in effect. In addition, a creditor 

would be required to disclose in the 

table the rate that would otherwise 

apply to the plan. Where the rate that 

would otherwise apply is variable, the 

creditor would be required to disclose 

the rate based on the applicable index 

or formula, and disclose the other 

variable-rate disclosures required under 

proposed § 226.5b(c)(10)(i). See also 

proposed comment 5b(c)(10)(ii)–3. The 

Board believes that clearly labeling the 

introductory rate as such and disclosing 

when the introductory rate will expire 

will benefit consumers by helping them 

understand the temporary nature of this 

rate. 

Proposed comment 5b(c)(10)(ii)–1 

clarifies that if a creditor offers a 

preferred rate that will increase a 

specified amount upon the occurrence 

of a specified event other than the 

expiration of a specific time period, 

such as the borrower-employee leaving 

the creditor’s employ, the preferred rate 

would not be an introductory rate under 

proposed § 226.5b(c)(10)(ii), but must be 

disclosed in accordance with proposed 

§ 226.5b(c)(10). 

Proposed comment 5b(c)(10)(ii)–2 

provides guidance on providing the 

term ‘‘introductory’’ or ‘‘into’’ in 

immediate proximity to the introductory 

rate. Specifically, this proposed 

comment provides that if the term 

‘‘introductory’’ is in the same phrase as 

the introductory rate, it will be deemed 

to be in immediate proximity of the 

listing. For example, a creditor that uses 

the phrase ‘‘introductory APR X 

percent’’ would be deemed to have used 

the word ‘‘introductory’’ within the 

same phrase as the rate. In addition, this 

proposed comment also provides that 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 a creditor offers an 

introductory rate of 8.99 percent on the 

plan for six months, and an introductory 

rate of 10.99 percent for the following 

six months, the term ‘‘introductory’’ 

need only be used to describe the 8.99 

percent rate. This proposed comment 

also provides a cross reference to 

proposed Samples G–14(C) and G–14(E) 

in Appendix G, which provides 

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. 

5b(c)(11) Fees Imposed by the Creditor 

and Third Parties To Open the Plan 

Current § 226.5b(d)(7), which 

implements TILA Section 127A(a)(3), 

provides that a creditor must disclose as 

part of the application disclosures an 

itemization of any fees imposed by the 


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creditor to open, use, or maintain the 

plan, stated as a dollar amount or 

percentage, and when such fees are 

payable. 15 U.S.C. 1637a(a)(3). Current 

§ 226.5b(d)(8), which implements TILA 

Section 127A(a)(4), provides that a 

creditor must disclose as part of the 

application disclosures a good faith 

estimate, stated as a single dollar 

amount or range, of any fees that may 

be imposed by persons other than the 

creditor to open the plan, as well as a 

statement that the consumer may 

receive, upon request, a good faith 

itemization of such fees. 15 U.S.C. 

1637a(a)(4). In lieu of the statement, the 

itemization of such fees may be 

provided. 

Fees imposed by a creditor to 

maintain and use the plan. As described 

above, current § 226.5b(d)(7) requires a 

creditor to disclose as part of the 

application disclosures any fees 

imposed by the creditor to maintain and 

use the HELOC plan. As discussed in 

more detail in the section-by-section 

analysis to proposed § 226.5b(c)(13), the 

Board proposes to move this part of 

current § 226.5b(d)(7) to proposed 

§ 226.5b(c)(13) and to revise it. 

One-time account-opening fees. As 

discussed above, with respect to 

account-opening fees, current 

§ 226.5b(d)(7) requires a creditor to 

disclose in the application disclosures 

an itemization of any fees imposed by 

the creditor to open the HELOC plan, 

stated as a dollar amount or percentage. 

Current § 226.5b(d)(7) does not require a 

creditor to disclose the total of one-time 

fees imposed by the creditor to open the 

HELOC plan. Under current 

§ 226.5b(d)(8), however, a creditor must 

disclose in the application disclosures a 

good faith estimate of the total of fees 

imposed by third parties to open the 

HELOC plan. Under current 

§ 226.5b(d)(8), at a creditor’s option, the 

creditor may disclose an itemization of 

third party fees to open a HELOC plan. 

Current comment 5b(d)(8)–2 provides 

guidance to creditors on how to disclose 

the total of third party fees and an 

itemization of those fees. As discussed 

in more detail below, the Board 

proposes to move these provisions in 

current § 226.5b(d)(7) and (d)(8) to 

proposed § 226.5b(c)(11) and revise 

them. Current comment 5b(d)(8)–2 

would be deleted as obsolete. 

The Board proposes in new 

§ 226.5b(c)(11) to require a creditor to 

disclose in the table as part of the early 

HELOC disclosures the total of all onetime fees imposed by the creditor and 

any third parties to open the plan, stated 

as a dollar amount. 15 U.S.C. 1604(a). In 

addition, under proposed 

§ 226.5b(c)(11), a creditor would be 

required to itemize in the table all onetime fees imposed by the creditor and 

any third parties to open the plan, stated 

as a dollar amount, and when these fees 

are payable. Proposed comment 

5b(c)(11)–5 provides that a creditor 

would be deemed to have itemized the 

account-opening fees clearly and 

conspicuously if the creditor provides 

this information in a bullet format as 

shown in proposed Samples G–14(C), 

G–14(D), and G–14(E) in Appendix G. 

The Board proposes this rule pursuant 

to its authority in TILA Section 105(a) 

to make adjustments and exceptions to 

the requirements in TILA to effectuate 

the statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uniformed use of 

credit, and pursuant to its authority in 

TILA Section 127A(a)(14) to require 

additional disclosures for HELOC plans. 

See 15 U.S.C. 1601(a), 1604(a), and 

1637a(a)(14). 

The Board believes that requiring a 

creditor to disclose in the table the total 

dollar amount for all one-time fees 

imposed to open the HELOC plan and 

an itemization of those costs, regardless 

of whether those fees are charged by the 

creditor or a third party, will help 

consumers better understand the costs 

of opening a HELOC plan. In the 

consumer testing conducted by the 

Board on HELOC disclosures, all of the 

application and early HELOC disclosure 

forms that participants were shown 

included a range of the total of one-time 

fees that the borrower would be charged 

for opening the account. Some forms 

also provided an itemization of the onetime fees that would be charged for 

opening the account. (The one-time fees 

shown on the disclosure forms were a 

loan origination fee, a loan discount fee, 

an underwriting fee, and an appraisal 

fee). In this consumer testing, 

participants consistently said that they 

preferred to see both the total of onetime account-opening fees and the 

itemization of these fees to help them 

understand what fees they would be 

paying to open the HELOC plan. 

Current comment 5b(d)(7)–2 provides 

that charges imposed by the creditor to 

open a HELOC plan may be stated as an 

estimated dollar amount for each fee, or 

as a percentage of a typical or 

representative amount of credit. Current 

5b(d)(8)–3 provides that a creditor in 

disclosing the total of account-opening 

fees imposed by third parties may 

provide, based on a typical or 

representative amount of credit, a range 

for such fees or state the dollar amount 

of such fees. Fees may be expressed on 

a unit cost basis, for example, $5 per 

$1,000 of credit. The Board proposes to 

move these comments to § 226.5b(c)(11) 

and revise them. 

Specifically, under proposed 

§ 226.5b(c)(11), a creditor would be 

required to disclose the dollar amount 

of fees that will be imposed by the 

creditor or by third parties to open the 

plan. Concerning the requirement to 

itemize the one-time account-opening 

fees, proposed § 226.5b(c)(11) allows a 

creditor to provide a range of these fees, 

if the dollar amount of a fee is not 

known at the time the early HELOC 

disclosures are delivered or mailed. 

Proposed comment 5b(c)(11)–2 provides 

that if a range is shown, a creditor 

would be required to assume, in 

calculating the highest amount of the fee 

that the consumer will borrow the full 

credit line at account opening. In 

disclosing the lowest amount of the fee 

in the range, a creditor would be 

required to disclose the lowest amount 

of the fee that may be imposed. 

Regarding disclosure of the total of onetime account-opening fees, proposed 

§ 226.5b(c)(11) provides that if the exact 

total of one-time fees for account 

opening is not known at the time the 

early HELOC disclosures are delivered 

or mailed, a creditor must disclose in 

the table the highest total of one-time 

account opening fees possible for the 

plan terms with an indication that the 

one-time account opening costs may be 

‘‘up to’’ that amount. 

The Board believes that requiring the 

one-time fees that are imposed to open 

the account to be disclosed as a dollar 

amount, instead of a percentage of 

another amount, would aid consumers’ 

understanding of the account-opening 

fees and may aid consumers in 

comparison shopping for HELOC plans. 

In consumer testing conducted on credit 

card disclosures in relation to the 

January 2009 Regulation Z Rule, the 

Board found that consumers generally 

understand dollar amounts better than 

percentages. As a result, the Board 

believes that requiring account opening 

fees to be disclosed as dollar amounts 

instead of percentages of another 

amount would better enable consumers 

to understand the start up-costs of 

opening a HELOC plan. In addition, 

consumers could more easily compare 

the dollar amount of one-time accountopening fees on different HELOC plans 

if all HELOC plans are required to 

disclose the dollar amount. If the 

account-opening fees were presented as 

a percentage of another amount, 

consumers would need to calculate the 

dollar amount themselves. 

Current comment 5b(d)(7)–1 provides 

guidance on what types of fees would be 

considered fees imposed by the creditor 

to open the plan required to be 


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43480 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

disclosed under current § 226.5b(d)(7). 

Current comment 5b(d)(8)–1 provides 

guidance on what types of fees would be 

considered account-opening fees 

imposed by third parties required to be 

disclosed under current § 226.5b(d)(8). 

The Board proposes to move these 

provisions in current comments 

5b(d)(7)–1 and 5b(d)(8)–1 to proposed 

comment 5b(c)(11)–1 and revise them. 

Specifically, proposed comment 

5b(c)(11)–1 clarifies that proposed 

§ 226.5b(c)(11) only applies to one-time 

fees imposed by the creditor or third 

parties to open the plan. The fees 

referred to in proposed § 226.5b(c)(11) 

would include items such as application 

fees, points, appraisal or other property 

valuation fees, credit report fees, 

government agency fees, and attorneys’ 

fees. This proposed comment makes 

clear that annual fees or other periodic 

fees that may be imposed for the 

availability of the plan would not be 

disclosed under proposed 

§ 226.5b(c)(11), but would be disclosed 

under proposed § 226.5b(c)(12). 

Current comments 5b(d)(7)–4 and 

5b(d)(8)–4 provide that if closing costs 

are imposed by the creditor and third 

parties they must be disclosed, 

regardless of whether such costs may be 

rebated later (for example, rebated to the 

extent of any interest paid during the 

first year of the plan). The Board 

proposes to move these comments to 

proposed comment 5b(c)(11)–4 and to 

make technical revisions. 

Current comment 5b(d)(8)–1 provides 

that in cases where property insurance 

is required by the creditor, the creditor 

may disclose as part of the application 

disclosures either the amount of the 

premium or a statement that property 

insurance is required. The Board 

proposes to delete this comment as 

obsolete. Under the proposal, proposed 

§ 226.5b(c)(11) provides that a creditor 

must not disclose in the table as part of 

the early HELOC the amount of any 

property insurance premiums, even if 

the creditor requires property insurance. 

The Board believes that disclosure of 

the amount of any required property 

insurance premiums is not needed in 

the table as part of the early HELOC 

disclosures. Consumers are likely to 

have property insurance on the home 

prior to obtaining a HELOC account. For 

example, most consumers obtaining a 

HELOC will already have a first 

mortgage on their home and will be 

carrying property insurance on the 

home as required by the first mortgage. 

The Board solicits comment on this 

aspect of the proposal. 

Current comment 5b(d)(7)–5 provides 

that a creditor need not use the terms 

‘‘finance charge’’ or ‘‘other charge’’ in 

describing the fees imposed by the 

creditor under current § 226.5b(d)(7) or 

those imposed by third parties under 

current § 226.5b(d)(8). Under current 

§ 226.7, a creditor is required to 

distinguish costs that are finance 

charges from other charges on the 

periodic statement by requiring finance 

charges to be labeled as such. Current 

comment 5b(d)(7)–5 makes clear that a 

creditor is not required to use these 

labels in describing fees disclosed under 

current § 226.5b(d)(7) and (d)(8). The 

Board proposes to delete this comment 

as obsolete, because under the proposal, 

a creditor would no longer be required 

to distinguish finance charges from 

other charges in disclosing costs on the 

periodic statement. See the section-bysection analysis to proposed § 226.7. 

5b(c)(12) Fees Imposed by the Creditor 

for Availability of the Plan 

As discussed above, current 

§ 226.5b(d)(7) provides that a creditor 

must disclose as part of the application 

disclosures any fees imposed by the 

creditor to maintain or use the HELOC 

plans. Current comment 5b(d)(7)–1 

provides that fees imposed by the 

creditor to maintain or use the HELOC 

plan include annual fees, transaction 

fees, fees to obtain checks to access the 

plan, and fees imposed for converting to 

a repayment phase that is provided for 

in the original agreement. Current 

comment 5b(d)(7)–3 provides that fees 

not imposed to use or maintain a plan, 

such as fees for researching an account, 

photocopying, paying late, stopping 

payment, having a check returned, 

exceeding the credit limit, or closing out 

an account, do not have to be disclosed 

under current § 226.5b(d)(7). In 

addition, credit report and appraisal 

fees imposed to investigate whether a 

condition permitting a freeze continues 

to exist—as discussed in the 

commentary to current 

§ 226.5b(f)(3)(vi)—are not required to be 

disclosed under current § 226.5b(d)(7). 

The Board proposes to move the 

provisions in current § 226.5b(d)(7) 

relating to disclosing fees imposed by 

the creditor to maintain and use the 

HELOC plan to proposed § 226.5b(c)(12) 

and to revise them.. Specifically, 

proposed § 226.5b(c)(12) requires a 

creditor to disclose in the early HELOC 

disclosures table any annual or other 

periodic fees that may be imposed by 

the creditor for the availability of the 

plan, including any fee based on 

account activity or inactivity; how 

frequently the fee will be imposed; and 

the annualized amount of the fee. 

The Board proposes not to require a 

creditor to disclose in the table as part 

of the early HELOC disclosures fees 

imposed by the creditor to maintain and 

use the HELOC plan, except for fees for 

the availability of the plan. The Board 

proposes this rule pursuant to its 

authority in TILA Section 105(a) to 

make adjustments and exceptions to the 

requirements in TILA to effectuate the 

statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uniformed use of 

credit. See 15 U.S.C. 1601(a), 1604(a). 

The Board believes that requiring a 

creditor to disclose in the early HELOC 

disclosures all fees imposed by the 

creditor to maintain and use the HELOC 

plan, such as transaction fees, could 

contribute to ‘‘information overload’’ for 

consumers. In the consumer testing 

conducted by the Board on HELOC 

disclosures, participants were shown 

versions of a disclosure table that 

itemized account-opening fees, penalty 

fees and transaction fees. Participants 

were asked which of these fees was 

most important for them to know when 

deciding whether to open a HELOC 

plan. Most participants indicated that it 

was most important for them to be 

provided an itemization of the accountopening fees in the early HELOC 

disclosures, so that they could better 

understand the costs of opening the 

HELOC plan. 

As noted, the Board also proposes in 

new § 226.5b(c)(12) to require a creditor 

to disclose in the table as part of the 

early HELOC disclosures any fees for 

the availability of the plan. The Board 

believes that it is important for 

consumers to be informed in the early 

HELOC disclosures of fees for the 

availability of the plan, so that 

consumers will be aware of these fees as 

they decide whether to open a HELOC 

plan. As discussed in the Background 

section to this SUPPLEMENTARY

INFORMATION, board research indicates 

that many HELOC consumers do not 

plan to take advances at account 

opening, but instead plan to use that 

HELOC account in emergency cases. 

The on-going costs of maintaining the 

HELOC plan may be of particular 

importance to these consumers in 

deciding whether to open a HELOC plan 

for these purposes. 

Other fees to maintain or use the plan 

that would currently be disclosed in the 

application disclosures under current 

§ 226.5b(d)(7), such as transactions fees, 

would not be required to be disclosed in 

the table as part of the early HELOC 

disclosures under the proposal. 

Nonetheless, as discussed in more detail 

in the section-by-section analysis to 

proposed § 226.5b(c)(14), a creditor 

would be required to disclose in the 

table a statement that that other fees will 


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apply and a reference to penalty fees 

and transaction fees as examples of 

those fees, as applicable. In addition, a 

creditor would be required to disclose 

in the table either (1) a statement that 

the consumer may receive, upon 

request, additional information about 

fees applicable to the plan, or (2) if the 

additional information about fees is 

provided with the table, a reference 

where that information is located 

outside the table. The Board believes 

that this approach of highlighting in the 

table the fees on the HELOC plan that 

would be most important to consumers 

in deciding whether to open a HELOC 

plan and allowing consumers to receive 

information about additional fees upon 

request appropriately informs 

consumers about important fees 

applicable to the HELOC plan in the 

early HELOC disclosures, without 

creating ‘‘information overload’’ that 

discourages consumers from reading 

disclosures at all, distract them from key 

information, or prevent retention and 

understanding of information. 

Current comment 5b(d)(7)–1 provides 

that a creditor would be required to 

disclose in the application disclosures 

any fees imposed by the creditor to use 

or maintain the plan, whether the fees 

are kept by the creditor or a third party. 

For example, if a creditor requires an 

annual credit report on the consumer 

and requires the consumer to pay this 

fee to the creditor or directly to the third 

party, the fee must be specifically stated 

in the application disclosures. The 

Board proposes to move this comment 

to proposed comment 5b(c)(12)–2 and 

revise it. Specifically, proposed 

comment 5b(c)(12)–2 clarifies that a 

creditor would be required to disclose 

all fees imposed by the creditor for the 

availability of the plan in the table as 

part of the early HELOC disclosures, 

regardless of whether those fees are kept 

by the creditor or a third party. For 

example, if a creditor requires an annual 

credit report on the consumer and 

requires the consumer to pay this fee to 

the creditor or directly to the third 

party, the fee must be disclosed in the 

table under. 

The Board also proposes to add new 

comment 5b(c)(12)–1, which would 

clarify that fees for the availability of 

credit required to be disclosed under 

proposed § 226.5b(c)(12) would include 

any fees to obtain access devices, such 

as fees to obtain checks or credit cards 

to access the plan. For example, a fee to 

obtain checks or a credit card on the 

account would be required to be 

disclosed in the table as a fee for 

issuance or availability under 

§ 226.5b(c)(12). This fee would be 

required to be disclosed even if the fee 

is optional; that is, if the fee is charged 

only if the consumer requests checks or 

a credit card. 

In addition, the Board proposes to add 

new comment 5b(c)(12)–3 to clarify that 

if fees required to be disclosed under 

proposed § 226.5b(c)(12) are waived or 

reduced for a limited time, a creditor 

would be allowed to disclose, in 

addition to the required fees, the 

introductory fees or the fact of fee 

waivers in the table as part of the early 

HELOC disclosures if the creditor also 

discloses how long the reduced fees or 

waivers will remain in effect. 

5b(c)(13) Fees Imposed by the Creditor 

for Early Termination of the Plan by the 

Consumer 

Currently, a creditor is not required to 

disclose in the application disclosures 

any fee imposed by the creditor for early 

termination of the plan by the 

consumer. See current comment 

5b(d)(7)–3. Pursuant to the Board’s 

authority in TILA Section 127A(a)(14) to 

require additional disclosures for 

HELOC plans, the Board proposes to 

add new § 226.5b(c)(13) to required a 

creditor to disclose in the table as part 

of the early HELOC disclosures any fee 

that may be imposed by the creditor if 

a consumer terminates the plan prior to 

its scheduled maturity. 15 U.S.C. 

127a(a)(14). The Board believes that it is 

important for consumers to be informed 

as they decide whether to open a 

HELOC plan of early termination fees. 

This information may be especially 

important for consumers who may want 

to have the option of refinancing or 

cancelling the plan at any time. HELOC 

consumers may particularly value these 

options, as most HELOCs are subject to 

a variable interest rate. 

The Board proposes to add new 

comment 5b(c)(13)–1 to clarify the types 

of fees that would be required to be 

disclosed under proposed 

§ 226.5b(c)(13). This proposed comment 

clarifies that fees such as penalty or 

prepayment fees that the creditor 

imposes if the consumer terminates the 

plan prior to its scheduled maturity 

would be required to be disclosed under 

§ 226.5b(c)(13). These fees also would 

include waived account-opening fees for 

the plan, if the creditor will impose 

those costs on the consumer if the 

consumer terminates the plan within a 

certain amount of time after account 

opening. In addition, the proposed 

comment clarifies that fees that the 

creditor may impose in lieu of 

termination under comment 5b(f)(2)–2 

would not be required to be disclosed 

under proposed § 226.5b(c)(13). 

However, fees that are imposed when 

the plan expires in accordance with the 

agreement or that are associated with 

collection of the debt if the creditor 

terminates the plan, such as attorneys’ 

fees and court costs, would not be 

required to be disclosed under proposed 

§ 226.5b(c)(13). 

5b(c)(14) Statement About Other Fees 

As discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.5b(c)(11), and (c)(12), the Board 

proposes not to require a creditor to 

disclose in the early HELOC disclosures 

table all of the fees that may be imposed 

on the HELOC plan. Instead, a creditor 

would be required to disclose in the 

table only the following fees: (1) Fees 

imposed by the creditor and third 

parties to open the HELOC plan; (2) fees 

imposed by the creditor for availability 

of the plan; (3) fees imposed by the 

creditor if a consumer terminates the 

plan prior to its scheduled maturity; and 

(4) fees imposed by the creditor for 

required insurance or debt cancellation 

or debt suspension coverage. See 

proposed § 226.5b(c)(11), (c)(12), (c)(13) 

and (c)(19). Nonetheless, pursuant to the 

Board’s authority in TILA Section 

127A(a)(14) to require additional 

disclosures for HELOC plans, the Board 

proposes to require a creditor to disclose 

in the table a statement that other fees 

will apply and a reference to penalty 

fees and transaction fees as examples of 

those fees, as applicable. 15 U.S.C. 

1637a(a)(14). In addition, a creditor 

would be required to disclose in the 

table either (1) a statement that the 

consumer may receive, upon request, 

additional information about fees 

applicable to the plan, or (ii) if the 

additional information about fees is 

provided with the table, a reference to 

where that information is located 

outside the table. 

Not all fees applicable to a HELOC 

plan will be disclosed in the table as 

part of the early HELOC disclosures. 

Thus, to ensure consumer 

understanding of fees the Board believes 

that it is important to notify consumers 

that additional fees will apply to the 

plan, and that consumers may receive 

information about certain additional 

fees upon request prior to account 

opening. In consumer testing conducted 

by the Board on HELOC disclosures, the 

Board tested versions of the early 

HELOC disclosures that contained a 

statement notifying consumers of 

additional fees and versions of the 

disclosures forms that did not contain 

this statement. Many participants that 

saw the disclosure forms that did not 

contain the statement that other fees 

may apply incorrectly assumed that no 

other fees would be charged. 


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43482 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

The Board proposes to add new 

comment 5b(c)(14)–1 to require a 

creditor in providing additional 

information about fees to a consumer 

upon the consumer’s request prior to 

account opening (or along with the early 

HELOC disclosures) to disclose the 

penalty fees and transaction fees that are 

required to be disclosed in the accountopening summary table under proposed 

§ 226.6(a)(2)(x) through (a)(2)(xiv) and a 

statement that other fees may apply. A 

creditor must use a tabular format to 

disclose the additional information 

about fees that is provided upon request 

or provided outside the early HELOC 

disclosures table. Under proposed 

comment 5b(c)–2, a creditor would be 

required to provide this additional 

information about fees as soon as 

reasonably possible after the request. 

The Board believes that fees 

applicable to the HELOC plan that 

would be most important to consumers 

in deciding whether to open a HELOC 

plan should be emphasized by being 

placed in the table. In addition, under 

the proposal, consumers would be able 

to obtain quickly and easily additional 

information about other fees upon 

request. The Board believes that this 

proposed approach appropriately 

informs consumers about important fees 

applicable to the HELOC plan in the 

early HELOC disclosures, without 

creating ‘‘information overload’’ that 

can discourage consumers from reading 

disclosures at all, distract them from key 

information, or prevent retention and 

understanding of information. 

5b(c)(15) Negative Amortization 

Current § 226.5b(d)(9), which 

implements TILA Section 127A(a)(11), 

provides that if applicable, a creditor 

must provide as part of the application 

disclosures a statement that negative 

amortization may occur and that 

negative amortization increases the 

principal balance and reduces the 

consumer’s equity in the dwelling. 15 

U.S.C. 1637a(a)(11). The Board proposes 

to move current § 226.5b(d)(9) to 

proposed § 226.5b(c)(15) and to make 

technical revisions. 

Current comment 5b(d)(9)–1 provides 

that in transactions where the minimum 

payment will not or may not be 

sufficient to cover the interest that 

accrues on the outstanding balance, the 

creditor must disclose that negative 

amortization will or may occur. This 

disclosure is required whether or not 

the unpaid interest is added to the 

outstanding balance upon which 

interest is computed. A disclosure is not 

required merely because a loan calls for 

non-amortizing or partially amortizing 

payments. The Board proposes to move 

this comment to proposed comment 

5b(c)(15)–1 and revise it. Specifically, 

proposed comment 5b(c)(15)–1 contains 

the guidance discussed above. In 

addition, proposed comment 5b(c)(15)– 

1 provides that a creditor would be 

deemed to meet the requirements of 

proposed § 226.5b(c)(15) if the creditor 

provides the following disclosure, as 

applicable: ‘‘Your minimum payment 

may cover/covers only part of the 

interest you owe each month and none 

of the principal. The unpaid interest 

will be added to your loan amount, 

which over time will increase the total 

amount you are borrowing and cause 

you to lose equity in your home.’’ This 

proposed language describing negative 

amortization was developed by the 

Board through its consumer testing on 

closed-end mortgage loans, as discussed 

in the proposal issued by the Board on 

closed-end mortgages published 

elsewhere in today’s Federal Register. 

The Board believes that this proposed 

language effectively communicates the 

risks of negative amortization pursuant 

to the statutory requirements. 

5b(c)(16) Transaction Requirements 

Current § 226.5b(d)(10) provides that 

a creditor must disclose as part of the 

application disclosures any limitations 

on the number of extensions of credit 

and the amount of credit that may be 

obtained during any time period, as well 

as any minimum outstanding balance 

and minimum draw requirements, 

stated as dollar amounts or percentages. 

The Board proposes to move current 

§ 226.5b(d)(10) to proposed 

§ 226.5b(c)(16) and revise it. 

Specifically, proposed § 226.5b(c)(16) 

provides that a creditor must disclose in 

the table as part of the early HELOC 

disclosures any limitations on the 

number of extensions of credit and the 

amount of credit that may be obtained 

during any time period, as well as any 

minimum outstanding balance and 

minimum draw requirements. In 

addition, consistent with current 

§ 226.5b(d)(10), proposed § 226.5b(b)(3) 

provides that the transaction 

requirements disclosed under proposed 

§ 226.5b(c)(16) may be disclosed as 

dollar amounts or as percentages. 

Current comment 5b(d)(10)–1 

provides that a limitation on automated 

teller machine usage need not be 

disclosed in the application disclosures 

under current § 226.5b(d)(10) unless 

that is the only means by which the 

consumer can obtain funds. The Board 

proposes to move this comment to 

proposed comment 5b(c)(16)–1 without 

any revisions. 

5b(c)(17) Credit Limit 

Currently, a creditor is not required to 

disclose in the application disclosures 

the credit limit that is being offered to 

the consumer. Pursuant to the Board’s 

authority in TILA Section 127A(a)(14) to 

require additional disclosures for 

HELOC plans, the Board proposes in 

new § 226.5b(c)(17) to require a creditor 

to disclose in the table as part of the 

early HELOC disclosures the creditor 

limit applicable to the plan. 15 U.S.C. 

1637a(a)(14). As discussed in more 

detail in the section-by-section analysis 

to proposed § 226.5b(b)(1), participants 

in consumer testing conducted by the 

Board on HELOC disclosures indicated 

that the credit limit was one of the most 

important pieces of information that 

they wanted to know in deciding 

whether to open a HELOC plan. 

5b(c)(18) Statements About Fixed-Rate 

and -Term Payment Plans 

Current comment 5b(d)(5)(ii)–2 

provides that a creditor generally must 

disclose in the application disclosures 

terms that apply to the fixed-rate and 

-term payment feature, include the 

period during which the feature can be 

selected, the length of time over which 

repayment can occur, any fees imposed 

for the feature, and the specific rate or 

a description of the index and margin 

that will apply upon exercise of the 

feature. 

For the reasons discussed in the 

section-by-section analysis to proposed 

§ 226.5b(c), the Board proposes that if a 

HELOC plan offers both a variable-rate 

feature and a fixed-rate and -term 

feature during the draw period, a 

creditor generally must not disclose in 

the table all the terms applicable to the 

fixed-rate and -term feature. See 

proposed § 226.5b(c). Instead, the Board 

proposes to require a creditor offering 

this payment feature (in addition to a 

variable-rate feature) to disclose in the 

table the following: (1) A statement that 

the consumer has the option during the 

draw period to borrow at a fixed interest 

rate; (2) the amount of the credit line 

that the consumer may borrow at a fixed 

interest rate for a fixed term; and (3) as 

applicable, either a statement that the 

consumer may receive, upon request, 

further details about the fixed-rate and 

-term payment feature, or, if information 

about the fixed-rate and -term payment 

feature is provided with the table, a 

reference to the location of the 

information. See proposed 

§ 226.5b(c)(18). Thus, under the 

proposal, a consumer would be notified 

in the table about the fixed-rate and 

-term payment feature, and could 

request additional information about 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43483 

this payment feature (if a creditor chose 

not to provide additional information 

about this feature outside of the table). 

In responding to a consumer’s request 

prior to account opening for additional 

information about the fixed-rate and 

-term feature, a creditor would be 

required to provide this additional 

information as soon as reasonably 

possible after the request. See proposed 

comment 5b(c)–2. The following 

additional information disclosed about 

the fixed-rate and -term payment feature 

upon request (or outside the early 

HELOC disclosures table) would have to 

include in the form of a table: (1) 

information about the APRs and 

payment terms applicable to the fixedrate and -term payment feature, and (2) 

any fees imposed related to the use of 

the fixed-rate and -term payment 

feature, such as fees to exercise the 

fixed-rate and -term payment option or 

to convert a balance under a fixed-rate 

and -term payment feature to a variablerate feature under the plan. See 

proposed comment 5b(c)(18)–2. The 

Board believes that the above approach 

to providing information to consumers 

about the fixed-rate and -term feature 

enables consumers interested in this 

feature to obtain additional information 

about this optional feature easily and 

quickly, but does not contribute to 

‘‘information overload’’ for consumers 

in general. 

5b(c)(19) Required Insurance, Debt 

Cancellation or Debt Suspension 

Coverage 

Currently, creditors are not required 

to provide any information about the 

insurance or debt cancellation or 

suspension coverage, whether optional 

or required, in the application 

disclosures. If a creditor requires 

insurance or debt cancellation or debt 

suspension coverage (to the extent 

permitted by state or other applicable 

law), the Board proposes new 

§ 226.5b(c)(19) that would require a 

creditor to disclose in the table as part 

of the early HELOC disclosures any fee 

for this coverage. In addition, proposed 

§ 226.5a(b)(19) requires that a creditor 

also disclose in the table a cross 

reference to where the consumer may 

find more information about the 

insurance or debt cancellation or debt 

suspension coverage, if additional 

information is included outside the 

early HELOC disclosures table. The 

Board proposes this rule pursuant to the 

Board’s authority in TILA Section 

127A(a)(14) to require additional 

disclosures for HELOC plan. 15 U.S.C. 

1637a(a)(14). Proposed Samples 

G–14(D) and G–14(E) provide guidance 

on how to provide the fee information 

and the cross reference in the table. If 

insurance or debt cancellation or 

suspension coverage is required to 

obtain a HELOC, the Board believes that 

any fees required for this coverage 

should be emphasized by being placed 

in the table; consumers need to be aware 

of these fees when deciding whether to 

open a HELOC plan, because they will 

be required to pay the fee for this 

coverage every month in order to have 

the plan. 

5b(c)(20) Statement About Asking 

Questions 

Pursuant to the Board’s authority in 

TILA Section 127A(a)(14) to require 

additional disclosures for HELOC plans, 

the Board proposes in new 

§ 226.5b(c)(20) to require a creditor to 

disclose as part of the early HELOC 

disclosures a statement that if the 

consumer does not understand any 

disclosure in the table the consumer 

should ask questions. 15 U.S.C. 

1637a(a)(14). Under the proposal, a 

creditor would be required to provide 

this disclosure directly below the table 

provided as part of the early HELOC 

disclosures, in a format substantially 

similar to any of the applicable tables 

found in proposed Samples G–14(C), 

G–14(D), and G–14(E) in Appendix G. 

See proposed § 226.5b(b)(2)(iv). 

Consumer testing on HELOC and 

closed-end mortgage disclosures 

conducted by the Board showed that 

many participants educated themselves 

about the HELOC and mortgage process 

through informal networking with 

family, friends, and colleagues, while 

others relied on the Internet for 

information. To improve consumers’ 

ability to make informed decisions 

about credit, the Board proposes to 

require a creditor to disclose that if the 

consumer does not understand the 

disclosures contained in the table as 

part of the early HELOC disclosures, the 

consumer should ask questions. 

5b(c)(21) Statement About Board’s Web 

Site 

Pursuant to the Board’s authority in 

TILA Section 127A(a)(14) to require 

additional disclosures for HELOC plans, 

the Board proposes in new 

§ 226.5b(c)(21) to require a creditor to 

provide as part of the early HELOC 

disclosures a statement that the 

consumer may obtain additional 

information at the Web site of the 

Federal Reserve Board, and a reference 

to this Web site. Currently, an electronic 

copy of the HELOC brochure is available 

at the Board’s Web site at http:// 

www.federalreserve.gov/pubs/equity/ 

homeequity.pdf. The Board plans to 

enhance its Web site to further assist 

consumers in shopping for a HELOC. 

Although it is hard to predict how many 

consumers might use the Board’s Web 

site, and recognizing that not all 

consumers have access to the Internet, 

the Board believes that this Web site 

may be helpful to some consumers as 

they decide whether to open a HELOC 

plan. The Board seeks comment on the 

content for the Web site. 

5b(c)(22) Statement About Refundability 

of Fees 

Pursuant to the Board’s authority in 

TILA Section 127A(a)(14) to require 

additional disclosures for HELOC plans, 

the Board proposes in new 

§ 226.5b(c)(22) to require a creditor to 

disclose as part of the early HELOC 

disclosures a statement that the 

consumer may be entitled to a refund of 

all fees paid if the consumer decides not 

to open the plan and a cross reference 

to the ‘‘Fees’’ section in the table. Under 

the proposal, a creditor would be 

required to disclose these statements 

directly below the table, in a format 

substantially similar to any of the 

applicable tables found in proposed G– 

14(C), G–14(D) and G–14(E) in 

Appendix G. See proposed 

§ 226.5b(b)(2)(iv). 

As discussed in the section-by-section 

analysis to proposed § 226.5b(c)(4) and 

(c)(5), under the proposal, a creditor 

would be required to disclose in the 

early HELOC disclosures table 

circumstances in which a consumer 

could receive a refund of all fees paid 

if the consumer decides not open the 

HELOC plan offered to the consumer. In 

particular, a creditor must disclose in 

the table that a consumer has the right 

to receive a refund of all fees paid if the 

consumer notifies the creditor that the 

consumer does not want to open the 

HELOC plan (1) for any reasons within 

three business days after the consumer 

receives the early HELOC disclosures; 

and (2) any time before the HELOC 

account is opened if any terms disclosed 

in the early HELOC disclosures change 

(except for the APR). In addition, under 

the proposal, a creditor would be 

required to disclose an indication of 

which terms disclosed in the early 

HELOC disclosures table are subject to 

change prior to account opening. 

As discussed in the section-by-section 

to proposed § 226.5b(b)(2), the Board 

tested with consumers versions of the 

early HELOC disclosures with the right 

to a refund of fees disclosures located 

near a statement that terms disclosed in 

the early HELOC disclosures are subject 

to change prior to account opening as 

one of the rights to a refund of fees 

relates to changes in terms offered on 

the HELOC prior to account opening. 


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The Board also tested other versions of 

the early HELOC disclosures with these 

disclosures in the ‘‘Fees’’ section of the 

table. These tested disclosure forms also 

included next to the statement about 

which terms in the table may change 

prior to account opening, a statement 

that the consumer may be entitled to a 

refund of all fees paid if the consumer 

decides not to open the plan and a cross 

reference to the ‘‘Fees’’ section in the 

table provided as part of the early 

HELOC disclosures. 

The Board found through this testing 

that participants were more likely to 

notice and understand information 

about the refundability of fees when it 

was included in the ‘‘Fees’’ section of 

the table. Thus, under the proposal, the 

Board proposes to require that the 

information about the refundability of 

fees be disclosed in the ‘‘Fees’’ section 

of the table. In addition, the Board 

proposes in new § 226.5b(c)(22) to 

require a creditor to disclose as part of 

the early HELOC disclosures a statement 

that the consumer may be entitled to a 

refund of all fees paid if the consumer 

decides not to open the plan and a cross 

reference to the ‘‘Fees’’ section in the 

table provided as part of the early 

HELOC disclosures. This statement and 

cross reference would be disclosed 

below the table, grouped together with 

other global statements that generally 

relate to the terms being disclosed in the 

table such as an indication of which 

terms disclosed in the table may change 

prior to account opening. 

5b(d) Refund of Fees 

The proposal would redesignate 

paragraph 5b(g) as paragraph 5b(d) and 

comments 5b(g)–1, –2, –3, –4 as 

comments 5b(d)–1, –2, –3, and –4, and 

revise these provisions. Current 

paragraph 5b(g), which implements 

TILA Section 137(d), requires a creditor 

to refund fees paid ‘‘in connection with 

an application’’ if any term required to 

be disclosed under current section 

226.5b(d) changes (other than a change 

due to fluctuations in the index in a 

variable-rate plan) before the plan is 

opened and, as a result of the change, 

the consumer elects not to open the 

plan. See 15 U.S.C. 1647(d). Comment 

5b(g)–1 explains that all fees paid must 

be refunded, including credit-report fees 

and appraisal fees, whether they are 

paid to the creditor or directly to third 

parties. Comment 5b(g)–3 specifies that 

when a term is changed that was 

disclosed as a range (as permitted under 

§ 226.5b(d)) and the resulting term falls 

within the disclosed range, the 

consumer is not entitled to a refund of 

fees. Similarly, if the creditor discloses 

a third-party fee as an estimate (as 

permitted under § 226.5b(d)) and those 

fees change, the consumer is not 

entitled to a refund of fees. 

Under the proposal, the phrase ‘‘in 

connection with the application’’ would 

be deleted from both new § 226.5b(d) 

and comment 5b(d)–1. The Board views 

this phrase as unnecessary to describe 

the fees that must be refunded under 

this paragraph. As indicated in current 

comment 5b(g)–1, the Board has long 

interpreted this phrase, when modifying 

the term ‘‘fees’’ in both the statute and 

regulation, to mean any fees that the 

consumer has paid to the creditor or a 

third party related in any way to 

obtaining a HELOC with the creditor. 

The proposal also would eliminate 

from the provisions in new § 226.5b(d) 

and accompanying commentary any 

references to the consumer’s being 

entitled to a refund of fees only if the 

consumer decides not to obtain a 

HELOC because of a change in terms. 

The proposal would instead provide 

that a refund is required if a disclosed 

term changes before account opening 

and the consumer decides not to enter 

into the plan. Pursuant to the Board’s 

authority in TILA Section 105(a) to 

make adjustments to the requirements 

in TILA necessary to effectuate the 

purposes of TILA, the Board proposes to 

eliminate the requirement that the 

consumer’s reason for deciding not to 

enter into the plan must be that a term 

has changed. The Board believes that 

requiring consumers to prove their 

intent for deciding not to enter a plan, 

the initially disclosed terms of which 

have changed, and requiring creditors to 

discern consumer intent, are not 

practicable. In addition, the Board 

believes that when terms change, most 

consumers who decide not to enter into 

the plan will decide not to do so 

because of the changed term. 

Comment 5b(d)–3 would be revised to 

reflect that under the proposal, 

disclosing a range for the maximum rate 

would no longer be permitted in the 

early HELOC disclosure table, nor 

would disclosing an estimate for a thirdparty account-opening fee, in contrast to 

the current rule on third-party fees 

reflected in current comment 5b(g)–3. 

See proposed § 226.5b(c)(10). Disclosing 

an account-opening fee as a range, 

however, would be permitted if the 

dollar amount of the fee is not known 

at the time the disclosures under 

§ 226.5b(b) are delivered or mailed. See 

proposed § 226.5b(c)(11). 

The proposal also would make 

conforming changes to reflect renumbered provisions in the proposal. 

5b(e) Imposition of Nonrefundable Fees 

The proposal would redesignate 

paragraph 5b(h) as paragraph 5b(e) and 

comments 5b(h)–1, –2, and –3 as 

comments 5b(e)–1, –2, and –3, and 

would revise these provisions. Current 

paragraph 5b(h), which implements 

TILA Section 137(e), obligates a creditor 

to refund any fee imposed within three 

business days of the consumer receiving 

the application disclosures and 

brochure required under existing 

§ 226.5b if, within that time period, the 

consumer decides not to enter into the 

HELOC agreement. See 15 U.S.C. 

1647(e). Comment 5b(h)–1 provides that 

if the creditor collects a fee after the 

consumer receives the application 

disclosures and the HELOC brochure 

and before the expiration of three 

business days, the creditor must notify 

the consumer—clearly and 

conspicuously and in writing—that the 

fee is refundable for three business days. 

This comment also provides that if 

disclosures are mailed to the consumer, 

a nonrefundable fee may not be imposed 

until six business days after mailing, 

because footnote 10d to the regulation 

provides that if the disclosures are 

mailed to the consumer, the consumer 

is considered to have received them 

three business days after they are 

mailed. 

Proposed comment 5b(e)–1 retains 

these requirements, but with technical 

changes, including changes to reflect 

that, under the proposal, notice of the 

consumer’s right to receive a refund 

must be included in the early HELOC 

disclosure table required under 

proposed § 226.5b(b), and may not be 

provided as an attachment to the early 

HELOC disclosures. Further discussion 

of this requirement is in the section-bysection analysis of § 226.5b(c)(5). In 

addition, footnote 10d is moved into the 

main text of § 226.5b(e). 

Proposed comment 5b(e)–4 provides 

that, for purposes of § 226.5b(e), the 

term ‘‘business day’’ has the more 

precise definition used for rescission 

and for other purposes, meaning all 

calendar days except Sundays and the 

federal holidays referred to in 

§ 226.2(a)(6). For example, if the 

creditor were to place the disclosures in 

the mail on Thursday, June 4, the 

disclosures would be considered 

received on Monday, June 8. The Board 

proposes to use the more precise 

definition of ‘‘business day’’ for 

determining receipt of disclosures for 

purposes of § 226.5b(e) to conform to 

the Board’s rules for determining receipt 

of disclosures for other dwellingsecured transactions under 

§§ 226.19(a)(1)(ii) and 226.31(c), as well 


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19Section-by-Section Clarifications to H.R. 3011, 

the Home Equity Loan Consumer Protection Act of 

1988, Pub. L. 100–709, enacted on Nov. 23, 1988 

(inserted by Rep. David Price), Congr. Rec., H4474 

(June 20, 1988) (emphasis added). 

as to the Board’s recently adopted rules 

under § 226.19(a)(2). See 74 FR 23289 

(May 19, 2009). 

Under the proposal, the phrase ‘‘in 

connection with the application’’ would 

be deleted from new § 226.5b(e). The 

Board views this phrase as unnecessary 

to describe the fees that must be 

refunded under this paragraph. As 

indicated in current comment 5b(g)–1, 

the Board has long interpreted this 

phrase, when modifying the term ‘‘fees’’ 

in both the statute and regulation, to 

mean any fees that the consumer has 

paid to the creditor or a third party 

related in any way to obtaining a 

HELOC with the creditor. 

The proposal also would make 

conforming changes to reflect proposed 

disclosure requirements and renumbered provisions, and to indicate 

that ‘‘three days’’ means, as indicated in 

the corresponding regulation text, 

‘‘three business days.’’ 

5b(f) Limitations on Home-Equity Plans 

TILA Section 137, implemented in 

§ 226.5b(f), limits the changes that 

creditors may make to HELOCs subject 

to § 226.5b. The proposal would amend 

and clarify these limitations by revising 

§ 226.5b and accompanying Official 

Staff Commentary, and adding a new 

§ 226.5b(g). 

The proposal includes a number of 

significant changes to the rules 

restricting changes that creditors may 

make to HELOCs subject to § 226.5b. 

First, the proposal would amend 

§ 226.5b(f)(2)(ii), which permits 

creditors to terminate and accelerate a 

HELOC if ‘‘the consumer fails to meet 

the repayment terms of the agreement,’’ 

to prohibit creditors from terminating 

and accelerating an account or taking 

lesser action permitted under comment 

5b(f)(2)–2, unless the consumer has 

failed to make a required minimum 

periodic payment within a specified 

time period after the due date for that 

payment. As discussed in more detail 

below, the Board is specifically 

proposing that account action under 

§ 226.5b(f)(2)(ii) be prohibited unless 

the consumer has failed to make a 

required minimum periodic payment 

within 30 days of the due date. The 

Board is requesting comment on the 

appropriateness of this timeframe, or 

whether some other time period is more 

appropriate. 

Second, the proposal would amend 

§ 226.5b(f)(2)(iv) to permit creditors to 

terminate and accelerate a home-equity 

plan if a federal law requires the 

creditor to do so. Similarly, the proposal 

would add a new § 226.5b(f)(3)(vi)(G) to 

permit creditors to suspend advances or 

reduce the credit limit if a federal law 

requires the creditor to do so. 

Third, in a new comment 5b(f)(3)–3, 

the proposal would clarify that 

Regulation Z’s general limitation on 

changing terms does not prohibit a 

creditor from passing on to consumers 

bona fide and reasonable costs incurred 

by the creditor for collection activity 

after default, to protect the creditor’s 

interest in the property securing the 

plan, or to foreclose on the securing 

property. 

Fourth, the proposal would add to 

comment 5b(f)(3)(v)–2 an example of a 

change that would be considered 

insignificant under this provision: a 

creditor may eliminate a method of 

accessing a HELOC, such as by credit 

card, as long as at least one means of 

access that was available at account 

opening remains available to the 

consumer on the original terms. 

Finally, the proposal would provide 

additional guidance and amend the 

rules in three major areas related to 

when a creditor may temporarily 

suspend advances on a home-equity 

plan or reduce the credit limit: (1) Rules 

regarding when a creditor may suspend 

or reduce an account based on a 

significant decline in the property value 

(§ 226.5b(f)(3)(vi)(A) and existing 

comment 5b(f)(3)(vi)–6); (2) rules 

regarding when a creditor may suspend 

or reduce an account based on a 

material change in the consumer’s 

financial circumstances 

(§ 226.5b(f)(3)(vi)(B) and existing 

comment 5b(f)(3)(vi)–7); and (3) rules 

regarding reinstatement of accounts that 

have been suspended or reduced 

(proposed § 226.5b(g) and existing 

comments 5b(f)(3)(vi)–2, –3, and –4). 

5b(f)(2)(ii) Limitations on Action Taken 

for Failure To Meet the Repayment 

Terms 

Background 

Section 226.5b(f)(2)(ii) permits a 

creditor to terminate a HELOC and 

accelerate the balance if the consumer 

has ‘‘fail[ed] to meet the repayment 

terms of the agreement for any 

outstanding balance.’’ The 

corresponding statutory provision reads 

similarly: ‘‘A creditor may not 

unilaterally terminate any account 

* * * except in the case of * * * (2) 

failure by the consumer to meet the 

repayment terms of the agreement for 

any outstanding balance.’’ 15 U.S.C. 

1647(b)(2). Comment 5b(f)(2)(ii)–1 

clarifies that a creditor may terminate 

and accelerate a plan under this 

provision ‘‘only if the consumer actually 

fails to make payments.’’ Thus, an 

account may not be terminated for a 

minor payment infraction, such as when 

a consumer sends a payment to the 

wrong address. Comment 5b(f)(2)–2 

interprets this provision to allow 

creditors to take an action short of 

terminating the plan and accelerating 

the balance, such as temporarily or 

permanently suspending advances, 

reducing the credit limit, changing the 

payment terms, or requiring the 

consumer to pay a fee. A creditor may 

also provide in its agreement that a 

higher rate or fee will apply in 

circumstances under which it could 

otherwise terminate the plan and 

accelerate the balance. 

Proposal 

The proposal would interpret the 

statute to mean that creditors may not, 

for payment-related reasons, terminate 

the plan and accelerate the balance or 

take certain actions short of termination 

and acceleration permitted under 

comment 5b(f)(2)–2, unless the 

consumer has failed to make a required 

minimum periodic payment within 30 

days after the due date for that payment. 

The Board is specifically proposing that 

account action under § 226.5b(f)(2)(ii) be 

prohibited unless the consumer has 

failed to make a required minimum 

periodic payment within 30 days of the 

due date, and requesting comment on 

whether this timeframe is appropriate, 

or whether some other time period is 

more appropriate. The Board proposes 

this rule pursuant to its authority in 

TILA Section 105(a) to issue provisions 

and make adjustments to the 

requirements of TILA that are necessary 

or proper to effectuate the statute’s 

purposes. See 15 U.S.C. 1604(a). 

The Board believes that specifying the 

type of payment infraction required to 

take action under this provision is 

necessary to effectuate the purposes of 

TILA and Congress in enacting the 

Home Equity Loan Act (cited above). 

According to section-by-section 

clarifications in the Home Equity Loan 

Act, this provision specifically ‘‘deals 

with the failure of the borrower to 

actually make payments. It does not 

encompass minor transgressions such as 

inadvertently sending the payment to 

the wrong branch.’’ 19 Creditors and 

consumer groups have expressed 

uncertainty about when an account may 

be terminated or other action taken 

under this provision, as well as 

concerns that creditor practices in this 

regard vary widely. In particular, 

concerns have been raised about ‘‘hairVerDate Nov<24>2008 19:22 Aug 25, 2009 Jkt 217001 PO 00000 Frm 00059 Fmt 4701 Sfmt 4702 E:\FR\FM\26AUP3.SGM 26AUP3

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20Board staff discussions with creditors revealed 

that creditors terminate HELOC accounts due to a 

consumer’s ‘‘fail[ure] to meet the repayment terms 

of the agreement’’ for payment delinquencies 

ranging from 16 to 90 days. In addition to creditor 

practices, Board staff have also considered court 

decisions such Cunningham v. Nat’l City, C.A. 1– 

08–CV–10936–RGS (Dist. Mass., Jan. 7, 2009), in 

which the court held that termination of an account 

was permitted based on a seven-day delinquency, 

even though the consumer paid within the 

contractual late fee courtesy period. Standard 

HELOC agreements reviewed by the Board typically 

incorporate the regulatory language allowing a 

creditor to terminate and accelerate an account or 

take certain lesser actions due to a consumer’s 

‘‘fail[ure] to meet the repayment terms of the 

agreement,’’ without specifying the number of days 

late a consumer’s payment may be before the 

account will be terminated or other action taken 

under § 226.5b(f)(2)(ii). 

21See, e.g., Remarks of Rep. St. Germain, Chair, 

House Committee on Banking, Finance and Urban 

Affairs on H.R. 3011, the Home Equity Loan 

Consumer Protection Act of 1988, Public Law 100– 

709, enacted on Nov. 23, 1988, Congr. Rec., H4471 

(June 20, 1988) (The Home-equity Loan Act was 

intended to ensure that creditors could impose ‘‘no 

hidden fees, no hidden terms * * * on 

unsuspecting homeowners’’); Remarks of Rep. 

Schumer on H.R. 3011, Congr. Rec., H4475 (June 20, 

1988) (‘‘Home-equity loans have several potential 

pitfalls if a consumer is not completely aware 

* * *’’). 

22Section-by-Section Clarifications to H.R. 3011, 

the Home Equity Loan Consumer Protection Act of 

1988, Public Law 100–709, enacted on Nov. 23, 

1988 (inserted by Rep. David Price), Congr. Rec., 

H4474 (June 20, 1988). 23See also id. 

trigger’’ terminations and other actions 

being taken on accounts due to minor 

late payments.20 Some have pointed out 

that the plain language of this 

provision—the consumer ‘‘fails to meet 

the repayment terms of the 

agreement’’—arguably allows creditors 

to take an action that seems 

disproportionate to the consumer’s 

actions, such as account termination 

due to as little as a single-day 

delinquency. 

The Board believes that the proposed 

interpretation of the relevant statutory 

and regulatory provisions better carries 

out the legislative intent to protect 

consumers against (1) creditor practices 

that are unexpected and harmful,21 and 

(2) actions based on ‘‘minor’’ payment 

infractions.22 The Board believes, for 

example, that terminating a line based 

on a payment that was late but made 

within a contractual late fee ‘‘courtesy’’ 

period is arguably unexpected and 

harmful; a consumer may have a 

reasonable expectation that no penalty 

will be imposed for a payment made 

within a certain number of days after 

the due date where a late fee courtesy 

period has consistently been applied to 

an account. In addition, the proposal 

acknowledges that payments may be 

late for reasons out of the consumer’s 

control, such as postal delays or 

automated funds disbursement errors. A 

delinquency threshold for taking action 

on the account of more than 30 days 

would give consumers time to discover 

and correct the error. Finally, a 

consumer who is more than 30 days 

delinquent will, in most cases, have 

missed at least two due dates—and thus 

will have wholly failed to make a 

payment. See existing comment 

5b(f)(2)(ii)–1 (prohibiting termination 

and acceleration of an account unless 

the consumer ‘‘actually fails to make 

payments’’).23

Overall, the proposal is intended to 

strike a more equitable balance between 

creditors’ need to protect themselves 

against risk (and, for depositories, to 

ensure their safety and soundness), and 

effective protection of HELOC 

consumers from constraints on their 

credit privileges that do not correspond 

with reasonable expectations. Consumer 

protection would be enhanced by 

eliminating the opportunity for hairtrigger terminations and certain lesser 

actions for nominal delinquencies. In 

addition, the Board believes that a 

consumer would be more likely to 

expect serious consequences for a 

delinquency of more than 30 days on a 

debt secured by the consumer’s home 

than on an unsecured credit card 

account. These protections arguably 

offset the risk to consumers that 

creditors now terminating lines of credit 

based on delinquencies of 30 days or 

less (or that rarely terminate lines) will 

begin terminating accounts based on the 

proposed over-30-days delinquency 

rule. 

At the same time, creditors would 

retain options to protect themselves 

from losses prior to a payment becoming 

more than 30 days delinquent. 

Specifically, a creditor could impose 

late payment fees specified in the 

HELOC agreement. Creditors also could 

temporarily suspend or reduce accounts 

for a ‘‘default of a material obligation’’ 

under § 226.5b(f)(3)(vi)(C), as payment 

obligations are commonly considered 

material obligations. In effect, whether a 

line can be terminated due to failure to 

meet a payment obligation as permitted 

under TILA depends on the extent of 

the default (i.e., is a payment late by 

more than 30 days?); whereas whether 

a line can be temporarily suspended or 

reduced depends on the nature of the 

obligation on which the consumer 

defaulted (i.e., is the obligation itself 

‘‘material’’?). 

The Board requests comment on 

whether a failure to make a payment 

within 30 days is appropriate or 

whether some other time period is more 

appropriate for permitting action under 

this provision. In this regard, the Board 

notes that the 2009 Credit Card Act 

(cited above) has suggested considering 

a delinquency threshold of more than 60 

days. Specifically, the Credit Card Act 

adds a new section 171 to TILA (15 

U.S.C. 1666j) to prohibit increasing the 

APR on existing credit card balances 

unless the creditor has not received a 

minimum payment within 60 days after 

the due date for the payment. See Credit 

Card Act, § 101(b). However, the Credit 

Card Act does not require that a 

consumer must be 60 or even 30 days 

late before a creditor may terminate a 

credit card account; the Credit Card Act 

deals with when a credit card creditor 

may reprice balances on an account. 

The Board also requests comment on 

whether the Board should consider any 

other payment infractions to be 

sufficient grounds for termination and 

acceleration (and permitted lesser 

actions). 

5b(f)(2)(iv) Terminations Required by 

Federal Law 

Existing § 226.5b(f)(2)(iv) permits a 

depository institution to terminate and 

accelerate a HELOC plan if ‘‘compliance 

with federal law dealing with credit 

extended by a depository institution to 

its executive officers specifically 

requires that as a condition of the plan 

the credit shall become due and payable 

on demand.’’ The Board narrowly 

tailored this additional provision 

permitting termination in light of 

Section 22(g) of the Federal Reserve Act 

(implemented by Regulation O, 12 CFR 

Part 215) and Section 309 of the Federal 

Deposit Insurance Corporation 

Improvement Act. See 57 FR 34676 

(August 6, 1992). 

The proposal would amend 

§ 226.5b(f)(2)(iv) to permit creditors to 

terminate and accelerate home-equity 

plans if a federal law requires the 

creditor to do so, expanding this 

provision to cover other federal laws 

that may require a creditor to terminate 

and accelerate a plan. ‘‘Federal law’’ 

under this provision is limited to any 

federal statute, its implementing 

regulation, and official interpretations 

issued by the regulatory agency with 

authority to implement such statute and 

regulation. 

With this revision, the Board intends 

to prevent the need to issue separate 

revisions to Regulation Z to account for 

any new federal law requiring creditors 

to terminate and accelerate plans under 

particular circumstances. Further 

discussion of the reasons for this 

proposal and requests for comment are 

found in the explanation below of a 

similar proposal designated as new 

§ 226.5b(3)(vi)(G). 


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Regarding this proposed provision, 

the Board requests comment on what 

additional examples of conflicts 

between Regulation Z’s restrictions on 

account termination and other laws the 

Board should consider, if any. The 

Board also requests comment on 

whether the definition of ‘‘federal law’’ 

should be broadened to include, for 

example, an order or directive of a 

federal agency. 

5b(f)(3) Limitations on Changes in 

Terms 

Section 226.5b(f)(3) generally 

prohibits a creditor from changing the 

terms of a HELOC plan after it is 

opened. Comment 5b(f)(3)–1 states that, 

for example, a creditor may not increase 

any fee or impose a new fee once the 

plan has been opened, even if the fee is 

charged by a third party. This comment 

also provides that the change-in-terms 

prohibition applies to ‘‘all features of a 

plan,’’ even if the features are not 

required to be disclosed under § 226.5b 

(i.e., on the application disclosures). 

Comment 5b(f)(3)–2, however, lists 

three charges that may be changed: (1) 

Increases in taxes; (2) increases in 

premiums for property insurance (if 

excluded from the finance charge under 

§ 226.4(d)(2)); and (3) increases in 

premiums for credit insurance (if 

excluded from the finance charge under 

§ 226.4(d)(2)). 

The proposal would first revise 

comment 5b(f)(3)–1 to remove the 

example of a charge that is not required 

to be disclosed—specifically, a latepayment fee. Under the proposal, a latepayment fee would not be required to be 

disclosed in the early HELOC disclosure 

table under § 226.5b(b) (see proposed 

§ 226.5b(c)(11), (c)(12) and (c)(13)), but 

it would be required to be disclosed on 

the account-opening table under 

proposed § 226.6(a)(2)(x), along with 

several other types of fees. Further 

discussion of these proposed rules is 

included in the section-by-section 

analysis for proposed § 226.6(a)(2). 

Second, proposed comment 5b(f)(3)–3 

clarifies that creditors may pass on to 

consumers costs in the limited 

categories of debt collection, collateral 

protection and foreclosure under 

Regulation Z, but only if certain 

conditions are present. First, the costs 

must ‘‘bona fide and reasonable,’’ 

meaning that the creditor may pass on 

to the consumer only costs that the 

creditor actually incurs in taking these 

actions on a particular plan, and that the 

amount of any costs passed on to the 

consumer must be reasonably related to 

any services related to debt collection, 

collateral protection or foreclosure 

incurred by the creditor. These costs 

might include attorneys’ fees, court 

costs, property repairs, payment of 

overdue taxes, or paying sums secured 

by a lien with priority over the lien 

securing the HELOC. Second, the need 

for the creditor’s actions must arise due 

to the consumer’s default of an 

obligation under the agreement. 

During outreach to prepare this 

proposal, the Board received requests to 

clarify whether creditors may pass on to 

consumers bona fide and reasonable 

costs incurred by the creditor for 

collection activity after default, to 

protect the creditor’s interest in the 

property securing the plan, and to 

foreclose on the securing property. 

Creditors have expressed uncertainty 

about whether a creditor may pass these 

types of costs on to consumers under 

Regulation Z. As noted, § 226.5b(f)(3) 

prohibits creditors from changing the 

terms of a home-equity plan except in 

specified circumstances. Existing 

comment 5b(f)(3)–2 lists only three 

types of fees that are not covered by this 

section. Thus, it could be argued that 

creditors may not pass certain costs on 

to consumers unless they disclose in the 

agreement the specific fees and amounts 

associated with actions required for debt 

collection, collateral protection and 

foreclosure. The Board understands that 

the specific amount of costs required for 

a creditor to collect unpaid amounts, 

protect its collateral or execute 

foreclosure can rarely be known at the 

outset of a home-equity plan. Events 

giving rise to the need for a creditor to 

take action for debt collection, collateral 

protection or foreclosure may occur 

several years after the opening of a plan, 

and the specific actions required for 

collateral protection or foreclosure, for 

example, may vary widely depending 

on the circumstances, such as the nature 

of the consumer’s action or inaction 

giving rise to the need for the creditor 

to take affirmative action protect its 

collateral, or the rules of the jurisdiction 

governing the foreclosure proceeding. 

The Board recognizes that for closedend home-secured credit, creditors have 

more certainty than do HELOC creditors 

that these costs may be passed on to the 

consumer without specific upfront 

disclosure of their amounts, and that 

this uncertainty for HELOCs creates 

compliance challenges. 

Also, other sections of the existing 

commentary reflect the Board’s 

longstanding recognition that specific 

disclosure of these items and the 

amount of the charge for each may be 

difficult. For example, comment 

5b(d)(4)–1 (redesignated in the proposal 

as comment 5b(c)(7)(i)–1) excludes from 

the requirement to disclose termination 

fees at application ‘‘fees associated with 

collection of the debt, such as attorneys’ 

fees and court costs.’’ In addition, 

longstanding comment 6(b)–2.ii 

(incorporated with changes into 

proposed § 226.6(a)(3)(ii)(B)) excludes 

from disclosure in the § 226.6 accountopening statement ‘‘[a]mounts payable 

by a consumer for collection activity 

after default; attorney’s fees, whether or 

not automatically imposed; foreclosure 

costs; [and] post-judgment interest rates 

imposed by law,’’ among others. As 

discussed in more detail in the sectionby-section analysis under proposed 

§ 226.6(a)(3), one category of ‘‘charges 

imposed as part of a home-equity plan’’ 

would be ‘‘charges resulting from the 

consumer’s failure to use the plan as 

agreed, except amounts payable for 

collection activity after default; costs for 

protection of the creditor’s interest in 

the collateral for the plan due to default; 

attorney’s fees whether or not 

automatically imposed; foreclosure 

costs; and post-judgment interest rates 

imposed by law’’ (emphasis added). 

Proposed § 226.6(a)(3) generally 

parallels § 226.6(b)(3)(ii)(B) applicable 

to open-end (not home-secured) plans 

finalized in the January 2009 Regulation 

Z Rule and incorporates, as noted, 

longstanding comment 6(b)–2.ii. 

The Board is mindful of concerns that 

consumers may be charged a wide array 

of fees upon default without adequate 

notice or explanation. For these reasons, 

the Board requests comment on the 

appropriateness of this proposed 

clarification. The Board also requests 

comment on whether, if the proposal is 

adopted, the Board should clarify 

requirements regarding disclosure of 

these costs in the initial agreement 

beyond stating that specific amounts 

need not be disclosed. For example, 

would it be sufficient for the creditor to 

disclose simply the possibility that costs 

under the three categories contemplated 

in the proposal—debt collection, 

collateral protection and foreclosure 

upon default—may be charged? Or 

should the creditor be required to 

itemize in whole or in part the types of 

costs under each category that could be 

charged? 

5b(f)(3)(i) Changes Provided for in 

Agreement 

Section 226.5b(f)(3)(i) provides 

exceptions from the general prohibition 

on changes in terms of home-equity 

plans. One of these ‘‘exceptions’’ is that 

a creditor may provide in the initial 

agreement that a specified change will 

take place if a specified event occurs. 

The section gives an example that the 

agreement may provide that the APR 

may increase by a specified amount if 

the consumer leaves the creditor’s 


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43488 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

24This provision also states that temporary 

reductions in payments disclosed in the accountopening statement are subject to the notice 

exemption. See comment 9(c)(1)(ii)–2 (proposed 

comment 9(c)(1)(iv)–2). Temporary payment 

reductions might also be considered beneficial 

changes permitted under § 226.5b(f)(3)(iv). See 

comment 5b(f)(3)(iv)–1. However, in the 

Supplementary Information to the final rule 

implementing § 226.5b(f)(3)(iv), the Board noted 

that ‘‘reducing the amount of the minimum 

payment would not be unequivocally beneficial 

since it may result in less principal being repaid 

over the term of the plan and may result in a higher 

total amount of finance charges.’’ 54 FR 3063 (Jan. 

23, 1989). 

employment. Comment 5b(f)(3)(i)–1 

clarifies that both the triggering event 

and the resulting change in terms must 

be stated in the agreement with 

specificity. The comment also restates 

the employee preferred-rate example, 

and gives other examples, including a 

stepped-rate provision in the agreement, 

under which specified changes in the 

rate may take place after specified 

periods of time. This section and 

accompanying comment are consistent 

with the general principle stated in 

comment 5b(f)(1)–3 that rate changes 

specifically set forth in the agreement 

are not prohibited. 

The Board proposes to revise 

comment 5b(f)(3)(i)–1 to clarify that rate 

increases are also permissible upon the 

occurrence of special circumstances 

other than those set forth in the existing 

comment, as long as they are 

specifically set forth in the agreement 

and do not conflict with other 

substantive limitations on rate changes 

in the regulation. The Board intends this 

clarification to provide consistency 

between comment 5b(f)(1)–3 and 

comment 5b(f)(3)(i)–1. The proposal 

also would limit the amount by which 

a rate could be increased once 

circumstances qualifying the consumer 

for a preferred rate no longer apply. 

Specifically, a creditor could not raise 

the rate to be higher than it would have 

been had the consumer never qualified 

for a preferred rate. If a preferred rate of 

five percent is available to a consumer 

who is an employee of the creditor, for 

example, and the rate applicable if the 

consumer were not a creditor employee 

were seven percent, the creditor could 

not raise the rate above seven percent 

once the consumer is no longer the 

creditor’s employee. The Board believes 

that such an increased rate would 

constitute a penalty rate imposed for 

reasons not permitted under Regulation 

Z. See § 226.5b(f)(2) and comment 

5b(f)(2)–2; see also 15 U.S.C. § 1647(a); 

§ 226.5b(f)(1). 

The revised comment would clarify 

that the creditor could not impose a 

penalty rate for a reason other than 

those specified in § 226.5b(f)(2) 

(allowing termination and acceleration 

and certain lesser actions only under 

particular circumstances). The Board 

believes that permitting agreements to 

provide for the application of penalty 

rates upon the occurrence of any 

triggering event would be inconsistent 

with the restrictions on rate increases 

under the statute and regulation. See 15 

U.S.C. § 1647(a); § 226.5b(f)(1). Thus, 

the proposed comment would state that 

the creditor would be permitted to 

increase the rate to a penalty rate level 

only if the triggering event is a 

circumstance that would permit the rate 

to be increased under the commentary 

to § 226.5b(f)(2), such as fraud or 

material misrepresentation by the 

consumer (§ 226.5b(f)(2)(i)), failure to 

make a required payment within 30 

days of the due date for that payment 

(proposed § 226.5b(f)(2)(ii)), or action or 

inaction by the consumer that adversely 

affects the creditor’s security interest for 

the plan (§ 226.5b(f)(2)(iii)). The Board 

believes, however, that a rate increased 

from a preferred rate to the rate 

available to consumers generally, when 

the condition for the preferred rate is no 

longer met, would be consistent with 

the statutory provision. A consumer 

who has a preferred rate is likely to be 

aware of the conditions for the rate, and 

thus if the conditions are no longer met, 

the rate increase would not come as an 

undue surprise. 

5b(f)(3)(iv) Beneficial Changes 

Section 226.5b(f)(3)(iv) permits a 

creditor to change a term of a homeequity plan if the change ‘‘will 

unequivocally benefit the consumer 

throughout the remainder of the plan.’’ 

Comment 5b(f)(3)(iv)–1 gives several 

examples of beneficial changes, 

including a temporary reduction in the 

rate or fees charged during the plan. In 

this case, however, the comment 

indicates that a creditor ‘‘may’’ be 

required to give a change-in-terms 

notice required under § 226.9(c) (see 

proposed § 226.9(c)(1)) when the rate or 

fees return to their original level. 

The proposal would clarify in 

comment 5b(f)(3)(iv)–1 that a change-interms notice ‘‘would,’’ rather than 

‘‘may,’’ be required to be provided to the 

consumer under § 226.9(c) (proposed 

§ 226.9(c)(1)) when the temporarily 

reduced rate or fees are returned to their 

original level, if these reductions and 

subsequent increases were not disclosed 

in the account agreement. The revised 

comment also would clarify that 

including notice of the increased rate or 

fee with the notice to the consumer that 

the rate or fee is being reduced would 

constitute appropriate notice of the 

increase, as long as this notice is 

provided 45 days before the effective 

date of the increase. 

Comment 9(c)(1)(ii)–2 (redesignated 

in the proposal as comment 9(c)(1)(iv)– 

2) states that a creditor may offer 

temporary reductions in finance charges 

without giving notice when the charges 

return to their original level—as long as 

this feature is disclosed in the accountopening disclosures required under 

§ 226.6 (including an explanation of the 

terms upon resumption).24 The 

‘‘beneficial changes’’ provision, 

however, permits the creditor 

temporarily to reduce finance charges 

such as rates and fees without 

disclosing these possible reductions in 

the account agreement (assuming the 

change is ‘‘unequivocally’’ beneficial). 

When a creditor relies on this provision 

to raise the rate or fees after the 

reduction period has ended, however, 

the Board believes that the consumer 

should be given notice of when these 

charges will return to their original level 

in accordance with the proposed 45 

days advance notice rule under 

proposed § 226.9(c)(1). This would 

ensure that the consumer is given 

sufficient notice of the change to make 

any financial adjustments necessary. 

5b(f)(3)(v) Insignificant Changes 

Background 

Section 226.5b(f)(3)(v) permits a 

creditor to make ‘‘insignificant’’ changes 

to a home-equity plan’s terms. Existing 

comment 5b(f)(3)(v)–1 explains that this 

provision is intended to 

‘‘accommodate[] operational and similar 

problems, such as changing the address 

of the creditor for purposes of sending 

payments.’’ Under this comment, a 

creditor may not change a term such as 

a late-payment fee. Comment 

5b(f)(3)(v)–2 gives several examples of 

changes in terms considered 

‘‘insignificant.’’ These include ‘‘minor 

changes’’ to the billing cycle date, the 

payment-due date, and the day of the 

month on which index values are 

measured; changes to the creditor’s 

rounding practices for the APR; and 

changes to the balance computation 

method used. The comment also 

provides that these changes will not in 

all cases be considered ‘‘insignificant.’’ 

For example, a change to the paymentdue date would be insignificant only if 

this change would not diminish the 

grace period, if any, during which 

finance charges and late fees are not 

applied to new transactions. A change 

in the creditor’s rounding practices for 

disclosing the APR would be 


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insignificant only if the change is within 

the tolerances prescribed by § 226.14(a). 

A change to the balance computation 

method would be insignificant only if 

any resulting difference in the finance 

charge paid by the consumer is 

‘‘insignificant.’’ 

A number of creditors have expressed 

concerns to the Board about difficulties 

arising when the servicing of a HELOC 

is transferred and the new servicer’s 

platform is not programmed to allow for 

previously available terms. Creditors are 

concerned that changing the terms of a 

HELOC in this circumstance may not be 

permitted due to § 226.5b(f)(3)’s 

limitations on term changes. Creditors 

have reported that, as a result, they 

sometimes have to use multiple 

servicers or servicing systems to support 

all the terms of the various HELOCs 

they acquire. These servicers and 

servicing systems may be of widely 

varying quality, which could mean that 

consumers do not receive optimal 

service on their HELOCs. Some 

creditors have reported that a portfolio 

acquisition may not occur at all if the 

acquirer’s servicing system cannot 

support the terms of the HELOCs 

offered, and that this may also harm 

consumers if, for example, the proposed 

acquisition was necessitated in part by 

challenges facing the current servicer. 

Differences between servicing systems 

cited by creditors may impact, among 

other terms, rate indices, minimum 

payment and late fee calculations, or the 

availability of certain payment options 

or access devices such as credit cards. 

Proposal 

The Board proposes to add to 

comment 5b(f)(3)(v)–2 an example of a 

change that would be considered 

insignificant under this provision: a 

creditor may eliminate a method of 

accessing the line, such as a credit card, 

as long as at least one means of access 

that was available at account opening 

remains available to the consumer on 

the original terms. The Board also 

proposes to clarify that changes to the 

original terms on which a means of 

access was originally available—such as 

any fees for using the access method— 

would not be considered insignificant, 

but might be permitted as ‘‘beneficial’’ 

changes under § 226.5b(f)(3)(iv) if the 

change met the requirements of 

comment 5b(f)(3)(iv)–1. 

The Board believes that a general rule 

permitting changes in terms due to 

servicing transfers would not 

sufficiently protect consumers, and thus 

would undermine the purpose of the 

change-in-terms restrictions mandated 

by TILA. Such a rule would allow 

creditors to change terms as a result of 

a servicer change that are, in practical 

effect, significant. Changes to minimum 

payment calculations, for example, 

could increase the overall costs to the 

consumer of the HELOC, or materially 

increase the consumer’s payments in the 

short or long term. Changes to late fee 

calculations could be confusing to 

consumers and cause undue surprise 

related to the amount or timing of the 

late-payment fee; in addition, 

longstanding Board policy prohibits 

changing fees charged for late payments. 

See comment 5b(f)(3)(v)–1. 

The Board also considered setting a 

general standard for changes that would 

be considered insignificant, such as 

allowing changes to be deemed 

insignificant that result in the same or 

substantially similar payments 

(including periodic payments and the 

total of payments), rates, fees, and 

overall loan costs. One concern about 

establishing a general standard is that 

confusion among creditors and 

consumers, and possibly increased 

litigation, may result, particularly 

concerning the meaning of terms such 

as ‘‘substantially similar.’’ The Board 

requests comment on whether setting a 

general standard for term changes that 

would be considered insignificant is 

desirable. In this regard, the Board also 

requests comment on whether 

prescribing specific tolerances for 

resulting payments, costs, and fees 

would be helpful, and what appropriate 

tolerances might be. 

Servicing transfers, while sometimes 

beneficial to consumers, are neither 

initiated nor controlled by consumers. 

Thus, the Board believes that consumers 

should not in general be subjected to 

changes in their HELOC terms when 

their servicing is transferred. The 

current regulation provides several 

exceptions allowing creditors to change 

HELOC terms in keeping with the 

consumer protection purpose of TILA 

and Regulation Z—such as changes by 

written agreement (§ 226.5b(f) (3)(iii)), 

beneficial changes (§ 226.5b(f)(3)(iv)), 

and insignificant changes 

(§ 226.5b(f)(3)(v)). Regarding 

insignificant changes, current comment 

5b(f)(3)(v)–2, as noted, clarifies in its 

examples that, in effect, a change cannot 

be considered insignificant if it 

diminishes or eliminates a financial 

benefit to the consumer, such as a grace 

period, or if it causes the consumer to 

pay a finance charge that is more than 

nominally higher than the finance 

charge that would have applied under 

the original terms. 

Rather than make a broad revision 

such as permitting all term changes 

related to servicing transfers or setting a 

general standard for determining 

whether a change in terms is 

‘‘insignificant,’’ the Board is proposing 

to clarify that an access device such as 

a credit card may be eliminated as long 

as previously available access devices 

remain available. Creditors indicated 

that significant problems can arise 

where credit card access, for example, 

was available on the plan but a new 

servicer cannot support this; the 

creditor may be unable to transfer the 

servicing or may have to make 

individual arrangements with each 

consumer. The Board requests comment 

on the appropriateness of this additional 

example of an insignificant change. In 

addition, the Board requests comment 

on whether this example, if adopted, 

should be modified, broadened, or 

narrowed. 

5b(f)(3)(vi) Temporary Suspension of 

Credit or Reduction of Credit Limit 

Introduction 

Section 226.5b(f)(3)(vi) lists several 

circumstances under which a creditor 

may temporarily suspend advances on a 

home-equity plan or reduce the credit 

limit. As discussed below, the Board 

proposes revisions to this section in 

three major areas: (1) Rules regarding 

when a creditor may suspend or reduce 

an account based on a significant 

decline in the property value 

(§ 226.5b(f)(3)(vi)(A) and existing 

comment 5b(f)(3)(vi)–6); (2) rules 

regarding when a creditor may suspend 

or reduce an account based on a 

material change in the consumer’s 

financial circumstances 

(§ 226.5b(f)(3)(vi)(B) and existing 

comment 5b(f)(3)(vi)–7); and (3) rules 

regarding reinstatement of accounts that 

have been suspended or reduced 

(existing comments 5b(f)(3)(vi)–2, –3, 

and –4). As also discussed below, the 

proposal would permit a creditor to 

suspend or reduce an account 

temporarily if required to do so by 

federal law. Certain technical 

amendments are proposed to § 226.5b(f) 

and accompanying commentary as well. 

Changes and Requests for Comment 

Related to § 226.5b(f)(3)(vi) Generally 

No changes are proposed to existing 

comment 5b(f)(3)(vi)–1, which provides 

that a creditor may temporarily suspend 

advances on an account or reduce the 

credit limit only under circumstances 

specified in § 226.5b(f)(3)(vi), 

§ 226.5b(f)(3)(i) when the maximum 

annual percentage is reached, or 

§ 226.5b(f)(2), permitting suspension of 

advances or reduction of the credit limit 

in lieu of terminating and accelerating 

the account. See comment 5b(f)(2)–2. 

The Board requests comment, however, 


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25See, e.g., Office of the Comptroller of the 

Currency, Board of Governors of the Federal 

Reserve System, Federal Deposit Insurance 

Corporation, Office of Thrift Supervision, 

‘‘Interagency Appraisal and Evaluation Guidelines,’’ 

SR Letter 94–55 (Oct. 28, 1994); see also 12 CFR 

225.63 (FRB); 12 CFR 34.43 (OCC); 12 CFR 323.3 

(FDIC); 12 CFR 564.3 (OTS). ‘‘Appraisal’’ is defined 

in federal banking agency regulations relating to 

appraisal standards as ‘‘a written statement 

independently and impartially prepared by a 

qualified appraiser setting forth an opinion as to the 

market value of an adequately described property 

as of a specific date(s), supported by the 

presentation and analysis of relevant market 

information.’’ 12 CFR 225.62(a) (FRB); 12 CFR 

34.42(a) (OCC); 12 CFR 323.2(a) (FDIC); 12 CFR 

564.2(a) (OTS). 

on the portion of this comment 

providing that the creditor’s right to 

reduce the credit limit does not permit 

reducing the limit below the amount of 

the outstanding balance if this would 

require the consumer to make a higher 

payment. Specifically, the Board 

requests whether other limitations on 

the amount by which a home-equity line 

may be reduced may be appropriate. For 

example, should the amount by which 

a credit line may be reduced for a 

significant decline in the property value 

under § 226.5b(f)(3)(vi)(A) (discussed 

below) be limited to: (1) No more than 

the dollar amount of the property value 

decline; (2) no more than the amount 

needed to restore the creditor’s equity 

cushion at origination (and whether, in 

this case, the relevant equity cushion 

should be the dollar amount or the 

percentage of the home value not 

encumbered by debt); or (3) some other 

measure? A related request for comment 

is whether a creditor should be 

prohibited from temporarily suspending 

advances on the line until, for example, 

the property value declines by the full 

amount of the credit line. 

The proposal would redesignate 

comment 5b(f)(3)(vi)–5 as comment 

5b(f)(3)(vi)–2 and make certain technical 

revisions. Current comment 5b(f)(3)(vi)– 

5 permits a creditor to honor a specific 

request by a consumer to suspend credit 

privileges. If two or more consumers are 

obligated under a plan and each can 

take advances, comment 5b(f)(3)(vi)–5 

permits creditors to provide that any of 

the consumers may direct the creditor 

not to make further advances. This 

comment also permits a creditor to 

require that all persons obligated under 

a home-equity plan request 

reinstatement. 

Proposed comment 5b(f)(3)(vi)–2 

would add that consumers may request 

not only suspended advances but 

reduction of the credit limit. It also 

clarifies that when a consumer later 

requests reinstatement, but a condition 

permitting suspension or reduction 

exists (under §§ 226.5b(f)(2) or (f)(3)(i) 

or (f)(3)(vi)), a creditor that therefore 

does not re-open the plan must provide 

the disclosure of the specific reasons for 

the action taken under § 226.9(j)(1) (for 

temporary suspensions and reductions 

under §§ 226.5b(f)(3)(i) or (f)(3)(vi)) or 

(j)(3) (for termination or permitted lesser 

actions under § 226.5b(f)(2)), as 

applicable. Concerns were expressed to 

the Board during outreach for this 

proposal that under some 

circumstances, a person with an 

ownership interest in the property 

securing the line, but who is not 

obligated on the plan, may wish to 

request suspension of advances. The 

Board has not proposed a change to this 

provision to address these concerns, but 

invites comment on the issue. 

Under longstanding Board policy, rate 

changes for reasons permitting 

suspension of advances or credit limit 

reductions under § 226.5b(f)(3)(i) and 

(f)(3)(vi) have been prohibited. See 

comment 5b(f)(3)(i)–2. Based on issues 

raised during the Board’s outreach to 

prepare this proposal, the Board also 

requests comment on whether and 

under what circumstances it might be 

appropriate for Regulation Z to permit 

actions other than temporary 

suspension of advances or credit limit 

reductions under § 226.5b(f)(3)(i) and 

(f)(3)(vi). 

Finally, as discussed in more detail 

under the section-by-section analysis for 

proposed § 226.5b(g), the proposal 

moves comments 5b(f)(3)(vi)–2, –3, and 

–4 regarding reinstatement of accounts 

to proposed § 226.5b(g) and 

accompanying commentary, and revises 

them. 

5b(f)(3)(vi)(A) Suspensions and Credit 

Limit Reductions Based on a Significant 

Decline in the Property Value 

Background 

Section 226.5b(f)(3)(vi)(A), which 

implements TILA Section 137(c)(2)(B), 

permits a creditor temporarily to 

suspend advances or reduce a credit 

line on a HELOC if ‘‘the value of the 

dwelling that secures the plan declines 

significantly below the dwelling’s 

appraised value for purposes of the 

plan.’’ 15 U.S.C. 1647(c)(2)(B). Comment 

226.5b(f)(3)(vi)–6 states that whether a 

decline in value is significant under this 

provision ‘‘will vary according to 

individual circumstances.’’ The 

comment goes on to provide a ‘‘safe 

harbor’’ standard for determining 

whether a decline is significant. 

Specifically, a decline in value would 

be considered significant if it results in 

the initial difference between the credit 

limit and the available equity (the 

‘‘equity cushion’’) diminishing by 50 

percent or more. 

Concerns have been expressed to the 

Board that the existing safe harbor may 

not be a viable standard for the higher 

combined loan-to-value (CLTV) HELOCs 

made in recent years. For loans nearing 

or exceeding 100 percent CLTV when 

originated, for example, a decline in 

value of a few dollars could result in 

more than a 50 percent decline in the 

creditor’s equity cushion because the 

equity cushion was zero or close to zero 

at origination. For these higher CLTV 

loans in particular, creditors have 

indicated uncertainty about how to 

determine whether a decline in value is 

‘‘significant.’’ For their part, consumer 

advocates have expressed concerns that 

the lack of guidance on the proper 

application of the safe harbor gives 

creditors too much authority to take 

action based on nominal declines in 

value. Finally, noting that appraisals are 

not required to take action under this 

provision (see comment 5b(f)(3)(vi)–6), 

creditors have also asked the Board for 

guidance on appropriate property 

valuation methods for assessing 

property values under this provision. 

Proposal 

The proposal would eliminate 

references to the ‘‘appraised’’ value in 

both the regulation and commentary, to 

reflect that appraisals are not required to 

originate many HELOCs,25 nor are they 

required to establish a basis for taking 

action under this provision. See existing 

comment 5b(f)(3)(vi)–6. Beyond this 

technical change, the proposal would 

revise the commentary interpreting 

§ 226.5b(f)(3)(vi)(A) in two principal 

ways. First, the commentary would 

delineate two ‘‘safe harbors’’ on which 

creditors could rely to determine that a 

decline in property value is 

‘‘significant’’ under this section. 

Second, the commentary would provide 

additional guidance regarding the 

appropriate valuation tools for creditors 

to use in valuing property under this 

section. 

Proposed comment 5b(f)(3)(vi)–4 

confirms existing guidance stating that 

whether a decline is ‘‘significant’’ under 

§ 226.5b(f)(3)(vi)(A) depends on the 

individual circumstances of a particular 

HELOC secured by a property whose 

value has declined. Thus, in all cases 

the creditor must make an 

individualized assessment of whether a 

property value decline is significant, 

and may not solely consider general 

property value trends. 

Safe harbors. To facilitate 

compliance, the Board proposes two 

standards under which a property value 

decline would be deemed significant 

under this section. 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43491 

26Relevant guidance uses the term ‘‘LTV’’ (loanto-value ratio) to mean what is often referred to as 

‘‘CLTV’’ (combined loan-to-value ratio); in other 

words, all liens on the property are considered: ‘‘[A] 

high LTV residential real estate loan is defined as 

any loan, line of credit, or combination of credits 

secured by liens on or interests in owner-occupied 

1- to 4-family residential property that equals or 

exceeds 90 percent of the real estate’s appraised 

value, unless the loan has appropriate credit 

support.’’ Office of the Comptroller of the Currency, 

Board of Governors of the Federal Reserve System, 

Federal Deposit Insurance Corporation, Office of 

Thrift Supervision, National Credit Union 

Administration, ‘‘Interagency Guidance on High 

LTV Residential Real Estate Lending,’’ SR Letter 

99–26 (Oct. 12, 1999) (emphasis added). 

27 12 CFR part 208, subpart E, app. C (providing 

that, if a loan’s LTV is equal to or exceeds 90 

percent, the creditor must add other credit 

enhancements (such as mortgage insurance) or the 

loan will be considered to exceed the supervisory 

LTV ratios and be deemed a ‘‘high LTV loan,’’ to 

which additional rules apply). See also Board of 

Governors of the Federal Reserve System, SR Letter 

99–26 (Oct. 12, 1999). 

28See, e.g., Kristopher Gerardi, Federal Reserve 

Bank of Atlanta, Andreas Lehnert and Shane M. 

Sherlund, Board of Governors of the Federal 

Reserve System, and Paul Willen, Federal Reserve 

Bank of Boston, ‘‘Making Sense of the Subprime 

Crisis,’’ Brookings Papers on Economic Activity 

(Fall 2008). See also, Min Qi and Xiaolong Yang, 

Office of the Comptroller of the Currency, ‘‘Loss 

Given Default of High Loan-to-Value Residential 

Mortgages,’’ Economics and Policy Analysis 

Working Paper 2007–4 (August 2007). 

• First, for plans with a CLTV at 

origination of 90 percent or higher, a 

five percent reduction in the property 

value on which the HELOC terms were 

based would constitute a significant 

decline in value for purposes of 

§ 226.5b(f)(3)(vi)(A). 

• Second, for plans with a CLTV at 

origination of under 90 percent, the 

Board proposes to retain the existing 

safe harbor, under which a decline in 

the value of the property securing the 

plan is significant if, as a result of the 

decline, the initial difference between 

the credit limit and the available equity 

(based on the property’s value for 

purposes of the plan) is reduced by 50 

percent. 

Five percent decline for HELOCs with 

a CLTV at origination of 90 percent or 

higher. The current commentary allows 

creditors to assume that a decline in 

property value is ‘‘significant’’ if the 

decline results in a 50 percent decline 

in the creditor’s equity cushion. See 

comment 5b(f)(3)(vi)–6. The Board 

proposes to modify this ‘‘safe harbor’’ 

for loans with a CLTV at origination of 

90 percent or higher: For these loans, 

the creditor could assume that a decline 

in the property value is significant if the 

property value declines at least 5 

percent from its value when the HELOC 

was originated. 

The Board proposes this new safe 

harbor for several reasons. First, the 

current safe harbor, which allows action 

on a HELOC when the creditor’s equity 

cushion falls by 50 percent, establishes 

an inappropriate metric for measuring 

whether a value decline on higher CLTV 

loans is ‘‘significant.’’ As worded, this 

provision arguably permits action based 

on nominal property value declines. 

Specifically, the statute permits 

suspension of advances or reduction of 

the credit limit when the value of 

property securing the HELOC ‘‘is 

significantly less than’’ the value of the 

property when the HELOC was 

originated. 15 U.S.C. 1647(c)(2)(B). The 

Board’s proposal would interpret this 

statutory language to mean that, at 

minimum, the actual decline in value 

must be more than nominal. The 5 

percent safe harbor thus is intended to 

protect consumers with higher CLTV 

HELOCs from having their lines 

suspended or reduced based on 

property value declines that are only 

slightly less than the value of the 

property at origination. 

Second, the new proposed safe harbor 

standard would be consistent with the 

existing safe harbor. Arithmetically, a 

five percent decline on loans with an 

originating CLTV of 90 percent or higher 

results in at least a 50 percent decline 

in the equity cushion. By contrast, a five 

percent property value decline on loans 

with an originating CLTV of under 90 

percent would not reduce the creditor’s 

equity cushion by 50 percent. 

Third, the proposed CLTV threshold 

of 90 percent or higher for applying a 

five percent value decline safe harbor 

would be consistent with a CLTV 

threshold already established by the 

Board. Specifically, Board risk 

management guidance defines a ‘‘high 

[C]LTV loan’’ 26 generally as a loan with 

a CLTV of 90 percent or higher, unless 

the loan has credit enhancements such 

as mortgage insurance to mitigate the 

risk of loss.27 Research validates that 

loans in this category have a higher 

probability of default and yield greater 

losses upon default than loans of lower 

CLTVs.28

Retention of existing safe harbor for 

HELOCs with a CLTV at origination of 

lower than 90 percent. For loans with an 

originating CLTV of less than 90 

percent, the Board proposes to retain the 

existing the safe harbor, under which a 

value decline is significant if the decline 

results in the creditor’s equity cushion 

contracting by 50 percent. Comment 

5b(f)(3)(vi)–4 clarifies that in 

determining whether a decline results in 

a 50 percent equity cushion reduction, 

the creditor may, but does not have to, 

consider any changes in available equity 

based on the status of the first mortgage. 

The Board proposes to retain the 

existing safe harbor for several reasons. 

First, no parties during Board outreach 

to prepare this proposal objected to the 

general principal that a property value 

decline resulting in a 50 percent 

reduction of the equity cushion can 

reasonably be considered ‘‘significant’’ 

under this provision. 

Second, applying this safe harbor to 

loans with CLTVs of under 90 percent 

does not depart significantly from the 

assumption on which the original safe 

harbor example was based. See 

comment § 226.5b(f)(3)(vi)–6. The 

commentary illustrates the existing safe 

harbor with a HELOC at a starting CLTV 

of 80 percent; thus, the illustration 

indicates that a 50 percent equity 

cushion reduction would be significant 

for loans originated with a CLTV of 80 

percent. The proposal clarifies that a 

property value decline resulting in a 50 

percent equity cushion reduction is 

significant for loans with a CLTV of 

only somewhat higher than 80 percent— 

under 90 percent. 

Finally, there is an arithmetical basis 

for applying the existing safe harbor, 

rather than the proposed flat five 

percent decline safe harbor, to HELOCs 

with an originating CLTV of under 90 

percent: a five percent decline in the 

value of the property for lines with a 

starting CLTV lower than 90 percent 

would not yield an equity cushion 

decline of 50 percent or more. 

Among other alternatives, the Board 

considered proposing a safe harbor that 

applied a flat percentage property value 

decline to all HELOCs, regardless of the 

originating CLTV, but determined that 

defining an single metric appropriate for 

all loans was not possible. A safe harbor 

of a 10 percent decline, for example, 

may impair creditors’ flexibility to take 

action where reasonable arguments 

could be made, as for higher CLTV loans 

such those discussed above, that 

adequate risk mitigation requires action 

based on a lesser decline. At the same 

time, a 10 percent decline may be 

inappropriate for loans with lower 

CLTVs, such as 50 percent. For these 

loans, a 10 percent property value 

decline would still leave the creditor 

with a significant equity cushion. By 

contrast, even on lower CLTV loans, the 

current safe harbor of a 50 percent 

reduction in the creditor’s equity 

cushion might reasonably be deemed a 

sufficient change in the creditor’s 

original risk level to justify action on the 

line, such as temporarily reducing the 

credit limit. 

Significant declines outside of the 

safe harbors. The Board recognizes that 

not all property value declines that 

might reasonably be considered 

‘‘significant’’ for taking action under 

this provision will fall into one of the 

two safe harbors. Thus, the Board 


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43492 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

29An automated valuation model or ‘‘AVM’’ is a 

computer program that analyzes data to determine 

a property’s market value. ‘‘Hedonic’’ models use 

property characteristics (such as square footage, 

room count) on the subject and comparable 

properties to determine a value. ‘‘Index’’ models 

determine value based on repeat sales in the 

marketplace rather than property characteristic 

data. ‘‘Blended or hybrid’’ models use elements of 

both hedonic and index models. 

30A tax assessment valuation or ‘‘TAV’’ 

determines the value of the subject property based 

on the value established for property tax purposes. 

31A broker price opinion or ‘‘BPO’’ is an estimate 

of value of the subject property prepared by a real 

estate broker, agent or sales person that details the 

probable listing price of the subject property and 

provides varying level of detail about the property’s 

condition, market, and neighborhood, and 

information on comparable sales. A BPO does not 

include use of an AVM. 

32See, e.g., Ark. Code Ann. § 17–14–104, Conn. 

Gen. Stat. § 20–526, Minn. Stat. § 82B.035, R.I. Gen. 

Laws § 5–20.7–3, Tex. Occ. Code § 1103.004. 

33See supra note 29, regarding ‘‘hedonic,’’ 

‘‘hybrid,’’ and ‘‘index’’ AVMs. 

requests comment on whether and what 

guidance regarding other factors that 

creditors might consider in determining 

whether a decline is significant is 

desirable. Specific comment is 

requested on whether the Board should 

provide guidance clarifying that the 

creditor may (but does not have to) 

consider any changes in available equity 

based on how much the consumer owes 

on a mortgage with a lien superior to 

that of the HELOC. On a second-lien 

HELOC where the first-lien mortgage is 

negatively amortizing, or was negatively 

amortizing during any part of the 

HELOC term, for example, the CLTV 

will decline more and faster than if the 

first mortgage were fully or partially 

amortizing, concomitantly reducing the 

HELOC creditor’s equity cushion. The 

actual property value decline alone may 

not reduce the creditor’s equity cushion 

by 50 percent, but a 50 percent 

reduction in the equity cushion may 

nonetheless occur if the first mortgage 

loan is negatively amortizing. 

The Board also requests comment on 

whether and under what circumstances 

it may be appropriate to permit 

consideration of a clear and consistent 

trend of declining property values in the 

market area in which the securing 

property is located. The Board 

understands that creditors commonly 

rely on general market data to validate 

findings for a property-specific 

valuation; used in this way, general 

market data may be a valuable quality 

control tool contributing to sound 

portfolio management. (Depending on 

comments received, the Board would 

not anticipate that consideration of this 

factor would be permissible unless the 

creditor first completed a property 

valuation that accounts for specific 

characteristics of the subject property 

and meets other guidelines proposed in 

comment 5b(f)(3)(vi)–5.) In addition, the 

Board solicits comment on the type of 

market data that would be appropriate, 

such as data based on publicly 

available, empirically-based research, as 

well as on whether a more specific 

definition of ‘‘market area’’ would be 

needed and, if so, what definition 

would be appropriate. 

Finally, as discussed above under the 

section-by-section analysis on 

§ 5b(f)(3)(vi) (specifically concerning 

comment 5b(f)(3)(vi)–1), the Board 

requests comment on what, if any, 

restrictions on the amount by which a 

credit line may be reduced for a 

significant decline in value may be 

appropriate. 

Property valuation methods. Existing 

comment 5b(f)(3)(vi)–6 states that 

§ 226.5b(f)(3)(vi)(A) does not require a 

creditor to obtain an appraisal before 

suspending credit privileges or reducing 

the credit limit based on a significant 

decline in value, although a significant 

decline must have occurred. This means 

that the creditor must be able to 

demonstrate that a significant value 

decline in value has occurred, even if an 

appraisal is not obtained. To establish 

this basis when the creditor does not 

obtain an appraisal, the creditor would 

have to rely on a property value 

generated by a valuation method other 

than an appraisal. Proposed comment 

5b(f)(3)(vi)–5 reaffirms that an appraisal 

is not required to take action under this 

provision, but provides additional 

guidance about the valuation tools that 

may be appropriate and the standards 

that should apply to using these tools. 

Proposed comment 5b(f)(3)(vi)–5 

would clarify that appropriate property 

valuation methods under 

§ 226.5b(f)(3)(vi)(A) may include, but 

are not limited to, automated valuation 

models (AVMs),29 tax assessment 

valuations (TAVs),30 and broker price 

opinions (BPOs).31 These examples of 

appropriate valuation tools are 

illustrative; the Board recognizes that 

the methods named in the commentary 

may in the future commonly be referred 

to by other names, and that new 

valuation methods that may be 

appropriate could be developed over 

time. Creditors would not be able to use 

any valuation method if state or other 

applicable law prohibits using that 

method for determining whether to 

suspend or reduce credit lines. For 

example, some state laws permit real 

estate brokers or salespersons to perform 

BPOs only as part of the real estate sales 

or listing process.32

Under proposed comment 

5b(f)(3)(vi)–5, any property valuation 

method on which the creditor relies to 

take action under this section must 

consider specific property 

characteristics of the underlying 

collateral. Methods that use only indices 

measuring property values generally in 

a particular geographic area would not 

be appropriate. Thus, AVMs known as 

‘‘hedonic’’ or ‘‘hybrid’’ (also referred to 

as ‘‘blended’’) models that account for 

specific property characteristics and 

location to produce a value would 

generally be appropriate, whereas AVMs 

known as ‘‘repeat sales index’’ or ‘‘home 

price index’’ models that do not account 

for property characteristics specific to 

the underlying collateral would not be 

appropriate.33

5b(f)(3)(vi)(B) Suspensions and Credit 

Limit Reductions Based on a Material 

Change in the Consumer’s Financial 

Circumstances 

Background 

Section 226.5b(f)(3)(vi)(B), which 

implements TILA Section 137(c)(2)(C), 

permits a creditor to suspend advances 

or reduce the credit limit of a HELOC 

when ‘‘the creditor reasonably believes 

that the consumer will be unable to 

fulfill the repayment obligations of the 

plan because of a material change in the 

consumer’s financial circumstances.’’ 15 

U.S.C. 1647(c)(2)(C). 

In the Board’s discussions with 

creditor representatives and others, 

concerns have been raised that the 

phrase ‘‘unable to meet’’ the repayment 

obligations is inappropriate in the 

modern credit market, in which credit 

decisions generally involve ranking 

consumers by their likelihood of 

repaying, not on whether they can or 

cannot repay. The Board understands 

that, in effect, a creditor may decide not 

to extend credit because a consumer’s 

likelihood of default is calculated to be, 

for example, 15 percent over a given 

period. A 15 percent likelihood of 

default, however, does not necessarily 

show that the consumer is ‘‘unable’’ to 

repay the HELOC on the agreed terms. 

The Board also recognizes that credit 

availability may be reduced if the 

circumstances under which creditors 

may take action under this provision are 

ambiguous. One creditor expressed to 

the Board that uncertainty about how to 

fulfill the requirements of this provision 

contributed to the creditor’s decision to 

stop offering HELOCs altogether. In 

sum, many creditors have requested 

more detailed guidance about when 

action is permissible under this 

provision, including the extent to which 

they may rely on declines in credit 

scores. 

Consumer advocates expressed 

dissatisfaction with the guidance on 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43493 

34See Remarks of Rep. David Price (primary 

sponsor of the H.R. 3011, the Home Equity Loan 

Consumer Protection Act of 1988, Pub. L. 100–709, 

enacted on Nov. 23, 1988, Congr. Rec., H4473 (June 

20, 1988) (‘‘[T]hese provisions protect the consumer 

without hindering the ability of lenders to operate 

successfully equity credit plans.’’). 

§ 226.5b(f)(3)(vi)(B) as well, voicing 

concerns that the lack of clear 

guidelines results in some creditors 

taking action on accounts of consumers 

who are fully capable of meeting their 

repayment obligations or whose 

financial circumstances in fact have not 

changed in a manner truly supporting a 

reasonable belief that the consumer will 

be unable to meet these obligations. 

Proposal 

As an initial matter, the Board is not 

proposing to eliminate the phrase 

‘‘unable to meet’’ the repayment terms 

from the regulatory text, in part because 

the statute itself stipulates that the 

creditor must have ‘‘reason to believe 

that the consumer will be unable to 

comply with the repayment 

requirements of the account due to a 

material change in the consumer’s 

financial circumstances.’’ 15 U.S.C. 

§ 1647(c)(2)(C) (emphasis added). 

Legislative history does not explain 

Congress’s decision to set this standard; 

the Board interprets the statute’s 

‘‘unable’’ to pay standard as evincing a 

legislative intent to promote creditor 

restraint in taking action under this 

provision. At the same time, the Board, 

as did Congress, recognizes the need for 

creditors to be able to protect 

themselves against losses on homeequity lines; 34 TILA and Regulation Z 

therefore permit creditors to take action 

on accounts in certain circumstances 

before the creditor begins to incur losses 

on those accounts. See 15 U.S.C. 

1647(c)(2)(B)–(E); § 226.5b(f)(3)(vi)(A)– 

(F). 

Thus, the Board requests comment on 

whether the Board should consider 

expressly interpreting the ‘‘unable’’ to 

pay standard to mean, for example, that 

the change in the consumer’s financial 

circumstances resulted in the 

consumer’s likelihood of default 

‘‘substantially’’ increasing. Another 

possible interpretation on which the 

Board requests comment is that the 

‘‘unable’’ to pay standard requires that, 

as a result in a change in the consumer’s 

financial circumstances, the consumer 

moved into a higher default risk 

category than at origination (based on 

the statistical likelihood of default), 

such that the creditor would not have 

made the loan or would have made the 

loan on materially less favorable terms 

and conditions. 

Overall, the proposed revisions to 

guidance in the commentary on 

§ 226.5b(f)(3)(vi)(B) is intended to 

protect consumers by ensuring that 

creditors exercise prudent judgment in 

relying on this provision, while 

providing certain limited clarifications 

regarding the requirements of this 

provision to guide creditors. To ensure 

that before taking action, creditors 

carefully consider the consumer’s 

financial circumstances and the likely 

impact of these circumstances on the 

account, the proposed commentary 

retains the existing two-part test for 

justifying account suspensions or credit 

limit reductions under 

§ 226.5b(f)(3)(vi)(B). The creditor must 

first examine the consumer’s financial 

circumstances and determine whether a 

‘‘material’’ change has occurred. The 

Board interprets the word ‘‘material’’ in 

this part of the test to mean that the 

change has some bearing on the 

consumer’s ability to pay his or her 

financial obligations. The creditor must 

then establish that this change supports 

the creditor’s reasonable belief that the 

consumer will be unable to meet the 

repayment obligations of the HELOC. 

The proposal would revise the 

commentary interpreting 

§ 226.5b(f)(3)(vi)(B) to include 

additional examples of how creditors 

may demonstrate that both parts of the 

test are met, as discussed below. 

For the first part of the test, under 

proposed comment 5b(f)(3)(vi)–6 (based 

on existing comment 5b(f)(3)(vi)–7 with 

revisions), evidence of a significant 

change in financial circumstances 

includes, but is not limited to, a 

significant decrease in the consumer’s 

income, or credit report information 

showing late payments or nonpayments 

on the part of the consumer, such as 

delinquencies, defaults, or derogatory 

collections or public records related to 

the consumer’s failure to pay other 

obligations. The Board proposes to 

require that these payment failures must 

have occurred within a reasonable time 

from the date of the creditor’s review of 

the consumer’s credit performance. A 

safe harbor for determining whether a 

payment failure occurred within a 

reasonable time from the date of the 

creditor’s review would be one that 

occurred within six months of the 

creditor’s suspending advances or 

reducing the credit limit. In addition, 

the consumer cannot have brought the 

account on which the payment failure 

occurred current as of the time of the 

creditor’s review. The Board believes 

that this six-month safe harbor 

appropriately observes the statutory and 

regulatory rule that action can be taken 

only ‘‘during any period in which’’ the 

consumer’s financial circumstances 

have materially worsened from those on 

which the credit terms were based. See 

15 U.S.C. 1647(c)(2)(C); 

§ 226.5b(f)(3)(vi)(B). The Board solicits 

comment on this approach. 

Meeting the second part of the test 

requires that the change in financial 

circumstances support the creditor’s 

reasonable belief that the consumer will 

be unable to fulfill the payment 

obligations of the plan. For this part of 

the test, the proposal retains the existing 

commentary’s safe harbor—namely, that 

the creditor may rely on evidence of the 

consumer’s failure to pay other debts 

other than the HELOC to support a 

reasonable belief that the consumer will 

not be able to meet the HELOC’s 

repayment obligations. Proposed 

comment 5b(f)(3)(vi)–6 adds that these 

payment failures must have occurred 

within a reasonable time from the date 

of the creditor’s review of the 

consumer’s credit performance, with the 

six-month safe harbor discussed above. 

Proposed comment 5b(f)(3)(vi)–6 also 

specifies that for the second prong of the 

test, the payment failures on which the 

creditor relies may not be solely late 

payments of 30 days or fewer. The 

Board does not believe that a late 

payment of 30 days or fewer is adequate 

evidence of a failure to pay a debt. For 

example, the consumer’s payment may 

not have reached the creditor due to 

errors of which the consumer has not 

yet had an opportunity to become 

aware, such as mail delivery or 

electronic funds transfer errors. 

Reliance on Credit Score Declines 

Several industry representatives 

requested clarity on whether creditors 

could rely on credit score declines to 

satisfy the requirements of 

§ 226.5b(f)(3)(vi)(B). The Board believes 

that credit score declines may be an 

appropriate screening tool for 

determining which consumers to 

examine more closely for potential 

action based on this provision. 

However, the Board is concerned about 

whether credit score declines alone can 

meet the required statutory showing. 

For reasons discussed below, the 

proposal neither endorses nor prohibits 

reliance on credit score declines alone 

to meet the requirements of this 

provision, but solicits comment on this 

issue. 

Permitting reliance on credit scores 

alone to satisfy the requirements of this 

provision raises several concerns. First, 

a Board study has observed that credit 

scores can drop for reasons unrelated to 

the consumer’s actual failure to pay 


sroberts on DSKD5P82C1PROD with PROPOSALS
43494 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

35Board of Governors of the Federal Reserve 

System, ‘‘Report to the Congress on Credit Scoring 

and Its Effects on the Availability and Affordability 

of Credit’’ (August 2007). 

36 Id. 

37 12 CFR. Part 233 (Board of Governors of the 

Federal Reserve System); 31 CFR part 132 (U.S. 

Department of Treasury). 

38 31 U.S.C. 5362(7) (defining ‘‘restricted 

transaction’’). See also 31 U.S.C. § 5364; 12 CFR 

233.5; 31 CFR 132.5 (requiring institutions to 

establish policies and procedures under the Internet 

Gambling Act). 

39See 31 CFR 500.201, .202, .203. 

obligations,35 which suggests that a 

credit score decline alone might be an 

insufficient basis to satisfy the two-part 

test. Credit scores sometimes drop, for 

example, due to increases in a 

consumer’s utilization rate on her credit 

cards or because a consumer closes one 

or more credit card accounts. But an 

increased utilization rate may occur 

because a credit card creditor decides to 

reduce the credit limit for reasons out of 

the consumer’s control, not because the 

consumer is relying more heavily on 

credit card credit. Similarly, if the 

consumer closes accounts because the 

consumer has consolidated these debts 

into a single, lower interest loan, the 

consumer may have freed up more 

income to repay the HELOC; here, the 

consumer’s credit score drop in fact 

corresponds with improvement in the 

consumer’s ability to pay. 

Second, standard credit scores do not 

show a consumer’s actual default or 

delinquency probability—they reflect 

only a consumer’s likelihood of falling 

delinquent or defaulting relative to 

other consumers. For example, a 

consumer with a score of 700 is less 

likely to default than a consumer with 

a score of 600—but these scores by 

themselves do not indicate the actual 

probability that either consumer will 

default. 

Third, the Board also recognizes the 

challenge of defining how much of a 

decline is sufficient to satisfy the 

standard. Applying a single metric such 

as a 40 point decline to all consumers 

is especially problematic, because a 

consumer whose score declines from 

800 to 760 is still much more likely to 

be able to pay than, for example, a 

consumer whose score decreases from 

600 to 560. In addition, different scoring 

models use different score ranges, so a 

decline of 40 points on one model 

would not have the same meaning as a 

40-point decline in another model. 

Fourth, any expected future debt 

performance associated with consumers 

having a given credit score (relative to 

consumers with different scores) can 

change over time based on 

macroeconomic conditions. For 

example, a consumer with a credit score 

of 700 in Year One may have better 

future debt performance than a 

consumer with a score of 700 in Year 

Three, if the macroeconomic conditions 

have worsened from Year One to Year 

Three. This is because all consumers 

will have lower average debt 

performance levels in Year Three. But 

again, credit scores show only a credit 

performance rank of one consumer 

compared to other consumers, not an 

actual default probability. Thus, to rely 

on credit score declines alone to meet 

the requirements of this exception, 

creditors may also have to account for 

macroeconomic changes. 

In sum, without additional 

sophisticated empirical analysis, a 

creditor could not show that a particular 

consumer’s credit score decline 

corresponds to an increased default 

probability that would meet either 

prong of the two-part test. 

At the same time, the Board does not 

believe that expressly prohibiting 

reliance on credit scores alone under 

this provision is desirable. A black-andwhite rule prohibiting reliance on credit 

scores to take action under this 

provision could be overly restrictive for 

at least two reasons. First, the Board 

understands that some creditors may 

have a strong empirical basis for relying 

on credit scores for a particular HELOC 

portfolio. The Board recognizes that 

creditors may be able to show that a 

particular level of drop is always 

associated with significant negative 

payment history, for example. Second, 

the Board’s prohibition could become 

outdated or unnecessarily constraining 

on creditors in using innovative credit 

scoring tools developed in the future. 

Credit scoring methods may change over 

time in a manner that makes them more 

decisively indicative of default 

probability than today. 

For these reasons, the proposal 

neither expressly permits nor prohibits 

reliance on credit scores alone to 

determine that action is justified under 

this provision. The Board requests 

comment on the appropriateness of this 

approach, as well as whether and why 

the Board should consider expressly 

permitting or prohibiting reliance on 

credit scores to meet the requirements of 

§ 226.5b(f)(3)(vi)(B). 

In addition, the Board requests 

comment on the following questions: 

What compliance challenges are posed 

by the proposed standards for meeting 

each prong of the test? What further 

guidance for compliance with this 

provision, including examples of welldefined, reasonably reliable indicators 

of compliance with each prong of the 

test, should the Board consider? For 

example, should reliance on factors not 

related to past credit performance, but 

that may indicate poor future 

performance, be sufficient grounds for 

taking action under this provision? In 

this regard, the Board recognizes that, 

notwithstanding the discussion above, 

factors such as increases in the 

consumer’s utilization rate and the 

number of new accounts opened have 

been shown to correspond to a reduced 

capacity of the consumer to repay his or 

her financial obligations.36

5b(f)(3)(vi)(C) Default of a Material 

Obligation 

Under § 226.5b(f)(3)(vi)(C), which 

implements TILA Section 137(c)(2)(D), a 

creditor may temporarily suspend or 

reduce an account if ‘‘the consumer is 

in default of a material obligation under 

the agreement.’’ 15 U.S.C. 1647(c)(2)(D). 

Proposed comment 5b(f)(3)(vi)–7 would 

clarify that a creditor ‘‘must,’’ rather 

than ‘‘may,’’ specify which consumer 

obligations are ‘‘material’’ for purposes 

of this provision, if any. This 

clarification is intended to ensure that 

Regulation Z is interpreted to reflect the 

statutory requirement, found in TILA 

Section 137(c)(3), that the consumer 

must be given upon the consumer’s 

request and at the time of account 

opening a list of the contract obligations 

that are considered ‘‘material’’ for 

purposes of TILA Section 137(c)(2)(D), 

which is the statutory provision 

permitting a creditor to suspend or 

reduce a line of credit ‘‘during any 

period in which the consumer is in 

default with respect to any material 

obligation of the consumer under the 

agreement.’’ See 15 U.S.C. 1647(c)(3) 

(cross-referencing 15 U.S.C. 

1647(c)(2)(D)). 

5b(f)(3)(vi)(G) Suspensions and Credit 

Limit Reductions Required by Federal 

Law 

Background 

During outreach conducted by the 

Board in preparing the proposal, 

creditors pointed out that the federal 

Internet gambling law (the Unlawful 

Internet Gambling Enforcement Act of 

2006 or the ‘‘Internet Gambling Act’’), 

31 U.S.C. 5361–5367, and implementing 

regulations,37 require non-exempt 

financial institutions and other 

participants in payment systems to have 

and comply with policies and 

procedures that, among other things, 

‘‘identify and block restricted 

transactions.’’ 38 Rules administered by 

the Office of Foreign Assets Control 

(‘‘OFAC’’) also require creditors to block 

accounts under certain circumstances.39

Creditor representatives raised concerns 


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about the potential for claims against 

creditors that prohibit draws to comply 

with the Internet Gambling Act or other 

federal laws, because TILA and 

Regulation Z do not expressly permit 

creditors to refuse to grant credit in 

those circumstances. 

Proposal 

Similar to the proposed amendments 

to § 226.5b(f)(2)(iv), discussed above, 

proposed § 226.5b(f)(3)(vi)(G) would 

permit creditors to suspend advances or 

reduce the credit limit if a federal law 

other than TILA requires the creditor to 

do so. Proposed § 226.5b(f)(3)(vi)(G) is 

intended to resolve the conflict between 

Regulation Z and federal laws that 

require creditors to block HELOC 

advances or reduce credit limits under 

circumstances not otherwise permitted 

under Regulation Z. Proposed comment 

5b(f)(3)(vi)–9 would clarify that this rule 

permits creditors to prohibit either a 

single advance or multiple advances, 

depending on what the applicable 

federal law requires. By covering federal 

laws generally, this proposed section is 

intended to prevent the need for the 

Board to issue separate revisions to 

Regulation Z to account for any new 

federal law requiring creditors to 

suspend advances or reduce credit 

limits under particular circumstances. 

The Board believes that this proposal 

is consistent with longstanding policy 

expressed in provisions that permit 

creditors to suspend an account or 

reduce the credit limit temporarily due 

to government action. See 15 U.S.C. 

1647(c)(2)(E); § 226.5b(f)(3)(vi)(D) and 

(E). Specifically, TILA and Regulation Z 

allow creditors to take these actions 

when the government precludes them 

from imposing the contractual APR or 

when government action adversely 

affects the priority of the creditor’s 

security interest such that the creditor’s 

secured interest in the property is less 

than 120 percent of the credit limit on 

the account. 15 U.S.C. 1647(c)(2)(E); 

§ 226.5b(f)(3)(vi)(D) and (E). 

Regarding this proposed section, the 

Board requests comment on what 

additional examples of conflicts 

between Regulation Z’s restrictions on 

account action and other laws the Board 

should consider, if any. The Board also 

requests comment on whether the 

definition of ‘‘federal law’’ should be 

broadened to include, for example, an 

order or directive of a federal agency. 

5b(g) Reinstatement of Credit Privileges 

Background 

Section 226.5b(f)(3)(i) and (f)(3)(vi) 

permit creditors to suspend advances on 

an account or reduce the credit limit 

only ‘‘during any period in which’’ 

designated circumstances exist. See also 

15 U.S.C. 1647(c)(2)(B)–(E). The Board 

has long interpreted this language to 

indicate that reinstatement of credit 

privileges is required once no 

circumstances permitting a freeze or 

credit limit reduction under the statute 

or regulation exist. To facilitate 

compliance, the Board provided 

guidance on appropriate reinstatement 

practices in the Official Staff 

Commentary on this provision. See 

comments 5b(f)(3)(vi)–2, –3, –4. 

Recently, due to declining property 

values and for other reasons, HELOCs 

have been suspended and credit limits 

reduced more often than in the past. 

Consumer groups and other federal 

agencies have raised concerns about 

whether consumers are properly 

informed about the creditor’s obligation 

to reinstate credit lines and consumers’ 

rights to request reinstatement. The 

Board has also examined the 

reinstatement practices of several 

creditors and determined that additional 

guidance is appropriate. 

Proposal 

The proposal would revise several 

provisions regarding reinstatement of 

credit privileges currently in comments 

5b(f)(3)(vi)–2, –3 and –4, and move 

them to proposed § 226.5b(g) and 

comments 5b(g)–1, 5b(g)(1)–1, 

5b(g)(2)(i)–1, and 5b(g)(2)(ii)–1. 

Proposed explanatory guidance 

regarding the reinstatement rules is 

found in proposed commentary on 

§ 226.5b(g). 

Proposed § 226.5b(g) and comment 

5b(g)–1 (adopted from existing comment 

5b(f)(3)(vi)–2 with revisions) confirm 

that line suspensions and credit limit 

reductions under both § 226.5b(f)(3)(i) 

and (f)(3)(vi) must be temporary and 

that, accordingly, the creditor is 

obligated to restore the consumer’s 

credit privileges as soon as reasonably 

possible once no condition permitting 

the creditor’s action exists, such as 

reaching the maximum APR or a 

significant decline in the value of the 

property securing the line. See 

comments 5b(f)(3)(vi)–1 and –2 and 

proposed comment 5b(g)–1. This new 

paragraph and comment 5b(g)–1 are also 

intended to clarify that the creditor is 

not obligated to restore credit privileges 

if the original condition permitting the 

action no longer exists but another 

condition permitting the creditor to 

freeze the line or reduce the credit limit 

exists. 

Proposed comment 5b(g)–2 is adopted 

from existing comment 5b(f)(3)(vi)–3, 

with certain technical revisions. The 

proposed comment retains the existing 

prohibition on charging a fee to reinstate 

an account, and specifies that this fee 

prohibition applies when no condition 

permitting an account freeze or 

reduction exists. 

5b(g)(1) Methods of Meeting the 

Obligation To Reinstate Accounts 

Proposed § 226.5b(g)(1) and comment 

5b(g)(1)–1 are adopted from existing 

comment 5b(f)(3)(vi)–4, with revisions. 

Proposed § 226.5b(g)(1) retains the 

existing two options for a creditor to 

fulfill its obligation to ensure that the 

consumer’s credit privileges are restored 

as soon as reasonably possible after no 

circumstance permitting a freeze or 

credit limit reduction exists. First, a 

creditor may monitor the line on an 

ongoing basis to determine whether the 

condition permitting the freeze or credit 

line reduction continues to exist or 

another condition exists. Proposed 

comment 5b(g)(1)–1 requires creditors 

choosing this option to investigate the 

HELOC often enough to be certain that 

a condition permitting the action exists. 

How often a creditor must investigate 

depends on the individual 

circumstances of a particular situation. 

For example, in a market with long-term 

property value declines that publicly 

available, independently verifiable data 

show are continuing, a creditor might 

reasonably decide not to investigate the 

property value as often as might be 

reasonable if the trend of property 

values begins increasing. 

The second compliance option 

permits creditors to forego ongoing 

monitoring and instead require the 

consumer to request reinstatement. This 

option is available only if the creditor 

complies with the provisions of 

§ 226.5b(g)(2), described below. During 

outreach for this proposal, the Board 

was asked to consider requiring ongoing 

monitoring in all cases, rather than 

allowing creditors to shift the burden to 

consumers to request reinstatement. 

Proposals to strengthen requirements on 

creditors that require consumers to 

request reinstatement, as discussed 

below, were intended in part to address 

concerns about allowing creditors to 

require consumers to request 

reinstatement. The Board requests 

comment on requiring ongoing 

monitoring in all cases, including 

specific information about potential 

benefits and burdens of this approach. 

5b(g)(2) Obligations of Creditors That 

Require the Consumer To Request 

Reinstatement 

Proposed § 226.5b(g)(2)(i), adopted 

from existing comment 5b(f)(3)(vi)–4, 

requires that if the creditor requires the 

consumer to request reinstatement, the 


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creditor must disclose this requirement 

on the notice of action taken required 

under § 226.9(j)(1). As does existing 

§ 226.9(c)(1)(iii) and comment 

9(c)(1)(iii)–1, proposed § 226.9(j)(1) 

requires the creditor to disclose, among 

other things, the method by which the 

consumer must request reinstatement, 

such as whether the request must be in 

writing and the address to which a 

written request must be submitted. 

Under § 226.5b(g)(2)(ii), as under the 

existing commentary (see comment 

5b(f)(3)(vi)–4), the creditor’s receipt of a 

reinstatement request triggers the 

creditor’s obligation investigate whether 

the condition permitting the freeze or 

credit line reduction exists. See 

comment 5b(f)(3)(vi)–4. Proposed 

§ 226.5b(g)(3)(ii), however, would 

require the creditor to complete the 

investigation within 30 days of 

receiving the reinstatement request. The 

Board is proposing a 30-day 

investigation rule to conform to the 

longstanding policy requiring creditors 

to investigate reinstatement requests 

‘‘promptly’’ upon receiving a request. 

See comment 5b(f)(3)(vi)–4. Based on 

information on creditor practices, the 

Board believes that the time required to 

complete a reinstatement investigation 

may vary. If a new property valuation is 

the primary element of the 

investigation, creditors may be able to 

complete the investigation in as little as 

a few days. If the creditor must depend 

on financial information requested from 

the consumer to complete an 

investigation, the investigation may take 

longer, although the Board also believes 

that once a creditor receives the 

financial information necessary to 

determine whether the original finding 

regarding a consumer’s financial 

circumstances continues to exist, most 

creditors should be able to evaluate this 

information in a few days. In sum, the 

Board understands that a reinstatement 

investigation typically will not take 

more than two to three weeks to 

complete. 

The Board therefore proposes to 

require that the creditor complete the 

investigation and mail a notice of 

reinstatement results (see proposed 

§ 226.5b(g)(2)(v), discussed in the 

section-by-section analysis below) 

within 30 days of receiving the 

consumer’s reinstatement request. The 

Board requests comment on whether 

this timeframe is appropriate and 

whether the Board should consider 

additional guidance for creditors when 

consumers do not provide needed 

information to complete the 

investigation in a timely manner. Such 

guidance might, for example, require 

that the creditor request the information 

within a reasonable period of time after 

receiving the reinstatement request, and 

permit the creditor to delay sending the 

notice until a reasonable period of time 

after receipt of the requested 

information. 

Proposed comment 5b(g)(2)(ii)–1 also 

provides guidance on investigating a 

reinstatement request. Specifically, the 

investigation should involve verifying 

that the information on which the 

creditor relied to take action in fact 

pertained to the specific property 

securing the affected line (as with a 

property valuation) or to the specific 

consumer (as with a credit report). In 

addition, to investigate whether a 

significant decline in property value 

exists under § 226.5b(f)(3)(vi)(A), the 

creditor should reassess the value of the 

property securing the line based on an 

updated property valuation meeting the 

guidance in proposed comment 

5b(f)(3)(vi)–5, discussed above. To 

investigate whether a material change in 

the consumer’s financial circumstances 

exists under § 226.5b(f)(3)(vi)(B), the 

creditor should obtain and evaluate 

financial information sufficient to 

validate the original finding on which 

the action was based. 

Clarification on Fees. Current 

comment 5b(f)(3)(vi)–3, ‘‘Imposition of 

fees,’’ states that, if not prohibited by 

state law, a creditor may collect bona 

fide and reasonable appraisal and credit 

report fees actually incurred in 

investigating whether the condition 

permitting the freeze continues to exist. 

The proposal would move this part of 

the comment to § 226.5b(g)(2)(iii) and 

(g)(2)(iv) and revise it. (The general 

prohibition in existing comment 

5b(f)(3)(vi)–3 on imposing a fee to 

reinstate an account once a condition 

permitting a freeze or reduction no 

longer exists would be incorporated into 

the proposal at comment 5b(g)–2.) 

First, proposed § 226.5b(g)(2)(iii) and 

(iv) would use the term ‘‘property 

valuation’’ rather than ‘‘appraisal,’’ 

reflecting that an appraisal will not 

necessarily be the valuation method 

used to investigate a reinstatement 

request. Beyond this technical change, 

proposed § 226.5b(g)(2)(iii) would grant 

the consumer one reinstatement request 

investigation free of charge. That is, for 

consumers required by the creditor to 

request reinstatement, the regulation 

would prohibit a creditor from charging 

the consumer any fees for investigating 

the consumer’s first reinstatement 

request after each time the line is frozen 

or reduced. Proposed § 226.5b(g)(2)(iv) 

would permit a creditor to charge bona 

fide and reasonable property valuation 

and credit report fees only for 

investigations of reinstatement requests 

other than the consumer’s initial request 

after a line is suspended or reduced. 

The Board proposes these rules 

pursuant to its authority in TILA 

Section 105(a) to issue provisions and 

make adjustments to the requirements of 

TILA necessary or proper to effectuate 

the statute’s purposes. See 15 U.S.C. 

1604(a). This proposal is intended to 

ensure that consumers have a 

meaningful opportunity to exercise their 

right to request reinstatement and to 

have this request investigated. Assessing 

an appraisal fee, for example, before the 

creditor will investigate the request may 

be a hardship for some consumers; in 

effect, up-front charges for the initial 

reinstatement investigation may 

discourage those consumers who are 

potentially the most in need of their 

HELOC funds from requesting 

reinstatement. The proposal is also 

intended to protect consumers for 

whom the original reason for the 

account freeze or credit limit reduction 

turned out to have been incorrect from 

having to pay extra costs for their 

HELOCs, and from the potential burden 

of having to pay expenses upfront. 

This proposal is based in part on 

information about creditor practices 

suggesting that investigation costs may 

not be particularly burdensome for 

creditors. The Board understands that 

credit reports and many valuation 

methods may be available to a creditor 

at low cost, particularly when the 

creditor can take advantage of bulk rates 

for these services. Further, the Board 

believes that potential burdens on 

creditors of the above proposal are 

adequately offset by proposed 

§ 226.5b(g)(2)(iv), which would permit 

creditors to charge reasonable and bona 

fide property valuation and credit report 

fees associated with investigations 

triggered by reinstatement requests after 

the consumer’s first request. The Board 

is proposing this approach to address 

concerns about the time and expense 

associated with having to investigate 

multiple reinstatement requests made 

by a consumer in a period of time 

insufficiently long to support a 

reasonable expectation that the 

condition justifying the line action has 

changed. At the same time, the 

consumer’s right to request 

reinstatement as many times as desired 

is retained, as are existing limits on the 

types of investigation fees that creditors 

may charge. 

The Board requests comment on this 

approach, including whether consumers 

should have to pay reinstatement 

investigation costs for any reinstatement 

request. The Board also requests 

comment on whether, if the first 

reinstatement request is free but fees 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43497 

may be charged for subsequent requests, 

a consumer should be required to pay 

investigation costs for a subsequent 

reinstatement request made a significant 

time period after the first request, such 

as six months, one year, or other 

appropriate time period commenters 

might suggest. Finally, the Board 

requests comment on whether the Board 

should consider requiring that the 

amount of the fees be disclosed along 

with the notice that the consumer must 

request reinstatement, and the burdens 

and benefits of this requirement. 

Notice of Reinstatement Results. 

Proposed § 226.5b(g)(2)(v) would 

require creditors that choose to have the 

consumer request reinstatement under 

§ 226.5b(g)(1)(ii) to disclose to the 

consumer the results of the investigation 

of the consumer’s reinstatement request. 

This notice requirement would apply 

only for investigations conducted in 

response to a consumer’s request for 

reinstatement and only when the 

investigation results show that 

reinstatement is not warranted, either 

because the condition permitting the 

freeze or credit limit reduction 

continues to exist, another condition 

permitting a freeze or credit line 

reduction under Regulation Z exists, or 

both. The notice must be in writing, and 

must include the results of the 

investigation, as well as the information 

required in the § 226.9(j)(1) notice, such 

as the specific reasons for the continued 

freeze or credit limit reduction and 

information about the consumer’s 

ongoing right to request reinstatement. 

To facilitate compliance with this 

provision, the Board is proposing Model 

Clauses in G–22(A) and G–22(B) of 

Appendix G to Regulation Z. 

The Board proposes this rule pursuant 

to its authority in TILA Section 105(a) 

to issue provisions and make 

adjustments to the requirements of TILA 

necessary or proper to effectuate the 

statute’s purposes. See 15 U.S.C. 

1604(a). The Board recognizes that this 

new notice requirement will present a 

compliance cost on creditors who do 

not already have a policy of disclosing 

reinstatement results to their 

consumers. The Board believes, 

however, that the benefits of this notice 

requirement outweigh the burden. First, 

the Board believes that this provision 

upholds the consumer protection 

purpose of TILA by ensuring that 

consumers are adequately informed 

about the status of their HELOC 

accounts and responds to concerns 

expressed to the Board that currently 

many consumers are not. With this 

notice, consumers would be better 

equipped to take appropriate action, 

such as working to improve their credit 

or making alternative financial plans. In 

addition, the Board anticipates that this 

notice requirement may reduce 

consumer requests and complaints, 

because transparent investigation results 

will help consumers better understand 

the reasons for continued freezes or 

reductions and assure consumers that 

their reinstatement requests were 

considered. 

The Board requests comment on this 

disclosure requirement, and on whether 

creditors also should be required to 

provide notice of reinstatement results 

to consumers whose accounts will be 

reinstated, but with the option to 

provide notice orally to these 

consumers. 

5b(g)(3) Obligation To Make Document 

Supporting Property Valuation 

Available to the Consumer 

Proposed § 226.5b(g)(2) would require 

a creditor, upon the consumer’s request, 

to provide to the consumer a copy of the 

documentation supporting the property 

value on which the creditor relied to 

freeze or reduce a line, or to continue 

an existing line freeze or reduction, 

based on a significant decline in the 

property value under § 226.5b(f)(vi)(A). 

Proposed comment 5b(g)(2)1 would 

explain that the appropriate 

documentation under this provision 

would include a copy of a report for the 

valuation method used, such as an 

appraisal report, or any written 

evidence of another valuation method 

used (such as an AVM, TAV, or BPO) 

that clearly and conspicuously shows 

the property value specific to the subject 

property and factors considered to 

obtain the value. 

The Board believes that consumers 

should have access to information about 

the property value on which action was 

relied because a line suspension or 

reduction may result in serious financial 

consequences to consumers. In light of 

the significance of the impact on the 

consumer of the creditor’s actions, the 

consumer should be fully equipped 

with necessary information to challenge 

the finding or otherwise request 

reinstatement. 

The Board requests comment on the 

appropriateness of this requirement, as 

well as the operational practicality for 

creditors of obtaining and providing the 

required documentation. 

5b(g)(4) Reinstatement Rules for Action 

Taken Under § 226.5b(f)(2) 

Proposed paragraph (g)(4) of § 226.5b 

would clarify that, when a creditor has 

a justification for terminating and 

accelerating a home-equity plan under 

§ 226.5b(f)(2), but opts to suspend or 

reduce the line instead, the creditor is 

not obligated to comply with the 

reinstatement rules of proposed 

§ 226.5b(g). This provision is intended 

to respond to questions posed to the 

Board about whether, when a creditor 

has a justification for terminating and 

accelerating a home-equity plan under 

§ 226.5b(f)(2), but opts to suspend or 

reduce the line instead, the creditor is 

obligated to comply with the 

reinstatement rules of proposed 

§ 226.5b(g). The Board believes that this 

clarification is consistent with the 

existing reinstatement scheme. 

First, reinstatement guidance is in the 

commentary only for § 226.5b(f)(3)(vi), 

the provision permitting a creditor 

temporarily to suspend advances or 

reduce the credit limit, reflecting 

longstanding Board policy that it 

applies only when action is taken under 

§ 226.5b(f)(3)(vi) (or under (f)(3)(i); see 

comments 5b(f)(3)(vi)–1 and –2). 

Second, the Board believes that 

applying the reinstatement rules to 

suspensions or line reductions taken 

when the creditor could terminate and 

accelerate a line may harm consumers; 

a creditor may be discouraged from 

choosing the lesser action of temporarily 

suspending advances or reducing the 

credit limit if additional rules apply to 

those actions. Third, the Board believes 

that compliance confusion may arise, as 

well as enforcement challenges, in 

determining to which line suspensions 

and reductions under § 226.5b(f)(2) the 

reinstatement rules should apply. 

Existing commentary on § 226.5b(f)(2) 

gives the creditor the right to suspend 

or reduce an account ‘‘temporarily or 

permanently.’’ See comment 5b(f)(2)–2 

(retained in the proposal). Logically, the 

reinstatement rules could only apply 

when the creditor chooses to take 

temporary action, but both creditors and 

examiners may have difficulty 

determining and documenting which 

line actions are intended to be 

temporary (and thus subject to the 

reinstatement rules) and which 

permanent. Again, creditors may be 

inclined simply to make all suspensions 

and reductions under this provision 

permanent, potentially harming 

consumers to whom creditors might 

otherwise have given an opportunity to 

restore their credit privileges. 

Section 226.6 Account-Opening 

Disclosures 

TILA Section 127(a), implemented in 

§ 226.6, requires creditors to provide 

information about key credit terms 

before an open-end plan is opened, such 

as rates and fees that may be assessed 

on the account. Consumers’ rights and 

responsibilities in the case of 

unauthorized use or billing disputes are 


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also explained. 15 U.S.C. 1637(a). See 

also Model Forms G–2 and G–3 in 

Appendix G to part 226. 

6(a) Rules Affecting Home-Equity Plans 

Summary of Proposed Disclosure 

Requirements 

Account-opening disclosure and 

format requirements for HELOCs subject 

to § 226.5b generally were unaffected by 

the January 2009 Regulation Z Rule, 

consistent with the Board’s plan to 

review Regulation Z’s disclosure rules 

for home-secured credit in a future 

rulemaking. To facilitate compliance, 

the Board in the January 2009 

Regulation Z Rule grouped the 

requirements applicable to HELOCs 

together in § 226.6(a) (moved from 

former § 226.6(a) through (e)). 

This proposal contains two significant 

proposed revisions to account-opening 

disclosures for HELOCs subject to 

§ 226.5b, which are set forth in 

proposed § 226.6(a). The proposed 

revisions (1) would require a tabular 

summary of key terms to be provided 

before an account is opened (see 

proposed § 226.6(a)(1) and (a)(2)), and 

(2) would reform how and when cost 

disclosures must be made (see proposed 

§ 226.6(a)(3) for content, proposed 

§ 226.5(b) and proposed § 226.9(c) for 

timing). 

Proposed Comments 6(a)–1 and 6(a)–2 

Fixed-rate and -term payment plans 

during draw period. As discussed in the 

section-by-section analysis to proposed 

§ 226.5b(c), HELOC plans typically offer 

the ability to obtain advances that must 

be repaid based on a variable interest 

rate that applies to all outstanding 

balances. Some HELOC plans, however, 

also offer a fixed-rate and -term payment 

feature, where a consumer is permitted 

to repay all or part of the balance during 

the draw period at a fixed rate (rather 

than a variable rate) and over a specified 

time period. The Board understands that 

for most HELOC plans, consumers must 

take active steps to access the fixed-rate 

and -term payment feature; this feature 

is not automatically accessed when a 

consumer obtains advances from the 

HELOC plan. Current § 226.6(a) requires 

a creditor to disclose information 

related to fixed-rate and -term payment 

features. For example, a creditor would 

be required to disclose the rates 

applicable to the fixed-rate and -term 

feature under current § 226.6(a)(1), any 

fees that are finance charges under 

current § 226.6(a)(1), any fees that are 

other charges under current 

§ 226.6(a)(2), and payment terms and 

other information required under 

current § 226.6(a)(3). 

Under the proposal, the Board would 

continue to require that a creditor 

disclose information applicable to the 

fixed-rate and -term feature under 

proposed § 226.6. Generally, under the 

proposal, limited information about the 

fixed-rate and -term feature would be 

included in the account-opening table, 

and more detailed information would be 

included outside the table. Specifically, 

for the reasons discussed in the sectionby-section analysis to proposed 

§ 226.5b(c), if a HELOC plan offers a 

variable-rate feature and a fixed-rate and 

-term feature during the draw period, a 

creditor generally must only disclose 

limited information in the accountopening table about the fixed-rate and 

-term feature. See proposed 

§ 226.6(a)(2). Instead of requiring that all 

the details of the fixed-rate and -term 

feature be disclosed in the table, the 

Board proposes to require a creditor 

offering this payment feature (in 

addition to a variable-rate feature) to 

disclose in the account-opening table 

the following: (1) A statement that the 

consumer has the option during the 

draw period to borrow at a fixed interest 

rate; (2) the amount of the credit line 

that the consumer may borrow at a fixed 

interest rate for a fixed term; and (3) a 

statement that information about the 

fixed-rate and -term payment plan is 

included in the account-opening 

disclosures or agreement, as applicable. 

See proposed § 226.6(a)(2)(xix). 

However, if a HELOC plan does not 

offer a variable-rate feature during the 

draw period, but only offers a fixed-rate 

and -term feature during that period, a 

creditor must disclose in the accountopening table information related to the 

fixed-rate and -term feature when 

making the disclosures required by 

proposed § 226.6(a)(2). See proposed 

comment 6(a)–1. 

Even though a creditor generally may 

not disclose the terms of fixed-rate and 

-term payment plans in the accountopening table, the creditor must disclose 

additional information about these 

payment plans in disclosures required 

by proposed § 226.6(a)(3), (a)(4) and 

(a)(5). For example, a creditor must 

disclose fees and rate information 

related to these features under proposed 

§ 226.6(a)(3) and (a)(4), and information 

about payment terms and other terms 

related to these features under proposed 

§ 226.6(a)(5)(v). 

Disclosures for the repayment period. 

Current comment 6(a)(3)–4 provides 

that a creditor must provide disclosures 

about both the draw and repayment 

phases when giving the disclosures 

under § 226.6. To the extent the 

required disclosures are the same for the 

draw and repayment phase, the creditor 

need not repeat such information, as 

long as it is clear that the information 

applies to both phases. The Board 

proposes to move current comment 

6(a)(3)–4 to proposed comment 6(a)–2 

and make technical revisions. 

6(a)(1) Format for Home-Equity Plan 

Account Disclosures 

As provided by Regulation Z, 

creditors may, and typically do, include 

account-opening disclosures for HELOC 

plans as a part of an account agreement 

document that also contains other 

contract terms and state law disclosures. 

The agreement typically is in a narrative 

form, and is lengthy and in small print. 

The Board proposes in new 

§ 226.6(a)(1) to impose format 

requirements for account-opening 

disclosures for HELOCs subject to 

§ 226.5b, similar to proposed format 

requirements for the proposed early 

HELOC disclosures discussed in the 

section-by-section analysis to proposed 

§ 226.5b(b)(2). The Board proposes this 

rule pursuant to its authority in TILA 

Section 105(a) to make adjustments and 

exceptions to the requirements in TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 

ability to compare credit terms and 

helping consumers avoid the uniformed 

use of credit. See 15 U.S.C. 1601(a), 

1604(a). Specifically, under the 

proposal, a creditor would be required 

to disclose to a consumer key terms 

relating to the HELOC plan in a tabular 

format at account opening. As discussed 

in more detail below, the proposed 

account-opening table would contain 

disclosures that are similar to the ones 

disclosed in the proposed early HELOC 

disclosures table required by proposed 

§ 226.5b(b). A creditor would be 

required to disclose certain 

identification disclosures, such as the 

borrower’s name and address, directly 

above the account-opening table. In 

addition, a creditor would be required 

to disclose other information, such as a 

statement that the consumer should 

confirm that the terms disclosed in the 

table are the same terms for which the 

consumer applied, below the accountopening table. Under the proposal, not 

all disclosures that a creditor would be 

required to provide to a consumer at 

account opening would be included in 

the account-opening table (or directly 

above or below the table). For accountopening disclosures that are not 

specifically required to be in the 

account-opening table (or directly above 

or below the table), a creditor would be 

able to include these disclosures as part 

of the account agreement. 

The Board did not directly test 

whether providing account-opening 


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disclosures in a narrative form as part of 

the account agreement is an effective 

way to communicate those disclosures 

to consumers. Nonetheless, in the 

consumer testing conducted by the 

Board on HELOC disclosures, the Board 

tested application disclosures in a 

narrative form. Participants in consumer 

testing found this form difficult to read 

and understand, and their responses to 

follow-up questions showed that they 

also had difficulty identifying specific 

information in the text. Participants 

who saw forms that were structured in 

a tabular format, on the other hand, 

commented that the information was 

easier to understand and had more 

success answering comprehension 

questions. These results regarding the 

benefit of disclosing information in a 

tabular format are consistent with the 

results of research that the Board 

conducted on credit card disclosures in 

relation to the January 2009 Regulation 

Z Rule. (See §§ 226.5a(a)(2), 226.6(b)(1), 

226.9(b)(3), 226.9(c)(2)(iii)(B) and 

226.9(g)(3)(iii) for certain disclosures 

applicable to open-end (not homesecured) credit that must be disclosed in 

a tabular format.) The Board also 

believes that providing key terms in a 

table at account opening, which would 

be similar to the proposed early HELOC 

disclosures table required by proposed 

§ 226.5b(b), would allow consumers to 

compare more easily the accountopening terms to those terms that were 

disclosed earlier to the consumer. For 

these reasons, the Board proposes to 

require that certain account-opening 

disclosures must be provided in the 

form of a table with headings, content, 

and format substantially similar to any 

of the applicable tables found in 

proposed G–15 in Appendix G. See 

proposed § 226.6(a)(1). Proposed 

comment 6(a)(1)–3 clarifies that 

§ 226.6(a)(1)(i) generally requires that 

the headings, content and format of the 

tabular disclosures be substantially 

similar, but need not be identical, to the 

applicable tables in G–15 to Appendix 

G. 

Comparison to early HELOC 

disclosures table. TILA Section 127(a)(8) 

provides that any disclosures required 

to be disclosed as part of the early 

HELOC disclosures required under 

TILA Section 127A(a) also must be 

disclosed as part of the account-opening 

disclosures. 15 U.S.C. 1637(a)(8). Thus, 

as discussed in more detail below, most 

of the disclosures required to be 

disclosed in the proposed early HELOC 

disclosures table described in proposed 

§ 226.5b(b) also would be included in 

the account-opening table described in 

proposed § 226.6(a)(1) and (a)(2). 

Nonetheless, while these two proposed 

tables would be similar, they would not 

be identical. For example, the table 

containing the early HELOC disclosures 

would show and compare two payment 

options offered on the HELOC (unless a 

creditor offers only one), while the 

account-opening disclosures would 

show only the payment plan chosen by 

the consumer. Proposed comment 6(a)– 

1 provides guidance on how the 

proposed early HELOC disclosures table 

described in proposed § 226.5b(b) 

differs from the proposed accountopening table in proposed § 226.6(a)(1) 

and (a)(2). Proposed comment 6(a)(1)–1 

specifically notes which rules in 

proposed § 226.5b applicable to the 

early HELOC disclosures table described 

in proposed § 226.5b(b) would not apply 

to the proposed account-opening table. 

Clear and conspicuous standard. As 

discussed in the section-by-section 

analysis to proposed § 226.5(a), the 

Board proposes a clear and conspicuous 

standard applicable to § 226.6 

disclosures. Proposed comment 6(a)(1)– 

2 provides a cross reference to the clear 

and conspicuous standard applicable to 

proposed § 226.6(a) set forth in 

proposed comment 5(a)(1)–1. 

Terminology. As discussed in the 

section-by-section analysis to proposed 

§ 226.5(a), the Board proposes that 

creditors offering HELOCs subject to 

§ 226.5b must use certain terminology 

when disclosing the draw period, any 

repayment period, and certain other 

terms in the account-opening table. See 

proposed § 226.5(a)(2). Proposed 

comment 6(a)(1)–3 provides a cross 

reference to the terminology 

requirements set forth in proposed 

§ 226.5(a)(2). 

6(a)(2) Required Disclosures for 

Account-Opening Table for HomeEquity Plans 

Fees. Current § 226.6(a)(1) and (a)(2), 

which implements TILA Section 

127(a)(3) and (a)(5), require a creditor to 

disclose in the account-opening 

disclosures any finance charges or other 

charges imposed on the HELOC plan. 15 

U.S.C. 1637(a)(3) and (a)(5). As 

discussed in more detail below, the 

Board proposed in new § 226.6(a)(2) that 

certain fees must be disclosed in the 

account-opening table described in 

proposed § 226.6(a)(1) and (a)(2). Under 

the proposal, creditors would have more 

flexibility regarding disclosure of other 

charges imposed as part of a HELOC 

plan. See proposed § 226.6(a)(3) for 

content, proposed § 226.5(b) and 

proposed § 226.9(c) for timing. 

Pursuant to TILA Section 127(a)(8) 

and for the reasons discussed in the 

section-by-section analysis to proposed 

§ 226.5b(c), the Board proposes that a 

creditor must disclose in the accountopening table the following fees that 

also must be disclosed in the early 

HELOC disclosures table described in 

proposed § 226.5b(b): (1) a total of the 

one-time fees imposed by the creditor or 

third parties to open the HELOC plan 

and an itemization of those fees; (2) fees 

imposed by the creditor for the 

availability of the HELOC plan; (3) fees 

imposed by the creditor for early 

termination of the plan by the 

consumer; and (4) fees imposed for 

required insurance, debt cancellation or 

suspension coverage. See proposed 

§ 226.6(a)(2)(vii), (viii), (ix) and (xx). In 

addition, the Board proposes that the 

account-opening table also contain the 

following additional fees that are not 

required to be disclosed in the early 

HELOC disclosures table described in 

proposed § 226.5b(b): (1) Late-payment 

fees; (2) over-the-limit fees; (3) 

transaction charges; (4) returnedpayment fees; and (5) fees for failure to 

comply with transaction limitations 

described under proposed 

§ 226.6(a)(2)(xvii). See proposed 

§ 226.6(a)(2)(x), (xi), (xii), (xiii), and 

(xiv). 

The Board intends that the proposed 

list of fees and categories of fees that 

would be included in the accountopening table be exclusive, for two 

reasons. The Board believes that only 

allowing an exclusive list of fees to be 

disclosed in the account-opening table 

would benefit consumers. Based on 

consumer testing conducted by the 

Board on HELOC disclosures, the Board 

believes the fees listed above to be the 

most important fees, at least in the 

current marketplace, for consumers to 

know about before they start to use a 

HELOC account. Participants in this 

testing who were shown an accountopening table which contained the fees 

listed above indicated that they found 

this list sufficient, and could not 

identify any additional types of fees that 

they would want disclosed to them at 

account opening. 

The fees listed above include charges 

that a consumer could incur and which 

a creditor likely would not otherwise be 

able to disclose in advance of the 

consumer engaging in the behavior that 

triggers the cost, such as fees triggered 

by a consumer’s use of a cash advance 

check or by a consumer’s late payment. 

The proposed list is manageable and 

focuses on key information rather than 

attempting to be comprehensive. Since 

consumers must be informed of all fees 

imposed as part of the plan before the 

cost is incurred, the Board believes that 

not all fees need to be included in the 


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account-opening table provided at 

account opening. 

The Board believes an exclusive list 

also would ease compliance and reduce 

the risk of litigation for creditors; 

creditors would have the certainty of 

knowing that as new services (and 

associated fees) develop, fees not 

required to be disclosed in the summary 

table under the proposed rule need not 

be included in the account-opening 

summary unless and until the Board 

requires their disclosure after notice and 

public comment. In addition, as 

discussed in the section-by-section 

analysis to proposed § 226.5(a)(1) and 

(b)(1), charges required to be included 

in the proposed account-opening table 

would be required to be provided in a 

written and retainable form before the 

first transaction, and a subsequent 

written notice is required if one of these 

fees increases or if these fees are newly 

introduced during the life of the plan 

(but only as permitted under 

§ 226.5b(f)). Under the proposal, 

creditors would have more flexibility 

regarding disclosure of other charges 

imposed as part of a HELOC plan. 

6(a)(2)(i) Identification Information 

Pursuant to TILA Section 127(a)(8) 

and for the reasons discussed in the 

section-by-section analysis to proposed 

§ 226.5b(c)(1), the Board proposes in 

new § 226.6(a)(2)(i) that a creditor must 

disclose above the account-opening 

table the following identification 

information that also must be disclosed 

above the early HELOC disclosures table 

described in proposed § 226.5b(b): (1) 

The consumer’s name and address; (2) 

the identity of the creditor making the 

disclosures; (3) the date the disclosure 

was prepared; and (4) the loan 

originator’s unique identifier, as defined 

by the Secure and Fair Enforcement for 

Mortgage Licensing Act of 2008 (‘‘SAFE 

Act’’) Sections 1503(3) and (12). 12 

U.S.C. 5102(3) and (12); 15 U.S.C. 

1637(a)(8). In addition, the Board 

proposes also that the creditor also 

disclose the account number as part of 

the identification information that 

would be disclosed above the accountopening table. The Board proposes this 

rule pursuant to its authority in TILA 

Section 105(a) to make adjustments and 

exceptions to the requirements in TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 

ability to compare credit terms and 

helping consumers avoid the uniformed 

use of credit. See 15 U.S.C. 1601(a), 

1604(a). The Board believes that 

including the account number above the 

account-opening table may allow a 

consumer in the future (after account 

opening) to connect better the accountopening table with the account to which 

the disclosures apply. 

6(a)(2)(ii) Security Interest and Risk to 

Home 

Current § 226.6(a)(4), which 

implements TILA Section 127(a)(6), 

provides that a creditor must disclose as 

part of the account-opening disclosures 

the fact that the creditor has or will 

acquire a security interest in the 

property purchased under the plan, or 

in other property identified by item or 

type. 15 U.S.C. 1637(a)(6). The Board 

proposes in new § 226.6(a)(2)(ii) to 

require that a creditor must disclose in 

the account-opening table a statement 

that the creditor will acquire a security 

interest in the consumer’s dwelling and 

that loss of the dwelling may occur in 

the event of default. This same 

statement would be required to be 

disclosed as part of the proposed early 

HELOC disclosures table described in 

proposed § 226.5b(b). See proposed 

§ 226.5b(c)(6). 

6(a)(2)(iii) Possible Actions by Creditor 

As discussed in the section-by-section 

analysis to proposed § 226.5b(c), the 

Board proposes to require a creditor to 

disclose in the early HELOC disclosures 

table a statement that, under certain 

conditions, the creditor may terminate 

the plan and require payment of the 

outstanding balance in full in a single 

payment and impose fees upon 

termination; prohibit additional 

extensions of credit or reduce the credit 

limit; and implement changes in the 

plan. Pursuant to TILA Section 

127(a)(8), the Board also proposes in 

new § 226.6(a)(2)(iii) to require a 

creditor to disclose the above statement 

in the account-opening table. 15 U.S.C. 

1637(a)(8). In addition, under the 

proposal, a creditor also would be 

required to disclose in the accountopening table a statement that 

information about the circumstances 

under which the creditor may take these 

actions is provided in the accountopening disclosures or agreement, as 

applicable. Current § 226.6(a)(3)(i) 

requires a creditor to disclose as part of 

the account-opening disclosures the 

circumstances under which the creditor 

may take the above actions on the 

HELOC plan. The Board proposed to 

move current § 226.6(a)(3)(i) to 

proposed § 226.6(a)(5)(iv) and make 

technical revisions. Under the proposal, 

a creditor would be required to disclose 

the information about the circumstances 

under which the creditor may take the 

above actions on the HELOC plan 

outside of the account-opening table 

under proposed § 226.6(a)(5)(iv). 

6(a)(2)(iv) Tax Implications 

Current § 226.6(a)(3)(v), which 

implements TILA Section 127(a)(8), 

requires that a creditor must disclose in 

the account-opening disclosures a 

statement that the consumer should 

consult a tax adviser for further 

information regarding the deductibility 

of interest and charges. The Board 

proposed to move this provision in 

current § 226.6(a)(3)(v) to proposed 

§ 226.6(a)(2)(iv). Under the proposal, a 

creditor would be required to include 

this statement about consulting a tax 

adviser in the account-opening table. 

In addition, as discussed in the 

section-by-section analysis to proposed 

§ 226.5b(c)(8), in implementing Section 

1302 of the Bankruptcy Act, the Board 

proposes to require a creditor to disclose 

in the early HELOC disclosures table a 

statement that the interest on the 

portion of the credit extension that is 

greater than the fair market value of the 

dwelling may not be tax deductible for 

Federal income tax purposes. Pursuant 

to TILA Section 127(a)(8), the Board 

also proposes that a creditor be required 

to disclose this statement in the 

account-opening table. 15 U.S.C. 

1637(a)(8). 

6(a)(2)(v) Payment Terms 

Current § 226.6(a)(3)(ii), which 

implements TILA Section 127(a)(8), 

requires a creditor to disclose as part of 

the account-opening disclosures certain 

information related to payment terms on 

the HELOC plan that is currently 

required to be disclosed as part of the 

application disclosures, as discussed in 

the section-by-section analysis to 

proposed § 226.5b(c)(9). 15 U.S.C. 

1637(a)(8). For example, current 

§ 226.6(a)(3)(ii) requires a creditor to 

disclose in the account-opening 

disclosures the following information: 

(1) The length of the draw period and 

any repayment period; (2) an 

explanation of how the minimum 

periodic payment will be determined 

and the timing of the payments; and (3) 

if paying only the minimum periodic 

payments may not repay any of the 

principal or may repay less than the 

outstanding balance, a statement of this 

fact, as well as a statement that a 

balloon payment may result. In 

addition, current § 226.6(a)(3)(vii) 

requires a creditor to disclose as part of 

the account-opening disclosures 

payment examples that are currently 

required to be disclosed as part of the 

application disclosures, unless the 

application disclosures were in a form 

the consumer could keep and included 

representative payment examples for the 

category of the payment option chosen 


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by the consumer. The Board proposes to 

move these provisions in current 

§ 226.6(a)(3)(ii) and (a)(4)(iv) to 

proposed § 226.6(a)(2)(v) and make 

revisions. 

The proposal. Consistent with TILA 

Section 127(a)(8), the Board proposes to 

require a creditor to disclose the same 

disclosures relating to payment terms in 

the account-opening table that a creditor 

would be required to disclose in the 

early HELOC disclosures table described 

in proposed § 226.5b(b) (as discussed in 

the section-by-section analysis to 

proposed § 226.5b(c)(9)), with one 

exception. 15 U.S.C. 1637(a)(8). The 

table containing the early HELOC 

disclosures would show and compare 

two payment options offered on the 

HELOC (unless a creditor offers only 

one), while the account-opening 

disclosures would show only the 

payment plan chosen by the consumer. 

Specifically, proposed § 226.6(a)(2)(v) 

requires a creditor to disclose in the 

account-opening table certain payment 

terms of the plan that will apply to the 

consumer at account opening. Under the 

proposal, the creditor would be required 

to distinguish payment terms applicable 

to the draw period and the repayment 

period, by using the applicable heading 

‘‘Borrowing Period’’ for the draw period 

and ‘‘Repayment Period’’ for the 

repayment period, in a format 

substantially similar to the format used 

in any of the applicable tables found in 

proposed Samples G–15(B) and G–15(D) 

in Appendix G. 

Under the proposal, a creditor would 

be required to disclose in the accountopening table the length of the plan, the 

length of the draw period and the length 

of any repayment period. When the 

length of the plan is definite, a creditor 

would be required to disclose the length 

of the plan, the length of the draw 

period and the length of any repayment 

period in a format substantially similar 

to the format used in any of the 

applicable tables found in proposed 

Samples G–15(B) and G–15(C) in 

Appendix G. If there is no repayment 

period on the plan, the creditor would 

be required to disclose a statement that 

after the draw period ends, the 

consumer must repay the remaining 

balance in full. In addition, under the 

proposal, a creditor would be required 

to disclose in the account-opening table 

an explanation of how the minimum 

periodic payment will be determined 

and the timing of the payments. 

Also, under the proposal, a creditor 

would be required to disclose in the 

account-opening table payment 

examples based on the assumptions that 

the consumer borrows the full credit 

line at account opening, and does not 

obtain any additional extensions of 

credit; the consumer makes only 

minimum periodic payments during the 

draw period and any repayment period; 

and the APRs (as described below) used 

to calculate the payment examples will 

remain the same during the draw period 

and any repayment period. A creditor 

would be required to provide payment 

examples for two APRs: (1) The current 

APR for the plan, except that if an 

introductory APR applies, the creditor 

would be required to use the rate that 

would otherwise apply to the plan after 

the introductory rate expires, as 

described in proposed 

§ 226.6(a)(2)(vi)(B); and (2) the 

maximum APR applicable to the 

payment plan described in the table, as 

described in proposed 

§ 226.6(a)(2)(vi)(A)(1)(v). A creditor also 

would be required to disclose other 

information along with the payment 

examples, such as a statement that the 

sample payments are not the consumer’s 

actual payments. Under the proposal, a 

creditor would be required to disclose 

the proposed payment examples, and 

related information, in a format that is 

substantially similar to the format used 

in any of the applicable tables found in 

proposed Samples G–15(B), G–15(C) 

and G–15(D) in Appendix G. 

Moreover, under the proposal, if 

under the payment plan disclosed in the 

account-opening table a consumer may 

pay a balloon payment, a creditor would 

be required to disclose information 

about the balloon payment twice in the 

account-opening table: at the beginning 

of the information about payment terms, 

and as part of the payment examples. 

Specifically, proposed 

§ 226.6(a)(2)(v)(B) provides that if under 

the payment plan disclosed in the table, 

paying only the minimum periodic 

payments may not repay any of the 

principal or may repay less than the 

outstanding balance by the end of the 

HELOC plan, the creditor must disclose 

a statement of this fact in the accountopening table, as well as a statement 

that a balloon payment may result. The 

‘‘Balloon Payment’’ row in the 

‘‘Borrowing and Repayment Terms’’ 

section of proposed Samples G–15(B) 

and G–15(C) in Appendix G provides 

guidance on how to comply with the 

requirements in proposed 

§ 226.6(a)(2)(v)(B). 

In addition, regarding disclosure of 

the amount of the balloon payment in 

the proposed payment examples, 

proposed § 226.6(a)(2)(v)(C)(3)(iii) 

provides that if a consumer may pay a 

balloon payment under the payment 

plan disclosed in the account-opening 

table, a creditor would be required to 

disclose that fact when disclosing the 

proposed payment examples, as well as 

disclose the amount of the balloon 

payment based on the assumptions used 

the calculate the payment examples as 

described in proposed 

§ 226.6(a)(2)(v)(C). The first paragraph of 

the ‘‘Sample Payments’’ section of 

proposed Samples G–15(B) and G–15(C) 

in Appendix G provides guidance on 

how to comply with the requirements in 

proposed § 226.6(a)(2)(v)(C)(3)(iii). 

Under the proposal, a creditor would 

be required to disclose in the accountopening table a statement that the 

consumer can borrow money during the 

draw period. In addition, if a repayment 

period is provided, a creditor would be 

required to disclose in the accountopening table a statement that the 

consumer cannot borrow money during 

the repayment period. Under the 

proposal, a creditor also would be 

required to disclose in the accountopening table a statement indicating 

whether minimum payments are due in 

the draw period and any repayment 

period. 

Choosing payment plan at account 

opening. The Board understands that 

some creditors currently do not require 

consumers to choose a payment plan 

until account opening. Under the 

proposal, even if a creditor does not 

require a consumer to choose a payment 

plan until account opening, a creditor 

would still be required to disclose in the 

account-opening table only the payment 

plan chosen by the consumer. Thus, a 

creditor that allows a consumer to 

choose a payment plan at account 

opening would need to prepare accountopening tables for each payment plan 

offered on the HELOC plan from which 

a consumer may choose (except for 

fixed-rate and -term payment plans 

unless those are the only plans offered 

during the draw period) and take steps 

to ensure that the proper accountopening table is provided to the 

consumer depending on which payment 

plan is chosen by the consumer. 

6(a)(2)(vi) Annual Percentage Rate 

Current § 226.6(a)(1), which 

implements TILA Section 127(a)(1) and 

(a)(4), sets forth disclosure requirements 

for rates that would apply to HELOC 

accounts. 15 U.S.C. 1637(a)(1) and 

(a)(4). The Board proposes to require a 

creditor to disclose in the accountopening table the same disclosures 

relating to APRs that a creditor would 

be required to disclose in the early 

HELOC disclosures table described in 

proposed § 226.5b(b) (as discussed in 

the section-by-section analysis to 

proposed § 226.5b(c)(10)). For example, 

under the proposal, a creditor would be 

required to disclose in the accountVerDate Nov<24>2008 19:22 Aug 25, 2009 Jkt 217001 PO 00000 Frm 00075 Fmt 4701 Sfmt 4702 E:\FR\FM\26AUP3.SGM 26AUP3

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opening table each APR applicable to 

the payment plan disclosed in the table, 

except a creditor must not disclose any 

penalty rate set forth in the initial 

agreement that may be imposed in lieu 

of termination of the plan. See proposed 

§ 226.6(a)(2)(vi). Under the proposal, a 

creditor also would be required to 

disclose certain information about any 

variable rates disclosed in the accountopening table, such as the fact that the 

APR may change due to the variable-rate 

feature. See proposed 

§ 226.6(a)(2)(vi)(A). In addition, under 

the proposal, a creditor would be 

required to disclose in the accountopening table any introductory rate that 

applies to the payment plan disclosed in 

the table, as well as the time period 

during which the introductory rate will 

remain in effect and the rate that will 

apply after the introductory rate expires. 

See proposed § 226.6(a)(2)(vi)(B). 

Under the proposal, a creditor would 

be required to disclose other rate 

information under proposed 

§ 226.6(a)(3) and (a)(4). For example, 

periodic rates would not be permitted to 

be disclosed in the account-opening 

table. Nonetheless, under the proposal, 

the Board proposes to require creditors 

to disclose periodic rates, as a cost 

imposed as part of the plan, before the 

consumer agrees to pay or becomes 

obligated to pay for the charge, and 

these disclosures could be provided in 

the credit agreement or other disclosure, 

as is likely currently the case. 

6(a)(2)(vii) Fees Imposed by the Creditor 

and Third Parties To Open the Plan 

Current § 226.6(a)(1) and (a)(2) require 

a creditor to disclose in the accountopening disclosures any finance charges 

or other charges imposed on the HELOC 

plan. As discussed above, the Board 

proposes in new § 226.6(a)(2)(vii) to 

require that a creditor disclose in the 

account-opening table a total of the onetime fees imposed by the creditor or 

third parties to open the HELOC plan 

and an itemization of those fees. Under 

the proposal, the disclosure of these fees 

in the account-opening table might 

differ from how these fees may have 

been disclosed in the early HELOC 

disclosures table. As discussed in the 

section-by-section analysis to proposed 

§ 226.5b(c)(11), with respect to 

disclosing the itemization of the onetime account-opening fees in the 

proposed early HELOC disclosures 

table, if the dollar amount of a fee is not 

known at the time the early HELOC 

disclosures are delivered or mailed, a 

creditor would be allowed to provide a 

range for such fee. See proposed 

§ 226.5b(c)(11). With respect to 

disclosure of the total of one-time 

account-opening fees in the proposed 

early HELOC disclosures table, if the 

exact total of one-time fees for account 

opening is not known at the time the 

early HELOC disclosures are delivered 

or mailed, a creditor would be required 

to disclose in the table as part of the 

early HELOC disclosures the highest 

total of one-time account opening fees 

possible for the plan with a indication 

that the one-time account opening costs 

may be ‘‘up to’’ that amount. See 

proposed § 226.5b(c)(11). Nonetheless, 

in the account-opening table, a creditor 

would be required to disclose in the 

account-opening table an itemization of 

all one-time fees imposed by the 

creditor and third parties to open the 

plan, and may not disclose a range for 

those fees, as otherwise allowed under 

proposed § 226.5b(c)(11) for the 

proposed early HELOC disclosures 

table. See proposed comment 

6(a)(2)(vii)–1. In addition, in the 

account-opening table, a creditor would 

be required to disclose in the accountopening table the total of all one-time 

fees imposed by the creditor and third 

parties to open the plan, and may not 

disclose the highest amount of possible 

fees as allowed under proposed 

§ 226.5b(c)(11) for the proposed early 

HELOC disclosures table. See proposed 

comment 6(a)(2)(vii)–1. At the time the 

creditor is disclosing the accountopening table, a creditor would know 

the exact amount of the one-time fees 

that will be imposed by the creditor and 

any third parties to open the HELOC 

account, and thus would be able to 

disclose the exact total of these one-time 

fees and an exact itemization of these 

fees. 

Unlike the proposed early HELOC 

disclosures table, in the accountopening table, the itemization of the 

one-time fees to open the account would 

not be disclosed with the total of these 

one-time fees but instead the 

itemization of the fees would be 

disclosed on the second page of the 

table with penalty fees and transactions 

fees. Thus, under the proposal, a 

creditor would be required to include in 

the account-opening table a cross 

reference near the disclosure of the total 

of one-time fees for opening an account, 

indicating that the itemization of the 

fees is located elsewhere in the table. 

6(a)(2)(x) Late-Payment Fee 

As discussed above, under the 

proposal, a creditor would be required 

to disclose in the account-opening table 

any fee imposed for a late payment. See 

proposed § 226.6(a)(2)(x) Proposed 

comment 6(a)(2)(x)–1 provides that the 

disclosure of the fee for a late payment 

includes only those fees that will be 

imposed for actual, unanticipated late 

payments. This proposed comment 

cross references commentary to 

§ 226.4(c)(2) for additional guidance on 

late-payment fees. In addition, this 

proposed comment notes that Samples 

G–15(B), G–15(C) and G–15(D) provide 

guidance to creditors on how to disclose 

clearly and conspicuously the latepayment fee in the account-opening 

table. 

6(a)(2)(xi) Over-the-Limit Fee 

As discussed above, under the 

proposal, a creditor would be required 

to disclose in the account-opening table 

any fee imposed for exceeding a credit 

limit. See proposed § 226.6(a)(2)(xi). 

Proposed comment 6(a)(2)(xi)–1 

provides that 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 would 

be 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. In addition, this proposed 

comment notes that Samples G–15(B), 

G–15(C) and G–15(D) provide guidance 

to creditors on how to disclose clearly 

and conspicuously the over-the-limit 

fee. 

6(a)(2)(xii) Transaction Charges 

As discussed above, under the 

proposal, a creditor would be required 

to disclose in the account-opening table 

any transaction charge imposed by the 

creditor for use of the HELOC plan. See 

proposed § 226.6(a)(2)(xii). Proposed 

comment 6(a)(2)(xii)–1 provides that 

charges imposed by a third party, such 

as a seller of goods, must not be 

disclosed in the account-opening table. 

This proposed comment also notes that 

the third party would be responsible for 

disclosing the charge under 

§ 226.9(d)(1). 

In addition, proposed comment 

6(a)(2)(xii)–2 provides that a transaction 

charge imposed by the creditor for use 

of the HELOC plan includes any fee 

imposed by the creditor for transactions 

in a foreign currency or that take place 

outside the United States or with a 

foreign merchant. This proposed 

comment cross references comment 

4(a)–4 for guidance on when a foreign 

transaction fee is considered charged by 

the creditor. This proposed comment 

also notes that Sample G–15(D) provide 

guidance to creditors on how to disclose 

a foreign transaction fee for use of a 

credit card where the same foreign 

transaction fee applies for purchases 

and cash advances in a foreign currency, 


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or that take place outside the United 

States or with a foreign merchant. 

6(a)(2)(xv) Statement About Other Fees 

As discussed above, under the 

proposal, a creditor would not be 

required to disclose all the fees that 

apply to a HELOC plan in the accountopening table. Under the proposal, 

creditors would be provided with 

flexibility in disclosing fees that would 

be required to be disclosed under the 

regulation but not in the accountopening table. As discussed in more 

detail in the section-by-section analysis 

to proposed § 226.5(a)(1) and (b)(1), 

under the proposal, a creditor would be 

permitted to disclose charges that are 

not required to be disclosed in the 

account-opening table either before the 

first transaction or later, so long as they 

are disclosed before the cost is imposed. 

Despite this flexibility to disclose 

certain charges after account opening, 

the Board expects that creditors would 

continue to disclose some of these 

charges in the account-opening 

disclosures or account agreement 

because of contract law or other reasons. 

Thus, the Board proposes in new 

§ 226.6(a)(2)(xv) to require a creditor to 

disclose in the account-opening table a 

statement that information about other 

fees is included in the account-opening 

disclosures or agreement, as applicable. 

In addition, because certain fees 

disclosed in the account-opening table 

would be disclosed on the first page of 

the table, and other fees disclosed in the 

table would be included on the second 

page of the table, the Board proposes to 

require a creditor to disclose in the 

account-opening table near the 

disclosure of fees on the first page of the 

table a statement that other fees are 

located elsewhere in the table. 

6(a)(2)(xvi) Negative Amortization 

Current § 226.6(a)(3)(iii), which 

implements TILA Section 127(a)(8), 

provides that a creditor must disclose in 

the account-opening disclosures a 

statement that negative amortization 

may occur as described in current 

§ 226.5b(d)(9). 15 U.S.C. 127(a)(8). The 

Board proposes to move current 

§ 226.6(a)(3)(iii) to proposed 

226.6(a)(2)(xvi) and make revisions. 

Specifically, under the proposal, a 

creditor would be required to disclose 

in the account-opening table, as 

applicable, a statement that negative 

amortization may occur and that 

negative amortization increases the 

principal balance and reduces the 

consumer’s equity in the dwelling. This 

same disclosure would be required as 

part of the early HELOC disclosures 

table required under proposed 

§ 226.5b(b). See proposed 

§ 226.5b(c)(15). 

6(a)(2)(xvii) Transaction Requirements 

Current § 226.6(a)(3)(iv), which 

implements TILA Section 127(a)(8), 

provides that a creditor must disclose in 

the account-opening disclosures a 

statement of any transaction 

requirements as described in current 

§ 226.5b(d)(10). The Board proposes to 

move current § 226.6(a)(3)(iv) to 

proposed § 226.6(a)(2)(xvii) and make 

revisions. Specifically, under the 

proposal, a creditor would be required 

to disclose in the account-opening table 

any limitations on the number of 

extensions of credit and the amount of 

credit that may be obtained during any 

time period, as well as any minimum 

outstanding balance and minimum draw 

requirements. This same disclosure 

would be required as part of the early 

HELOC disclosures table required under 

proposed § 226.5b(b). See proposed 

§ 226.5b(c)16). 

6(a)(2)(xviii) Credit Limit 

Currently, a creditor is not required to 

disclose in the account-opening 

disclosures the credit limit applicable to 

the HELOC plan. As discussed in the 

section-by-section analysis to proposed 

§ 226.5b(c)(17), the Board proposes to 

require a creditor to disclose the credit 

limit applicable to the HELOC plan in 

the early HELOC disclosures table 

required under proposed § 226.5b(b). 

Pursuant to TILA Section 127(a)(8) and 

for the reasons set forth in the sectionby-section analysis to proposed 

§ 226.5b(c)(17), the Board proposes that 

this disclosure also be required in the 

account-opening table. 15 U.S.C. 

1637(a)(8). 

6(a)(2)(xix) Statements About FixedRate and -Term Payment Plan 

As discussed above, the Board 

proposes that if a HELOC plan offers a 

variable-rate feature and a fixed-rate and 

-term feature during the draw period, a 

creditor generally would not be allowed 

to disclose in the account-opening table 

all the terms applicable to the fixed-rate 

and -term feature. See proposed 

§ 226.6(a)(2). Instead, the Board 

proposes to require a creditor offering 

this payment feature (in addition to a 

variable-rate feature) to disclose in the 

account-opening table the following: (1) 

A statement that the consumer has the 

option during the draw period to borrow 

at a fixed interest rate; (2) the amount 

of the credit line that the consumer may 

borrow at a fixed interest rate for a fixed 

term; and (3) a statement that 

information about the fixed-rate and 

-term payment plan is included in the 

account-opening disclosures or 

agreement, as applicable. See proposed 

§ 226.6(a)(2)(xix). The Board proposes a 

similar disclosure in the proposed early 

HELOC disclosures table described in 

proposed § 226.5b(b). See proposed 

§ 226.5b(c)(18). 

6(a)(2)(xx) Required Insurance, Debt 

Cancellation or Debt Suspension 

Coverage 

Current § 226.6(a)(1) and (a)(2) require 

a creditor to disclose in the accountopening disclosures any finance charges 

or other charges imposed on the HELOC 

plan. As discussed in the section-bysection analysis to proposed 

§ 226.5b(c)(19), in the event that a 

creditor requires the insurance or debt 

cancellation or debt suspension 

coverage (to the extent permitted by 

state or other applicable law), the Board 

proposes to require a creditor to disclose 

in the early HELOC disclosures table 

any fee for this coverage. See proposed 

§ 226.5b(c)(19). In addition, proposed 

§ 226.5a(b)(19) require that a creditor 

also disclose in the early HELOC 

disclosures table a cross reference to 

where the consumer may find more 

information about the insurance or debt 

cancellation or debt suspension 

coverage, if additional information is 

included outside the early HELOC 

disclosures table. For the reasons set 

forth in the section-by-section analysis 

to proposed § 226.5b(c)(19), the Board 

also proposes to require that a creditor 

make these same disclosures in the 

account-opening table. 

6(a)(2)(xxi) Grace Period 

Current § 226.6(a)(1)(i), which 

implements TILA Section 127(a)(1), 

provides that a creditor must disclose as 

part of the account-opening disclosures 

a statement of when finance charges 

begin to accrue, including an 

explanation of whether or not any time 

period exists within which any credit 

extended may be repaid without 

incurring a finance charge. 15 U.S.C. 

1637(a)(1). Under the proposal, the 

Board proposes to require that a creditor 

disclose below the account-opening 

table the date by which or the period 

within which any credit extended may 

be repaid without incurring a finance 

charge due to a periodic interest rate 

and any conditions on the availability of 

the grace period. If no grace period is 

provided, a creditor would be required 

to disclose that fact below the accountopening table. If the length of the grace 

period varies, the creditor would be 

allowed to disclose the range of days, 

the minimum number of days, or the 

average number of the days in the grace 

period, if the disclosure is identified as 


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a range, minimum, or average. In 

disclosing a grace period that applies to 

all features on the account, under the 

proposal, a creditor would be required 

to use the phrase ‘‘How to Avoid Paying 

Interest’’ as the heading for the 

information below the table describing 

the grace period. If a grace period is not 

offered on all features of the account, in 

disclosing this fact below the table, a 

creditor would be required to use the 

phrase ‘‘Paying Interest’’ as the heading 

for this information. 

Proposed comment 6(a)(2)(xxi)–1 

provides that a creditor that offers a 

grace period on all types of transactions 

for the account and conditions the grace 

period on the consumer paying his or 

her outstanding balance in full by the 

due date each billing cycle, or on the 

consumer paying the outstanding 

balance in full by the due date in the 

previous and/or the current billing 

cycle(s) will be deemed to meet the 

requirements in proposed 

§ 226.6(a)(2)(xxi) 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 interest on your account 

if you pay your entire balance by the 

due date each month.’’ Proposed 

comment 6(a)(2)(xxi)–2 provides that a 

creditor may use the following language 

to describe below the account-opening 

table that no grace period is offered, as 

applicable: ‘‘We will begin charging 

interest on [applicable transactions] on 

the date the transaction is posted to 

your account.’’ 

The Board understands that most 

creditors currently do not offer a grace 

period on any transactions on the 

HELOC plan. Thus, in most cases, 

creditors would include below the 

account-opening table a statement that 

the creditor will begin charging interest 

on the transactions on the HELOC plan 

on the date the transaction is posted to 

the account. The Board believes that 

requiring a creditor to disclose this 

statement below the account-opening 

table would be an effective way to 

inform a consumer that he or she cannot 

avoid paying interest on transactions on 

the HELOC plan. 

6(a)(2)(xxii) Balance Computation 

Method 

Current § 226.6(a)(1)(iii), which 

implements TILA Section 127(a)(2), 

provides that creditors must explain as 

part of the account-opening disclosures 

the method used to determine the 

balance to which rates are applied. 15 

U.S.C. 1637(a)(2). Under the proposal, a 

creditor would be required to disclose 

below the account-opening table the 

name of the balance computation 

method used by the creditor for each 

feature of the account, along with a 

statement that an explanation of the 

method(s) is provided in the account 

agreement or disclosure statement. See 

proposed § 226.6(a)(2)(xxii). To 

determine the name of the balance 

computation method to be disclosed, a 

creditor would be required to refer to 

§ 226.5a(g) for a list of commonly-used 

methods; if the method used is not 

among those identified, creditors would 

be required to provide a brief 

explanation in place of the name. In 

determining which balance computation 

method to disclose, the creditor would 

be required to assume that credit 

extended will not be repaid within any 

grace period, if any. The Board believes 

that the proposed approach of 

disclosing the name of the balance 

computation method below the table, 

with a more detailed explanation of the 

method in the account-opening 

disclosures or account agreement, 

would provide an effective way to 

communicate information about the 

balance computation method used on a 

HELOC plan to consumers, while not 

distracting from other information 

included in the account-opening table. 

Proposed comment 6(a)(2)(xxii)–1 

provides that in cases where the creditor 

uses a balance computation method that 

is identified by name in the regulation, 

the creditor must disclose below the 

table only the name of the method. In 

cases where the creditor uses a balance 

computation method that is not 

identified by name in the regulation, the 

disclosure below the table must clearly 

explain the method in as much detail as 

set forth in the descriptions of balance 

computation methods in § 226.5a(g). 

The explanation would not need to be 

as detailed as that required for the 

disclosures under proposed 

§ 226.6(a)(4)(i)(D), as discussed below. 

Proposed comment 6(a)(2)(xxii)–2 notes 

that proposed Samples G–15(B), G– 

15(C) and G–15(D) would provide 

guidance to creditors on how to disclose 

the balance computation method where 

the same method is used for all features 

on the account. 

6(a)(2)(xxiii) Billing Error Rights 

Reference 

Current § 226.6(a)(6), which 

implements TILA Section 127(a)(7), 

provides that creditors offering HELOC 

accounts subject to § 226.5b must 

provide notices of billing rights at 

account opening. This information is 

important, but lengthy. The Board 

proposes in new § 226.6(a)(2)(xxiii) to 

draw consumers’ attention to the notices 

by requiring a creditor to disclose below 

the account-opening table a statement 

that information about billing rights and 

how to exercise them is provided in the 

account-opening disclosures or account 

agreement, as applicable. As discussed 

in the section-by-section analysis to 

proposed § 226.6(a)(5), under the 

proposal, a creditor would be required 

to provide information about billing 

rights in the account-opening 

disclosures or account agreement, as 

applicable. See proposed 

§ 226.6(a)(5)(iii). 

6(a)(2)(xxiv) No Obligation Statement 

As discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.5b(c)(2), the Board proposes in 

new § 226.5b(c)(2) to require a creditor 

to disclose below the early HELOC 

disclosures table a statement that the 

consumer has no obligation to accept 

the terms disclosed in the table. In 

addition, under proposed § 226.5b(c)(2), 

if a creditor provides space for the 

consumer to sign or initial the early 

HELOC disclosures, the creditor would 

be required to include a statement that 

a signature by the consumer only 

confirms receipt of the disclosure 

statement. 

Pursuant to TILA Section 127(a)(8) 

and for the same reasons discussed in 

the section-by-section analysis to 

proposed § 226.5b(c)(2), the Board 

proposes in new § 226.6(a)(2)(xxiv) to 

require these same statements below the 

account-opening table. 15 U.S.C. 

1637(a)(8). In addition, the Board also 

proposes to require a creditor to disclose 

below the account-opening table a 

statement that the consumer should 

confirm that the terms disclosed in the 

table are the same terms for which the 

consumer applied. The Board proposes 

this rule pursuant to its authority in 

TILA Section 105(a) to make 

adjustments and exceptions to the 

requirements in TILA to effectuate the 

statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uniformed use of 

credit. See 15 U.S.C. 1601(a), 1604(a). 

The Board believes this statement 

would be a helpful reminder to 

consumers to check that the terms 

disclosed in the account-opening table 

are the terms that the consumer expects 

to apply to the HELOC plan based on 

the terms disclosed in the early HELOC 

disclosures table. 

6(a)(2)(xxv) Statement About Asking 

Questions 

As discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.5b(c)(20), the Board proposes in 

new § 226.5b(c)(20) to require a creditor 

to disclose below the early HELOC 


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disclosures table a statement that if the 

consumer does not understand any 

disclosure in the table the consumer 

should ask questions. Pursuant to TILA 

Section 127(a)(8) and for the same 

reasons discussed in the section-bysection analysis to proposed 

§ 226.5b(c)(20), the Board proposes in 

new § 226.6(a)(2)(xxv) to require that a 

creditor disclose this same statement 

below the account-opening table. 15 

U.S.C. 1637(a)(8). 

6(a)(2)(xxvi) Statement About Board’s 

Web Site 

As discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.5b(c)(21), the Board proposes in 

new § 226.5b(c)(21) to required a 

creditor to disclose below the early 

HELOC disclosures table a statement 

that the consumer may obtain additional 

information at the Web site of the 

Federal Reserve Board, and a reference 

to that Web site. Pursuant to TILA 

Section 127(a)(8), the Board proposes in 

new § 226.5b to require a creditor to 

provide these same statements below 

the account-opening table. 15 U.S.C. 

1637(a)(8). Although it is hard to predict 

how many consumers might use the 

Board’s Web site, and recognizing that 

not all consumers have access to the 

Internet, the Board believes that this 

Web site may be helpful to some 

consumers as they use their HELOC 

plan. 

6(a)(3) Disclosure of Charges Imposed as 

Part of Home-Equity Plans 

The current rules for disclosing costs 

related to open-end plans create two 

categories of charges covered by TILA: 

finance charges (former § 226.6(a)) and 

‘‘other charges’’ (former § 226.6(b)). The 

terms ‘‘finance charge’’ and ‘‘other 

charge’’ are given broad and flexible 

meanings in the current regulation and 

commentary. This ensures that TILA 

adapts to changing conditions, but it 

also creates uncertainty. The 

distinctions among finance charges, 

other charges, and charges that do not 

fall into either category are not always 

clear. Examples of charges that are 

included or excluded charges are in the 

regulation and commentary, but they 

cannot provide definitive guidance in 

all cases. As creditors develop new 

kinds of services, some creditors find it 

difficult to determine whether 

associated charges for the new services 

meet the standard for a ‘‘finance charge’’ 

or ‘‘other charge’’ or are not covered by 

TILA at all. This uncertainty can pose 

legal risks for creditors that act in good 

faith to classify fees. 

To address this problem, the January 

2009 Regulation Z Rule created a single 

category of ‘‘charges imposed as part of 

open-end (not home-secured) plans,’’ 

specified in § 226.6(b)(3). These charges 

include finance charges under § 226.4(a) 

and (b), penalty charges, taxes, and 

charges for voluntary credit insurance, 

debt cancellation or debt suspension 

coverage. In addition, charges to be 

disclosed include any charge the 

payment or nonpayment of which 

affects the consumer’s access to the 

plan, duration of the plan, the amount 

of credit extended, the period for which 

credit is extended, or the timing or 

method of billing or payment. Charges 

imposed for terminating a plan are also 

included. 

Three examples of types of charges 

that are not imposed as part of the plan 

are listed in § 226.6(b)(3)(iii). These 

examples include charges imposed on a 

cardholder by an institution other than 

the card issuer for the use of the other 

institution’s ATM; charges for a package 

of services that includes an open-end 

credit feature, if the charges would be 

required whether or not the open-end 

credit feature were included and the 

non-credit services are not merely 

incidental to the credit feature; and 

charges under § 226.4(e). 

The Board proposes to apply the same 

approach to disclosure of charges under 

HELOC plans subject to § 226.5b, for the 

same reasons as for open-end (not 

home-secured) plans. Accordingly, 

proposed § 226.6(a)(3) would set forth a 

single category of ‘‘charges imposed as 

part of home-equity plans.’’ The 

disclosures included, as specified in 

proposed § 226.6(a)(3)(i) and (ii), would 

generally parallel those included for 

open-end (not home-secured) plans in 

§ 226.6(b)(3)(i) and (ii). Similarly, 

proposed § 226.6(a)(3)(iii) would list 

types of charges not considered to be 

charges imposed as part of a homeequity plan, generally paralleling 

§ 226.6(b)(3)(iii), which specifies types 

of charges not included as charges 

imposed as part of an open-end (not 

home-secured) plan. 

As the Board acknowledged in the 

June 2007 Regulation Z Proposal and 

the January 2009 Regulation Z Rule, this 

proposed approach does not completely 

eliminate ambiguity about what charges 

are subject to TILA disclosure 

requirements. However, the proposed 

commentary provides examples to ease 

compliance. In addition, to further 

mitigate ambiguity, the proposed rule 

would provide a complete list in 

§ 226.6(a)(2), as discussed above, of 

which charges must be disclosed in 

tabular format in writing at account 

opening. Under the proposal, any 

charges covered by § 226.6(a)(3), but not 

identified in § 226.6(a)(2), would not be 

required to be disclosed in writing at 

account opening. However, if they are 

not disclosed in writing at account 

opening, a creditor would be required to 

disclose these other charges imposed as 

part of a HELOC plan in writing or 

orally at a time and in a manner such 

that a consumer would be likely to 

notice them before the consumer agrees 

to or becomes obligated to pay the 

charge. This proposed approach is 

intended in part to reduce creditor 

burden. For example, when a consumer 

orders a service by telephone, creditors 

presumably disclose fees related to that 

service at that time for business reasons 

and to comply with other state and 

federal laws. 

Moreover, compared to the approach 

reflected in the current regulation, the 

Board believes that the broad 

application of the statutory standard of 

fees ‘‘imposed as part of the plan’’ 

would make it easier for a creditor to 

determine whether a fee is a charge 

covered by TILA, and reduce litigation 

and liability risks. Proposed comment 

6(a)(3)(ii)–3 would be added to provide 

that if a creditor is unsure whether a 

particular charge is a cost imposed as 

part of the plan, the creditor may, at its 

option, consider such charges as a cost 

imposed as part of the plan for Truth in 

Lending purposes. In addition, this 

proposed approach will help ensure that 

consumers receive the information they 

need when it would be most helpful to 

them. 

Under proposed § 226.6(a)(3)(ii)(B), 

one of the categories of charges included 

in charges imposed as part of a homeequity plan would be ‘‘charges resulting 

from the consumer’s failure to use the 

plan as agreed, except amounts payable 

for collection activity after default; costs 

for protection of the creditor’s interest 

in the collateral for the plan due to 

default; attorney’s fees whether or not 

automatically imposed; foreclosure 

costs; and post-judgment interest rates 

imposed by law.’’ This provision 

generally parallels § 226.6(b)(3)(ii)(B) 

applicable to open-end (not homesecured) plans under the January 2009 

Regulation Z Rule, as well as 

longstanding comment 6(b)–2.ii. in the 

current regulation. Two of the excepted 

charges, ‘‘costs for protection of the 

creditor’s interest in the collateral due 

to default’’ and ‘‘foreclosure costs,’’ do 

not appear in § 226.6(b)(3)(ii)(B); 

‘‘foreclosure costs’’ appears in current 

comment 6(b)–2.ii. These types of 

charges could occur in HELOC 

accounts, and would most likely not 

occur in the case of open-end (not 

home-secured) credit; they are similar to 

the other excepted types of charges in 

that all would likely occur in the 


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context of default or foreclosure. It 

would likely be impracticable for 

creditors to disclose, at the time an 

account is opened, charges related to 

default or foreclosure, since the amount 

of such charges may not be known at 

that time. Therefore, the Board believes 

it would be appropriate to include these 

two types of charges in the list of 

exceptions in proposed 

§ 226.6(a)(3)(ii)(B). 

Proposed comment 6(a)(3)(ii)–2 

would give examples of fees that affect 

the consumer’s access to the plan (and 

thus are included as charges that must 

be disclosed since they are considered 

charges imposed as part of the plan). 

This proposed comment generally 

parallels comment 6(b)(3)(ii)–2 for openend (not home-secured) credit; however, 

proposed comment 6(a)(3)(ii)–2 would 

refer to ‘‘fees to obtain additional checks 

or credit cards’’ and ‘‘fees to expedite 

delivery of checks or credit cards,’’ as 

examples of charges affecting access to 

the plan, rather than only referring to 

fees to obtain or expedite delivery of 

credit cards, since HELOC plans are 

typically accessed by checks as well as, 

in some cases, credit cards. 

Proposed § 226.6(a)(3)(iii) would list 

types of charges not considered to be 

charges imposed as part of a homeequity plan. As in the case of open-end 

(not home-secured) credit under 

§ 226.6(b)(3)(iii), these charges would 

include charges imposed on a 

cardholder by an institution other than 

the card issuer for the use of the other 

institution’s ATM; charges for a package 

of services that includes an open-end 

credit feature, if the charges would be 

required whether or not the open-end 

credit feature were included and the 

non-credit services are not merely 

incidental to the credit feature; and 

charges under § 226.4(e) (generally, 

taxes and fees prescribed by law and 

related to security instruments). In 

proposed comment 6(a)(3)(iii)(B)–1, 

discussing charges for a package of 

services including an open-end credit 

feature, ‘‘credit’’ is substituted for ‘‘a 

credit card,’’ because HELOCs may not 

offer credit card access. 

The Board also proposes new 

comment 6(a)(3)–1, which would crossreference comment 6(a)–1 for guidance 

on disclosing information related to 

fixed-rate and -term payment options; 

there is no parallel comment under 

§ 226.6(b)(3), because open-end (not 

home-secured) credit plans generally do 

not offer such options. Proposed 

comments 6(a)(3)–2 and –3 discuss 

requirements for disclosing grace 

periods, and would generally parallel 

comments 6(b)(3)–1 and –2, 

respectively, applying to open-end (not 

home-secured) credit as adopted in the 

January 2009 Regulation Z Rule. 

Proposed comment 6(a)(3)–4 discusses 

circumstances where no finance charge 

is imposed when the outstanding 

balance is less than a certain amount, 

and would generally parallel comment 

6(b)(3)–3 as adopted in the January 2009 

Regulation Z Rule. 

6(a)(4) Disclosure of Rates for HomeEquity Plans 

The January 2009 Regulation Z Rule 

reorganizes and consolidates rules for 

disclosing interest rates in open-end 

(not home-secured) credit in 

§ 226.6(b)(4). The Board proposes to 

follow the same approach for HELOCs; 

thus, rules for disclosing interest rates 

for HELOCs would appear in proposed 

§ 226.6(a)(4). Proposed § 226.6(a)(4) 

would generally parallel § 226.6(b)(4). 

The proposed commentary to 

§ 226.6(a)(4) also would generally 

parallel the commentary to § 226.6(b)(4), 

with adjustments in certain comments 

to address matters in which HELOCs 

differ from credit card accounts and 

other open-end (not home-secured) 

credit, as well as differences between 

the rules applicable to HELOCs and 

those applicable to open-end (not homesecured) credit (see, for example, 

proposed comments 6(a)(4)(ii)–1, –2, 

and –3 and 6(a)(4)(iii)–1 and –2). In 

addition, the Board proposes new 

comment 6(a)(4)–1, which would crossreference comment 6(a)–1 for guidance 

on disclosing information related to 

fixed-rate and -term payment options. 

6(a)(4)(i)(D) Balance Computation 

Method 

Proposed § 226.6(a)(4)(i)(D) would 

require creditors to explain the method 

used to determine the balance to which 

rates apply. In addition to disclosing the 

name of the balance computation 

method with the account-opening 

summary table, as discussed under 

§ 226.6(a)(2) above, creditors would be 

required, as in the current regulation, to 

explain the balance computation 

method in the account-opening 

agreement or other disclosure statement. 

Under the proposal, a creditor would be 

required to disclose under the accountopening summary table a reference to 

where the explanation is found, along 

with the name of the balance 

computation method. 

Model clauses that explain commonly 

used balance computation methods, 

such as the average daily balance 

method, are in Model Clauses G–1 and 

G–1(A) in Appendix G. In the January 

2009 Regulation Z Rule, the Board 

adopted new Model Clause G–1(A) 

containing balance computation method 

model clauses for open-end (not homesecured) credit, while retaining existing 

Model Clause G–1 to continue to 

provide the existing model clauses for 

HELOCs. The Board is now proposing to 

eliminate existing Model Clause G–1 

and redesignate Model Clause G–1(A) as 

G–1; all creditors offering open-end 

credit would use the same model 

clauses for explanations of balance 

computation methods. See the 

discussion under Appendix G below. 

6(a)(4)(ii) Variable-Rate Accounts 

Proposed § 226.6(a)(4)(ii) would set 

forth the rules for variable-rate 

disclosures, parallel to § 226.6(b)(4)(ii) 

for open-end (not home-secured) credit 

as adopted in the January 2009 

Regulation Z Rule and contained in 

footnote 12 to § 226.6(a)(1)(ii) in the 

regulation currently in effect. Guidance 

on the accuracy of variable rates 

provided at account opening would be 

moved from the commentary to the 

regulation and revised. Currently, 

comment 6(a)(1)(ii)–3 provides that 

creditors in disclosing a variable-rate in 

the account-opening disclosures may 

provide the current rate, a rate as of a 

specified date if the rate is updated from 

time to time, or an estimated rate under 

§ 226.5(c). In the January 2009 

Regulation Z Rule, the Board adopted an 

accuracy standard for variable rates 

disclosed at account opening for openend (not home-secured) credit; the rate 

disclosed was deemed accurate if it was 

in effect as of a specified date within 30 

days before the disclosures were 

provided. Creditors’ option to provide 

an estimated rate as the rate in effect for 

a variable-rate account was eliminated. 

In adopting this accuracy standard, the 

Board stated its belief that 30 days 

provides sufficient flexibility to 

creditors and reasonably current 

information to consumers. See 

§ 226.6(b)(4)(ii)(G). The Board proposed 

a further technical clarification to the 

accuracy standard in the May 2009 

Regulation Z Proposal. Proposed 

§ 226.6(a)(4)(ii)(G) provides that a 

variable rate on HELOC plans disclosed 

in the account-opening disclosures is 

accurate if it is a rate as of a specified 

date and this rate was in effect within 

the last 30 days before the disclosures 

are provided. This proposed accuracy 

standard reflects the proposed technical 

clarification that the Board proposed to 

§ 226.6(b)(4)(ii)(G) in May 2009. 

6(a)(5) Additional Disclosures for HomeEquity Plans 

Section 226.6(b)(5) of the January 

2009 Regulation Z Rule contains rules 

for additional disclosures relating to 

open-end (not home-secured) credit, 


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including: The disclosures required 

under § 226.4(d) that, if provided, 

entitle the creditor to exclude voluntary 

credit insurance or debt cancellation or 

suspension coverage from the finance 

charge (§ 226.6(b)(5)(i)); the disclosure 

of security interests (§ 226.6(b)(5)(ii)); 

and the statement about consumers’ 

billing rights under TILA 

(§ 226.6(b)(5)(iii)). Proposed 

§ 226.6(a)(5) would set forth the parallel 

disclosures for HELOCs, in 

§ 226.6(a)(5)(i), (ii), and (iii), 

respectively. 

Proposed comment 6(a)(5)(i)–1 

(similar to comment 6(b)(5)(i)–1 for 

open-end (not home-secured) credit) 

would provide that creditors comply 

with § 226.6(a)(5)(i) if they provide 

disclosures required to exclude the cost 

of voluntary credit insurance or debt 

cancellation or debt suspension 

coverage from the finance charge in 

accordance with § 226.4(d) before the 

consumer agrees to the purchase of the 

insurance or coverage. For example, if 

the § 226.4(d) disclosures are given at 

application, creditors need not repeat 

those disclosures at account opening. 

Model forms for the billing rights 

statement under proposed 

§ 226.6(a)(5)(iii) are in Appendices G–3 

and G–3(A). In the January 2009 

Regulation Z Rule, the Board adopted 

new Appendix G–3(A) for open-end (not 

home-secured) credit for improved 

readability, while retaining existing 

Appendix G–3 to give HELOC creditors 

the option of providing the existing 

model billing rights statement form. The 

Board proposes to eliminate existing 

Appendix G–3 and redesignate 

Appendix G–3(A) as G–3; thus, all 

creditors offering open-end credit would 

use the same model form for the billing 

rights statement. See the discussion 

under Appendix G below. 

Proposed commentary for 

§ 226.6(a)(5)(i), (ii), and (iii) would 

parallel the commentary to 

§ 226.6(b)(5)(i), (ii), and (iii), 

respectively, with adjustments to 

address differences between HELOCs 

and open-end (not home-secured) credit 

and between the rules applicable to 

each. For example, in proposed 

comment 6(a)(5)(ii)–2, a reference to 

‘‘your home’’ (as the collateral for the 

credit) would be substituted for ‘‘motor 

vehicle or household appliances.’’ 

Comments 6(b)(5)(ii)–4 and –5 for openend (not home-secured) credit do not 

appear relevant to HELOCs, and 

therefore parallel comments under 

§ 226.6(a)(5)(ii) are not proposed and 

current comments 6(a)(4)–4 and –5, 

which state these interpretations for 

HELOCs, would be deleted. Comment 

6(b)(5)(ii)–4 (and comment 6(a)(4)–4) 

addresses the situation where collateral 

will be required only when the 

outstanding balance reaches a certain 

amount; HELOCs generally require that 

the consumer’s home secure the line of 

credit from the outset. Comment 

6(b)(5)(ii)–5 (and comment 6(a)(4)–5) 

discusses circumstances in which the 

collateral is owned by someone other 

than the consumer liable for the credit 

extended; this would generally not be 

the case with HELOCs. However, the 

Board requests comment on whether, 

and how often, the situations addressed 

by these two comments might occur in 

HELOC accounts, and accordingly 

whether these two comments should be 

retained for HELOCs. 

Proposed § 226.6(a)(5) would contain 

two additional paragraphs without 

counterparts in § 226.6(b)(5). Section 

226.6(a)(5)(iv) would require a 

disclosure of the conditions under 

which the creditor in a HELOC may take 

certain actions, such as terminating the 

plan or changing its terms. The accountopening table required under proposed 

§ 226.6(a)(2), as discussed above, would 

require a statement of the actions the 

creditor may take, such as terminating 

and accelerating a HELOC, reducing the 

credit limit, suspending further 

advances, or changing other terms, but 

would not require or permit setting forth 

the conditions under which the creditor 

is permitted, under § 226.5b(f), to take 

such actions. Instead, the accountopening table would have to contain a 

reference to the disclosure or credit 

agreement in which the conditions 

would be disclosed. See also discussion 

under § 226.6(a)(2)(iii), above. 

Proposed § 226.6(a)(5)(v) would 

require disclosure of additional 

information about any fixed-rate and 

-term payment option offered under the 

HELOC plan. Under current Regulation 

Z, guidance on disclosing fixed-rate and 

-term payment options is contained only 

in the commentary (comment 

5b(d)(5)(ii)–2). To provide clearer 

guidance, the Board proposes to state 

the rules about disclosure of such 

options in § 226.6(a)(5)(v). 

The account-opening table required 

under proposed § 226.6(a)(2), as 

discussed above, would require a brief 

statement about a fixed-rate and -term 

payment option, including a statement 

that the consumer has the option during 

the draw period to borrow at a fixed 

interest rate, the amount of credit 

available under the option, and a 

statement that details about this option 

are included in the credit agreement or 

other document, as applicable. See the 

discussion under § 226.6(a)(2)(xix), 

above. Proposed § 226.6(a)(5)(v) would 

require that a creditor disclose at 

account opening, but outside of the 

table prescribed in § 226.6(a)(2), the 

following additional information about 

the option: The period during which the 

option may be exercised 

(§ 226.6(a)(5)(v)(A)), the length of time 

over which repayment can occur 

(§ 226.6(a)(5)(v)(B)), an explanation of 

how the minimum periodic payment for 

the option will be determined 

(§ 226.6(a)(5)(v)(C)), and any limitations 

on the number or total amount of loans 

that can be obtained under the option, 

as well as any minimum outstanding 

balance or minimum draw requirements 

(§ 226.6(a)(5)(v)(D)). Proposed comment 

6(a)(5)(v)–1 would refer to proposed 

comment 6(a)–1 for further guidance on 

disclosing information related to fixedrate and -term payment options. 

Section 226.7 Periodic Statement 

TILA Section 127(b), implemented in 

§ 226.7, identifies information about an 

open-end account that must be 

disclosed when a creditor is required to 

provide periodic statements. See 15 

U.S.C. 1637(b). 

Periodic statement disclosure and 

format requirements for HELOCs subject 

to § 226.5b generally were unaffected by 

the January 2009 Regulation Z Rule, 

consistent with the Board’s plan to 

review Regulation Z’s disclosure rules 

for home-secured credit in a future 

rulemaking. To facilitate compliance, 

the Board in the January 2009 

Regulation Z Rule grouped the 

requirements applicable to HELOCs 

together in § 226.7(a) (moved from 

former § 226.7(a) through (k)). 

This proposal contains a number of 

significant revisions to periodic 

statement disclosures currently 

applicable to creditors offering HELOCs 

subject to § 226.5b. Except as discussed 

below, these proposed revisions are 

substantially similar to revisions 

adopted for open-end (not homesecured) credit plans in the January 

2009 Regulation Z Rule, and as 

proposed to be revised in the May 2009 

Regulation Z Proposal. First, the Board 

proposes to eliminate the requirement to 

disclose the effective APR for HELOC 

accounts subject to § 226.5b. Second, 

the proposal contains several formatting 

requirements for periodic statement 

disclosures for HELOC accounts subject 

to § 226.5b. For example, interest 

charges and fees imposed as part of the 

plan must be grouped together and 

totals disclosed for the statement period 

and year to date. In addition, if an 

advance notice of a change in rates or 

terms is provided on or with a periodic 

statement, the proposal requires that a 

summary of the change appear on the 

front of the periodic statement. To 


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facilitate compliance, sample forms are 

proposed to illustrate the revisions. See 

proposed Samples G–24(A), G–24(B) 

and G–24(C) of Appendix G to part 226. 

Effective Annual Percentage Rate 

Background on effective APR. TILA 

Section 127(b)(6) requires disclosure of 

an APR calculated as the quotient of the 

total finance charge for the period to 

which the charge relates divided by the 

amount on which the finance charge is 

based, multiplied by the number of 

periods in the year. See 15 U.S.C. 

1637(b)(6) (implemented by § 226.7(a)(7) 

for HELOCs subject to § 226.5b). This 

rate has come to be known as the 

‘‘historical APR’’ or ‘‘effective APR.’’ A 

creditor does not have to disclose an 

effective APR when the total finance 

charge is 50 cents or less for a monthly 

or longer billing cycle, or the pro rata 

share of 50 cents for a shorter cycle. See 

15 U.S.C. 1637(b)(6). In such a case, the 

creditor must disclose only the periodic 

rate and the annualized rate that 

corresponds to the periodic rate (the 

‘‘corresponding APR’’). See 15 U.S.C. 

1637(b)(5). 

The effective APR and corresponding 

APR for any given plan feature are the 

same when the finance charge in a 

period arises only from applying the 

periodic rate to the applicable balance 

(the balance calculated according to the 

creditor’s chosen method, such as 

average daily balance method). When 

the two APRs are the same, Regulation 

Z requires that the APR be stated just 

once. The effective and corresponding 

APRs diverge when the finance charge 

in a period arises (at least in part) from 

a charge not determined by application 

of a periodic rate and the total finance 

charge exceeds 50 cents. When they 

diverge, Regulation Z currently requires 

that both be stated. See § 226.7(a)(4) and 

(a)(7). 

The statutory requirement of an 

effective APR is intended to provide the 

consumer with an annual rate that 

reflects the total finance charge, 

including both the finance charge due to 

application of a periodic rate (interest) 

and finance charges that take the form 

of fees. This rate, like other APRs 

required by TILA, presumably was 

intended to provide consumers 

information about the cost of credit that 

would help consumers compare credit 

costs and make informed credit 

decisions and, more broadly, strengthen 

competition in the market for consumer 

credit. See 15 U.S.C. 1601(a). There is, 

however, a longstanding controversy 

about whether the requirement to 

disclose an effective APR advances 

TILA’s purposes or, as some argue, 

actually undermines them. 

Industry and consumer groups 

disagree as to whether the effective APR 

conveys meaningful information for 

open-end plans. Creditors argue that the 

cost of a transaction is rarely, if ever, as 

high as the effective APR makes it 

appear, and that this tendency of the 

rate to exaggerate the cost of credit 

makes this APR misleading. Industry 

representatives also claim that the 

effective APR imposes direct costs on 

creditors that consumers pay indirectly. 

They represent that the effective APR 

raises compliance costs when they 

introduce new services, including costs 

of: (1) Conducting legal analysis of 

Regulation Z to determine whether the 

fee for the new service is a finance 

charge and must be included in the 

effective APR; (2) reprogramming 

software if the fee must be included; 

and (3) responding to telephone 

inquiries from confused customers and 

accommodating them (e.g., with fee 

waivers or rebates). 

Consumer groups contend that the 

information the rate provides about the 

cost of credit, even if limited, is 

meaningful. The effective APR for a 

specific transaction or set of 

transactions in a given cycle may 

provide the consumer a rough 

indication that the cost of repeating 

such transactions is high in some sense 

or, at least, higher than the 

corresponding APR alone conveys. 

Consumer advocates and industry 

representatives also disagree as to 

whether the effective APR promotes 

credit shopping. Industry and consumer 

group representatives find some 

common ground in their observations 

that consumers do not understand the 

effective APR well. 

Consumer research on credit card 

disclosures conducted by the Board. In 

relation to the January 2009 Regulation 

Z Rule, the Board undertook research 

through a third-party consultant on 

consumer awareness and understanding 

of the effective APR, and on whether 

changes to the presentation of the 

disclosure could increase awareness and 

understanding. The consultant used 

one-on-one cognitive interviews with 

consumers; consumers were provided 

mock disclosures of periodic statements 

for credit card accounts that included 

effective APRs and asked questions 

about the disclosure designed to elicit 

their understanding of the rate. The 

Board tested effective APR disclosures 

with different versions of explanatory 

text in seven rounds of one-on-one 

interviews with consumers. In the first 

round the statements were copied from 

examples in disclosures currently used 

in the market. For subsequent testing 

rounds, the language and design of the 

statements were modified to better 

convey how the effective APR differs 

from the corresponding APR. Several 

different approaches and many 

variations on those approaches were 

tested. For example, in later rounds of 

testing, the effective APR was labeled 

the ‘‘Fee-Inclusive APR.’’ 

In all but one round of testing, a 

minority of participants correctly 

explained that the effective APR for 

cash advances was higher than the 

corresponding APR for cash advances 

because the effective APR included a 

cash advance fee that had been 

imposed. A smaller minority correctly 

explained that the effective APR for 

purchases was the same as the 

corresponding APR for purchases 

because no transaction fee had been 

imposed on purchases. A majority 

offered incorrect explanations or did not 

offer any explanation. In addition, the 

inclusion of the effective APR 

disclosure on the statement was often 

confusing to participants; in each round 

some participants mistook the effective 

APR for the corresponding APR. 

In addition, in September 2008 the 

Board conducted additional consumer 

research using quantitative methods for 

the purpose of validating the qualitative 

research (one-on-one interviews) 

conducted previously. The quantitative 

consumer research conducted by the 

Board validated the results of the 

qualitative testing; it shows that most 

consumers do not understand the 

effective APR, and that for some 

consumers the effective APR is 

confusing and detracts from the 

effectiveness of other disclosures. The 

quantitative consumer research 

involved surveys of around 1,000 

consumers at shopping malls in seven 

locations around the country. Two 

research questions were investigated. 

The first was designed to determine 

what percentage of consumers 

understand the significance of the 

effective APR. The interviewer pointed 

out the effective APR disclosure for a 

month in which a cash advance 

occurred, triggering a transaction fee 

and thus making the effective APR 

higher than the corresponding APR 

(interest rate). The interviewer then 

asked what the effective APR would be 

in the next month, in which the cash 

advance balance was not paid off but no 

new cash advances occurred. A very 

small percentage of respondents gave 

the correct answer (that the effective 

APR would be the same as the 

corresponding APR). Some consumers 

stated that the effective APR would be 

the same in the next month as in the 

current month, others indicated that 


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they did not know, and the remainder 

gave other incorrect answers. 

The second research question was 

designed to determine whether the 

disclosure of the effective APR 

adversely affects consumers’ ability to 

identify correctly the current 

corresponding APR on cash advances. 

Some consumers were shown a periodic 

statement disclosing an effective APR, 

while other consumers were shown a 

statement without an effective APR 

disclosure. Consumers were then asked 

to identify the corresponding APR on 

cash advances. A greater percentage of 

consumers who were shown a statement 

without an effective APR than of those 

shown a statement with an effective 

APR correctly identified the 

corresponding APR on cash advances. 

This finding was statistically significant, 

as discussed in the December 2008 

Macro Report on Quantitative Testing. 

Some of the consumers who did not 

correctly identify the corresponding 

APR on cash advances instead 

mistakenly identified the effective APR 

as that rate. 

Proposal. After considering the results 

of the consumer testing and other 

factors mentioned in the background 

discussion of the effective APR, the 

Board is proposing that creditors 

offering HELOCs subject to § 226.5b no 

longer be required to disclose the 

effective APR on periodic statements. 

(An identical exemption was adopted 

for open-end (not home-secured) plans 

in the January 2009 Regulation Z Rule.) 

The Board proposes this rule pursuant 

to its exception and exemption 

authorities under TILA Section 105. 

Section 105(a) authorizes the Board to 

make exceptions to TILA to effectuate 

the statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uniformed use of 

credit. See 15 U.S.C. 1601(a), 1604(a). 

Section 105(f) authorizes the Board to 

exempt any class of transactions from 

coverage under any part of TILA if the 

Board determines that coverage under 

that part does not provide a meaningful 

benefit to consumers in the form of 

useful information or protection. See 15 

U.S.C. 1604(f)(1). The Board must make 

this determination in light of specific 

factors. See 15 U.S.C. 1604(f)(2). These 

factors are (1) the amount of the loan 

and whether the disclosure provides a 

benefit to consumers who are parties to 

the transaction involving a loan of such 

amount; (2) the extent to which the 

requirement complicates, hinders, or 

makes more expensive the credit 

process; (3) the status of the borrower, 

including any related financial 

arrangements of the borrower, the 

financial sophistication of the borrower 

relative to the type of transaction, and 

the importance to the borrower of the 

credit, related supporting property, and 

coverage under TILA; (4) whether the 

loan is secured by the principal 

residence of the borrower; and (5) 

whether the exemption would 

undermine the goal of consumer 

protection. 

The Board has considered each of 

these factors carefully, and based on 

that review, believes that the proposed 

exemption is appropriate. Consumer 

testing conducted on credit card 

disclosures in relation to the January 

2009 Regulation Z Rule shows that 

consumers find the current disclosure of 

an APR that combines rates and fees to 

be confusing. Based on this consumer 

testing, the Board believes that 

consumers are likely confused by the 

effective APR disclosure on HELOC 

accounts. Under this proposal, creditors 

offering HELOCs subject to § 226.5b 

would be required to disclose interest 

and fees in a manner that is more 

readily understandable and comparable 

across institutions. The Board believes 

that this approach can more effectively 

further the goals of consumer protection 

and the informed use of credit for all 

types of open-end credit. 

The Board also considered whether 

there were potentially competing 

considerations that would suggest 

retention of the requirement to disclose 

an effective APR. First, the Board 

considered the extent to which ‘‘sticker 

shock’’ from the effective APR benefits 

consumers, even if the disclosure does 

not enable consumers to compare costs 

meaningfully from month to month or 

for different products. A second 

consideration was whether the effective 

APR may be a hedge against feeintensive pricing by creditors, and if so, 

the extent to which it promotes 

transparency. On balance, however, the 

Board believes that the benefits of 

eliminating the requirement to disclose 

the effective APR outweigh these 

considerations. 

The consumer testing conducted for 

the Board supports this determination. 

Again, with the exception of one round 

of one-on-one testing, the overall results 

of the testing demonstrated that most 

consumers do not correctly understand 

the effective APR. Some consumers in 

the testing offered no explanation of the 

difference between the corresponding 

and effective APR, and others appeared 

to have an incorrect understanding. 

Even if some consumers have some 

understanding of the effective APR, the 

Board believes that sound reasons 

support eliminating the requirement to 

disclose it. Disclosure of the effective 

APR on periodic statements does not 

significantly assist consumers in credit 

shopping, because the effective APR 

disclosed on a periodic statement for a 

HELOC account cannot be compared to 

the corresponding APR disclosed in 

early disclosures given pursuant to 

§ 226.5b. In addition, even within the 

same account, the effective APR for a 

given cycle is unlikely to indicate 

accurately the cost of credit in a future 

cycle, because if any of several factors 

(such as the timing of transactions and 

payments and the amount carried over 

from the prior cycle) is different in the 

future cycle, the effective APR will be 

different even if the amounts of the 

transaction and the fee are the same in 

both cycles. 

As to contentions that the effective 

APR for a particular billing cycle 

provides the consumer a rough 

indication that the cost of repeating 

transactions triggering transaction fees 

is high in some sense, the Board 

believes the proposed requirements to 

disclose interest and fee totals for the 

cycle and year to date will better serve 

that purpose. In addition, the proposed 

interest and fee total disclosure 

requirements would ensure that 

creditors must clearly disclose all costs; 

this should address concerns that 

eliminating the effective APR would 

remove disincentives for creditors to 

adopt fee-intensive pricing on HELOC 

accounts. 

7(a) Rules Affecting Home-Equity Plans 

In the January 2009 Regulation Z 

Rule, the Board provided in § 226.7(a) 

that at their option, creditors offering 

HELOCs subject to § 226.5b may comply 

with the periodic statement 

requirements of § 226.7(b) applicable to 

creditors offering open-end (not homesecured) credit, instead of the 

requirements in § 226.7(a). The Board 

provided this flexibility because some 

creditors may use a single processing 

system to generate periodic statements 

for all open-end products they offer, 

including HELOCs. These creditors 

would have the option to generate 

statements according to a single set of 

rules, until the Board completed its 

review of Regulation Z’s disclosure 

rules for home-secured credit. In this 

proposal, the Board proposes to remove 

the option for creditors offering HELOCs 

to comply with the periodic statement 

requirements of § 226.7(b) applicable to 

creditors offering open-end (not homesecured) credit. Instead, creditors 

offering HELOCs subject to § 226.5b 

would have to comply with the 

requirements in § 226.7(a). Nonetheless, 

the proposed periodic statement 

requirements in § 226.7(a) applicable to 


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HELOC creditors are substantially 

similar to the requirements in § 226.7(b) 

applicable to open-end (not homesecured) plans, except for provisions 

related to the itemization of interest 

charges in § 226.7(a)(6), and certain latepayment disclosures, minimum 

payment disclosures and formatting 

requirements related to those 

disclosures, as discussed in more detail 

below. The Board requests comment on 

whether creditors that currently use a 

single processing system to generate 

periodic statements for all open-end 

products they offer would be able to 

continue to do so under the proposal. 

7(a)(1) Previous Balance 

Section 226.7(a)(1), which 

implements TILA Section 127(b)(1), 

requires a creditor offering HELOCs 

subject to § 226.5b to disclose on the 

periodic statement the account balance 

outstanding at the beginning of the 

billing cycle. 15 U.S.C. 1637(b)(1). The 

Board proposes no changes to these 

disclosure requirements. 

7(a)(2) Identification of Transactions 

Section 226.7(a)(2), which 

implements TILA Section 127(b)(2), 

requires creditors offering HELOCs 

subject to § 226.5b to identify on the 

periodic statement transactions 

according to the rules in § 226.8. 15 

U.S.C. 1637(b)(2). Some HELOC plans 

involve different features, such as a 

variable-rate feature and optional fixedrate features. Comment 7(a)(2)–1 

currently provides that in identifying 

transactions under § 226.7(a)(2) for 

multifeatured plans, creditors may, for 

example, choose to arrange transactions 

by feature or in some other clear 

manner, such as by arranging the 

transactions in chronological order. The 

Board proposes technical revisions to 

this comment, without substantive 

change, to conform this comment to a 

similar comment applicable to open-end 

(not home-secured) credit plans. See 

comment 7(b)(2)–1. Specifically, the 

Board proposes to revise comment 

7(a)(2)–1 to specify that creditors may, 

but are not required to, arrange 

transactions by feature. Thus, creditors 

offering HELOCs subject to § 226.5b 

would still be permitted to list 

transactions chronologically or organize 

transactions in any other way that 

would be clear to consumers. The Board 

also proposes to revise this comment to 

clarify, consistent with proposed 

§ 226.7(a)(6), that all fees and interest 

must be grouped together under 

separate headings and may not be 

interspersed with transactions. 

7(a)(3) Credits 

Section 226.7(a)(3), which 

implements TILA Section 127(b)(3), 

requires creditors offering HELOCs 

subject to § 226.5b to disclose any 

credits to the account during the billing 

cycle. 15 U.S.C. 1637(b)(3). Creditors 

typically disclose credits among other 

transactions. The Board proposes to 

revise comment 7(a)(3)–1 to clarify that 

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 for credits and minus signs 

for debits. 

7(a)(4) Periodic Rates 

Rates that ‘‘may be used.’’ TILA 

Section 127(b)(5) requires creditors to 

disclose all periodic rates that may be 

used to compute the finance charge, and 

the APR that corresponds to the 

periodic rate multiplied by the number 

of periods in a year. See 15 U.S.C. 

1637(b)(5); § 226.14(b). Prior to the 

January 2009 Regulation Z Rule, former 

comment 7(d)–1 interpreted the 

requirement to disclose all periodic 

rates that ‘‘may be used’’ to mean 

‘‘whether or not [the rate] is applied 

during the billing cycle.’’ In the January 

2009 Regulation Z Rule, the Board 

adopted for HELOCs a limited exception 

to TILA Section 127(b)(5) regarding 

promotional rates that were offered but 

not actually applied, to effectuate the 

purposes of TILA to require disclosures 

that are meaningful and to facilitate 

compliance. Specifically, creditors 

offering HELOCs subject to § 226.5b are 

required to disclose a promotional rate 

only if the rate actually applied during 

the billing period. See § 226.7(a)(4)(ii) 

and comment 7(a)(4)–1. The Board 

noted that interpreting TILA to require 

the disclosure of all promotional rates 

would be operationally burdensome for 

creditors and result in information 

overload for consumers. This proposal 

retains the exception in § 226.7(a)(4)(ii). 

Periodic rates. In this proposal, the 

Board proposes to eliminate the 

requirement to disclose periodic rates 

on periodic statements for HELOCs 

subject to § 226.5b. See proposed 

§ 226.7(a)(4) and accompanying 

commentary. Under the proposal, 

creditors would still be required to 

disclose an APR that corresponds to 

each periodic rate that may be used to 

compute the finance charge. For 

example, assume a monthly periodic 

rate of 1.5 percent applies to 

transactions on a HELOC account. The 

corresponding APR to this periodic rate 

would be 18 percent. Under the 

proposal, creditors would be required to 

disclose the 18 percent corresponding 

APR, but would not be required to 

disclose the 1.5 percent periodic rate. 

The Board proposes to eliminate the 

requirement to disclose periodic rates 

on periodic statements, pursuant to the 

Board’s exception and exemption 

authorities under TILA Section 105. 

Section 105(a) authorizes the Board to 

make exceptions to TILA to effectuate 

the statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uninformed use of 

credit. See 15 U.S.C. 1601(a), 1604(a). 

Section 105(f) authorizes the Board to 

exempt any class of transactions from 

coverage under any part of TILA if the 

Board determines that coverage under 

that part does not provide a meaningful 

benefit to consumers in the form of 

useful information or protection. See 15 

U.S.C. 1604(f)(1). The Board must make 

this determination in light of specific 

factors. See 15 U.S.C. 1604(f)(2). These 

factors are (1) the amount of the loan 

and whether the disclosure provides a 

benefit to consumers who are parties to 

the transaction involving a loan of such 

amount; (2) the extent to which the 

requirement complicates, hinders, or 

makes more expensive the credit 

process; (3) the status of the borrower, 

including any related financial 

arrangements of the borrower, the 

financial sophistication of the borrower 

relative to the type of transaction, and 

the importance to the borrower of the 

credit, related supporting property, and 

coverage under TILA; (4) whether the 

loan is secured by the principal 

residence of the borrower; and (5) 

whether the exemption would 

undermine the goal of consumer 

protection. 

For this proposal, the Board 

considered each of these factors 

carefully, and based on that review, 

determined that the proposed 

exemption is appropriate. In consumer 

testing conducted for the Board on 

credit card disclosures in relation to the 

January 2009 Regulation Z Rule, 

consumers indicated they do not use 

periodic rates to verify interest charges. 

Based on this consumer testing, the 

Board believes consumers are not likely 

to use periodic rates to verify interest 

charges for HELOC accounts. Requiring 

periodic rates to be disclosed on 

periodic statements may detract from 

more important information on the 

statement, and contribute to information 

overload. Thus, eliminating periodic 

rates from the periodic statement has 

the potential to further the goals of 

consumer protection and the informed 

use of credit for HELOCs more 

effectively than if they are included. 


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The Board notes that under the 

proposal, creditors may continue to 

disclose the periodic rate, as long as the 

additional information is presented in a 

way that is consistent with creditors’ 

duty to provide required disclosures 

clearly and conspicuously. See 

proposed comment app. G–15. 

Labeling APRs. Currently creditors 

offering HELOCs subject to § 226.5b are 

provided with considerable flexibility in 

identifying the APR that corresponds to 

the periodic rate. Comment 7(a)(4)–4 

permits labels such as ‘‘corresponding 

annual percentage rate,’’ ‘‘nominal 

annual percentage rate,’’ or 

‘‘corresponding nominal annual 

percentage rate.’’ This proposal would 

amend § 226.7(a)(4) to require creditors 

offering HELOCs subject to § 226.5b to 

label the APR disclosed under 

§ 226.7(a)(4) as the ‘‘annual percentage 

rate.’’ Comment 7(a)(4)–4 would be 

deleted. The proposal is intended to 

promote uniformity in how the ‘‘interest 

only’’ APR is described in HELOC 

disclosures. Under §§ 226.5b and 226.6, 

creditors must use the term ‘‘annual 

percentage rate’’ to describe the 

‘‘interest only’’ APR(s) that must be 

disclosed in the tabular disclosures 

described in proposed § 226.5b(b) 

provided to a consumer within three 

business days after the consumer 

submits an application (but no later 

than account opening) and in the 

tabular disclosures described in 

proposed § 226.6(a)(1) provided at 

account opening. See proposed Model 

Forms G–14(A) and G–15(A). 

Combining interest and other charges. 

Currently, creditors offering HELOCs 

subject to § 226.5b must disclose finance 

charges attributable to periodic rates. 

These costs are typically interest 

charges but may include other costs 

such as premiums for required credit 

insurance. If applied to the same 

balance, creditors may disclose each 

rate, or a combined rate. See comment 

7(a)(4)–3. As discussed below, 

consumer testing for the Board 

conducted on credit card disclosures in 

relation to the January 2009 Regulation 

Z Rule indicated that participants 

appeared to understand credit costs in 

terms of ‘‘interest’’ and ‘‘fees.’’ Because 

consumers tend to associate periodic 

rates with ‘‘interest,’’ it seems unhelpful 

to consumers’ understanding to permit 

creditors to include periodic rate 

charges other than interest in the dollar 

cost disclosed for ‘‘interest.’’ Thus, the 

Board proposes to require creditors 

offering HELOCs subject to § 226.5b that 

impose finance charges attributable to 

periodic rates (other than interest) to 

disclose the amount of those charges in 

dollars as a ‘‘fee.’’ See section-by-section 

analysis to § 226.7(a)(6) below. This 

proposal would delete current guidance 

in comment 7(a)(4)–3, which permits 

periodic rates attributable to interest 

and other finance charges to be 

combined. 

In addition, the Board proposes to add 

new comment 7(a)(4)–4 to provide 

guidance to creditors when a fee is 

imposed, remains unpaid, and interest 

accrues on the unpaid balance. The 

proposed comment provides that 

creditors disclosing fees in accordance 

with the format requirements of 

§ 226.7(a)(6) need not separately 

disclose which periodic rate applies to 

the unpaid fee balance. 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. 

7(a)(5) Balance on Which Finance 

Charge Is Computed 

Section 226.7(a)(5), which 

implements TILA Section 127(b)(7), 

currently requires creditors offering 

HELOCs subject to § 226.5b to disclose 

the amount of the balance to which a 

periodic rate was applied and an 

explanation of how the balance was 

determined. 15 U.S.C. 127(b)(7) The 

Board provides model clauses that 

creditors may use to explain common 

balance computation methods. See 

Model Clauses G–1. The staff 

commentary to § 226.7(a)(5) interprets 

how creditors may comply with TILA in 

disclosing the ‘‘balance,’’ which 

typically changes in amount throughout 

the cycle, on periodic statements. 

Explanation of how finance charges 

may be verified. In disclosing the 

amount of the balance to which a 

periodic rate was applied, creditors 

offering HELOCs subject to § 226.5b that 

use a daily balance method are 

permitted to disclose an average daily 

balance for the period, so long as they 

explain that the amount of the finance 

charge can be verified by multiplying 

the average daily balance by the number 

of days in the statement period, and 

then applying the periodic rate. See 

comment 7(a)(5)–4. The Board proposes 

to revise comment 7(a)(5)–4 to permit 

creditors offering HELOCs subject to 

§ 226.5b, at their option, not to include 

an explanation of how the finance 

charge may be verified for creditors that 

use a daily balance method. As a result, 

the Board proposes to retain the rule 

permitting creditors to disclose an 

average daily balance but eliminate the 

requirement to provide the explanation. 

Consumer testing conducted for the 

Board on credit card disclosures in 

relation to the January 2009 Regulation 

Z Rule suggested that the explanation 

may not be used by consumers as an aid 

to calculate their interest charges. 

Participants suggested that if they had 

questions about how the balances were 

calculated or wanted to verify interest 

charges based on information on the 

periodic statement, they would call the 

creditor for assistance. Based on this 

consumer testing, the Board believes 

that the explanation may not be useful 

to consumers with HELOC accounts. 

In addition, the Board proposes to 

require creditors offering HELOCs 

subject to § 226.5b to refer to the balance 

as ‘‘balances subject to interest rate,’’ to 

complement proposed revisions 

intended to further consumer 

understanding of interest charges, as 

distinguished from fees. See section-bysection analysis to § 226.7(b)(6). 

Proposed Samples G–24(B) and G–24(C) 

illustrate this format requirement. 

Explanation of balance computation 

method. As discussed above, creditors 

offering HELOCs subject to § 226.5b 

currently must disclose the amount of 

the balance to which a periodic rate was 

applied and an explanation of how the 

balance was determined. This proposal 

contains an alternative to providing an 

explanation of how the balance was 

determined. Under proposed 

§ 226.7(a)(5), a creditor that uses a 

balance computation method identified 

in § 226.5a(g) would have two options. 

The creditor could: (1) Provide an 

explanation, as the rule currently 

requires, or (2) identify the name of the 

balance computation method and 

provide a toll-free telephone number 

where consumers may obtain more 

information from the creditor about how 

the balance is computed and resulting 

interest charges are determined. If the 

creditor uses a balance computation 

method that is not identified in 

§ 226.5a(g), the creditor would be 

required to provide a brief explanation 

of the method. Under the proposal, 

comment 7(a)(5)–6, which refers 

creditors to guidance in comment 

6(a)(1)(ii)–1 about disclosing balance 

computation methods, would be deleted 

as unnecessary. The Board’s proposal is 

guided by the following factors. 

Calculating balances on open-end 

plans can be complex, and requires an 

understanding of how creditors allocate 

payments, assess fees, and record 

transactions as they occur during the 

cycle. Currently, neither TILA nor 

Regulation Z requires creditors to 

disclose on periodic statements all the 

information necessary to compute a 


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balance, and requiring that level of 

detail appears unwarranted. Although 

the Board’s model clauses are intended 

to assist creditors in explaining common 

balance computation methods, 

consumers continue to find these 

explanations lengthy and complex. As 

stated earlier, consumer testing 

conducted on credit card disclosures in 

relation to the January 2009 Regulation 

Z Rule indicates that consumers call the 

creditor for assistance when they have 

questions on how to calculate balances 

and verify interest charges. 

7(a)(6) Charges Imposed 

Section 227.7(a)(6)(i), which 

implements TILA Section 127(b)(4), 

requires creditors offering HELOC 

subject to § 226.5b to disclose on the 

periodic statement the amount of any 

finance charge added to the account 

during the period, itemized to show 

amounts due to the application of 

periodic rates and the amount imposed 

as a fixed or minimum charge. 15 U.S.C. 

1637(b)(4). In addition, § 226.7(a)(6)(ii) 

requires these creditors to disclose on 

the periodic statement the amount, 

itemized and identified by type, of any 

‘‘other charges’’ debited to the account 

during the billing cycle. Some charges 

do not fall with the ‘‘finance charge’’ 

and ‘‘other charges’’ categories and thus 

are not required to be disclosed on the 

periodic statement even if they are 

imposed in a particular billing cycle. 

See current comment 6(a)(2)–2. 

As discussed in the section-by-section 

analysis to proposed § 226.6(a)(3), the 

Board proposes to create a single 

category of charges, namely ‘‘charges 

imposed as part of home-equity plans.’’ 

Consistent with proposed § 226.6(a)(3), 

proposed § 226.7(a)(6) requires creditors 

offering HELOCs subject to § 226.5b to 

disclose on the periodic statement the 

amount of any charge imposed as part 

of a HELOC plan, as stated in proposed 

§ 226.6(a)(3), for the statement period. 

Charges imposed as part of a HELOC 

plan consist of two types of charges— 

interest and fees. Proposed 

§ 226.7(a)(6)(ii) establishes periodic 

statement disclosure requirements for 

interest charges. If different periodic 

rates apply to different types of 

transactions, creditors offering HELOCs 

subject to § 226.5b would be required to 

itemize interest charges for the 

statement period by type of transaction 

or group of transactions subject to 

different periodic rates. The Board 

proposes that these itemized interest 

charges must be grouped together. In 

addition, the Board proposes to require 

a creditor to disclose a total of interest 

charges disclosed for the statement 

period and calendar year. See proposed 

§ 226.7(a)(6)(ii). Proposed § 226.7(a)(iii) 

establishes periodic statement 

disclosure requirements for fees. The 

Board proposes that fee imposed during 

the statement period must be itemized 

and grouped together, and a total of fees 

disclosed for the statement period and 

calendar year to date. See proposed 

§ 226.7(a)(6)(iii). In addition, the Board 

proposes that these disclosures 

regarding interest and fees must be 

grouped together in proximity to the 

transactions identified under 

§ 226.7(a)(2), in a manner substantially 

similar to Sample G–24(A) in Appendix 

G to part 226. See proposed 

§ 226.7(a)(6)(i). 

Charges imposed as part of the plan. 

As discussed above, under the proposal, 

creditors would be required to disclose 

on the periodic statement the amount of 

any charges imposed as part of a HELOC 

plan, as stated in proposed § 226.6(a)(3), 

for the statement period. Guidance on 

which charges would be deemed to be 

imposed as part of the plan is in 

proposed § 226.6(a)(3)(ii) and 

accompanying commentary. As 

discussed in the section-by-section 

analysis to proposed § 226.6(a)(3), 

coverage of charges is broader under the 

proposed standard of ‘‘charges imposed 

as part of the plan’’ than under current 

standards for finance charges and other 

charges. While the Board understands 

that some creditors offering HELOCs 

subject to § 226.5b have been disclosing 

on the statement all charges debited to 

the account regardless of whether they 

are now defined as ‘‘finance charges,’’ 

‘‘other charges,’’ or charges that do not 

fall into either category, other creditors 

currently do not disclose on periodic 

statements the charges that fall outside 

the current ‘‘finance charge’’ and ‘‘other 

charge’’ categories. Nonetheless, the 

Board believes that requiring creditors 

to disclose on the periodic statement all 

charges imposed as part of the HELOC 

plan that are charged during a particular 

billing cycle would help ensure that 

consumers are informed of these charges 

Labeling costs imposed as part of the 

plan as interest or fees. For creditors 

offering HELOCs subject to § 226.5b, the 

Board proposes to delete the 

requirement in § 226.7(a)(6) to label 

finance charges as such. Consumer 

testing conducted for the Board on 

credit card disclosures in relation to the 

January 2009 Regulation Z Rule 

indicated that most participants 

reviewing mock credit card periodic 

statements could not correctly explain 

the term ‘‘finance charge.’’ Consumers 

generally understand interest as the cost 

of borrowing money over time and view 

other costs—regardless of their 

characterization under TILA and 

Regulation Z—as fees. Based on this 

consumer testing, the Board proposes to 

amend § 226.7(a)(6) to label costs as 

either ‘‘interest charge’’ or ‘‘fees’’ rather 

than ‘‘finance charge’’ to align more 

closely with consumers’ understanding. 

Interest charges. TILA Section 

127(b)(4) requires creditors to disclose 

on periodic statements the amount of 

any finance charge added to the account 

during the period, itemized to show 

amounts due to the application of 

periodic rates and the amount imposed 

as a fixed or minimum charge. See 15 

U.S.C. 1637(b)(4). This current 

requirement with respect to creditors 

offering HELOCs subject to § 226.5b is 

implemented in § 226.7(a)(6)(i), which 

gives considerable flexibility regarding 

totaling or subtotaling finance charges 

attributable to periodic rates and other 

fees. See current § 226.7(a)(6)(i) and 

comments 7(a)(6)(i)–1, –2, –3, and –4. 

As discussed in more detail below, the 

Board proposes to amend § 226.7(a)(6) 

to require creditors offering HELOCs 

subject to § 226.5b to disclose total 

interest charges, for the statement 

period and year to date, labeled as such. 

In addition, if different periodic rates 

apply to different types of transactions, 

creditors offering HELOCs subject to 

§ 226.5b would be required to itemize 

finance charges attributable to interest 

by type of transaction, or group of 

transactions subject to different periodic 

interest rates, labeled as such. Creditors 

offering HELOCs subject to § 226.5b, at 

their option, would be allowed to 

itemize interest charges by transaction 

type, even if the same periodic interest 

rates apply to those transactions. A 

creditor would be required to group all 

itemized interest charges on an account 

together, regardless of whether the 

interest charges are attributable to 

different authorized users or subaccounts. See proposed § 226.7(a)(6)(ii). 

Under this proposal, finance charges 

attributable to periodic rates other than 

interest charges, such as required credit 

insurance premiums, would be required 

to be identified as fees and would not 

be permitted to be combined with 

interest costs. See proposed comments 

7(a)(4)–3 and 7(a)(6)–3. 

The Board understands that for most 

HELOCs subject to § 226.5b, the same 

variable rate on the account applies to 

most transactions on the account, 

regardless of the type of transactions 

(e.g., purchases or cash advances) and 

regardless of whether these transactions 

are initiated by check, wire transfer or 

by a credit card device linked to the 

HELOC. In some cases, creditors may 

offer optional features on the HELOC at 

different periodic interest rates from the 

generally applicable variable rate 


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feature, such as fixed-rate features. 

Under the proposal, in this example, 

creditors offering HELOCs subject to 

§ 226.5b would be required to itemize 

the interest charges applicable to the 

general variable-rate feature separate 

from the interest charges applicable to 

other features (such as fixed rate 

optional features) that are subject to 

different periodic interest rates. 

Proposed Sample G–24(A) in Appendix 

G to part 226 illustrates the proposal. 

Although creditors offering HELOCs 

subject to § 226.5b are not currently 

required to itemize interest charges, 

these creditors often do so. For example, 

creditors may separately disclose the 

dollar interest costs associated with 

advances under the general variable-rate 

feature and advances under fixed-rate 

optional features. The Board believes 

that the breakdown of interest charges 

by features subject to different periodic 

interest rates enables consumers to 

better understand the cost of using each 

feature. 

This proposal regarding itemization of 

interest charges differs from the 

provision for itemization of interest 

charges applicable to open-end (not 

home-secured) credit plans that the 

Board adopted in the January 2009 

Regulation Z Rule. Specifically, 

creditors offering open-end (not homesecured) credit plans must itemize 

interest charges by transaction type, 

regardless of whether the same rate 

applies to the types of transactions. 

Unlike for open-end (not home-secured) 

credit, the Board is not proposing for 

HELOC accounts to require an 

itemization of interest charges by 

transaction type in all cases, even if the 

same rates apply to those types of 

transactions (although creditors are 

permitted to do so). The distinction 

between types of transactions (such as 

purchases and cash advances) is 

generally more important for open-end 

(not home-secured) credit plans— 

particularly unsecured credit card 

accounts—than for HELOCs. For 

unsecured credit card accounts, 

different rates, fees and other account 

terms typically apply to purchases and 

cash advances. The Board believes that 

requiring a breakdown of interest 

charges by transactions type in all cases 

for unsecured credit cards, even if a 

particular unsecured credit card does 

not apply different rates to purchases 

and cash advances, provides for 

uniformity in periodic statements and 

allows consumers to compare more 

easily one unsecured credit card 

account with other unsecured credit 

card accounts the consumer may have. 

As discussed above, most HELOC 

accounts do not charge different rates on 

purchases and cash advances. 

Fees. For HELOC accounts, existing 

§ 226.7(a)(6)(ii) requires the disclosure 

of ‘‘other charges’’ parallel to the 

requirement in TILA Section 127(a)(5) 

and § 226.6(b) to disclose such charges 

at account opening. See 15 U.S.C. 

1637(a)(5). Consistent with current rules 

to disclose ‘‘other charges,’’ proposed 

§ 226.7(a)(6)(iii) requires that charges 

other than interest be identified 

consistent with the feature (e.g., cash 

advances or fixed-rate transactions) or 

type (e.g., late-payment or over-thelimit), and itemized. The proposal 

differs from current requirements in the 

following respect: Fees would be 

required to be grouped together and a 

total of all fees for the statement period 

and year to date would be required, as 

discussed in more detail below. 

In consumer testing conducted on 

credit card disclosures in relation to the 

January 2009 Regulation Z Rule, the 

Board tested in the fall of 2008 

consumers’ ability to identify fees (1) on 

periodic statements where fees were 

grouped together and (2) on periodic 

statements where fees were interspersed 

with transactions, and the fees and 

transactions were listed in chronological 

order. Testing evidence showed that the 

periodic statement with grouped fees 

performed better among participants 

with respect to identifying fees. 

Consumers’ ability to match a 

transaction fee to the transaction giving 

rise to the fee was also tested. Among 

participants who correctly identified the 

transaction to which they were asked to 

find the corresponding fee, a larger 

percentage of consumers who saw a 

statement on which account activity 

was arranged chronologically were able 

to match the fee to the transaction than 

when the fees were grouped together; 

however, out of the participants who 

were able to identify the transaction to 

which they were asked to find the 

corresponding fee, the percentage of 

participants able to find the 

corresponding fee was very high for 

both types of listings. 

The Board believes that the ability to 

identify all fees is important for 

consumers to assess their cost of credit. 

As discussed above, the Board would 

expect that the vast majority of 

consumers with HELOC accounts would 

not comprehend the effective APR; thus, 

the Board believes that highlighting fees 

and interest for consumers would more 

effectively inform consumers of their 

costs of credit on HELOC accounts. As 

also discussed above, the results of 

consumer testing on credit card 

disclosures indicated that grouping fees 

together on periodic statements for 

unsecured credit cards helped 

consumers find fees more easily. Based 

on this consumer testing, the Board 

proposes under § 226.7(a)(6)(iii) to 

require creditors offering HELOCs 

subject to § 226.5b to group fees 

together. The Board proposes this rule 

pursuant to its authority in TILA 

Section 105(a) to make adjustments and 

exceptions to the requirements in TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 

ability to compare credit terms and 

helping consumers avoid the uniformed 

use of credit. See 15 U.S.C. 1601(a), 

1604(a). Under the proposal, a creditor 

would be required to group all fees 

assessed on the account during the 

billing cycle together under one heading 

even if fees may be attributable to 

different users of the account or to 

different sub-accounts. 

The Board solicits comment on this 

aspect of the proposal. Specifically, the 

Board solicits comment on whether 

grouping fees together (and not allowing 

them to be interspersed with 

transactions) is necessary to help 

consumer find fees more easily on 

HELOC accounts. The Board 

understands that consumers may use 

unsecured credit cards differently than 

HELOC accounts, even where the 

HELOC is linked to a credit card device. 

For example, consumers may use 

unsecured credit cards to engage in a 

significant number of smaller 

transactions per billing cycle. On the 

other hand, consumers appear to use 

their HELOC accounts for only a small 

number of larger transactions each 

billing cycle, even if those HELOCs are 

linked to credit card devices. 

Consumers may have more difficulty 

identifying fees on unsecured credit 

cards when the fees are interspersed 

with transactions because of the large 

number of transactions shown on the 

periodic statement. The Board solicits 

comment on the typical number of 

transactions and fees shown on periodic 

statements for HELOC accounts. The 

Board also solicits comment on the 

burden on creditors and the benefit to 

consumers of requiring fees to be 

grouped together on periodic statements 

for HELOC accounts. 

Cost totals for the statement period 

and year to date. Under this proposal, 

creditors offering HELOCs subject to 

§ 226.5b would be required to disclose 

the total amount of interest charges and 

fees for the statement period and 

calendar year to date. See proposed 

§ 226.7(a)(6)(ii) and (iii). The Board 

believes that providing consumers with 

the total of interest and fee costs, 

expressed in dollars, for the statement 

period and year to date would be a 


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significant enhancement to consumers’ 

ability to understand the overall cost of 

credit for the account. The Board’s 

consumer testing on credit card 

disclosures in relation to the January 

2009 Regulation Z Rule indicates that 

consumers notice and understand credit 

costs expressed in dollars. In addition, 

year-to-date cost information enables 

consumers to evaluate how the use of an 

account may impact the amount of 

interest and fees charged over the year 

and thus promotes the informed use of 

credit. 

Proposed comment 7(a)(6)–3 provides 

guidance on how creditors may disclose 

the year-to-date totals at the end of a 

calendar year on monthly and quarterly 

statements. Proposed comment 7(a)(6)– 

5 provides guidance on creditors’ duty 

to reflect refunded fees or interest in 

year-to-date totals. 

Proposed comments 7(a)–6 and –7 

clarify a creditor’s obligations under 

§ 227.7(a)(6) when it acquires a HELOC 

account from another creditor or when 

a creditor replaces one HELOC account 

it has with a consumer with another 

HELOC account. The proposed 

comments would generally provide that 

the creditor must include the interest 

charges and fees incurred by the 

consumer prior to the account 

acquisition or replacement in the 

aggregate totals provided for the 

statement period and calendar year to 

date after the change. At the creditor’s 

option, the creditor would be allowed to 

add the prior charges and fees to the 

disclosed totals following the change, or 

it may provide separate totals for each 

time period. Comment is requested 

regarding the operational issues 

associated with carrying over cost totals 

in the circumstances described in the 

proposed commentary. 

Format requirements. Under proposed 

§ 226.7(a)(6)(i), interest charges and fees 

must be grouped together and listed in 

proximity to transactions identified 

under § 226.7(a)(2), in a manner 

substantially similar to proposed 

Sample G–24(A) in Appendix G to part 

226. In consumer testing conducted by 

the Board on credit card disclosures in 

relation to the January 2009 Regulation 

Z Rule, consumers consistently 

reviewed transactions identified on 

their periodic statements and noticed 

fees and interest charges when they 

were grouped together, and disclosed in 

proximity to the transactions on the 

statement. The Board believes that 

similar results would exist with respect 

to HELOC accounts. Some HELOC 

creditors also disclose these costs in 

account summaries or in a progression 

of figures associated with disclosing 

finance charges attributable to periodic 

interest rates. This proposal does not 

affect creditors’ flexibility to provide 

this information in these summaries. 

See proposed Samples G–24(B) and G– 

24(C), which illustrate, but do not 

require, these summaries. Nonetheless, 

creditors would be required to group 

interest charges and fees together and 

list them in proximity to transaction 

identified in § 226.7(a)(2), regardless of 

whether these creditors also provide 

information about interest and fees in 

the account summaries. The Board 

believes that TILA’s purpose to promote 

the informed use of credit would be 

furthered significantly if consumers are 

uniformly provided basic cost 

information—interest and fees—in a 

location they routinely review. 

7(a)(7) Change-in-Terms and Increased 

Penalty Rate Summary 

For the reasons set forth in the 

section-by-section analysis to proposed 

§ 226.9(c) and (i), the Board proposes to 

require creditors that provide a changein-terms notice required by proposed 

§ 226.9(c)(1), or a rate increase notice 

required by proposed § 226.9(i), on or 

with the periodic statement, to disclose 

the information in proposed 

§ 226.9(c)(1)(iii)(A) or proposed 

§ 226.9(i)(3) on the periodic statement in 

accordance with the format 

requirements in proposed 

§ 226.9(c)(1)(iii)(B), and proposed 

§ 226.9(i)(4). 

7(a)(8) Grace Period 

Section 226.7(a)(8), which 

implements TILA Section 127(b)(9), 

requires a creditor offering HELOCs 

subject to 226.5b to 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 must be paid to avoid 

additional finance charges. 15 U.S.C. 

1637(b)(9). If such a time period is 

provided, a creditor may, at its option 

and without disclosure, impose no 

finance charge if payment is received 

after the time period’s expiration. 

Comment 7(a)(8)–1 provides that 

although the creditor is required under 

§ 226.7(a)(8) to indicate on the periodic 

statement any time period the consumer 

may have to pay the balance 

outstanding without incurring 

additional finance charges, no specific 

wording is required, so long as the 

language used is consistent with that 

used on the account-opening disclosure 

statement. 

The Board proposes to revise this 

comment to provide that in describing 

the grace period, the language used 

must be consistent with that used on the 

account-opening disclosure statement 

and to cross reference proposed 

§ 226.6(a)(2)(xxi) that contains required 

terminology that a creditor must use in 

describing a grace period beneath the 

account-opening table described in 

proposed § 226.6(a)(1). As discussed in 

the section-by-section analysis to 

proposed § 226.6(a)(2)(xxi), the Board 

proposes to require that a creditor 

disclose below the account-opening 

table the date by which or the period 

within which any credit extended may 

be repaid without incurring a finance 

charge due to a periodic interest rate 

and any conditions on the availability of 

the grace period. In disclosing a grace 

period that applies to all features on the 

account, the Board proposes to require 

a creditor to use the phrase ‘‘How to 

Avoid Paying Interest’’ as the heading 

for the information below the table 

describing the grace period. 

7(a)(9) Address for Notice of Billing 

Errors 

Consumers who allege billing errors 

must do so in writing. See 15 U.S.C. 

1666; § 226.13(b). Section 226.7(a)(9), 

which implements TILA Section 

127(b)(10), requires creditors offering 

HELOCs subject to § 226.5b must 

provide on or with periodic statements 

an address for this purpose. 15 U.S.C. 

1637(b)(10). Former comment 7(k)–1 

provides that creditors may also provide 

a telephone number along with the 

mailing address as long as the creditor 

makes clear a telephone call to the 

creditor will not preserve consumers’ 

billing error rights. In many cases, an 

inquiry or question can be resolved in 

a phone conversation, without requiring 

the consumer and creditor to engage in 

a formal error resolution procedure. 

In the January 2009 Regulation Z 

Rule, the Board moved this comment to 

7(a)(9)–2 and updated it to address 

notification by e-mail or via a Web site. 

Specifically, this comment states that 

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 via 

a 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. (See also comment 

13(b)–2, which addresses circumstances 

under which electronic notices are 

deemed to satisfy the written billing 

error requirement.) This rule gives 

consumers flexibility to attempt to 

resolve inquiries or questions about 

billing statements informally, while 

advising them that if the matter is not 

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mail, the consumer must submit a 

written inquiry to preserve billing error 

rights. Under this proposal, the revised 

comment would be retained in 7(a)(9)– 

2. 

7(a)(10) Closing Date of Billing Cycle; 

New Balance 

Section 226.7(a)(10), which 

implements TILA Section 127(b)(8), 

requires creditors offering HELOCs 

subject to § 226.5b to disclose the 

closing date of the billing cycle and the 

account balance outstanding on that 

date. 15 U.S.C. 1637(b)(8). The Board 

proposes no changes to these disclosure 

requirements. 

Late-Payment Disclosures 

In 2005, the Bankruptcy Act amended 

TILA to add Section 127(b)(12), which 

required creditors that charge a latepayment fee to disclose on the periodic 

statement (1) the payment due date, or, 

if the due date differs from when a latepayment fee would be charged, the 

earliest date on which the late-payment 

fee may be charged, and (2) the amount 

of the late-payment fee. See 15 U.S.C. 

1637(b)(12). In the January 2009 

Regulation Z Rule, the Board 

implemented this section of TILA for 

open-end (not home-secured) plans. In 

addition, in the SUPPLEMENTARY

INFORMATION to the January 2009 

Regulation Z Rule, the Board stated its 

intention to implement this section of 

TILA for HELOC accounts subject to 

§ 226.5b as part of its review of rules 

affecting home-secured credit. 

The Credit Card Act (cited above) was 

enacted in May 2009. Section 202 of the 

Credit Card Act amends TILA Section 

127(b)(12) to provide that for a ‘‘credit 

card account under an open-end 

consumer credit plan,’’ a credit card 

issuer that charges a late-payment fee 

must disclose in a conspicuous location 

on the periodic statement (1) the 

payment due date, or, if the due date 

differs from when a late-payment fee 

would be charged, the earliest date on 

which the late-payment fee may be 

charged, and (2) the amount of the latepayment fee. In addition, if a late 

payment may result in an increase in 

the APR applicable to the account, a 

credit card issuer also must provide on 

the periodic statement a disclosure of 

this fact, along with the applicable 

penalty APR. The disclosure related to 

the penalty APR must be placed in close 

proximity to the due-date disclosure 

discussed above. Finally, if a credit card 

issuer is a financial institution which 

maintains branches or offices at which 

payments on a credit card account 

under an open-end consumer credit 

plan are accepted from a cardholder in 

person, the date on which the 

cardholder makes a payment on the 

account at the branch or office must be 

considered to be the date on which the 

payment is made for determining 

whether a late-payment fee may be 

imposed due to the failure of the 

cardholder to make payment by the due 

date for such payment. These 

amendments to TILA Section 127(b)(12) 

become effective February 22, 2010. See 

Credit Card Act § 3. 

The Board is interpreting the term 

‘‘credit card account under an open-end 

consumer credit plan,’’ as that term is 

used in TILA Section 127(b)(12), not to 

include HELOC accounts subject to 

§ 226.5b, even if those accounts may be 

accessed by a credit card device. Thus, 

the provisions in TILA Section 

127(b)(12), as amended by the Credit 

Card Act, would not apply to HELOC 

accounts. The Board makes this 

interpretation pursuant to its authority 

in TILA Section 105(a) to prescribe 

regulations to carry out the statute’s 

purposes, which include facilitating 

consumers’ ability to compare credit 

terms and helping consumers avoid the 

uniformed use of credit. See 15 U.S.C. 

1601(a), 1604(a). 

In addition, the Board does not 

propose to use its authority in TILA 

Section 105(a) to make adjustments that 

are necessary to effectuate the purposes 

of TILA to apply newly-revised TILA 

Section 127(b)(12) to HELOC accounts 

subject to § 226.5b. 15 U.S.C. 1604(a). 

The Board believes that the latepayment disclosures and the provision 

about crediting of payments made at a 

financial institution’s branches or 

offices are not needed for HELOC 

accounts to effectuate the purposes of 

TILA. The consequences to a consumer 

of not making the minimum payment by 

the due date are less severe for HELOC 

accounts than for unsecured credit 

cards. As discussed in more detail 

below, unlike with unsecured credit 

cards, creditors offering HELOC 

accounts subject to § 226.5b typically do 

not impose a late-payment fee until 10– 

15 days after the payment is due. In 

addition, under the proposal, creditors 

offering HELOC accounts would be 

restricted from terminating and 

accelerating the account, permanently 

suspending the account or reducing the 

credit line, or imposing penalty rates or 

penalty fees (except for the contractual 

late-payment fee) for a consumer’s 

failure to pay the minimum payment 

due on the account, unless the payment 

is more than 30 days late. 

Late-payment fee. For HELOC 

accounts, the Board does not believe 

that disclosure of the late-payment fee is 

needed on the periodic statement to 

effectuate the purposes of TILA. The 

Board understands that creditors 

offering HELOCs subject to § 226.5b 

generally are restricted by state law, or 

the terms of the account agreement or 

both, from imposing a late-payment fee 

until a certain number of days have 

elapsed following a due date—typically 

10–15 days after the due date. In 

contrast, most unsecured credit card 

issuers will impose a late-payment fee if 

the payment is not received by the due 

date. Some unsecured credit card 

issuers may provide informal ‘‘courtesy 

periods’’ that are not part of the legal 

agreement where the card issuer will 

not impose a late-payment fee if a 

cardholder’s payment is received after 

the due date but before the end of the 

‘‘courtesy period.’’ Nonetheless, these 

‘‘courtesy periods’’ are typically only 

one to three days, not 10–15 days long. 

In addition, some unsecured credit 

card issuers currently consider payment 

in person at their branches or offices to 

be non-conforming payments, and thus, 

under current Regulation Z, may delay 

crediting of these payments for up to 

five days after these payments are 

received at the branch or office. See 

current § 226.10(b). Under the Credit 

Card Act, unsecured credit card issuers 

must consider the date on which a 

person makes payment in person at the 

issuer’s branches or offices as the date 

on which the payment is made for 

determining whether a late-payment fee 

may be imposed. By contrast, even if 

creditors offering HELOCs subject to 

§ 226.5b treat payments in person at 

branches or offices as non-conforming 

payments and delay crediting of these 

payments for up to five days after the 

payments are received, this delay in 

crediting typically will not result in 

late-payment fees because, as discussed 

above, creditors for HELOC accounts 

typically do not impose late-payment 

fees until the account is 10–15 days past 

due. 

Penalty rates and fees. Under the 

Credit Card Act, if a late payment may 

result in an increase in the APR 

applicable to the account, a credit card 

issuer offering an unsecured credit card 

account must provide on the periodic 

statement a disclosure that a late 

payment may result in a penalty APR, 

along with the applicable penalty APR. 

For unsecured credit card accounts, 

some credit card issuers currently 

increase the rates applicable to both 

existing balances and new transactions 

on a consumer’s account to a penalty 

rate if a consumer does not pay by the 

due date just one time. Under Section 

101 of the Credit Card Act, unsecured 

credit card issuers would be restricted 

from increasing a rate or fee during the 


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first year after an account is opened 

unless the consumer is more than 60 

days late in making the minimum 

payment, in which case the creditor 

could apply the increase rate or fee to 

existing balances and new transactions. 

See Credit Card Act § 101(b). After the 

first year an account is opened, 

unsecured credit card issuers may 

increase rates or fees on new 

transactions for a late payment, even if 

the consumer is only one day late in 

making the minimum payment. If the 

consumer is more than 60 days late, an 

unsecured credit card issuer may 

increase the rates or fees on all 

transactions (including existing 

balances). Credit Card Act § 101(d). 

These provisions become effective 

February 22, 2010. See Credit Card Act 

§ 3. 

The Board does not believe that a 

disclosure of the penalty APR on the 

periodic statement is needed for HELOC 

accounts to effectuate the purposes of 

TILA. In this proposal, the Board 

proposes strict limits on when penalty 

rates or penalty fees may be imposed for 

HELOCs subject to § 226.5b. As 

discussed in the section-by-section 

analysis to § 226.5b(f), the Board 

proposes to restrict creditors offering 

HELOCs subject to § 226.5b from 

imposing a penalty rate or penalty fees 

(except for a contractual late-payment 

fee) on the account for a consumer’s 

failure to pay the account when due, 

unless the consumer is more than 30 

days late in paying the account. As 

discussed above, under the Credit Card 

Act, after the first year an account is 

opened, unsecured credit card issuers 

may increase rates or fees on new 

transactions for a late payment, even if 

the consumer is only one day late in 

making the minimum payment. Unlike 

with unsecured credit cards, even after 

the first year that the account is open, 

creditors offering HELOC accounts 

subject to § 226.5b could not impose 

penalty rates or penalty fees (except for 

a contractual late-payment fee) on new 

transactions for a consumer’s failure to 

pay the minimum payment on the 

account, unless the consumer’s payment 

is more than 30 days late. 

Other actions. Under the proposal, 

HELOC creditors would not be 

restricted from temporarily suspending 

the account or reducing the line if a 

consumer does not pay by the due date 

(assuming that failure to pay by the due 

date is considered a default of a material 

obligation under the HELOC contract). 

See § 226.5b(f)(3)(vi)(C). Nonetheless, 

even though creditors may have the 

right under the HELOC contract to 

suspend temporarily the account or 

reduce the credit line if a consumer 

does not pay by the due date (i.e., one 

day delinquent on the account), the 

Board understands that creditors 

typically do not temporarily suspend 

the account or reduce the credit line 

until the consumer’s payment is at least 

10–15 days late on the account, and 

oftentimes later. 

For all the reasons discussed above, 

the Board does not propose to use its 

authority under TILA Section 105(a) to 

require creditors offering HELOC 

accounts subject to § 226.5b to provide 

the late-payment disclosures on 

periodic statements, or to comply with 

the provision about crediting of 

payments made at a financial 

institution’s branches or offices, as set 

forth in the Credit Card Act. The Board 

solicits comment on this aspect of the 

proposal. 

Minimum Payment Disclosures 

The Bankruptcy Act added TILA 

Section 127(b)(11) to require creditors 

that extend open-end credit to provide 

a disclosure on the front of each 

periodic statement in a prominent 

location about the effects of making only 

minimum payments. 15 U.S.C. 

1637(b)(11). This disclosure included: 

(1) A ‘‘warning’’ statement indicating 

that making only the minimum payment 

will increase the interest the consumer 

pays and the time it takes to repay the 

consumer’s balance; (2) a hypothetical 

example of how long it would take to 

pay off a specified balance if only 

minimum payments are made; and (3) a 

toll-free telephone number that the 

consumer may call to obtain an estimate 

of the time it would take to repay his or 

her actual account balance. 

In the January 2009 Regulation Z 

Rule, the Board implemented this 

section of TILA. In that rulemaking, the 

Board limited the minimum payment 

disclosures required by the Bankruptcy 

Act to credit card accounts, pursuant to 

the Board’s authority under TILA 

Section 105(a) to make adjustments that 

are necessary to effectuate the purposes 

of TILA. 15 U.S.C. 1604(a). The Board 

exempted all HELOC accounts from the 

minimum payment disclosures required 

by the Bankruptcy Act, even where the 

HELOC account could be accessed by a 

credit card device. In the 

SUPPLEMENTARY INFORMATION to the 

January 2009 Regulation Z Rule, the 

Board explained that the minimum 

payment disclosures would not appear 

to provide additional information to 

consumers that is not already disclosed 

to them with the application under 

§ 226.5b(d)(5)(i) and at account opening 

under § 226.6(a)(3)(ii). Specifically, 

§ 226.5b(d)(5)(i) requires a creditor to 

disclose with the application the length 

of the draw period and any repayment 

period. A creditor is also required to 

provide this information at account 

opening under § 226.6(a)(3)(ii). The 

Board stated that these disclosures 

appear to be sufficient for HELOC 

consumers because, unlike most 

unsecured credit card accounts, most 

HELOCs have a fixed repayment period 

determinable at the outset of the plan. 

In addition, the Board stated that the 

cost to creditors of providing this 

information a second time, including 

the costs to reprogram periodic 

statement systems and to establish and 

maintain a toll-free telephone number, 

appeared not to be justified by the 

limited benefit to consumers. 

The Credit Card Act substantially 

revised this section of TILA. 

Specifically, Section 201 of the Credit 

Card Act amends TILA Section 

127(b)(11) to provide that creditors that 

extend open-end credit must provide 

the following disclosures on each 

periodic statement: (1) A ‘‘warning’’ 

statement indicating that making only 

the minimum payment will increase the 

interest the consumer pays and the time 

it takes to repay the consumer’s balance; 

(2) the number of months that it would 

take to repay the outstanding balance if 

the consumer pays only the required 

minimum monthly payments and if no 

further advances are made; (3) the total 

cost to the consumer, including interest 

and principal payments, of paying that 

balance in full, if the consumer pays 

only the required minimum monthly 

payments and if no further advances are 

made; (4) the monthly payment amount 

that would be required for the consumer 

to eliminate the outstanding balance in 

36 months, if no further advances are 

made, and the total cost to the 

consumer, including interest and 

principal payments, of paying that 

balance in full if the consumer pays the 

balance over 36 months; and (5) a tollfree telephone number at which the 

consumer may receive information 

about accessing credit counseling and 

debt management services. See Credit 

Card Act § 201. These provisions 

become effective February 22, 2010. See 

Credit Card Act § 3. 

The Board proposes that the 

minimum payment disclosures required 

by TILA Section 127(b)(11), as amended 

by the Credit Card Act, not apply to 

HELOC accounts, including HELOC 

accounts that can be accessed by a 

credit card device. The Board proposes 

this rule pursuant to its exception and 

exemption authorities under TILA 

Section 105. Section 105(a) authorizes 

the Board to make exceptions to TILA 

to effectuate the statute’s purposes, 

which include facilitating consumers’ 


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40Brian Bucks, et al., Changes in U.S. Family 

Finances from 2004 to 2007: Evidence from the 

Survey of Consumer Finances, Federal Reserve 

Bulletin (February 2009). 

ability to compare credit terms and 

helping consumers avoid the uniformed 

use of credit. See 15 U.S.C. 1601(a), 

1604(a). Section 105(f) authorizes the 

Board to exempt any class of 

transactions from coverage under any 

part of TILA if the Board determines 

that coverage under that part does not 

provide a meaningful benefit to 

consumers in the form of useful 

information or protection. See 15 U.S.C. 

1604(f)(1). The Board must make this 

determination in light of specific 

factors. See 15 U.S.C. 1604(f)(2). These 

factors are (1) the amount of the loan 

and whether the disclosure provides a 

benefit to consumers who are parties to 

the transaction involving a loan of such 

amount; (2) the extent to which the 

requirement complicates, hinders, or 

makes more expensive the credit 

process; (3) the status of the borrower, 

including any related financial 

arrangements of the borrower, the 

financial sophistication of the borrower 

relative to the type of transaction, and 

the importance to the borrower of the 

credit, related supporting property, and 

coverage under TILA; (4) whether the 

loan is secured by the principal 

residence of the borrower; and (5) 

whether the exemption would 

undermine the goal of consumer 

protection. 

The Board has considered each of 

these factors carefully, and based on 

that review, believes that the proposed 

exemption is appropriate. The Board 

believes that the minimum payment 

disclosures in the Credit Card Act 

would be of limited benefit to 

consumers for HELOC accounts and are 

not necessary to effectuate the purposes 

of TILA. As discussed above, the Board 

understands that most HELOCs have a 

fixed repayment period. Under the 

proposal, creditors offering HELOCs 

subject to § 226.5b would be required to 

disclose the length of the plan, the 

length of the draw period and the length 

of any repayment period in the 

disclosures that must be given within 

three business days after application 

(but not later than account opening). See 

proposed § 226.5b(d)(9)(i). In addition, 

this information also must be disclosed 

at account opening under proposed 

§ 226.6(a)(2)(v)(A). Thus, for a HELOC 

account with a fixed repayment period, 

a consumer could learn from those 

disclosures the amount of time it would 

take to repay the HELOC account if the 

consumer only makes required 

minimum payments. The cost to 

creditors of providing this information a 

second time, including the costs to 

reprogram periodic statement systems, 

appears not to be justified by the limited 

benefit to consumers. 

In addition, the Board does not 

believe that the disclosure about total 

cost to the consumer of paying that 

balance in full (if the consumer pays 

only the required minimum monthly 

payments and if no further advances are 

made) would be useful to consumers for 

HELOC accounts. The Board 

understands that HELOC consumers 

intend to finance the transactions made 

on the HELOC account over a number 

of years, and often will not have the 

ability to repay the balances on the 

HELOC account at the end of each 

billing cycle, or even within a few years. 

By contrast, consumers tend to use 

unsecured credit cards to engage in a 

significant number of small dollar 

transactions per billing cycle, and may 

not intend to finance these transactions 

for many years. HELOC consumers, 

however, tend to use HELOC accounts 

for larger transactions that they can 

finance at a lower interest rate than is 

offered on unsecured credit cards, and 

intend to repay these transactions over 

the life of the HELOC account. To 

illustrate, the Board’s 2007 Survey of 

Consumer Finances data indicates that 

the median balance on HELOCs (for 

families that had a balance at the time 

of the interview) was $24,000, while the 

median balance on credit cards (for 

families that had a balance at the time 

of the interview) was $3,000.40

The nature of consumers’ use of 

HELOCs also underlie the Board’s belief 

that periodic disclosure of the monthly 

payment amount required for the 

consumer to eliminate the outstanding 

balance in 36 months, and the total cost 

to the consumer of paying that balance 

in full if the consumer pays the balance 

over 36 months, would not provide 

useful information to consumers for 

HELOC accounts. 

For all these reasons, the Board 

proposes to exempt HELOC accounts 

(even when they are accessed by a credit 

card account) from the minimum 

payment disclosure requirements set 

forth in TILA Section 127(b)(11), as 

revised by the Credit Card Act. 

Format Requirements Related to LatePayment and Minimum Payment 

Disclosures 

Under the January 2009 Regulation Z 

Rule, creditors offering open-end (not 

home-secured) plans are required to 

disclose the payment due date on the 

front side of the first page of the 

periodic statement. The amount of any 

late-payment fee and penalty APR that 

could be triggered by a late payment is 

required to be disclosed in close 

proximity to the due date. In addition, 

the ending balance and the minimum 

payment disclosures must be disclosed 

closely proximate to the minimum 

payment due. Also, the due date, latepayment fee, penalty APR, ending 

balance, minimum payment due, and 

the minimum payment disclosures must 

be grouped together. See § 226.7(b)(13). 

In the Supplementary Information to the 

January 2009 Regulation Z Rule, the 

Board stated that these formatting 

requirements were intended to fulfill 

Congress’ intent to have the new late 

payment and minimum payment 

disclosures enhance consumers’ 

understanding of the consequences of 

paying late or making only minimum 

payments. Because the Board proposes 

not to require the late-payment 

disclosures (i.e., the due date, latepayment fee and penalty APR) and the 

minimum payment disclosures for 

HELOC accounts, the Board proposes 

not to require the format requirements 

described above for HELOC accounts. 

Section 226.9 Subsequent Disclosure 

Requirements 

Section 226.9 sets forth a number of 

disclosure requirements that apply after 

a HELOC subject to § 226.5b is opened, 

including a requirement to provide at 

least 15 days’ advance notice whenever 

a term required to be disclosed in the 

account-opening disclosures is changed, 

and a requirement to provide notice of 

the action taken and specific reasons for 

the action when a HELOC creditor 

prohibits additional extensions of credit 

or reduces the credit limit pursuant to 

§ 226.5b(f)(3)(i) or (f)(3)(vi). 

9(c) Change in Terms 

Under § 226.9(c) of Regulation Z, a 

creditor must notify a consumer of 

certain changes to the terms of an openend plan. The general rule has been that 

a change-in-terms notice must be given 

15 days in advance of the effective date 

of the change, with some exceptions. 

Advance notice has not been required in 

all cases; for example, if an interest rate 

increases due to a consumer’s default or 

delinquency, notice has been required, 

but not in advance of the rate increase. 

In addition, no notice (either advance or 

contemporaneous) has been required if 

the specific change is set forth in the 

account-opening disclosures. 

In the January 2009 Regulation Z 

Rule, the Board adopted a number of 

revisions to the requirements for 

change-in-terms notices. The revisions 

are intended to improve consumers’ 


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awareness about changes to their 

account terms or increased rates due to 

delinquency, default, or otherwise as a 

penalty, and to enhance consumers’ 

ability to shop for alternative financing 

before the changes become effective. 

First, the revisions expand the 

circumstances in which consumers 

receive advance notice of changed 

terms, or of increased rates due to 

delinquency or default or otherwise as 

a penalty. Second, the revisions provide 

consumers with earlier notice. Third, 

the revisions introduce format 

requirements to make the disclosures 

about changes in terms, or of increased 

rates due to delinquency, default or 

otherwise as a penalty, more effective. 

The January 2009 revisions to the 

change-in-terms notice rules do not 

affect HELOCs subject to § 226.5b; the 

revised rules for credit card and other 

open-end (not home-secured) credit 

appear in § 226.9(c)(2) and 226.9(g) (for 

increased rates due to delinquency, 

default or otherwise as a penalty), while 

the existing rules are preserved for 

HELOCs in § 226.9(c)(1). In the January 

2009 Regulation Z Rule, the Board 

stated that the change-in-terms rules for 

HELOCs would be addressed in the 

review of open-end (home-secured) 

credit. 

The Board is proposing to revise the 

change-in-terms rules for HELOCs to 

parallel generally the revisions adopted 

for open-end (not home-secured) credit, 

including with regard to the 

circumstances covered, timing, and 

format, although with some differences. 

The Board believes that the purposes 

underlying the revisions to the changein-terms rules for open-end (not homesecured) credit—to improve consumers’ 

awareness of changes in their account 

terms and to enhance consumers’ ability 

to seek alternative sources of credit—are 

applicable to HELOC credit as well. The 

proposed revisions to § 226.9(c)(1) are 

explained in the section-by-section 

discussion below. The proposal 

regarding notice of increased rates due 

to delinquency, default or otherwise as 

a penalty would be set forth in new 

§ 226.9(i) and is explained in the 

section-by-section discussion of that 

section. In addition to the substantive 

changes discussed below, other minor 

revisions would be made, such as to 

change cross-references as appropriate 

for new or renumbered provisions, 

substitute examples and other wording 

appropriate for HELOCs for wording 

appropriate for credit card accounts or 

other open-end (not home-secured) 

credit, or conform wording to the 

revised wording in § 226.9(c)(2) for 

open-end (not home-secured) credit. 

9(c)(1) Rules Affecting Home-Equity 

Plans 

Comment 9(c)(1)–1, which discusses 

changes that do not require notice 

because the specific change has been set 

forth in the account-opening 

disclosures, would be revised. First, the 

phrase ‘‘Except as provided in 

§ 226.9(i)’’ would be added, referring to 

the fact that under proposed new 

§ 226.9(i), notice of increased rates due 

to delinquency, default or otherwise as 

a penalty would be required under 

§ 226.9(i) even though that change was 

set forth in the account-opening 

disclosures. Second, language referring 

to a rate increase occurring because a 

preferential rate ends (such as because 

the consumer is no longer employed by 

the creditor or because the consumer no 

longer maintains a certain balance in a 

deposit account with the creditor) 

would be deleted because rate increases 

triggered by these events would require 

notice under proposed § 226.9(i), 

discussed below, even though they 

would not require notice under 

§ 226.9(c). 

Comment 9(c)(1)–3 would be revised 

by deleting the phrase ‘‘or increases the 

minimum payment’’ as redundant, 

because the minimum payment is a 

required disclosure under § 226.6(a); the 

comment already requires notice of 

changes affecting any term required to 

be disclosed under § 226.6(a). This 

comment would also be revised to 

delete the example referring to a grace 

period because the Board understands 

that grace periods (in which interest 

does not accrue on an outstanding 

balance) are not typical in HELOCs. 

9(c)(1)(i) Written Notice Required 

The requirement for notice 15 days in 

advance of the effective date of a change 

would be changed to require notice 45 

days in advance, for the same reasons 

the Board adopted this requirement for 

open-end (not home-secured) credit. As 

discussed in the January 2009 

Regulation Z Rule, the Board believes 

that the shorter notice periods suggested 

by some commenters on the June 2007 

Regulation Z Proposal, such as 30 days 

or one billing cycle, would not provide 

consumers with sufficient time to shop 

for and possibly obtain alternative 

financing. The 45-day advance notice 

requirement refers to when the changein-terms notice must be sent, but as 

discussed in the June 2007 Regulation Z 

Proposal, it may take several days for 

the consumer to receive the notice. As 

a result, as stated in the January 2009 

Regulation Z Rule, the Board believes 

that the 45-day advance notice 

requirement will give consumers, in 

most cases, at least one calendar month 

after receiving a change-in-terms notice 

to seek alternative financing or 

otherwise to mitigate the impact of an 

unexpected change in terms. 

The Board solicits comment on 

whether 45 days is an appropriate 

period for the advance notice 

requirement for changes in terms of 

HELOCs. Commenters are asked to 

address, for example, whether it may be 

more difficult to seek alternative 

financing or otherwise mitigate the 

impact of a change in terms for HELOCs 

than for credit card accounts, as well as 

whether, because changes in terms are 

more narrowly restricted for HELOCs 

than for credit card accounts, the impact 

on consumers of term changes for 

HELOCs is likely to be less severe than 

for credit cards and thus the proposed 

time period is likely adequate. 

In other changes to this paragraph, the 

phrase ‘‘or the required minimum 

periodic payment is increased’’ would 

be deleted as redundant because the 

minimum payment is a required 

disclosure under current § 226.6(a)(3) 

(redesignated as proposed 

§ 226.6(a)(2)(v)(B)); the rule already 

requires notice of changes affecting any 

term required to be disclosed under 

§ 226.6(a). A sentence would be added 

to clarify that an increase in the rate due 

to delinquency, default or otherwise as 

a penalty would require notice under 

proposed new § 226.9(i) rather than 

under § 226.9(c)(1). 

Revisions would be made to 

comments 9(c)(1)(i)–1 through –4 to 

refer to the proposed requirement for 

notice 45 days in advance rather than 15 

and to replace examples of changes 

appropriate for credit cards and other 

open-end (not home-secured) credit 

with examples more appropriate for 

HELOCs, or to replace examples that 

would not be permissible for HELOCs 

with examples that would be 

permissible. In comment 9(c)(1)(i)–3, 

language referring to a consumer’s 

general acceptance of a creditor’s 

contract reservation of the right to 

change terms, as well as other unilateral 

term changes, would be deleted, to 

avoid the possible inference that such 

changes in terms would be permissible 

under § 226.5b(f). In comment 9(c)(1)(i)– 

4, language would be added to clarify 

that a complete set of account-opening 

disclosures containing the changed term 

does not qualify as a change-in-terms 

notice if § 226.9(c)(1)(iii) applies. 

(Section 226.9(c)(1)(iii), as discussed 

below, would require that disclosures 

required to be in a tabular format in the 

account-opening disclosures also appear 

in a tabular format, and meet other 

formatting requirements, when the 


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disclosed terms change. However, 

changes in other disclosures, not 

required to be in a tabular format at 

account opening, would not be subject 

to these requirements.) 

Comment 9(c)(1)(i)–5, which 

discusses changes involving addition of 

a security interest or addition or 

substitution of collateral, would be 

deleted because the Board believes it 

unlikely that any of these events would 

occur in the case of an existing HELOC. 

However, the Board solicits comment on 

whether the comment should be 

retained to cover the possibility of such 

an event occurring. 

In comment 9(c)(1)(i)–6 (redesignated 

as proposed comment 9(c)(1)(i)–5), the 

limitation to plans entered into on or 

after November 7, 1989, would be 

deleted; it appears unlikely that any 

HELOCs opened before that date are still 

in existence. 

9(c)(1)(ii) Charges Not Covered by 

Tabular Format Requirements of 

§ 226.6(a)(2) 

Current § 226.9(c)(1)(ii) would be 

renumbered § 226.9(c)(1)(iv), as 

discussed below. The Board proposes to 

add, as new § 226.9(c)(1)(ii), an 

exception to the requirement for written 

advance notice of changes in terms. The 

exception would apply to disclosures of 

charges not required to appear in a 

tabular format in the account-opening 

disclosures under § 226.6(a)(2), and 

would parallel a similar exception for 

credit cards and other open-end (not 

home-secured) credit in § 226.9(c)(2)(ii). 

Under the exception, if a creditor 

increases a charge, or introduces a new 

charge, required to be disclosed under 

§ 226.6(a)(3) but not required to appear 

in the summary account-opening table 

under § 226.6(a)(2), the creditor may 

either provide advance written notice 

under § 226.9(c)(1)(i), or provide oral or 

written notice of the amount of the 

charge at a relevant time before the 

consumer agrees to or becomes 

obligated to pay the charge. Comment 

9(c)(1)(ii)–1 would discuss a fee for 

expedited delivery of a credit card as an 

example of how this exception would 

operate. Of course, any increase in a 

charge, or addition of a new charge, 

would have to be permissible under 

§ 226.5b(f). 

9(c)(1)(iii) Disclosure Requirements 

Current § 226.9(c)(1)(iii), regarding 

notices to restrict credit on HELOCs 

subject to § 226.5b, would be 

renumbered as § 226.9(j) and revised, as 

discussed below. The Board proposes to 

add, as new § 226.9(c)(1)(iii), a 

provision specifying the content and 

format of disclosures for certain changes 

in terms, similar to the new 

requirements for change-in-terms 

notices for open-end (not home-secured) 

credit set forth in § 226.9(c)(2)(iii). If any 

of the terms required to be provided at 

account opening in a tabular format 

under § 226.6(a)(2) changes, the creditor 

would have to provide a summary of the 

changes (as set forth in proposed 

§ 226.9(c)(1)(iii)(A)(1), similar to 

§ 226.9(c)(2)(iii)(A)(1) for open-end (not 

home-secured) credit), in a tabular 

format (as set forth in 

§ 226.9(c)(1)(iii)(B)(1), similar to 

§ 226.9(c)(2)(iii)(B)(1) for open-end (not 

home-secured) credit), with headings 

and format substantially similar to any 

of the account-opening tables in G–15 in 

Appendix G. 

In addition, the notice would be 

required to contain a statement that 

changes are being made to the account, 

a statement indicating (if applicable) 

that the consumer has the right to opt 

out of the changes, the effective date of 

the changes, and a statement (if 

applicable) that the consumer may find 

additional information about the 

summarized changes, and other changes 

to the account, in the notice. These 

disclosures are in proposed 

§ 226.9(c)(1)(ii)(A)(2) through (5), 

similar to § 226.9(c)(2)(iii)(A)(2) through 

(5) for open-end (not home-secured) 

credit. 

Two other disclosures required for 

open-end (not home-secured) credit, 

found in § 226.9(c)(2)(iii)(A)(6) and (7), 

would not be required for HELOCs 

subject to § 226.5b. Section 

226.9(c)(2)(iii)(A)(6) applies if a creditor 

is changing a rate on an account other 

than the penalty rate, and requires a 

disclosure that if the penalty rate 

currently applies to the account, the 

new rate described in the notice will not 

apply to the consumer’s account until 

the consumer’s account balances are no 

longer subject to the penalty rate. The 

Board believes that this situation is 

unlikely to occur for HELOCs subject to 

§ 226.5b because of the restrictions on 

rate increases for these HELOCs. Section 

§ 226.9(c)(2)(iii)(A)(7) applies if the 

change being disclosed is a rate 

increase, and requires a disclosure of 

the balances to which the increased rate 

will apply. Section 226.9(c)(1)(iii) is not 

an appropriate location for this 

disclosure, because in general rate 

increases for HELOCs subject to 

§ 226.5b, where permissible at all, must 

occur only as specified in the credit 

agreement and therefore the notice of 

such an increase would be provided 

under § 226.9(i) rather than 

§ 226.9(c)(1). A similar disclosure of the 

balances to which the increased rate 

would apply is proposed under 

§ 226.9(i), as discussed below. 

Under proposed § 226.9(c)(1)(iii)(B)(2) 

and (3), if the change-in-terms notice is 

included on or with a periodic 

statement, the tabular summary required 

under § 226.9(c)(1)(iii)(A)(1) must 

appear on the front of any page of the 

statement, immediately following the 

other items required to be disclosed (as 

specified in § 226.9(c)(1)(iii)(A)(2) 

through (5)). If the notice is not 

included on or with a periodic 

statement, the tabular summary must 

appear on the front of the first page of 

the notice or segregated on a separate 

page from other information given with 

the notice, immediately following the 

other items. These requirements would 

be similar to those applicable to openend (not home-secured) credit, as set 

forth in § 226.9(c)(2)(iii)(B)(2) and (3). 

The Board is proposing these content 

and format rules for the same reasons as 

for the new open-end (not homesecured) credit rules adopted in the 

January 2009 Regulation Z Rule. As 

discussed in the January 2009 

Regulation Z Rule, consumer testing 

conducted on behalf of the Board 

suggests that consumers tend to set 

aside change-in-terms notices when 

they are presented as a separate 

pamphlet inserted in the periodic 

statement. In addition, testing prior to 

the June 2007 Regulation Z Proposal 

also revealed that consumers are more 

likely to identify the changes to their 

account correctly if the changes in terms 

are summarized in a tabular format. 

Quantitative consumer testing 

conducted in the fall of 2008 confirmed 

that disclosing a change in terms in a 

tabular summary on the statement 

(versus a disclosure on the statement 

indicating that changes were being 

made to the account and referring to a 

separate change-in-terms insert) led to a 

small increase in the percentage of 

consumers who were able to identify 

correctly the new rate that would apply 

to the account following the change. As 

stated in the January 2009 Regulation Z 

Rule, the Board believes that as 

consumers become more familiar with 

the new format for the change-in-terms 

summary, which was new to all testing 

participants, they may become better 

able to recognize and understand the 

information presented. The same could 

be expected to apply to the change-interms summary for HELOCs. 

Although the Board has not yet 

conducted consumer testing of changein-terms notices for HELOCs, consumer 

testing of disclosures provided at 

application and account-opening for 

HELOCs indicates, as discussed above, 

that consumers find disclosures 


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presented in a tabular format more 

useful and understandable than 

disclosures in the current format; thus 

the Board proposes to require such a 

format for the HELOC application and 

account-opening disclosures. A tabular 

format standard for change-in-terms 

notices for HELOCs would be consistent 

with this approach and could be 

expected to result in greater 

noticeability and consumer 

comprehension of HELOC change-interms notices. The Board intends to 

conduct consumer testing of tabularformat change-in-terms notices for 

HELOCs during the comment period on 

this proposal. 

Proposed comments 9(c)(1)(iii)(A)–1 

through –10 provide guidance on the 

change-in-terms disclosures required 

under § 226.9(c)(1)(iii)(A), and parallel 

comments 9(c)(2)(iii)(A)–1 through 10 

applying to open-end (not homesecured) credit change-in-terms 

disclosures. The changes discussed in 

comments 9(c)(1)(iii)(A)–1 through –7 

might or might not be permissible under 

§ 226.5b(f) depending upon the 

circumstances; therefore, language 

would be included in each of these 

comments to refer to change in terms 

restrictions for HELOCs subject to 

§ 226.5b, to avoid implying that the 

changes discussed would be permissible 

in all cases. 

9(c)(1)(iv) Notice Not Required 

Section 226.9(c)(1)(ii) in the current 

regulation (as modified by the January 

2009 Regulation Z Rule) relates to 

changes for which a change-in-terms 

notice is not required (reduction of any 

component of a finance or other charge 

or when the change results from an 

agreement involving a court 

proceeding), and would be renumbered 

§ 226.9(c)(1)(iv). Language would be 

added to clarify that suspension of 

credit privileges, reduction of a credit 

limit, or termination of an account 

would not require notice under 

§ 226.9(c)(1)(i), but must be disclosed 

pursuant to § 226.9(j), discussed below. 

In comment 9(c)(1)(ii)–1 (renumbered 

comment 9(c)(1)(iv)–1), two examples of 

changes not requiring notice— 

paragraphs i. (change in the consumer’s 

credit limit) and iv. (termination or 

suspension of credit privileges)—would 

be deleted, because such actions 

(assuming they were permissible under 

§ 226.5b(f)) would require notice, 

although notice under § 226.9(j) rather 

than § 226.9(c)(1)(i). A new paragraph 

iv. would be added to clarify that 

suspension of credit privileges, 

reduction of a credit limit, or 

termination of an account would not 

require notice under § 226.9(c)(1)(i), but 

must be disclosed pursuant to § 226.9(j). 

In paragraph v. (changes arising merely 

by operation of law; renumbered 

paragraph iii.), the example given (the 

creditor’s security interest in a 

consumer’s car automatically extending 

to the proceeds when the consumer sells 

the car) would be deleted as unlikely to 

apply to HELOC accounts. 

In comment 9(c)(1)(ii)–2 (renumbered 

comment 9(c)(1)(iv)–2), relating to skip 

features and temporary reductions in 

finance charges, language would be 

added to clarify that the actions 

discussed would be permissible as 

beneficial changes under 

§ 226.5b(f)(3)(iv), and that a creditor 

offering a temporary reduction in an 

interest rate must provide a notice 

complying with the timing, content, and 

format requirements of § 226.9(c)(1) 

prior to resuming the original rate. The 

latter addition parallels a clarification to 

the comparable comment 9(c)(2)(iv)–2, 

applying to open-end (not homesecured) credit, proposed for comment 

in the May 2009 Regulation Z Proposal. 

New comments 9(c)(1)(iv)–3 and –4, 

similar to comments 9(c)(2)(iv)–3 and –4 

for open-end (not home-secured) credit, 

would be added. These comments 

would clarify that if a creditor changes 

a rate from a variable rate to a nonvariable rate, or vice versa (assuming 

such action is permissible under 

§ 226.5b(f)), a change-in-terms notice 

must be provided even if the immediate 

effect of the change is a lower rate. 

9(i) Increase in Rates Due to 

Delinquency or Default or as a Penalty— 

Rules Affecting Home-Equity Plans 

As discussed above under 

§ 226.9(c)(1)(i), an increase in the rate 

due to delinquency, default, or as a 

penalty, pursuant to the contractual 

terms of the consumer’s account, would 

not require notice under § 226.9(c)(1), 

but would require a notice under 

proposed new § 226.9(i). Under the 

previous version of Regulation Z for 

credit cards and other open-end (not 

home-secured) credit (and the current 

version for HELOCs), if the agreement 

between the consumer and the creditor 

specifically sets forth a change that will 

take place upon the occurrence of a 

specific triggering event, a change-interms notice is not required when the 

change occurs. This rule was changed in 

the January 2009 Regulation Z Rule for 

open-end (not home-secured) credit by 

the addition of new § 226.9(g). 

In discussing § 226.9(g) in the June 

2007 Regulation Z Proposal and the 

January 2009 Regulation Z Rule, the 

Board expressed concern that the 

imposition of penalty rates might come 

as a costly surprise to consumers who 

are not aware of, or do not understand, 

what behavior constitutes a default 

under the credit agreement, even though 

for credit card and other open-end (not 

home-secured) credit, the accountopening disclosures are required to set 

forth the penalty rate. The Board also 

stated that it believed that consumers 

would be the most likely to notice and 

be motivated to act to avoid the 

imposition of the penalty rate if they 

receive a specific notice alerting them of 

an imminent rate increase, rather than a 

general disclosure stating the 

circumstances when a rate might 

increase. 

In the case of HELOCs subject to 

§ 226.5b, the same reasoning could be 

expected to apply. In addition, because 

the proposed account-opening 

disclosures for HELOCs do not include 

a disclosure of the penalty rate, 

providing notice to a consumer at the 

time the penalty rate is imposed is even 

more important. Therefore, the Board 

proposes to add new § 226.9(i) applying 

to HELOCs, which would generally 

parallel § 226.9(g) applying to open-end 

(not home-secured) credit. 

Section 226.9(i)(1) would require that 

a creditor must provide written notice to 

each consumer who may be affected 

when a rate is increased due to the 

consumer’s delinquency or default or 

otherwise as a penalty for one or more 

events specified in the account 

agreement. Rate increases could only 

occur, of course, as permitted under 

§ 226.5b(f). Section 226.9(i)(2) would 

require that the notice be provided at 

least 45 days before the effective date of 

the increase, and after the occurrence of 

the events that trigger the imposition of 

the increase. 

Section 226.9(i)(3) would specify the 

content of the notice, which would 

include a statement that the 

delinquency or default rate, or other 

penalty rate, has been triggered 

(§ 226.9(i)(3)(i)); the date on which the 

increased rate will apply 

(§ 226.9(i)(3)(ii)); the circumstances 

under which the increased rate will 

cease to apply to the consumer’s 

account, or that the increased rate will 

remain in effect for a potentially 

indefinite time period (§ 226.9(i)(3)(iii)); 

and a disclosure indicating to which 

balances the increased rate will apply 

(§ 226.9(i)(3)(iv)). These disclosures 

parallel disclosures under 

§ 226.9(g)(3)(i). One other disclosure 

under § 226.9(g)(3)(i), however, would 

not be included in § 226.9(i)(3): A 

description of any balances to which the 

current rate will continue to apply 

(§ 226.9(g)(3)(i)(E)). For credit cards, 

under the Credit Card Act (cited above), 

in some circumstances increases in rates 


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may be permitted to apply only to future 

balances; in other cases rate increases 

may apply to all balances, including 

outstanding balances. See Credit Card 

Act § 101(b) and (d). In contrast, rate 

increases for HELOCs subject to 

§ 226.5b, where permissible at all (i.e., 

for a reason that would permit 

termination and acceleration of the plan 

under § 226.5b(f)(2)), would generally 

apply to all balances. Thus, the 

disclosure under § 226.9(g)(3)(i)(E) 

would not appear appropriate for 

HELOCs. However, the disclosure under 

§ 226.9(i)(3)(i)(D) may be useful to 

indicate, for example, whether a rate 

increase would apply to balances under 

the regular variable-rate feature of a 

HELOC, while not applying to balances 

under a fixed-rate option. The Board 

solicits comment on the appropriateness 

of this disclosure. 

Section 226.9(i)(4) would parallel 

§ 226.9(g)(3)(ii) and would address 

format requirements. Section 

226.9(i)(4)(i) would provide that if the 

notice is included on or with a periodic 

statement, it must be in the form of a 

table and must appear on the front of 

any page of the periodic statement. 

Section 226.9(i)(4)(ii) would provide 

that if the notice is not included on or 

with a periodic statement, the 

disclosures must be appear on the front 

of the first page of the notice. 

Section 226.9(i)(5) would parallel 

§ 226.9(g)(4)(i) and would provide an 

exception for workout and temporary 

hardship arrangements, where the rate 

increases due to completion of the 

arrangement, or for failure to comply 

with the terms of the arrangement, 

provided that the increased rate does 

not exceed the rate that applied before 

the start of the arrangement. Two other 

exceptions in § 226.9(g)(4) would not be 

included in § 226.9(i)(5): A rate increase 

where the credit limit is exceeded, and 

a rate increase applicable to outstanding 

balances where a notice had already 

been provided of a rate increase on 

future balances. The first situation 

would not arise for HELOCs subject to 

§ 226.5b because, under § 226.5b(f), a 

creditor may not increase an interest 

rate based on the credit limit being 

exceeded. The second situation also 

likely would not arise for HELOCs 

subject to § 226.5b because, as discussed 

above, a rate increase for a HELOC, if 

permissible at all, would not apply to 

future balances differently than to 

outstanding balances. 

Comments 9(i)–1 through –5 would be 

added to the commentary and would 

provide general guidance regarding 

notices of rate increases under 

§ 226.9(i). The proposed comments 

would parallel comments 9(g)–2 

through –6 under § 226.9(g). A comment 

would not be added to parallel comment 

9(g)–1, because that comment addresses 

the relationship between the change-interms notice requirements (and notice of 

rate increase requirements) under 

Regulation Z and the requirements 

under Regulation AA (or similar law) 

regarding unfair or deceptive acts or 

practices in credit card accounts, which 

do not apply to HELOCs subject to 

§ 226.5b. 

9(j) Notices of Action Taken for HomeEquity Plans 

As noted above, § 226.9(c)(1)(iii), 

regarding notices to restrict credit for 

HELOCs subject to § 226.5b, would be 

redesignated as § 226.9(j)(1) and revised. 

Proposed § 226.9(j)(1) would retain the 

existing requirement that a creditor 

provide the consumer with notice of 

temporary account suspension or credit 

limit reduction under § 226.5b(f)(3)(i) or 

(f)(3)(vi), but with certain clarifications 

and additions. The proposal also would 

eliminate the existing exemption from 

notice requirements for a creditor that 

suspends advances, reduces a credit 

limit, or terminates a plan under 

§ 226.5b(f)(3). See comment 9(c)(1)(iii)– 

2. Under proposed § 226.9(j)(3), 

creditors taking action under 

§ 226.5b(f)(2) would be required to 

provide the consumer with a notice of 

the action taken and specific reasons for 

the action. To facilitate compliance, 

model clauses are proposed to illustrate 

the requirements for these notices. See 

proposed Model Clauses G–23(A) and 

G–23(B) in Appendix G of part 226. 

9(j)(1) Notice of Action Taken Under 

§ 226.5b(f)(3)(i) or (f)(3)(vi) 

Proposed § 226.9(j)(1) would retain 

the existing requirement that require a 

creditor taking action under 

§ 226.5b(f)(3)(i) or (f)(3)(vi) must provide 

to any consumer who will be affected 

notice of the action taken and specific 

reasons for the action within three 

business days of the action. The 

proposed paragraph, however, would 

require the creditor to include a number 

of additional disclosures in the notice. 

The clarifications and additional 

disclosures discussed below are 

proposed in response to concerns 

expressed during outreach conducted by 

the Board that creditors are not certain 

how to comply with the current notice 

requirements and that notices provided 

often contain unclear or incomplete 

information about the reasons for the 

action taken and the consumer’s 

reinstatement rights. The Board’s 

independent review of notices of action 

taken currently used by creditors 

corroborated these concerns. 

First, proposed § 226.9(j)(1)(i) and 

comment 9(j)(1)–1 clarify that, as part of 

the disclosure of the action taken, the 

creditor must include the following 

basic information that the HELOC 

consumer whose credit privileges have 

been restricted needs to make 

appropriate financial accommodations: 

(1) If the creditor reduced the credit 

limit, the new credit limit; and (2) the 

date as of which the account suspension 

or reduction took effect. 

Second, proposed § 226.9(j)(1)(ii) 

requires disclosure of specific reasons 

for the action, and proposed comments 

9(j)(1)–2, –3, –4, and –5 would provide 

additional guidance regarding what the 

creditor must disclose to comply with 

this requirement. Proposed comment 

9(j)(1)–2 requires that a creditor provide 

the principal reasons for the action 

taken, and indicates that the principal 

reasons should include the reason 

permitting the action under 

§ 226.5b(f)(3)(i) or (vi), such as that the 

maximum APR has been reached or the 

value of property securing the plan has 

significantly declined. 

Proposed comment 9(j)(1)–3 sets forth 

information that, if disclosed, would 

constitute compliance with the 

requirement to disclose the specific 

reasons for the action taken when the 

reason for the action taken is a 

significant decline in the property value 

under § 226.5b(f)(3)(vi)(A). Specifically, 

compliance with the requirement would 

be met by disclosing the following 

information— 

(i) The value of the property obtained 

by the creditor. 

(ii) The type of valuation method used 

to obtain the property value. 

(iii) A statement that the consumer 

has a right to a copy of documentation 

supporting the property value on which 

the action was based. 

The Board believes that the property 

value on which the creditor relied to 

freeze or reduce a line, and access to 

information about the basis for that 

property value finding, are integral 

components of the ‘‘specific reasons’’ 

disclosure required when a creditor 

freezes or reduces a line due to a 

significant decline in the property 

value. This information is also 

necessary for the consumer to assess 

whether and when to challenge the 

finding and request reinstatement. 

Proposed comment 9(j)(1)–4 sets forth 

information that, if disclosed, would 

constitute compliance with the 

requirement to disclose the specific 

reasons for the action taken when a 

creditor prohibits credit extensions or 

reduces a credit limit because the 

consumer’s financial circumstances 

have materially changed such that the 


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creditor has a reasonable belief that the 

consumer will be unable to meet the 

repayment obligations of the plan under 

§ 226.5b(f)(3)(vi)(B). Specifically, 

compliance with the provision would be 

met by disclosing the type of 

information concerning the consumer’s 

financial circumstances on which the 

creditor relied, such as information 

about the consumer’s income, credit 

report information, or some other 

indicia of the consumer’s financial 

circumstances, as applicable. 

The Board believes that more 

information than simply the regulatory 

reason for the action taken is an 

appropriate element of the ‘‘specific 

reasons’’ disclosure requirement when 

action is taken due to a material change 

in the consumer’s financial 

circumstances under § 226.5b(f)(vi)(B). 

First, the type of financial information 

relied on (i.e., income, credit report 

information) gives the consumer more 

‘‘specific’’ reasons for the action taken 

than a disclosure simply stating that the 

line was frozen or reduced because the 

consumer’s financial circumstances 

have changed. Second, the consumer is 

thereby better able to assess whether to 

request reinstatement and to address 

problems that the consumer may be able 

to correct, such as errors in the 

consumer’s credit report, credit 

performance deficiencies, or inadequate 

or outdated income information. 

Proposed comment 9(j)(1)–5 explains 

when a creditor takes action because the 

consumer defaulted on a material 

obligation under the agreement (see 

§ 226.5b(f)(3)(vi)(C)), the creditor would 

comply with this provision if it 

specified the material obligation on 

which the consumer defaulted. The 

Board believes that the material 

obligation on which the consumer 

defaulted is a key element of ‘‘specific 

reasons’’ disclosure requirement when 

action is based on a consumer’s default 

of a material obligation. With this 

information, the consumer would have 

an opportunity to correct a default or to 

dispute the creditor’s determination that 

a default occurred. Either way, the 

consumer would be in a better position 

to exercise his or her reinstatement right 

and to have credit privileges restored. 

Proposed comment 9(j)(1)–5 also 

addresses the specific reasons 

disclosure requirement for other reasons 

justifying temporary line suspension or 

reduction. This includes the following: 

(1) the creditor is precluded by 

government action from imposing the 

APR provided for in the agreement 

(§ 226.5b(f)(3)(vi)(D)); the priority of the 

creditor’s security interest is adversely 

affected by government action to the 

extent that the value of the security 

interest is less than 120 percent of the 

credit line (§ 226.5b(f)(3)(vi)(E)); the 

creditor is notified by its regulatory 

agency that continued advances 

constitute an unsafe and unsound 

practice (§ 226.5b(f)(3)(vi)(F)); and 

federal law prohibits the creditor from 

extending credit under a plan or 

requires that the creditor reduce the 

credit limit for a plan 

(§ 226.5b(f)(3)(vi)(G)). For action based 

on these provisions, the Board believes 

that a statement of the regulatory reason 

for the action is sufficient to comply the 

‘‘specific reasons’’ disclosure 

requirement. The principal reason for 

this proposed approach is that the 

consumer is not likely to be able to take 

any steps to change the circumstances 

justifying the suspension or reduction. 

The Board requests comment on 

whether more or less information than 

the information proposed would be 

appropriate to require to meet the 

‘‘specific reasons’’ disclosure 

requirement when action is taken for 

any of the reasons permitted under 

§ 226.5b(f)(3)(i) and (f)(3)(vi). The Board 

requests comment in particular on 

whether more or less information would 

be appropriate to require to meet the 

‘‘specific reasons’’ disclosure 

requirement when action is taken due to 

a material change in the consumer’s 

financial circumstances under 

§ 226.5b(f)(3)(vi)(B). 

Disclosure of information regarding 

reinstatement. Proposed § 226.9(j)(1)(iii) 

requires the creditor to provide certain 

information when the creditor has opted 

to require that the consumer request 

reinstatement before the creditor will 

consider restoring credit privileges. As 

in the existing commentary, the 

proposal would require that the creditor 

disclose that the consumer must request 

reinstatement. Addressing concerns that 

creditors may provide inadequate 

information about reinstatement rights 

to consumers, the proposal would 

amplify existing requirements by 

requiring that the creditor inform the 

consumer of his or her right to request 

reinstatement of the account at any 

time, and that the creditor disclose the 

specific manner in which the consumer 

should request reinstatement, including 

the address or telephone number to 

which the creditor must submit 

requests. In addition, the creditor must 

disclose that the creditor will complete 

an investigation of the consumer’s 

request within 30 days of receiving the 

request (as required under proposed 

§ 226.5b(g)(2)(ii)). The purpose of these 

disclosures is to ensure that consumers 

understand their rights regarding an 

investigation. 

The proposal also requires the 

creditor to disclose that, in accordance 

with proposed § 226.5b(g)(2)(iii) and 

(iv), the creditor may not charge the 

consumer for costs associated with the 

investigation of the consumer’s first 

reinstatement request made after the 

creditor has suspended advances or 

reduced the credit limit, but may charge 

the consumer bona fide and reasonable 

costs for property valuations or credit 

reports associated with investigations of 

any requests that the consumer makes 

after the first request. This provision is 

intended to put the consumer on notice 

of the potential for additional costs 

when requesting reinstatement. The 

reasons for proposing the above rules 

regarding when creditors may charge 

consumers fees for investigating a 

reinstatement request are discussed in 

the section-by-section analysis to 

proposed § 226.5b(g)(2). 

9(j)(2) Imposition of Fees 

Proposed § 226.9(j)(2) provides that a 

creditor that reduces the credit limit on 

an account under § 226.5b(f)(3)(i) or (vi) 

may not charge the consumer fees for 

exceeding the credit limit until after the 

consumer has received notice of the 

action under § 226.9(j)(1). Similarly, 

after a creditor has suspended advances 

on an account, the creditor may not 

charge the consumer a fee for any 

advance that it denies until the 

consumer receives the § 226.9(j)(1) 

notice. Proposed § 226.9(j)(2) and 

comment 9(j)(2)–1 specify that in 

general only fees disclosed in the 

original agreement may be charged and 

that these would be subject to the notice 

waiting period. Imposing denied 

advance or over-the-limit fees not 

disclosed in the original agreement 

would be permitted only if an exception 

to the general limitations on changing 

home-equity plan terms under 

§ 226.5b(f) applies. 

The Board believes that imposition of 

denied advance or over-the-limit fees 

before the consumer has notice of the 

suspension on advances or credit limit 

reduction is inappropriate for at least 

two reasons. First, consumers who did 

not yet receive the notice of action taken 

under § 226.9(j)(1) presumably did not 

know of the credit limit reduction or 

suspension of advances and may have 

attempted to access their home-equity 

funds with the good faith expectation 

that these funds would be available to 

them. Second, in many cases, action 

taken under § 226.5b(f)(3)(i) or (f)(3)(vi) 

is based on circumstances beyond the 

consumer’s control, such as the 

maximum rate being reached or a 

significant decline in the value of the 

consumer’s dwelling. Prohibiting 


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creditors from imposing over-the-limit 

or denied advance fees until consumers 

have appropriate notice of a suspension 

or credit limit reduction is intended to 

strengthen the protection of consumers 

facing the financial challenge of a 

HELOC freeze or reduction. 

Proposed comment 9(j)(2)–2 clarifies 

that, for purposes of determining when 

the consumer receives the notice, the 

more precise definition of business day 

(meaning all calendar days except 

Sundays and specified federal holidays) 

applies referred to in § 226.2(a)(6). See 

comment 2(a)(6)–2. For example, if the 

creditor were to place the disclosures in 

the mail on Thursday, June 4, under the 

proposal the disclosures would be 

considered received on Monday, June 8. 

The Board proposes that the more 

precise definition apply to determining 

when § 226.9(j)(1) notices are received 

by the consumer to conform to the 

Board’s rules for determining receipt of 

disclosures for other dwelling-secured 

transactions under §§ 226.19(a)(1)(ii) 

and 226.31(c), as well as to the Board’s 

recently adopted rules under 

§ 226.19(a)(2). See 74 FR 23289 (May 19, 

2009). 

The Board requests comment on this 

proposed limitation on when denied 

advance and over-the-limit fees may be 

charged. 

9(j)(3) Notice of Action Taken Under 

§ 226.5b(f)(2) 

Proposed § 226.9(j)(2) would require 

creditors to provide a notice to each 

consumer affected by the creditor’s 

termination and acceleration of the 

account, suspension of advances on the 

account, or reduction of the credit limit 

under circumstances permitting these 

actions pursuant to § 226.5b(f)(2). This 

notice requirement is intended to 

remedy an inconsistency in the current 

rules—namely, that suspending or 

reducing lines under § 226.5b(f)(3)(i) 

and (f)(3)(vi) is required under 

§ 226.9(c)(1)(iii) (redesignated and 

revised in the proposal as § 226.9(j)(1)), 

but no notice is required for any action 

taken under § 226.5b(f)(2). The Board 

believes that this new notice 

requirement for actions taken under 

§ 226.5b(f)(2) will enhance consumer 

protection and education by ensuring 

that affected consumers will know why 

the action was taken. As with the 

current and proposed notice 

requirement for credit restrictions under 

§ 226.5b(f)(3)(i) and (f)(3)(vi), the 

proposed notice for actions taken under 

§ 226.5b(f)(2) is not required until three 

business days after the action is taken, 

rather than before the action is taken. 

The principal reason for this timing is 

that post-action notice protects creditors 

from the risk that consumer may 

immediately draw down the line once 

they receive advance notice of the 

action; concerns about this risk were 

confirmed through Board outreach in 

preparing this proposal. The Board’s 

recognition of this risk is reflected in the 

longstanding policy of requiring notice 

for actions under § 226.5b(f)(3)(i) and 

(f)(3)(vi) three business days after the 

action taken. 

As indicated in proposed comment 

5b(f)(2)–2, the specific reasons that a 

creditor must disclose when taking 

action under § 226.5b(f)(2) will vary, 

because § 226.5b(f)(2) allows creditors to 

terminate and accelerate a home-equity 

plan or take a lesser action, such as 

suspending advances or reducing the 

credit limit, for four reasons: (1) ‘‘Fraud 

or material misrepresentation on the 

part of the consumer in connection with 

the account’’ (§ 226.5b(f)(2)(i)); (2) 

failure of the consumer ‘‘to make a 

required minimum periodic payment 

within 30 days after the due date for 

that payment’’ (proposed 

§ 226.5b(f)(2)(ii)); (3) ‘‘any other action 

or failure to act by the consumer which 

adversely affects the creditor’s security 

for the account or any right of the 

creditor to such security’’ 

(§ 226.5b(f)(2)(iii)); or, (4) ‘‘compliance 

with federal law requires the creditor to 

terminate and demand repayment of the 

entire outstanding balance in advance of 

the original term’’ (in which case, lesser 

action would not be appropriate) 

(proposed § 226.5b(f)(2)(iv)). 

Thus, proposed comment 9(j)(2)–2 

explains that when a creditor takes 

action under § 226.5b(f)(2)(i) for a 

consumer’s fraud or misrepresentation 

related to the home-equity plan, the 

creditor need only disclose that the 

action was taken due to either, as 

applicable, fraud or misrepresentation 

by the consumer; the creditor is not 

required to specify in the notice the 

nature of the fraud or misrepresentation. 

During Board outreach, creditors 

expressed concerns that a requirement 

to disclose the specific nature of the 

fraud or misrepresentation could more 

readily expose them to claims of libel or 

slander, whether spurious or not, than 

a generic disclosure that the consumer’s 

fraud or misrepresentation precipitated 

the creditor’s action. Concerns were also 

expressed that, even if the consumer in 

fact committed fraud or 

misrepresentation, a court may penalize 

the creditor for the particular way in 

which it phrased the nature of the fraud 

or misrepresentation in the notice. The 

Board requests comment on whether the 

creditor should also be required to 

include on the notice a toll-free 

telephone number that the consumer 

may call to receive additional 

information about the action taken and 

other information on the notice, 

particularly when the reason for the 

action is stated simply as fraud or 

material misrepresentation. 

Also under proposed comment 

5b(f)(2)–2, when a creditor takes action 

under § 226.5b(f)(2)(iii) for a consumer’s 

action or inaction affecting the creditor’s 

security interest, the creditor must 

include in the notice the consumer’s 

action or inaction that threatens 

creditor’s interest in the property 

securing the account, such as failing to 

pay property taxes or allowing a new 

superior lien on the property. 

9(j)(3) Notices Required When Action 

Other Than Termination, Suspension, or 

Credit Limit Reduction Is Taken Under 

§ 226.5b(f)(2) 

Proposed § 226.9(j)(3) would require a 

creditor that takes action other than 

account termination, suspension, or 

credit limit reduction under 

§ 226.5b(f)(2), such as a rate increase or 

fee, to disclose these changes according 

to the 45-day advance notice 

requirements of § 226.9(c)(1) (for fee 

changes) or (i) (for rate changes), as 

applicable. The Board does not believe 

that advance notice for these actions 

jeopardizes the creditor’s interest as in 

the case of account termination, 

suspension, or reduction, where a 

concern about the consumer drawing 

down the full line exists. By taking 

lesser action such as imposing a fee or 

rate increase, the creditor itself has 

determined that adequate risk 

management does not require taking 

away from the consumer full access to 

the account. The proposed provision is 

intended to enhance consumer 

protection and education for the reasons 

discussed in this section-by-section 

analysis under § 226.9(c)(1) and (i). 

Section 226.14 Determination of 

Annual Percentage Rate 

Section 226.14 contains rules for 

calculation of the APR for open-end 

credit. Section 226.14(a) states general 

rules for determination of the APR, 

including rules on accuracy and good 

faith errors in disclosure. Section 

226.14(b) contains rules for calculation 

of the APR for disclosure at the time of 

application for open-end (not homesecured) credit under § 226.5a or a 

HELOC under § 226.5b, at account 

opening under § 226.6, in change-interms notices under § 226.9, in 

rescission notices under § 226.15, in 

advertising under § 226.16, and in oral 

disclosures under § 226.26. The APR is 

calculated for purposes of these 

disclosures, as stated in § 226.14(b), by 


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43524 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

multiplying each periodic rate by the 

number of periods in a year. 

Section 226.14(b) also states the rules 

for calculation of the APR for disclosure 

on periodic statements for open-end 

(not home-secured) plans under 

§ 226.7(b)(4), and for disclosure of the 

corresponding APR for HELOCs subject 

to § 226.5b under § 226.7(a)(4). The 

calculation rules for the § 226.7(a)(4) 

and (b)(4) disclosures are the same as 

those stated above, i.e., multiply each 

periodic rate by the number of periods 

in a year. For HELOCs, creditors have 

the option of disclosing, in addition to 

the corresponding APR, the effective 

APR under § 226.7(a)(7). The rules for 

calculation of the effective APR for 

optional disclosure for HELOCs are set 

forth in § 226.14(c) and (d). 

As discussed above under § 226.7, in 

the January 2009 Regulation Z Rule, the 

Board eliminated the requirement to 

disclose the effective APR for open-end 

(not home-secured) credit, and made the 

disclosure of the effective APR optional 

for HELOCs subject to § 226.5b. As also 

discussed above under § 226.7, the 

Board is now proposing to eliminate the 

disclosure of the effective APR for 

HELOCs subject to § 226.5b. 

Accordingly, the Board proposes to 

delete § 226.14(c) and (d) and the 

accompanying staff commentary. 

Section 226.14(b) would be revised by 

replacing a reference to disclosures 

under various sections of the regulation 

with a reference to disclosures under 

Subpart B, because with the elimination 

of the requirement to disclose the 

effective APR on periodic statements, 

§ 226.14 would now provide rules for 

calculation of the APR for open-end 

disclosures generally. Comment 14(b)-1 

would be revised similarly. Comment 

14(b)–1 would also be revised by 

deleting a sentence referring to the 

‘‘corresponding annual percentage rate,’’ 

because that term would now become 

obsolete; all disclosures of the annual 

percentage rate would use the term 

‘‘annual percentage rate’’ or ‘‘APR.’’ 

Appendix F—Annual Percentage Rate 

Computations for Certain Open-End 

Credit Plans 

Appendix F contains guidance on 

calculation of the effective APR under 

§ 226.14(c)(3) when the finance charge 

imposed during the billing cycle 

includes a charge relating to a specific 

transaction. As discussed above under 

§§ 226.7 and 226.14, the Board is 

proposing to eliminate the disclosure of 

the effective APR on periodic 

statements, and therefore is also 

proposing to delete § 226.14(c) and (d), 

which contain the rules for calculation 

of the effective APR. If the effective APR 

disclosure is eliminated, Appendix F 

will have no further purpose. 

Accordingly, the Board proposes to 

remove and reserve Appendix F and the 

accompanying staff commentary. 

Appendix G—Open-End Model Forms 

and Clauses 

Appendix G to part 226 sets forth 

model forms, model clauses and sample 

forms that creditors may use to comply 

with the requirements of Regulation Z 

for open-end credit. Although use of the 

model forms and clauses is not required, 

creditors using them properly will be 

deemed to be in compliance with the 

regulation with regard to those 

disclosures. 

As discussed in detail below, the 

Board proposes to modify the model 

clauses applicable to balance 

computation method disclosures, 

notices of liability for unauthorized use, 

and notices of billing-error rights; to add 

new model and sample forms for 

HELOC early disclosures and accountopening disclosures; to add new model 

clauses for notices of results of 

reinstatement investigations and for 

notices of actions taken on accounts in 

HELOCs; and to add new sample forms 

for HELOC periodic statements, changein-terms notices, and notices of rate 

increases. In addition, as discussed 

below, the Board is proposing to adopt, 

for both open-end and closed-end 

credit, new samples and models for 

disclosures relating to credit insurance, 

debt cancellation or debt suspension; for 

a detailed discussion of these proposed 

disclosures and the related proposed 

models and samples, refer to the notice 

of the Board’s proposal regarding 

closed-end mortgage lending 

requirements under Regulation Z, 

published today elsewhere in this 

Federal Register. 

The staff commentary to Appendices 

G and H contains comment App. G and 

H–1, which discusses permissible 

changes that creditors may make to the 

model forms and clauses without losing 

protection from liability for failure to 

comply with the regulation’s disclosure 

requirements. Comment App. G and H– 

1 also lists the models to which 

formatting changes may not be made 

because the related disclosure 

requirements provide that the 

disclosures must be made in a form 

substantially similar to that in the 

models. The Board proposes to revise 

comment App. G and H–1 by adding a 

number of proposed new open-end and 

closed-end models to this list. 

Model clauses for balance 

computation methods. Under various 

sections of the regulation, creditors are 

required to disclose the method of 

calculating the balance to which rates 

are applied. See §§ 226.5a(b)(6), 

226.6(b)(2)(vi), 226.6(b)(4)(i)(D), and 

226.7(b)(5), and proposed 

§§ 226.6(a)(2)(xxii), 226.6(a)(4)(i)(D), 

and 226.7(a)(5). Under some of these 

provisions, the creditor is permitted in 

some circumstances to identify the 

name of the balance calculation method, 

but under others the creditor must in 

either some or all cases provide an 

explanation of how the balance was 

calculated. Model Clauses that explain 

commonly used methods, such as the 

average daily balance method, are at 

Appendices G–1 and G–1(A) to part 226. 

In the January 2009 Regulation Z 

Rule, Appendix G–1(A) was added for 

open-end (not home-secured) plans. The 

clauses in Appendix G–1(A) refer to 

‘‘interest charges’’ rather than ‘‘finance 

charges’’ to explain balance 

computation methods. The consumer 

testing conducted by the Board prior to 

the June 2007 Regulation Z Proposal 

indicated that consumers generally had 

a better understanding of ‘‘interest 

charge’’ than ‘‘finance charge,’’ which is 

reflected in the Board’s use of ‘‘interest’’ 

(rather than ‘‘finance charge’’) in 

account-opening samples and to 

describe costs other than fees on 

periodic statement samples and forms in 

the January 2009 Regulation Z Rule. For 

HELOCs subject to § 226.5b, the January 

2009 Regulation Z Rule permits 

creditors to use the model clauses in 

either Appendix G–1 or G–1(A). 

Consumer testing conducted for the 

Board during the development of this 

proposal for HELOCs confirms that 

consumers generally understand 

‘‘interest charge’’ better than ‘‘finance 

charge.’’ As discussed above under 

§§ 226.5b, 226.6, and 226.7, the Board is 

accordingly proposing to require use of 

‘‘interest charge’’ in HELOC disclosures. 

Therefore, the Board proposes to delete 

current Appendix G–1 and to 

redesignate Appendix G–1(A) as 

Appendix G–1 for use by all creditors 

offering open-end credit, both HELOCs 

and open-end (not home-secured) 

credit. In addition, the commentary 

would be revised to delete material that 

refers only to the existing version of 

Appendix G–1, or that indicates that 

HELOC creditors have the option to use 

either Appendix G–1 or G–1(A). 

Model clauses for notice of liability 

for unauthorized use and billing-error 

rights. Appendix G contains Model 

Clauses G–2 and G–2(A), which provide 

models for the notice of liability for 

unauthorized use of a credit card. In the 

January 2009 Regulation Z Rule, the 

Board adopted Model Clause G–2(A) for 

open-end (not home-secured) plans. 

Model Clause G–2(A) does not differ in 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43525 

substance from Model Clause G–2, but 

was revised to improve readability. In 

addition, Appendix G includes Model 

Forms G–3 and G–3(A), which contain 

models for the long-form billing-error 

rights statement (for use with the 

account-opening disclosures and as an 

annual disclosure or, at the creditor’s 

option, with each periodic statement), 

and G–4 and G–4(A), which contain 

models for the alternative billing-error 

rights statement (for use with each 

periodic statement). As with Model 

Clause G–2, the Board adopted Model 

Forms G–3(A) and G–4(A) for open-end 

(not home-secured) plans, with 

revisions to improve readability. For 

HELOCs subject to § 226.5b, the January 

2009 Regulation Z rule permits a 

creditor to use either the current forms 

(G–2, G–3, and G–4) or the revised 

forms (G–2(A), G–3(A), and G–4(A)), in 

order to avoid requiring HELOC 

creditors to make forms changes 

pending the completion of the Board’s 

HELOC review. 

Revised Model clauses and forms G– 

2(A), G–3(A), and G–4(A) adopted in the 

January 2009 Regulation Z Rule are fully 

applicable to HELOCs, and represent 

improvements on models G–2, G–3, and 

G–4 in terms of readability. Therefore, 

the Board proposes to delete current G– 

2, G–3, and G–4, and to redesignate G– 

2(A), G–3(A), and G–4(A) as G–2, G–3, 

and G–4, respectively, for use by all 

creditors offering open-end credit, both 

HELOCs and open-end (not homesecured) credit. A technical correction 

would be made in the titles of Model 

Forms G–3 and G–4 in the table of 

contents to Appendix G. In addition, the 

commentary would be revised to delete 

material that refers to existing versions 

of G–2, G–3, or G–4, or that indicates 

that HELOC creditors have the option to 

use either the old or the new versions. 

Model and sample forms applicable to 

HELOC early disclosures and accountopening disclosures. Currently, 

Appendix G contains three sample and 

model forms and clauses related to the 

disclosures required by § 226.5b at the 

time a consumer submits an application 

for a HELOC: G–14A and G–14B, which 

are sample application disclosures, and 

G–15, which contains model clauses 

that may be used as applicable in a 

creditor’s HELOC application 

disclosure. Appendix G does not 

currently contain any model or sample 

forms or clauses related to the accountopening disclosures required by 

§ 226.6(a) at the time a consumer opens 

a HELOC. 

As discussed above in the section-bysection analysis to § 226.5b, the Board is 

proposing to change disclosure timing 

so that the generic application 

disclosures required under the current 

regulation would be replaced with more 

transaction-specific disclosures to be 

provided within three business days 

after a consumer submits a HELOC 

application (the ‘‘early disclosures’’). In 

addition, as discussed above, the Board 

is proposing to substantially revise the 

format of the disclosures. The 

application disclosures currently 

required are subject to few formatting 

requirements and, in particular, are not 

required to be in a tabular format or in 

any minimum font size. Under the 

proposal, the early disclosures would 

have to be provided in a tabular format, 

in a minimum font size of 10 points, 

and would be subject to other format 

requirements. 

Accordingly, the Board proposes to 

replace current Samples G–14A and G– 

14B and Model G–15 with new model 

and sample forms reflecting the 

proposed new format requirements. 

Proposed Models G–14(A) and G–14(B) 

and Samples G–14(C), G–14(D), and G– 

14(E) would illustrate, in the tabular 

format, the early disclosures proposed 

to be required under § 226.5b. Under 

proposed § 226.5b, the early disclosures 

would have to be given in the form of 

a table with headings, content, and 

format substantially similar to any of the 

applicable models. 

Proposed Models G–14(A) and G– 

14(B) differ in that the former provides 

guidance for creditors that offer two or 

more HELOC plans, while the latter 

provides guidance for creditors that 

offer only one HELOC plan. Proposed 

Samples G–14(C), G–14(D), and G–14(E) 

differ in that they illustrate differing 

minimum payment terms, such as 

whether the HELOC has a repayment 

period, how the length of the repayment 

period is determined, whether a balloon 

payment will or may be due, and how 

the minimum payment amount is 

calculated during the draw and 

repayment periods. The proposed 

samples also differ in that Samples G– 

14(C) and G–14(E) illustrate plans with 

discounted introductory APRs, while 

Sample G–14(D) illustrates a plan 

without a discounted introductory APR. 

As discussed above in the section-bysection analysis to § 226.6, the Board is 

also proposing to require that certain 

account-opening disclosures be 

provided in a tabular format, a 

minimum font size of 10 points, and 

subject to other format requirements, 

similar to the proposed requirements for 

the early disclosures under proposed 

§ 226.5b. The disclosures that would be 

required to be provided in tabular 

format as set forth in proposed 

§ 226.6(a)(2); account-opening 

disclosures set forth in proposed 

§ 226.6(a)(3), (4), and (5), if not listed in 

proposed § 226.6(a)(2), would not have 

to be given in tabular format. 

As mentioned above, Appendix G 

does not currently contain any model or 

sample forms or clauses for the accountopening disclosures. To provide 

guidance on the proposed new accountopening disclosure tabular format 

requirements, the Board proposes to 

adopt new Model G–15(A) and Samples 

G–15(B), G–15(C), and G–15(D), 

reflecting those requirements. Under 

proposed § 226.6(a)(1), specified 

account-opening disclosures would 

have to be given in the form of a table 

with headings, content, and format 

substantially similar to any of the 

applicable models. 

The Board is proposing only one 

model form for the account-opening 

disclosures, rather than two forms as in 

the case of the early disclosures. When 

the early disclosures are provided soon 

after application, the consumer may not 

have chosen a particular HELOC plan, 

and thus if the creditor offers more than 

one plan, showing more than one in the 

disclosures would be helpful to the 

consumer and accordingly one of the 

early disclosure models shows two 

plans, as discussed above. In contrast, at 

the time the HELOC account is opened, 

the consumer will have chosen a 

particular plan and therefore a second 

model form is not needed. 

Proposed Samples G–15(B), G–15(C), 

and G–15(D), similarly to proposed 

Samples G–14(C), G–14(D), and G– 

14(E), differ in that they illustrate 

differing minimum payment terms, such 

as whether the HELOC has a repayment 

period, how the length of the repayment 

period is determined, whether a balloon 

payment will or may be due, and how 

the minimum payment amount is 

calculated during the draw and 

repayment periods. The proposed 

samples also differ with regard to 

whether the illustrated plan has a 

discounted introductory APR. 

Currently, the staff commentary to 

Appendix G does not contain any 

comments addressing the model and 

sample forms and clauses related to the 

HELOC disclosures. The Board proposes 

to add staff commentary to provide 

guidance on the proposed new model 

and sample forms for the early HELOC 

disclosures required under proposed 

§ 226.5b(b), as well as on the proposed 

new model and sample forms for certain 

account-opening disclosures under 

proposed § 226.6(a)(2). The proposed 

commentary would provide guidance on 

how to use the model and sample forms 

and on how the various forms differ. In 

addition, the proposed commentary 

would provide details on the formatting 


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43526 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

techniques used in presenting the 

information in the sample forms, such 

as on font style and size, spacing 

between lines of text, paragraphs, 

words, and characters, and sufficient 

contrast. The commentary would also 

state that, while the Board would not 

require creditors to use these formatting 

techniques (except for the font size 

requirements), the Board would 

encourage creditors to consider these 

techniques when deciding how to 

disclose information in the table, to 

ensure that the information is presented 

in a readable format. This portion of the 

proposed commentary would generally 

parallel the commentary to the model 

and sample forms and clauses for openend (not home-secured) credit adopted 

in the January 2009 Regulation Z Rule. 

Model clauses for notice of results of 

reinstatement investigation. Model 

clauses in proposed Models G–22(A) 

and G–22(B) illustrate the disclosures 

required under § 226.5b(g)(2)(v). They 

inform the consumer that the 

consumer’s reinstatement request has 

been received and that the creditor has 

investigated the request. They contain 

sample language for explaining the 

results of a reinstatement investigation 

in which the creditor found that a 

reason for suspension of advances or 

reduction of the credit limit still exists. 

Clauses in Model G–22(A) illustrate 

how a notice may explain that the same 

reason or reasons originally supporting 

the suspension or reduction still exist. 

Clauses in Model G–22(B) illustrate how 

a creditor may explain that a new reason 

or reasons for account suspension or 

reduction exist. 

Models G–22(A) and G–22(B) do not 

contain sample clauses for all reasons in 

which a creditor may temporarily 

suspend or reduce a home-equity plan; 

they illustrate only three of the reasons 

why a creditor may take these actions: 

(1) A significant decline in the value of 

the property securing the plan 

(§ 226.5b(f)(3)(vi)(A)); (2) a material 

change in the consumer’s financial 

circumstances such that the creditor has 

a reasonable belief that the consumer 

will be unable to meet the repayment 

terms of the plan (§ 226.5b(f)(3)(vi)(B)); 

and (3) the consumer’s default of a 

material obligation under the plan 

(§ 226.5b(f)(3)(vi)(C)). The Board chose 

to feature these three reasons for 

temporary suspension or reduction 

because Board outreach and research 

indicated that creditors rely on these 

reasons to take action more often than 

the reasons found in 

§ 226.5b(f)(3)(vi)(D)–(F), and because 

they may present more challenges 

regarding the specificity required to 

comply with disclosure requirement. 

Proposed comment 12 to Appendix G 

of part 226 is intended to affirm that the 

creditor has flexibility in complying 

with the disclosure requirement of 

§ 226.5b(g)(2)(v). The creditor may 

comply by using language substantially 

similar to the language in the model 

clauses or by substituting applicable 

reasons for the action not represented in 

the model clauses, as long as the 

information required to be disclosed is 

clear and conspicuous. 

Model clauses for notice of action 

taken on account. These model clauses 

illustrate the disclosures required under 

§ 226.9(j)(1) and (j)(3). Clauses in Model 

G–23(A) contain information required 

under proposed § 226.9(j)(1) regarding 

the nature of the action taken on the 

account under § 226.5b(f)(3)(i) and 

(f)(3)(vi) and the specific reasons for the 

action taken. In particular, they 

illustrate language for a notice in which 

the creditor temporarily suspended 

advances or reduced a credit limit due 

to a significant decline in the value of 

the property securing the plan under 

§ 226.5b(f)(3)(vi)(A); a material change 

in the consumer’s financial 

circumstances such that the creditor has 

a reasonable belief that the consumer 

will be unable to meet the repayment 

terms of the plan under 

§ 226.5b(f)(3)(vi)(B); and the consumer’s 

default of a material obligation under 

the plan under § 226.5b(f)(3)(vi)(C). 

Again, the Board chose to feature these 

three reasons for temporary suspension 

or reduction because Board outreach 

and research indicated that creditors 

rely on these reasons to take action more 

often than the reasons found in 

§ 226.5b(f)(3)(vi)(D)–(F), and because 

they may present more challenges 

regarding the specificity required to 

comply with the disclosure 

requirement. Model G–23(A) clauses 

also contain information regarding the 

consumer’s rights when the creditor 

requires the consumer to request 

reinstatement under § 226.5b(g)(1)(ii). 

Clauses in Model G–23(B) contain 

information required under proposed 

§ 226.9(j)(3) regarding the nature of the 

action taken on the account under 

§ 226.5b(f)(2) and the specific reasons 

for the action taken. In particular, they 

illustrate language for a notice in which 

the creditor takes action on an account 

due to the consumer’s failure to make a 

required minimum periodic payment 

within 30 days of the due date under 

proposed § 226.5b(f)(2)(ii) and the 

consumer’s action or inaction that 

adversely affected the creditor’s interest 

in the property securing the plan under 

§ 226.5b(f)(2)(iii). Model clauses for the 

notice when a creditor takes action due 

to a consumer’s fraud or material 

misrepresentation under § 226.5b(f)(2)(i) 

are not included because, under 

proposed comment 9(j)(3)–2.ii, a 

creditor need disclose only that the 

consumer’s fraud or misrepresentation 

is the reason for the action. 

Proposed comment 13 to Appendix G 

is intended to affirm that a creditor has 

flexibility in complying with the 

disclosure requirements of § 226.9(j)(1) 

and (j)(3). The creditor may comply by 

using language substantially similar to 

the language in the model clauses or by 

substituting applicable reasons for the 

action not represented in the model 

clauses, as long as the information 

required to be disclosed is clear and 

conspicuous. 

The Board developed the clauses in 

proposed Models G–22(A), G–22(B), G– 

23(A) and G–23(B) in consultation with 

ICF Macro, a third-party consumer 

research and testing firm contracted by 

the Board to assist with developing and 

testing disclosures for home-equity 

plans. The Board has not yet tested the 

clauses in proposed Models G–22(A), 

G–22(B), G–23(A) and G–23(B) with 

consumers. The Board requests 

comment on whether consumer testing 

of these clauses is necessary, whether 

the Board should develop model forms 

rather than model clauses for the 

disclosure requirements of 

§ 226.5b(g)(2)(v) and § 226.9(j)(1) and 

(j)(3), and whether the Board should 

consider modifying, deleting, or adding 

any proposed clauses for these models. 

Sample forms for periodic statements, 

change-in-terms notices, and notices of 

rate increases. As discussed above in 

the section-by-section analysis to 

proposed § 226.7(a), the Board is 

proposing to revise the requirements for 

disclosures on periodic statements for 

HELOC accounts. Periodic statements 

would be subject to certain content and 

formatting requirements, including a 

requirement to disclose a total of 

interest and a total of fees charged, both 

for the statement period and for year to 

date, in proximity to the list of 

transactions on the statement. To 

provide guidance on the proposed 

periodic statement requirements, the 

Board proposes to adopt new Samples 

G–24(A), G–24(B), and G–24(C). Under 

proposed § 226.7(a), the interest and fee 

disclosures would have to be made 

using a format substantially similar to 

the samples. Proposed Sample G–24(A) 

illustrates the disclosure of total interest 

and total fees for the period and year to 

date in proximity to transactions. 

Proposed Samples G–24(B) and G–24(C) 

show entire periodic statements, 

including the grouping shown in 

Sample G–24(A) as well as other 

elements of the statements. 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43527 

41See comments 25(a)–3 and –4. 

As discussed above in the section-bysection analysis to proposed 

§ 226.9(c)(1) and (i), the Board is also 

proposing to revise the requirements for 

providing change-in-terms notices for 

HELOCs, and to adopt a new 

requirement to provide a notice of rate 

increase. The notice would be subject to 

certain formatting requirements 

including the use of a tabular format, 

and if the notice is given with a periodic 

statement, would have to be disclosed 

on the front of any page of the 

statement. If the notice is not given with 

a periodic statement, the notice would 

have to be disclosed, at the creditor’s 

option, on the front of the first page or 

segregated on a separate page from other 

information. The Board proposes to 

adopt new Sample G–25, illustrating a 

change-in-terms notice using the tabular 

format, and Sample G–26, showing a 

notice of rate increase using the tabular 

format. Proposed Sample G–24(C) 

illustrates a change-in-terms notice 

given on the front of a periodic 

statement using the tabular format, and 

proposed Sample G–24(B) provides the 

same guidance with regard to a notice 

of rate increase. 

The Board also proposes to adopt staff 

commentary to provide guidance on the 

use of proposed Samples G–24(A), G– 

24(B), G–24(C), G–25, and G–26. The 

proposed commentary would discuss 

how the forms may be used and how 

they differ from each other. In addition, 

the commentary would make clear that 

the samples contain information that is 

not required by Regulation Z, and that 

they present information in additional 

formats that are not required by 

Regulation Z. 

Model and sample forms for credit 

insurance, debt cancellation or debt 

suspension. As discussed in the notice 

of the Board’s proposal regarding 

closed-end mortgage lending 

requirements under Regulation Z, 

published today elsewhere in this 

Federal Register, the Board is proposing 

certain additional disclosure 

requirements relating to credit 

insurance, debt cancellation or debt 

suspension. Generally, the proposed 

disclosures would enhance information 

provided to consumers about the 

optional nature of the insurance or 

coverage, the cost, and eligibility 

requirements. The Board is proposing to 

adopt new samples and models for these 

disclosures, designated G–16(C) and G– 

16(D) for open-end credit and H–17(C) 

and H–17(D) for closed-end credit. For 

the proposed text of the sample and 

model disclosures and for further 

discussion of them, refer to the Board’s 

separate Federal Register notice 

published today elsewhere in this 

Federal Register. 

VII. Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act (PRA) of 1995 (44 U.S.C. 

3506; 5 CFR Part 1320 Appendix A.1), 

the Board reviewed the proposed rule 

under the authority delegated to the 

Board by the Office of Management and 

Budget (OMB). The collection of 

information that is required by this 

proposed rule is found in 12 CFR part 

226. The Board may not conduct or 

sponsor, and an organization is not 

required to respond to, this information 

collection unless the information 

collection displays a currently valid 

OMB control number. The OMB control 

number is 7100–0199. 

This information collection is 

required to provide benefits for 

consumers and is mandatory (15 U.S.C. 

1601 et seq.). Since the Board does not 

collect any information, no issue of 

confidentiality arises. The respondents/ 

recordkeepers are creditors and other 

entities subject to Regulation Z. 

TILA and Regulation Z are intended 

to ensure effective disclosure of the 

costs and terms of credit to consumers. 

For open-end credit, creditors are 

required to, among other things, 

disclose information about the initial 

costs and terms and to provide periodic 

statements of account activity, notice of 

changes in terms, and statements of 

rights concerning billing error 

procedures. Regulation Z requires 

specific types of disclosures for credit 

and charge card accounts and home 

equity plans. For closed-end loans, such 

as mortgage and installment loans, cost 

disclosures are required to be provided 

prior to consummation. Special 

disclosures are required in connection 

with certain products, such as reverse 

mortgages, certain variable-rate loans, 

and certain mortgages with rates and 

fees above specified thresholds. TILA 

and Regulation Z also contain rules 

concerning credit advertising. Creditors 

are required to retain evidence of 

compliance for twenty-four months, 

§ 226.25, for certain types of records.41

Under the PRA, the Board accounts 

for the paperwork burden associated 

with Regulation Z for the state member 

banks and other creditors supervised by 

the Board that engage in consumer 

credit activities covered by Regulation Z 

and, therefore, are respondents under 

the PRA. Appendix I of Regulation Z 

defines the Federal Reserve-regulated 

institutions as: State member banks, 

branches and agencies of foreign banks 

(other than federal branches, federal 

agencies, and insured state branches of 

foreign banks), commercial lending 

companies owned or controlled by 

foreign banks, and organizations 

operating under section 25 or 25A of the 

Federal Reserve Act. Other federal 

agencies account for the paperwork 

burden imposed on the entities for 

which they have administrative 

enforcement authority. The current total 

annual burden to comply with the 

provisions of Regulation Z is estimated 

to be 734,127 hours for the 1,138 

Federal Reserve-regulated institutions 

that are deemed to be respondents for 

the purposes of the PRA. To ease the 

burden and cost of complying with 

Regulation Z (particularly for small 

entities), the Board provides model 

forms, which are appended to the 

regulation. 

As discussed in the preamble, the 

Board is proposing changes to format, 

timing, and content requirements for 

HELOC disclosures required by 

Regulation Z: (1) Educational 

information published by the Board 

provided at application; (2) transactionspecific disclosures provided within 

three days after application; (3) 

transaction-specific disclosures 

provided at account-opening; (4) 

periodic statements and notices of 

changes to the transaction’s terms 

provided during the life of the plan; and 

(5) notices related to terminating, 

suspending, and reinstating accounts, 

and reducing the credit limit. The 

proposed rule would impose a one-time 

increase in the total annual burden 

under Regulation Z for all respondents 

regulated by the Federal Reserve by 

104,160 hours, from 734,127 to 838,287 

hours. In addition, the Board estimates 

that, on a continuing basis, the proposed 

revisions to the rules would increase the 

total annual burden on a continuing 

basis from 734,127 to 1,323,049 hours. 

The total estimated burden increase, 

as well as the estimates of the burden 

increase associated with each major 

section of the proposed rule as set forth 

below, represents averages for all 

respondents regulated by the Federal 

Reserve. The Board expects that the 

amount of time required to implement 

each of the proposed changes for a given 

institution may vary based on the size 

and complexity of the respondent. 

Furthermore, the burden estimate for 

this rulemaking does not include the 

burden of complying with proposed 

disclosure and timing requirements that 

apply to private educational lenders 

making private education loans as 

announced in a separate proposed 

rulemaking (Docket No. R–1353) or the 

proposed disclosure and timing 

requirements of the Board’s separate 


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43528 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

42 13 CFR 121.201. 

notice published simultaneously with 

this proposal for closed-end mortgages. 

The Board estimates that 651 

respondents regulated by the Federal 

Reserve would take, on average, 160 

hours (four business weeks) to update 

their systems, internal procedure 

manuals, and provide training for 

relevant staff to comply with the 

proposed disclosure requirements in 

§ 226.5b(b). This one-time revision 

would increase the burden by 104,160 

hours. On a continuing basis the Board 

estimates that 651 respondents 

regulated by the Federal Reserve would 

take, on average, 64 hours a month to 

comply with the all of the disclosure 

requirements for open-end credit plans 

secured by real property and would 

increase the ongoing burden from 

15,532 hours to 500,294 hours. To ease 

the burden and cost of complying with 

the new and proposed requirements 

under Regulation Z the Board proposes 

to revise or add several model forms, 

model clauses and sample forms to 

Appendix G. 

The other federal financial agencies: 

Office of the Comptroller of the 

Currency (OCC), Office of Thrift 

Supervision (OTS), the Federal Deposit 

Insurance Corporation (FDIC), and the 

National Credit Union Administration 

(NCUA) are responsible for estimating 

and reporting to OMB the total 

paperwork burden for the domestically 

chartered commercial banks, thrifts, and 

federal credit unions and U.S. branches 

and agencies of foreign banks for which 

they have primary administrative 

enforcement jurisdiction under TILA 

Section 108(a), 15 U.S.C. 1607(a). These 

agencies may, but are not required to, 

use the Board’s burden estimation 

methodology. Using the Board’s 

method, the total current estimated 

annual burden for the approximately 

17,200 domestically chartered 

commercial banks, thrifts, and federal 

credit unions and U.S. branches and 

agencies of foreign banks supervised by 

the Federal Reserve, OCC, OTS, FDIC, 

and NCUA under TILA would be 

approximately 13,568,725 hours. The 

proposed rule would impose a one-time 

increase in the estimated annual burden 

for such institutions by 2,752,000 hours 

to 16,320,725 hours. On a continuing 

basis the proposed rule would impose 

an increase in the estimated annual 

burden by 13,209,600 to 26,778,325 

hours. The above estimates represent an 

average across all respondents; the 

Board expects variations between 

institutions based on their size, 

complexity, and practices. 

Comments are invited on: (1) Whether 

the proposed collection of information 

is necessary for the proper performance 

of the Federal Reserve’s functions; 

including whether the information has 

practical utility; (2) the accuracy of the 

Federal Reserve’s estimate of the burden 

of the proposed information collection, 

including the cost of compliance; (3) 

ways to enhance the quality, utility, and 

clarity of the information to be 

collected; and (4) ways to minimize the 

burden of information collection on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology. 

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. 

VIII. Initial Regulatory Flexibility 

Analysis 

In accordance with section 3(a) of the 

Regulatory Flexibility Act (RFA), 5 

U.S.C. 601–612, the Board is publishing 

an initial regulatory flexibility analysis 

for the proposed amendments to 

Regulation Z. The RFA requires an 

agency either to provide an initial 

regulatory flexibility analysis with a 

proposed rule or to certify that the 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities. Under 

regulations issued by the Small 

Business Administration, an entity is 

considered ‘‘small’’ if it has $175 

million or less in assets for banks and 

other depository institutions; and $7 

million or less in revenues for nondepository lenders and loan 

originators.42

Based on its analysis and for the 

reasons stated below, the Board believes 

that the proposed rule will have a 

significant economic impact on a 

substantial number of small entities. A 

final regulatory flexibility analysis will 

be conducted after consideration of 

comments received during the public 

comment period. The Board requests 

public comment in the following areas. 

A. Reasons for the Proposed Rule 

Congress enacted TILA based on 

findings that economic stability would 

be enhanced and competition among 

consumer credit providers would be 

strengthened by the informed use of 

credit resulting from consumers’ 

awareness of the cost of credit. One of 

the stated purposes of TILA is to 

provide a meaningful disclosure of 

credit terms to enable consumers to 

compare credit terms available in the 

marketplace more readily and avoid the 

uninformed use of credit. In this regard, 

the goal of the proposed amendments to 

Regulation Z is to improve the 

effectiveness of the disclosures that 

creditors provide to consumers 

beginning before application and 

throughout the life of a HELOC plan. 

Accordingly, the Board is proposing 

changes to format, timing, and content 

requirements for HELOC disclosures 

required by Regulation Z: (1) 

Educational information published by 

the Board provided with the 

application; (2) transaction-specific 

disclosures provided shortly after 

application; (3) transaction-specific 

disclosures provided at accountopening; (4) periodic statements and 

notices of changes to the transaction’s 

terms provided during the life of the 

plan; and (5) notices related to 

terminating, suspending, and reinstating 

accounts, and reducing the credit limit. 

Specifically, the proposed regulations 

would revise and enhance the content of 

HELOC disclosures currently required at 

application and account-opening, as 

well as periodic statements and changein-terms notices. The Board’s proposal 

also would require creditors to provide 

transaction-specific disclosures early 

enough in the process (i.e., within three 

business days after application rather 

than at account-opening, as currently 

required) to enable consumers to make 

decisions based on credit terms that 

would be offered to them and not on 

general information that may not apply 

to a particular consumer. The Board’s 

proposal also would revise notice of 

action taken requirements for accounts 

that are temporarily suspended or 

reduced; require a notice of action taken 

when a creditor takes any action for 

reasons that would allow the creditor to 

terminate the account; and require a 

notice of the results of a creditor’s 

investigation of a consumer’s request for 

reinstatement of credit privileges on 

accounts that have been temporarily 

suspended or reduced. These 

amendments are proposed in 

furtherance of the Board’s responsibility 

to prescribe regulations to carry out the 

purposes of TILA, including promoting 

consumers’ awareness of the cost of 

credit and their informed use of credit. 

B. Statement of Objectives and Legal 

Basis 

The SUPPLEMENTARY INFORMATION

contains information about objectives of 

and legal basis for the proposed rule. In 

summary, the proposed amendments to 

Regulation Z are designed to achieve 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43529 

43Regulation Z generally applies to ‘‘each 

individual or business that offers or extends credit 

when four conditions are met: (i) The credit is 

offered or extended to consumers; (ii) the offering 

or extension of credit is done regularly, (iii) the 

credit is subject to a finance charge or is payable 

by a written agreement in more than four 

installments, and (iv) the credit is primarily for 

personal, family, or household purposes.’’ 

§ 226.1(c)(1). 

44The 8,610 lenders (both depository institutions 

and mortgage companies) covered by HMDA in 

2007 accounted for an estimated 80% of all home 

lending in the United States (2008 HMDA data are 

not yet available). Under HMDA, lenders use a 

‘‘loan/application register’’ (HMDA/LAR) to report 

information annually to their federal supervisory 

agencies for each application and loan acted on 

during the calendar year. Lenders must make their 

HMDA/LARs available to the public by March 31 

following the year to which the data relate, and they 

must remove the two date-related fields to help 

preserve applicants’ privacy. Only lenders that have 

offices (or, for non-depository institutions, are 

deemed to have offices) in metropolitan areas are 

required to report under HMDA. However, if a 

lender is required to report, it must report 

information on all of its home loan applications and 

loans in all locations, including non-metropolitan 

areas. 

45The 2007 HMDA Data, http:// 

www.federalreserve.gov/pubs/bulletin/2008/ 

articles/hmda/default.htm. 

46The Board recognizes that reporting HELOC 

originations under HMDA is optional, so HMDA 

reporting is not an exact gauge of small nondepositories engaging in HELOC lending. 

47http://www.namb.org/namb/ 

Industry_Facts.asp?SnID=719224934. The cited 

page of the NAMB Web site, however, no longer 

provides an estimate of the number of mortgage 

brokerage companies. 

two goals: (1) Revise content, timing and 

format of disclosures required for 

HELOCs at application, accountopening, and after the HELOC is 

opened; and (2) clarify and strengthen 

certain substantive restrictions on when 

creditors may change the terms of a 

HELOC plan, including when a creditor 

may terminate, suspend, or reduce a 

HELOC. 

The legal basis for the proposed rule 

is in Sections 105(a), 105(f), 127(a)(8), 

127A(a)(14) and 127A(e) of TILA. 15 

U.S.C. 1604(a), 1604(f), 1637(a)(8), 

1637a(a)(14), and 1637a(e). A more 

detailed discussion of the Board’s 

rulemaking authority is set forth in part 

IV of the SUPPLEMENTARY INFORMATION. 

C. Description of Small Entities to 

Which the Proposed Rule Would Apply 

The proposed regulations would 

apply to all institutions and entities that 

engage in originating or extending 

HELOCs. The Board is not aware of a 

reliable source for the total number of 

small entities likely to be affected by the 

proposal; and the credit provisions of 

TILA and Regulation Z have broad 

applicability to individuals and 

businesses that originate, extend and 

service even small numbers of homesecured credit. See § 226.1(c)(1).43 Thus, 

all small entities that originate, extend, 

or service HELOCs potentially could be 

subject to at least some aspects of the 

proposed rule. 

The Board can, however, identify 

through data from Reports of Condition 

and Income (‘‘call reports’’) approximate 

numbers of small depository institutions 

that would be subject to the proposed 

rules if they originate or extend 

HELOCs. Based on December 2008 call 

report data, approximately 7,557 small 

institutions would be subject to the 

proposed rule. Approximately 16,345 

depository institutions in the United 

States filed call report data, 

approximately 11,907 of which had total 

domestic assets of $175 million or less 

and thus were considered small entities 

for purposes of the Regulatory 

Flexibility Act. Of 4,231 banks, 565 

thrifts and 7,111 credit unions that filed 

call report data and were considered 

small entities, 2,397 banks, 363 thrifts, 

and 4,797 credit unions, totaling 7,557 

institutions, extended HELOCs. For 

purposes of this analysis, thrifts include 

savings banks, savings and loan entities, 

co-operative banks and industrial banks. 

The Board cannot identify with 

certainty the number of small nondepository institutions that would be 

subject to the proposed rule. Home 

Mortgage Disclosure Act (HMDA) 44 data 

indicate that 1,752 non-depository 

institutions filed HMDA reports in 

2007.45 Based on the small volume of 

lending activity reported by these 

institutions in general, most are likely to 

be small.46

Another aspect of the Board’s 

proposal that would affect individuals 

and small entities that are nondepositories is the requirement that 

creditors disclose as part of the early 

HELOC disclosure the identity of the 

creditor making the disclosures and the 

loan originator’s unique identifier, as 

defined by the Secure and Fair 

Enforcement for Mortgage Licensing Act 

of 2008 (‘‘SAFE Act’’) Sections 1503(3) 

and (12), 12 U.S.C. 5102(3) and (12). 15 

U.S.C. 1637a(a)(14). Currently, a 

creditor is not required to disclose 

identification information about the 

creditor and the borrower as part of the 

application disclosures. Loan 

originators other than brokers that 

would be affected by the proposal are 

employees of creditors (or of brokers) 

and, as such, are not business entities in 

their own right. In its 2008 proposed 

rule under HOEPA, 73 FR 1672, 1720 

(Jan. 9, 2008), the Board noted that, 

according to the National Association of 

Mortgage Brokers (NAMB), in 2004 

there were 53,000 brokerage companies 

that employed an estimated 418,700 

people.47 The Board estimated that most 

of these companies are small entities. In 

addition, a comment letter received 

from the U.S. Small Business 

Administration under the Board’s 2008 

HOEPA proposal cited the U.S. Census 

Bureau’s 2002 Economic Census in 

stating that there were 15,195 small 

broker entities. 

D. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

The compliance requirements of the 

proposed rules are described in parts II, 

V and VI of the SUPPLEMENTARY

INFORMATION. The exact effect of the 

proposed revisions to Regulation Z on 

small entities is unknown. Some small 

entities would be required, among other 

things, to modify their HELOC 

disclosures and disclosure delivery 

process to comply with the revised 

rules. The precise costs to small entities 

of updating their systems and 

disclosures are difficult to predict. 

These costs will depend on a number of 

unknown factors, including, among 

other things, the specifications of the 

current systems used by such entities to 

prepare and provide disclosures and to 

administer and maintain accounts, the 

complexity of the terms of HELOCs that 

they offer, and the range of their HELOC 

product offerings. 

E. Identification of Duplicative, 

Overlapping, or Conflicting Federal 

Rules 

Other Federal Rules 

The Board has not identified any 

federal rules that conflict with the 

proposed revisions to Regulation Z. 

Overlap With SAFE Act 

The proposed rule’s required 

disclosure contents for HELOCs would 

overlap with the SAFE Act by requiring 

that the disclosure include the loan 

originator’s unique identifier, as defined 

by SAFE Act, if applicable. 

F. Identification of Duplicative, 

Overlapping, or Conflicting State Laws 

State Laws Requiring Loan Originator’s 

Unique Identifier 

The Board is aware that many states 

regulate loan originators, especially 

brokers. Under TILA Section 111, the 

proposed rule would not preempt such 

state laws except to the extent they are 

inconsistent with the proposal’s 

requirements. 15 U.S.C. 1610. 

State TILA Equivalents 

Many states regulate consumer credit 

through statutory disclosure schemes 

similar to TILA (‘‘TILA equivalents’’). 

Similarly to state laws regulating loan 

originators, such state TILA equivalents 


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7 [Reserved]. 

8 [Reserved]. 9 [Reserved]. 

would be preempted only to the extent 

they are inconsistent with the proposal’s 

requirements. Id. 

The Board seeks comment regarding 

any state or local statutes or regulations 

that would duplicate, overlap, or 

conflict with the proposed rule. 

G. Discussion of Significant Alternatives 

The Board welcomes comments on 

any significant alternatives, consistent 

with the requirements of TILA, that 

would minimize the impact of the 

proposed rule on small entities. 

Text of Proposed Revisions 

Certain conventions have been used 

to highlight the proposed revisions. 

New language is shown inside arrows 

while language that would be deleted is 

set off with brackets. In certain cases 

deemed appropriate by the Board to aid 

understanding, redesignated text, such 

as text moved from the commentary into 

the regulation or from one paragraph to 

another, reflects changes to the original 

text, with arrows and brackets. 

List of Subjects in 12 CFR Part 226 

Advertising, Consumer protection, 

Federal Reserve System, Mortgages, 

Reporting and recordkeeping 

requirements, Truth in lending. 

For the reasons set forth in the 

preamble, the Board proposes to amend 

Regulation Z, 12 CFR part 226, as set 

forth below: 

PART 226—TRUTH IN LENDING 

(REGULATION Z) 

1. The authority citation for part 226 

continues to read as follows: 

Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 

and 1637(c)(5). 

Subpart A—General 

2. Section 226.2 is amended by 

revising paragraph (a)(6) to read as 

follows: 

§ 226.2 Definitions and rules of 

construction. 

(a) * * * 

(6) Business Day means a day on 

which the creditor’s offices are open to 

the public for carrying on substantially 

all of its business functions. However, 

for purposes of rescission under 

§§ 226.15 and 226.23, and for purposes 

of fl§ 226.5b(e), § 226.9(j)(2),fi 

§ 226.19(a)(1)(ii), § 226.19(a)(2), and 

§ 226.31, the term means all calendar 

days except Sundays and the legal 

public holidays specified in 5 U.S.C. 

6103(a), such as New Year’s Day, the 

Birthday of Martin Luther King, Jr., 

Washington’s Birthday, Memorial Day, 

Independence Day, Labor Day, 

Columbus Day, Veterans Day, 

Thanksgiving Day, and Christmas Day. 

* * * * * 

Subpart B—Open-End Credit 

3. Section 226.5 is amended by 

revising paragraphs (a)(1), (a)(2), (a)(3), 

(b)(1), (b)(4), and (c), and by republishing paragraph (d) to read as 

follows: 

§ 226.5 General disclosure requirements. 

(a) Form of disclosures—(1) General. 

(i) The creditor shall make the 

disclosures required by this subpart 

clearly and conspicuously. 

(ii) The creditor shall make the 

disclosures required by this subpart in 

writing,7 in a form that the consumer 

may keep,8 except that: 

(A) The following disclosures need 

not be written: 

fl(1) Disclosures under § 226.6(a)(3) 

of charges that are imposed as part of a 

home-equity plan that are not required 

to be disclosed under § 226.6(a)(2) and 

related disclosures under 

§ 226.9(c)(1)(ii)(B) of charges; 

(2)fi Disclosures under § 226.6(b)(3) 

of charges that are imposed as part of an 

open-end (not home-secured) plan that 

are not required to be disclosed under 

§ 226.6(b)(2) and related disclosures 

under § 226.9(c)(2)(ii)(B) of charges; 

fl(3) Disclosuresfi [disclosures] 

under § 226.9(c)(2)(v); and 

fl(4) Disclosuresfi [disclosures] 

under § 226.9(d) when a finance charge 

is imposed at the time of the 

transaction. 

(B) The following disclosures need 

not be in a retainable form: 

fl(1)fi Disclosures that need not be 

written under paragraph (a)(1)(ii)(A) of 

this section; 

fl(2) Disclosuresfi [disclosures] for 

credit and charge card applications and 

solicitations under § 226.5a; [homeequity disclosures under § 226.5b(d)]; 

fl(3) Thefi [the] alternative summary 

billing-rights statement under 

§ 226.9(a)(2); 

fl(4) Thefi [the] credit and charge 

card renewal disclosures required under 

§ 226.9(e); and 

fl(5) Thefi [the] payment 

requirements under § 226.10(b), except 

as provided in § 226.7(b)(13). 

(iii) The disclosures required by this 

subpart may be provided to the 

consumer in electronic form, subject to 

compliance with the consumer consent 

and other applicable provisions of the 

Electronic Signatures in Global and 

National Commerce Act (E-Sign Act) (15 

U.S.C. 7001 et seq.). The disclosures 

required by §§ 226.5a, 226.5bfl(a)fi, 

and 226.16 may be provided to the 

consumer in electronic form without 

regard to the consumer consent or other 

provisions of the E-Sign Act in the 

circumstances set forth in those 

sections. 

(2) Terminology. (i) Terminology used 

in providing the disclosures required by 

this subpart shall be consistent. 

(ii) flIf disclosures are required to be 

presented in a tabular format pursuant 

to paragraph (a)(3)(ii) of this section, the 

terms borrowing period (in reference to 

the draw period), repayment period, and 

balloon payment shall be used, as 

applicable. If credit insurance or debt 

cancellation or debt suspension 

coverage is required as part of the plan, 

the term required shall be used and the 

program shall be identified by its 

name.fi [For home-equity plans subject 

to § 226.5b, the terms finance charge 

and annual percentage rate, when 

required to be disclosed with a 

corresponding amount or percentage 

rate, shall be more conspicuous than 

any other required disclosure.9 The 

terms need not be more conspicuous 

when used for periodic statement 

disclosures under § 226.7(a)(4) and for 

advertisements under § 226.16.] 

(iii) If disclosures are required to be 

presented in a tabular format pursuant 

to paragraph (a)(3)fl(except for 

paragraph (a)(3)(ii) and the disclosures 

required under § 226.6(a)(2) that must 

be presented in a tabular format 

pursuant to paragraph (a)(3)(iii))fi of 

this section, the term penalty APR shall 

be used, as applicable. The term penalty 

APR need not be used in reference to the 

annual percentage rate that applies with 

the loss of a promotional rate, assuming 

the annual percentage rate that applies 

is not greater than the annual percentage 

rate that would have applied at the end 

of the promotional period; or if the 

annual percentage rate that applies with 

the loss of a promotional rate is a 

variable rate, the annual percentage rate 

is calculated using the same index and 

margin as would have been used to 

calculate the annual percentage rate that 

would have applied at the end of the 

promotional period. If credit insurance 

or debt cancellation or debt suspension 

coverage is required as part of the plan, 

the term required shall be used and the 

program shall be identified by its name. 

If an annual percentage rate is required 

to be presented in a tabular format 

pursuant to paragraph (a)(3)(i) or 

(a)(3)(iii) (except for the disclosures 

required under § 226.6(a)(2) that must 

be presented in a tabular format 


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pursuant to paragraph (a)(3)(iii)) of this 

section), the term fixed, or a similar 

term, may not be used to describe such 

rate unless the creditor also specifies a 

time period that the rate will be fixed 

and the rate will not increase during 

that period, or if no such time period is 

provided, the rate will not increase 

while the plan is open. 

(3) Specific formats. (i) Certain 

disclosures for credit and charge card 

applications and solicitations must be 

provided in a tabular format in 

accordance with the requirements of 

§ 226.5a(a)(2). 

(ii) Certain disclosures for homeequity plans [must precede other 

disclosures and] must be [given] 

flprovided in a tabular formatfi in 

accordance with the requirements of 

§ 226.5b[(a)]fl(b)(2)fi. 

(iii) Certain account-opening 

disclosures must be provided in a 

tabular format in accordance with the 

requirements of § 226.6fl(a)(1) andfi 

(b)(1). 

(iv) Certain disclosures provided on 

periodic statements must be grouped 

together in accordance with the 

requirements of § 226.7fl(a)(6),fi (b)(6) 

and (b)(13). 

(v) Certain disclosures accompanying 

checks that access a credit card account 

must be provided in a tabular format in 

accordance with the requirements of 

§ 226.9(b)(3). 

(vi) Certain disclosures provided in a 

change-in-terms notice must be 

provided in a tabular format in 

accordance with the requirements of 

§ 226.9(c)fl(1)(iii)(B) and 

(c)fi(2)(iii)(B). 

(vii) Certain disclosures provided 

when a rate is increased due to 

delinquency, default or as a penalty 

must be provided in a tabular format in 

accordance with the requirements of 

§ 226.9(g)(3)(ii)fland (i)(4)fi. 

* * * * * 

(b) Time of disclosures—(1) Accountopening disclosures—(i) General rule. 

The creditor shall furnish accountopening disclosures required by § 226.6 

before the first transaction is made 

under the plan. 

(ii) Charges imposed as part of an 

open-end [(not home-secured)] plan. 

Charges that are imposed as part of an 

open-end [(not home-secured)] plan and 

are not required to be disclosed under 

§ 226.6fl(a)(2) orfi (b)(2) may be 

disclosed after account opening but 

before the consumer agrees to pay or 

becomes obligated to pay for the charge, 

provided they are disclosed at a time 

and in a manner flsuchfi that a 

consumer would be likely to notice 

them. [This provision does not apply to 

charges imposed as part of a homeequity plan subject to the requirements 

of § 226.5b.] 

(iii) Telephone purchases. Disclosures 

required by § 226.6 may be provided as 

soon as reasonably practicable after the 

first transaction if: 

(A) The first transaction occurs when 

a consumer contacts a merchant by 

telephone to purchase goods and at the 

same time the consumer accepts an offer 

to finance the purchase by establishing 

an open-end plan with the merchant or 

third-party creditor; 

(B) The merchant or third-party 

creditor permits consumers to return 

any goods financed under the plan and 

provides consumers with a sufficient 

time to reject the plan and return the 

goods free of cost after the merchant or 

third-party creditor has provided the 

written disclosures required by § 226.6; 

and 

(C) The consumer’s right to reject the 

plan and return the goods is disclosed 

to the consumer as a part of the offer to 

finance the purchase. 

(iv) Membership fees—(A) General. In 

general, a creditor may not collect any 

fee before account-opening disclosures 

are provided. A creditor may collect, or 

obtain the consumer’s agreement to pay, 

membership fees, including application 

fees excludable from the finance charge 

under § 226.4(c)(1), before providing 

account-opening disclosures if, after 

receiving the disclosures, the consumer 

may reject the plan and have no 

obligation to pay these fees (including 

application fees) or any other fee or 

charge. A membership fee for purposes 

of this paragraph has the same meaning 

as a fee for the issuance or availability 

of credit described in § 226.5a(b)(2). If 

the consumer rejects the plan, the 

creditor must promptly refund the 

membership fee if it has been paid, or 

take other action necessary to ensure the 

consumer is not obligated to pay that fee 

or any other fee or charge. 

(B) Home-equity plans. Creditors 

offering home-equity plans subject to 

the requirements of § 226.5b are not 

subject to the requirements of paragraph 

(b)(1)(iv)(A) of this section. fl(See 

§§ 226.5b(d), 226.5b(e), and 226.15 

regarding requirements for refunds of 

fees applicable to creditors offering 

home-equity plans.)fi 

(v) Application fees. fl(A) General. In 

general, afi [A] creditor may collect an 

application fee excludable from the 

finance charge under § 226.4(c)(1) before 

providing account-opening disclosures. 

However, if a consumer rejects the plan 

after receiving account-opening 

disclosures, the consumer must have no 

obligation to pay such an application 

fee, or if the fee was paid, it must be 

refunded. See § 226.5(b)(1)(iv). 

fl(B) Home-equity plans. Creditors 

offering home-equity plans subject to 

the requirements of § 226.5b are not 

subject to the requirements of paragraph 

(b)(1)(v)(A) of this section. (See 

§§ 226.5b(d), 226.5b(e), and 226.15 

regarding requirements for refunds of 

fees applicable to creditors offering 

home-equity plans.)fi 

* * * * * 

(4) Home-equity plan[s]flapplication 

and three days after application 

disclosuresfi. Disclosures for homeequity plans shall be made in 

accordance with the timing 

requirements of § 226.5bfl(a)(1) andfi 

(b)fl(1)fi. 

(c) Basis of disclosures and use of 

estimates. Disclosures shall reflect the 

terms of the legal obligation between the 

parties. If any information necessary for 

accurate disclosure is unknown to the 

creditor, flthe creditorfi[it] shall make 

the disclosure based on the best 

information reasonably available and 

shall state clearly that the disclosure is 

an estimate. 

(d) Multiple creditors; multiple 

consumers. If the credit plan involves 

more than one creditor, only one set of 

disclosures shall be given, and the 

creditors shall agree among themselves 

which creditor must comply with the 

requirements that this regulation 

imposes on any or all of them. If there 

is more than one consumer, the 

disclosures may be made to any 

consumer who is primarily liable on the 

account. If the right of rescission under 

§ 226.15 is applicable, however, the 

disclosures required by §§ 226.6 and 

226.15(b) shall be made to each 

consumer having the right to rescind. 

* * * * * 

4. Section 226.5b is amended by 

revising paragraphs (a) through (e), 

(f)(2)(ii), (f)(2)(iv), and (f)(3)(vi)(A), 

adding new paragraphs (f)(3)(vi)(G), and 

(g), and revising and redesignating 

current paragraph (g) as paragraph (d) 

and current paragraph (h) as paragraph 

(e) as follows: 

§ 226.5b Requirements for home-equity 

plans. 

The requirements of this section 

apply to open-end credit plans secured 

by the consumer’s dwelling. [For 

purposes of this section, an annual 

percentage rate is the annual percentage 

rate corresponding to the periodic rate 

as determined under section 226.14(b).] 

fl(a) Home-equity document 

provided on or with the application—(1) 

In general. (i) Except as provided in 

paragraph (a)(1)(ii) of this section, the 

home-equity document ‘‘Key Questions 


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10a [Reserved]. 

10a [The disclosures and the brochure may be 

delivered or placed in the mail not later than three 

business days following receipt of a consumer’s 

application in the case of applications contained in 

magazines or other publications, or when the 

application is received by telephone or through an 

intermediary agent or broker.] 

to Ask about Home Equity Lines of 

Credit’’ published by the Board shall be 

provided at the time an application is 

provided to the consumer. The 

document must be provided in a 

prominent location on or with an 

application. 

(ii) For telephone applications or 

applications received through an 

intermediary agent or broker, the 

document required by paragraph 

(a)(1)(i) of this section must be delivered 

or mailed not later than account 

opening or three business days 

following receipt of a consumer’s 

application by the creditor, whichever is 

earlier, with the disclosures required by 

paragraph (b) of this section. 

(2) Electronic disclosure. For an 

application that is accessed by the 

consumer in electronic form, the 

document required by paragraph (a)(1) 

of this section may be provided to the 

consumer in electronic form on or with 

the application. 

(3) Duties of third parties. Persons 

other than the creditor who provide 

applications to consumers for homeequity plans must comply with 

paragraphs (a)(1) and (a)(2) of this 

section, except that these third parties 

are not required to deliver or mail the 

document required by paragraph 

(a)(1)(i) of this section for telephone 

applications as discussed in paragraph 

(a)(1)(ii) of this section.10a

(b) Home-equity disclosures provided 

no later than account opening or three 

business days after application, 

whichever is earlier—(1) Timing. The 

disclosures required by paragraph (c) of 

this section shall be delivered or mailed 

not later than account opening, or three 

business days following receipt of a 

consumer’s application by the creditor, 

whichever is earlier. 

(2) Form of disclosures; tabular 

format. (i) The disclosures required by 

paragraphs (c)(4)(ii) through (c)(19) of 

this section generally shall be in the 

form of a table with headings, content, 

and format substantially similar to any 

of the applicable tables found in G–14 

in Appendix G to this part. 

(ii) The table described in paragraph 

(b)(2)(i) of this section shall contain 

only the information required or 

permitted by paragraphs (c)(4)(ii) 

through (c)(19). 

(iii) Disclosures required by paragraph 

(c)(1) and (c)(3) of this section must be 

placed directly above the table 

described in paragraph (b)(2)(i) of this 

section, in a format substantially similar 

to any of the applicable tables found in 

G–14 in Appendix G to this part. 

(iv) The disclosures required by 

paragraphs (c)(2), (c)(4)(i), (c)(20) 

through (c)(22) of this section must be 

disclosed directly below the table 

described in paragraph (b)(2)(i) of this 

section, in a format substantially similar 

to any of the applicable tables found in 

G–14 in Appendix G to this part. 

(v) Other information may be 

presented with the table described in 

paragraph (b)(2)(i) of this section, 

provided that such information appears 

outside of the required table. 

(vi) The following disclosures must be 

disclosed in bold text: 

(A) Disclosures required by 

paragraphs (c)(2), (c)(4)(i), (c)(20), 

(c)(21), and (c)(22)(i) of this section. 

(B) Any annual percentage rates 

required to be disclosed under 

paragraph (c)(10) of this section. 

(C) Total account opening fees 

disclosed under paragraph (c)(11) of this 

section. 

(D) Any percentage or dollar amount 

required to be disclosed under 

paragraphs (c)(12), (c)(13), (c)(16), 

(c)(17) and (c)(19) of this section, except 

the amount of any periodic fee disclosed 

pursuant to paragraph (c)(12) of this 

section that is not an annualized 

amount. 

(E) If a creditor is required under 

paragraph (c)(9) of this section to 

provide a disclosure in a format 

substantially similar to the format used 

in any of the applicable tables found in 

Samples G–14(C), 14(D) and 14(E) in 

Appendix G to this part, the creditor 

must provide in bold text any terms and 

phrases that are shown in bold text for 

that disclosure in the applicable tables. 

(3) Disclosures based on a percentage. 

Except for disclosing fees under 

paragraph (c)(11) of this section, if the 

amount of any fee required to be 

disclosed under paragraph (c) of this 

section or if the amount of any 

transaction requirement required to be 

disclosed under paragraph (c)(16) of this 

section is determined on the basis of a 

percentage of another amount, the 

percentage used and the identification 

of the amount against which the 

percentage is applied may be disclosed 

instead of the amount of the fee or 

transaction amount, as applicable.fi 

[(a) Form of disclosures—(1) General. 

The disclosures required by paragraph 

(d) of this section shall be made clearly 

and conspicuously and shall be grouped 

together and segregated from all 

unrelated information. The disclosures 

may be provided on the application 

form or on a separate form. The 

disclosure described in paragraph 

(d)(4)(iii), the itemization of third-party 

fees described in paragraph (d)(8), and 

the variable-rate information described 

in paragraph (d)(12) of this section may 

be provided separately from the other 

required disclosures. 

(2) Precedence of certain disclosures. 

The disclosures described in paragraph 

(d)(1) through (4)(ii) of this section shall 

precede the other required disclosures. 

(3) For an application that is accessed 

by the consumer in electronic form, the 

disclosures required under this section 

may be provided to the consumer in 

electronic form on or with the 

application. 

(b) Time of disclosures. The 

disclosures and brochure required by 

paragraphs (d) and (e) of this section 

shall be provided at the time an 

application is provided to the 

consumer.10a

(c) Duties of third parties—Persons 

other than the creditor who provide 

applications to consumers for homeequity plans must provide the brochure 

required under paragraph (e) of this 

section at the time an application is 

provided. If such persons have the 

disclosures required under paragraph 

(d) of this section for a creditor’s homeequity plan, they also shall provide the 

disclosures at such time.10a] 

[(d)]fl(c)fi Content of disclosures. 

The creditor shall provide the following 

disclosures flin the manner prescribed 

by paragraph (b) of this sectionfi, as 

applicable. flIn making the disclosures 

required by this paragraph (except 

under paragraph (c)(18) of this section), 

a creditor must not disclose in the table 

described in paragraph (b)(2)(i) of this 

section any terms applicable to fixedrate and -term payment plans offered 

during the draw period of the plan, 

unless fixed-rate and -term payment 

plans are the only payment plans 

offered during the draw period of the 

plan. 

(1) Identification information. 

(i) The consumer’s name and address. 

(ii) The identity of the creditor 

making the disclosures. 

(iii) The date the disclosure was 

prepared. 

(iv) The loan originator’s unique 

identifier, as defined by the Secure and 

Fair Enforcement for Mortgage 

Licensing Act of 2008 Sections 1503(3) 

and (12), 12 U.S.C. 5102(3) and (12).fi 

[(1) Retention of information. A 

statement that the consumer should 

make or otherwise retain a copy of the 

disclosures.] 

fl(2) No obligation statement. A 

statement that the consumer has no 


sroberts on DSKD5P82C1PROD with PROPOSALS
Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43533 

10bflReserved.fi [A balloon payment results if 

paying the minimum periodic payments does not 

fully amortize the outstanding balance by a 

specified date or time, and the consumer must 

repay the entire outstanding balance at such time.] 

obligation to accept the terms disclosed 

in the table. If the creditor has a 

provision for the consumer’s signature, 

a statement that a signature by the 

consumer only confirms receipt of the 

disclosure statement. 

(3) Identification of plan as a homeequity line of credit. A statement that 

the consumer has applied for a homeequity line of credit. fi 

fl(4)fi[(2)] Conditions for disclosed 

terms. (i) [A statement of the time by 

which the consumer must submit an 

application to obtain specific terms 

disclosed and an identification] 

flIdentificationfi of any disclosed term 

that is subject to change prior to 

opening the plan. 

(ii) A statement that, if a disclosed 

term changes (other than a change due 

to fluctuations in the index in a 

variable-rate plan) prior to opening the 

plan and the consumer [therefore] elects 

not to open the plan, the consumer may 

receive a refund of all fees paid flby the 

consumerfi[in connection with the 

application]. 

fl(5) Refund of fees under paragraph 

(e) of this section. A statement that the 

consumer may receive a refund of all 

fees paid by the consumer, if the 

consumer notifies the creditor within 

three business days of receiving the 

disclosures given pursuant to paragraph 

(b) of this section that the consumer 

does not want to open the plan.fi 

fl(6)fi[(3)] Security interest and risk 

to home. A statement that the creditor 

will acquire a security interest in the 

consumer’s dwelling and that loss of the 

dwelling may occur in the event of 

default. 

fl(7)fi[(4)] Possible actions by 

creditor. (i) A statement that, under 

certain conditions, the creditor may 

terminate the plan and require payment 

of the outstanding balance in full in a 

single payment and impose fees upon 

termination; prohibit additional 

extensions of credit or reduce the credit 

limit; and [, as specified in the initial 

agreement,] implement [certain] changes 

in the plan. 

(ii) flAs applicable, either (A) afi [A] 

statement that the consumer may 

receive, upon request, information about 

the conditions under which such 

actions may occurfl, or (B) if the 

information about the conditions is 

provided with the table described in 

paragraph (b)(2)(i) of this section, a 

reference to the location of the 

information.fi 

[(iii) In lieu of the disclosure required 

under paragraph (d)(4)(ii) of this 

section, a statement of such conditions.] 

fl(8) Tax implications. A statement 

that the interest on the portion of the 

credit extension that is greater than the 

fair market value of the dwelling may 

not be tax deductible for Federal income 

tax purposes. A statement that the 

consumer should consult a tax adviser 

for further information regarding the 

deductibility of interest and charges.fi 

fl(9)fi[(5)] Payment terms. The 

payment terms of the plan, flas 

follows.fi[including:] fl A creditor 

must distinguish payment terms 

applicable to the draw period and the 

repayment period, by using the heading 

‘‘Borrowing Period’’ for the draw period 

and ‘‘Repayment Period’’ for the 

repayment period, in a format 

substantially similar to the format used 

in any of the applicable tables found in 

Samples G–14(C) and G–14(E) in 

Appendix G to this part.fi 

(i) The length of the flplan, the 

length of thefi draw period and flthe 

length offi any repayment period. 

flWhen the length of the plan is 

definite, a creditor must disclose the 

length of the plan, the length of the 

draw period and the length of any 

repayment period in a format 

substantially similar to the format used 

in any of the applicable tables found in 

Samples G–14(C) and G–14(D) in 

Appendix G to this part. If there is no 

repayment period on the plan, a 

statement that after the draw period 

ends, the consumer must repay the 

remaining balance in full. fi 

(ii) fl(A) If a creditor offers to the 

consumer only one payment plan 

option, anfi [An] explanation of how 

the minimum periodic payment will be 

determined and the timing of the 

payments. If paying only the minimum 

periodic payments may not repay any of 

the principal or may repay less than the 

outstanding balance flby the end of the 

planfi, a statement of this fact, as well 

as a statement that a balloon payment 

may result flor will result, as 

applicablefi.10b flIf a balloon payment 

will not result under the payment plan, 

a creditor must not disclose in the table 

required by paragraph (b)(2)(i) of this 

section the fact that a balloon payment 

will not result for the plan.fi 

fl(B) If a creditor offers to the 

consumer more than one payment plan 

option, the creditor must disclose only 

two payment plan options in the table 

described in paragraph (b)(2)(i) of this 

section. If under one or more payment 

plans offered by the creditor a consumer 

would repay all of the principal by the 

end of the plan if the consumer makes 

only the minimum payments, the 

creditor must describe one of these 

payment plans in the table required by 

paragraph (b)(2)(i) of this section. A 

creditor must include a statement 

indicating that the table shows how the 

creditor determines minimum required 

payments for two plans offered by the 

creditor. If a creditor offers more than 

the two payment plans described in the 

table described in paragraph (b)(2)(i) of 

this section (other than fixed-rate and 

-term payment plans unless those are 

the only plans offered on the HELOC 

plan during the draw period), the 

creditor also must disclose that other 

payment plans are available, and that 

the consumer should ask the creditor for 

additional details about these other 

payment plans. The creditor must 

provide the following information: 

(1) If under at least one of the 

payment plans disclosed in the table 

required by paragraph (b)(2)(i) of this 

section, paying only the minimum 

periodic payments may not repay any of 

the principal or may repay less than the 

outstanding balance by the end of the 

plan, a statement of this fact, as well as 

a statement that a balloon payment may 

result or will result, as applicable. If a 

balloon payment would result under 

one payment plan but not both payment 

plans, the creditor must disclose that a 

balloon payment may result depending 

on the terms of the payment plan. If a 

balloon payment would result under 

both payment plans, the creditor must 

disclose that a balloon payment will 

result. If a balloon payment would not 

result under both payment plans, a 

creditor must not disclose in the table 

required by paragraph (b)(2)(i) of this 

section the fact that a balloon payment 

would not result for both plans. 

(2) An explanation of how the 

minimum periodic payments will be 

determined and the timing of the 

payments for each plan. 

(3) For each payment plan described 

in the table required under paragraph 

(b)(2)(i) of this section, if paying only 

the minimum periodic payments may 

not repay any of the principal or may 

repay less than the outstanding balance 

by the end of the plan, a statement that 

a balloon payment may result or will 

result under that plan, as applicable. If 

one of the plans has a balloon payment 

and the other does not, a creditor must 

disclose that a balloon payment will not 

result for the plan in which no balloon 

payment would occur. If neither 

payment plan has a balloon payment, a 

creditor must not disclose the fact that 

a balloon payment will not result for the 

plan. 

(iii)(A) For the payment plan(s) 

described in paragraph (c)(9)(ii) of this 

section, sample payments showing the 

first minimum periodic payment for the 


sroberts on DSKD5P82C1PROD with PROPOSALS
43534 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

10cflReserved.fi[For fixed-rate plans, a recent 

annual percentage rate is a rate that has been in 

effect under the plan within the twelve months 

preceding the date the disclosures are provided to 

the consumer. For variable-rate plans, a recent 

annual percentage rate is the most recent rate 

provided in the historical example described in 

paragraph (d)(12)(xi) of this section or a rate that 

has been in effect under the plan since the date of 

the most recent rate in the table.] 

10cflReserved.fi[For fixed-rate plans, a recent 

annual percentage rate is a rate that has been in 

effect under the plan within the twelve months 

preceding the date the disclosures are provided to 

the consumer. For variable-rate plans, a recent 

annual percentage rate is the most recent rate 

provided in the historical example described in 

paragraph (d)(12)(xi) of this section or a rate that 

has been in effect under the plan since the date of 

the most recent rate in the table.] 

draw period and any repayment period, 

and the balance outstanding at the 

beginning of any repayment period, 

based on the following assumptions: 

(1) The consumer borrows the full 

credit line (as disclosed in paragraph 

(c)(17) of this section) at account 

opening, and does not obtain any 

additional extensions of credit. 

(2) The consumer makes only 

minimum periodic payments during the 

draw period and any repayment period. 

(3) The annual percentage rates used 

to calculate the sample payments, as 

described in paragraph (c)(9)(iii)(B) of 

this section, will remain the same 

during the draw period and any 

repayment period. 

(B) A creditor must provide the 

information described in paragraph 

(c)(9)(iii)(A) of this section for the 

following two annual percentage rates: 

(1) The current annual percentage rate 

for the plan, as disclosed under 

paragraph (c)(10) of this section, except 

that if an introductory annual 

percentage rate applies, the creditor 

must use the rate that would otherwise 

apply to the plan after the introductory 

rate expires, as described in paragraph 

(c)(10)(ii) of this section. 

(2) The maximum annual percentage 

rate that may apply under the payment 

option, as described in paragraph 

(c)(10)(i)(A)(5). 

(C) In disclosing the payment samples 

as required by paragraph (c)(9)(iii)(A) of 

this section, a creditor also must include 

the following information: 

(1) A statement that the sample 

payments show the first periodic 

payments at the current and maximum 

annual percentage rates if the consumer 

borrows the maximum credit available 

when the account is opened and does 

not borrow any more money. 

(2) A statement that the sample 

payments are not the consumer’s actual 

payments. A statement that the actual 

payments each period will depend on 

the amount that the consumer has 

borrowed and the interest rate that 

period. 

(3) If a creditor is disclosing two 

payment plans under paragraph (c)(9)(ii) 

of this section, the creditor must 

identify which plan results in the least 

amount of interest, and which plan 

results in the most amount of interest, 

based on the assumptions described in 

paragraphs (c)(9)(iii)(A) and (B) of this 

section. 

(4) For each payment plan disclosed 

under paragraph (c)(9)(ii) of this section, 

if a consumer may pay a balloon 

payment under that plan, the creditor 

must disclose that fact, and the amount 

of the balloon payment based on the 

assumptions described in paragraphs 

(c)(9)(iii)(A) and (B) of this section. If a 

creditor is disclosing only one payment 

plan under paragraph (c)(9)(ii), and a 

balloon payment will not occur for that 

plan, the creditor must not disclose that 

a balloon payment will not result for the 

plan. If a creditor is disclosing two 

payment plans under paragraph (c)(9)(ii) 

of this section, one in which a balloon 

payment would occur and one in which 

it would not, a creditor must disclose 

that a balloon payment will not result 

for the plan in which no balloon 

payment would occur. If neither 

payment plan has a balloon payment, a 

creditor must not disclose the fact that 

a balloon payment will not result for the 

plan. 

(D) A creditor must provide the 

information described in paragraph 

(c)(9)(iii) of this section in a format that 

is substantially similar to the format 

used in any of the applicable tables 

found in Samples G–14(C), G–14(D) and 

G–14(E) in Appendix G to this part.fi 

[(iii) An example, based on a $10,000 

outstanding balance and a recent annual 

percentage rate,10c showing the 

minimum periodic payment, any 

balloon payment, and the time it would 

take to repay the $10,000 outstanding 

balance if the consumer made only 

those payments and obtained no 

additional extensions of credit. If 

different payment terms may apply to 

the draw and any repayment period, or 

if different payment terms may apply 

within either period, the disclosures 

shall reflect the different payment 

terms.] 

fl(iv) A statement that the consumer 

can borrow money during the draw 

period. If a repayment period is 

provided, a statement that the consumer 

cannot borrow money during the 

repayment period. 

(v) A statement indicating whether 

minimum payments are due in the draw 

period and any repayment period.fi 

fl(10)fi[(6)] Annual percentage rate. 

flEach periodic interest rate applicable 

to any payment plan disclosed under 

paragraph (c)(9)(ii) of this section that 

may be used to compute the finance 

charge on an outstanding balance, 

expressed as an annual percentage rate 

(as determined by § 226.14(b)), except a 

creditor must not disclose any penalty 

rate set forth in the initial agreement 

that may be imposed in lieu of 

termination of the plan. The annual 

percentage rates disclosed pursuant to 

this paragraph shall be in at least 16- 

point type, except for the following: 

Any minimum or maximum annual 

percentage rates that may apply; and 

any disclosure of rate changes set forth 

in the initial agreement except for rates 

that would apply after the expiration of 

an introductory rate.fi [For fixed-rate 

plans, a recent annual percentage 

rate 10c imposed under the plan and a 

statement that the rate does not include 

costs other than interest.] 

fl(i) Disclosures for variable-rate 

plans. (A) If a rate disclosed under 

paragraph (c)(10) of this section is a 

variable rate, the following disclosures, 

as applicable: 

(1) The fact that the annual percentage 

rate may change due to the variable-rate 

feature, using the term ‘‘variable rate’’ in 

underlined text as shown in any of the 

applicable tables found in Samples 

G–14(C), G–14(D) and G–14(E) in 

Appendix G to this part. 

(2) An explanation of how the annual 

percentage rate will be determined. 

Except as provided in paragraph 

(c)(10)(A)(6) of this section, in providing 

this disclosure, a creditor must only 

identify the index used and the amount 

of any margin. 

(3) The frequency of changes in the 

annual percentage rate. 

(4) Any rules relating to changes in 

the index value and the annual 

percentage rate and resulting changes in 

the payment amount, including, for 

example, an explanation of payment 

limitations and rate carryover. 

(5) A statement of any limitations on 

changes in the annual percentage rate, 

including the minimum and maximum 

annual percentage rate that may be 

imposed under each payment plan 

disclosed under paragraph (c)(9)(ii) of 

this section. If no annual or other 

periodic limitations apply to changes in 

the annual percentage rate, a statement 

that no annual limitation exists. 

(6) The lowest and highest value of 

the index in the past 15 years. 

(B) A variable rate is accurate if it is 

a rate as of a specified date and this rate 

was in effect within the last 30 days 

before the disclosures are provided. 

(ii) Introductory initial rate. If the 

initial rate is an introductory rate, the 

creditor must also disclose the rate that 


sroberts on DSKD5P82C1PROD with PROPOSALS
Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43535 

would otherwise apply to the plan 

pursuant to paragraph (c)(10) of this 

section. Where the rate is fixed, the 

creditor must disclose the rate that will 

apply after the introductory rate expires. 

Where the rate is variable, the creditor 

must disclose the rate based on the 

applicable index or formula. A creditor 

must disclose in the table described in 

paragraph (b)(2)(i) of this section the 

introductory rate along with the rate 

that would otherwise apply to the plan, 

and use the term ‘‘introductory’’ or 

‘‘intro’’ in immediate proximity to the 

introductory rate. The creditor must also 

disclose the time period during which 

the introductory rate will remain in 

effect.fi 

fl(11)fi[(7)] Fees imposed by the 

creditorfl and third parties to open the 

planfi. flThe total of all one-time fees 

imposed by the creditor and any third 

parties to open the plan, stated as a 

dollar amount.fi An itemization of 

[any] flall one-timefi fees imposed by 

the creditor fland any third partiesfi to 

open [, use, or maintain] the plan, stated 

as a dollar amount [or percentage], and 

when such fees are payable.fl If the 

exact total of one-time fees for account 

opening is not known at the time the 

disclosures under paragraph (b) of this 

section are delivered or mailed, a 

creditor must provide the highest total 

of one-time account opening fees 

possible for the plan terms described in 

the table required under paragraph 

(b)(2)(i) of this section with a indication 

that the one-time account opening costs 

may be ‘‘up to’’ that amount. If the 

dollar amount of an itemized fee is not 

known at the time the disclosures under 

paragraph (b) of this section are 

delivered or mailed, a creditor must 

provide a range for such fee. A creditor 

must not disclose the amount of any 

property insurance premiums under this 

paragraph, even if the creditor requires 

property insurance. 

(12) Fees imposed by the creditor for 

availability of the plan. All annual or 

other periodic fees that may be imposed 

by the creditor for the availability of the 

plan, including any fee based on 

account activity or inactivity; how 

frequently the fee will be imposed; and 

the annualized amount of the fee. A 

creditor must not disclose the amount of 

any property insurance premiums under 

this paragraph, even if the creditor 

requires property insurance. 

(13) Fees imposed by the creditor for 

early termination of the plan by the 

consumer. Any fee that may be imposed 

by the creditor if a consumer terminates 

the plan prior to its scheduled maturity. 

(14) Statement about other fees. A 

statement that other fees will apply and 

a reference to penalty fees and 

transaction fees as examples of those 

fees, as applicable. As applicable, either 

(i) a statement that the consumer may 

receive, upon request, additional 

information about fees applicable to the 

plan, or (ii) if the additional information 

about fees is provided with the table 

described in paragraph (b)(2)(i) of this 

section, a reference to the location of the 

information.fi 

[(8) Fees imposed by third parties to 

open a plan. A good faith estimate, 

stated as a single dollar amount or 

range, of any fees that may be imposed 

by persons other than the creditor to 

open the plan, as well as a statement 

that the consumer may receive, upon 

request, a good faith itemization of such 

fees. In lieu of the statement, the 

itemization of such fees may be 

provided.] 

fl(15)fi[(9)] Negative amortization. 

flIf applicable, afi [A] statement that 

negative amortization may occur and 

that negative amortization increases the 

principal balance and reduces the 

consumer’s equity in the dwelling. 

fl(16)fi[(10)] Transaction 

requirements. Any limitations on the 

number of extensions of credit and the 

amount of credit that may be obtained 

during any time period, as well as any 

minimum outstanding balance and 

minimum draw requirements [, stated as 

dollar amounts or percentages]. 

[(11) Tax implications. A statement 

that the consumer should consult a tax 

advisor regarding the deductibility of 

interest and charges under the plan.] 

fl(17) Credit limit. The credit limit 

applicable to the plan. 

(18) Statements about fixed-rate and 

-term payment plans. (i) Except as 

provided in paragraph (c)(18)(ii) of this 

section, if a creditor offers a fixed-rate 

and -term payment plan under the plan, 

the following information: 

(A) A statement that the consumer has 

the option during the draw period to 

borrow at a fixed interest rate. 

(B) The amount of the credit line that 

the consumer may borrow at a fixed 

interest rate for a fixed term. 

(C) As applicable, either (1) a 

statement that the consumer may 

receive, upon request, further details 

about the fixed-rate and -term payment 

plan, or (2) if information about the 

fixed-rate and -term payment plan is 

provided with the table described in 

paragraph (b)(2)(i) of this section, a 

reference to the location of the 

information. 

(ii) A creditor must not make the 

disclosures required by paragraph 

(c)(18)(i) of this section if fixed-rate and 

-term payment plans are the only 

payment plans offered during the draw 

period. 

(19) Required insurance, debt 

cancellation or debt suspension 

coverage. (i) A fee for insurance 

described in § 226.4(b)(7) or debt 

cancellation or suspension coverage 

described in § 226.4(b)(10), if the 

insurance or debt cancellation or 

suspension coverage is required as part 

of the plan; and 

(ii) A cross reference to any additional 

information provided with the table 

described in paragraph (b)(2)(i) of this 

section about the insurance or coverage, 

as applicable. 

(20) Statement about asking 

questions. A statement that if the 

consumer does not understand any 

disclosure in the table the consumer 

should ask questions. 

(21) Statement about Board’s Web 

site. A statement that the consumer may 

obtain additional information at the 

Web site of the Federal Reserve Board, 

and a reference to that Web site. 

(22) Statement about refundability of 

fees. (i) A statement that the consumer 

may be entitled to a refund of all fees 

paid if the consumer decides not to 

open the plan; and 

(ii) A cross reference to the ‘‘Fees’’ 

section in the table described in 

paragraph (b)(2)(i) of this section.fi 

[(12) Disclosures for variable-rate 

plans. For a plan in which the annual 

percentage rate is variable, the following 

disclosures, as applicable: 

(i) The fact that the annual percentage 

rate, payment, or term may change due 

to the variable-rate feature. 

(ii) A statement that the annual 

percentage rate does not include costs 

other than interest. 

(iii) The index used in making rate 

adjustments and a source of information 

about the index. 

(iv) An explanation of how the annual 

percentage rate will be determined, 

including an explanation of how the 

index is adjusted, such as by the 

addition of a margin. 

(v) A statement that the consumer 

should ask about the current index 

value, margin, discount or premium, 

and annual percentage rate. 

(vi) A statement that the initial annual 

percentage rate is not based on the 

index and margin used to make later 

rate adjustments, and the period of time 

such initial rate will be in effect. 

(vii) The frequency of changes in the 

annual percentage rate. 

(viii) Any rules relating to changes in 

the index value and the annual 

percentage rate and resulting changes in 

the payment amount, including, for 

example, an explanation of payment 

limitations and rate carryover. 

(ix) A statement of any annual or 

more frequent periodic limitations on 


sroberts on DSKD5P82C1PROD with PROPOSALS
43536 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

10dflReservedfi [If the disclosures and brochure 

are mailed to the consumer, the consumer is 

considered to have received them three business 

days after they are mailed.] 

changes in the annual percentage rate 

(or a statement that no annual limitation 

exists), as well as a statement of the 

maximum annual percentage rate that 

may be imposed under each payment 

option. 

(x) The minimum periodic payment 

required when the maximum annual 

percentage rate for each payment option 

is in effect for a $10,000 outstanding 

balance, and a statement of the earliest 

date or time the maximum rate may be 

imposed. 

(xi) An historical example, based on 

a $10,000 extension of credit, 

illustrating how annual percentage rates 

and payments would have been affected 

by index value changes implemented 

according to the terms of the plan. The 

historical example shall be based on the 

most recent 15 years of index values 

(selected for the same time period each 

year) and shall reflect all significant 

plan terms, such as negative 

amortization, rate carryover, rate 

discounts, and rate and payment 

limitations, that would have been 

affected by the index movement during 

the period. 

(xii) A statement that rate information 

will be provided on or with each 

periodic statement. 

(e) Brochure. The home-equity 

brochure published by the Board or a 

suitable substitute shall be provided.] 

[(g)]fl(d)fi Refund of fees. A creditor 

shall refund all fees paid by the 

consumer [to anyone in connection with 

an application] if any term required to 

be disclosed under paragraph [(d)] 

fl(b)fi of this section changes (other 

than a change due to fluctuations in the 

index in a variable-rate plan) before the 

plan is opened and [, as a result,] the 

consumer elects not to open the plan. 

[(h)]fl(e)fi Imposition of 

nonrefundable fees. Neither a creditor 

nor any other person may impose a 

nonrefundable fee [in connection with 

an application] until three business days 

after the consumer receives the 

disclosures [and brochure] required 

under flparagraph (b) offi this 

section.10d If the disclosures required 

under this section are mailed to the 

consumer, the consumer is considered 

to have received them three business 

days after they are mailed. 

(f) Limitations on home-equity plans. 

No creditor may, by contract or 

otherwise— 

* * * * * 

(2) terminate a plan and demand 

repayment of the entire outstanding 

balance in advance of the original term 

(except for reverse-mortgage 

transactions that are subject to 

paragraph (f)(4) of this section) unless— 

(i) there is fraud or material 

misrepresentation by the consumer in 

connection with the plan; 

(ii) the consumer fails to flmake a 

required minimum periodic payment 

within 30 days after the due date for 

that paymentfi [meet the repayment 

terms of the agreement for any 

outstanding balance]; 

(iii) any action or inaction by the 

consumer adversely affects the 

creditor’s security for the plan, or any 

right of the creditor in such security; or 

(iv) federal law flrequires the creditor 

to terminate the plan and demand 

repayment of the entire outstanding 

balance in advance of the original 

termfi [dealing with credit extended by 

a depository institution to its executive 

officers specifically requires that as a 

condition of the plan the credit shall 

become due and payable on demand], 

provided that the creditor includes such 

a provision in the initial agreement. 

(3) change any term, except that a 

creditor may— 

(i) provide in the initial agreement 

that it may prohibit additional 

extensions of credit or reduce the credit 

limit during any period in which the 

maximum annual percentage rate is 

reached. A creditor also may provide in 

the initial agreement that specified 

changes will occur if a specified event 

takes place (for example, that the annual 

percentage rate will increase a specified 

amount if the consumer leaves the 

creditor’s employment). 

(ii) change the index and margin used 

under the plan if the original index is 

no longer available, the new index has 

an historical movement substantially 

similar to that of the original index, and 

the new index and margin would have 

resulted in an annual percentage rate 

substantially similar to the rate in effect 

at the time the original index became 

unavailable. 

(iii) make a specified change if the 

consumer specifically agrees to it in 

writing at that time. 

(iii) make a specified change if the 

consumer specifically agrees to it in 

writing at that time. 

(v) make an insignificant change to 

terms. 

(vi) prohibit additional extensions of 

credit or reduce the credit limit 

applicable to an agreement during any 

period in which— 

(A) the value of the dwelling that 

secures the plan declines significantly 

below the dwelling’s [appraised] value 

for purposes of the plan; 

(B) the creditor reasonably believes 

that the consumer will be unable to 

fulfill the repayment obligations under 

the plan because of a material change in 

the consumer’s financial circumstances; 

(C) the consumer is in default of any 

material obligation under the agreement; 

(D) the creditor is precluded by 

government action from imposing the 

annual percentage rate provided for in 

the agreement; 

(E) the priority of the creditor’s 

security interest is adversely affected by 

government action to the extent that the 

value of the security interest is less than 

120 percent of the credit line; or 

(F) the creditor is notified by its 

regulatory agency that continued 

advances constitute an unsafe and 

unsound practice. 

fl(G) federal law prohibits the 

creditor from extending credit under a 

plan or requires that the creditor reduce 

the credit limit for a plan.fi 

(g) flReinstatement of credit 

privileges. If a creditor prohibits 

additional extensions of credit or 

reduces the credit limit applicable to a 

home-equity plan pursuant to 

§ 226.5b(f)(3)(i) or (f)(3)(vi), the creditor 

must reinstate credit privileges as soon 

as reasonably possible after the 

condition that permitted the creditor’s 

action ceases to exist, assuming that no 

other circumstance permitting such 

action exists at that time. 

(1) The creditor shall meet the 

obligation of this paragraph by either— 

(i) monitoring the line on an ongoing 

basis to determine when no condition 

permitting the action exists; or 

(ii) requiring the consumer to request 

reinstatement of credit privileges. 

(2) If the creditor requires the 

consumer to request reinstatement of 

credit privileges under § 226.5b(g)(1)(ii), 

the creditor— 

(i) shall disclose that the consumer 

must request reinstatement of credit 

privileges in accordance with 

§ 226.9(j)(1)(iii)(A); 

(ii) upon receipt of a reinstatement 

request from a consumer, shall complete 

an investigation of whether a condition 

allowing the suspension of credit 

extensions or credit limit reduction 

exists within 30 days of receiving the 

consumer’s request; 

(iii) may not charge the consumer any 

fees associated with investigating the 

consumer’s first reinstatement request 

after a suspension of advances or credit 

limit reduction; 

(iv) if not prohibited by state law, may 

charge the consumer bona fide and 

reasonable property valuation and credit 

report fees actually incurred in 

investigating the consumer’s 


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reinstatement requests after the first 

request; and 

(v) if investigation of the consumer’s 

reinstatement request shows that a 

condition permitting continued 

suspension of advances or reduction of 

the credit limit exists and that therefore 

credit privileges will not be restored, 

shall, within 30 days of receiving the 

consumer’s request, mail or deliver to 

the consumer a written notice with the 

following information (see Model 

Clauses G–22(A) and G–22(B) in 

Appendix G to this part): 

(A) the results of any investigation by 

the creditor conducted in response to 

the consumer’s first request; and 

(B) the information required by 

§ 226.9(j)(1). 

(3) If a creditor prohibits additional 

extensions of credit or reduces the 

credit limit applicable to a home-equity 

plan for a significant decline in the 

property value pursuant to 

§ 226.5b(f)(vi)(A), or continues an 

existing suspension of credit extensions 

or reduction of the credit limit pursuant 

to § 2265b(f)(vi)(A), the creditor must 

provide, upon the consumer’s request, a 

copy of the documentation supporting 

the property value on which the creditor 

based the action. 

(4) When conditions permitting 

termination and acceleration exist under 

§ 226.5b(f)(2), but the creditor opts to 

suspend advances or reduce the credit 

limit, the creditor has no obligation to 

reinstate the account.fi 

[(g)] fl(d)fi 

* * * * * 

[(h)] fl(e)fi 

* * * * * 

5. Section 226.6 is amended by 

revising paragraph (a) as follows: 

§ 226.6 Account-opening disclosures. 

(a) Rules affecting home-equity plans. 

The requirements of paragraph (a) of 

this section apply only to home-equity 

plans subject to the requirements of 

§ 226.5b. [A creditor shall disclose the 

items in this section, to the extent 

applicable:] 

fl(1) Form of disclosures; tabular 

format—(i) In general. A creditor must 

provide the account-opening disclosures 

specified in paragraphs (a)(2)(ii) through 

(a)(2)(xx) of this section in the form of 

a table with headings, content, and 

format substantially similar to any of the 

applicable tables found in G–15 in 

Appendix G to this part. 

(ii) Location. Only the information 

required or permitted by paragraphs 

(a)(2)(ii) through (a)(2)(xx) of this 

section shall be in the table required 

under paragraph (a)(1)(i) of this section. 

Disclosures required by paragraph 

(a)(2)(i) of this section must be placed 

directly above the table, in a format 

substantially similar to any of the 

applicable tables found in G–15 in 

Appendix G to this part. Disclosures 

required by paragraphs (a)(2)(xxi) 

through (a)(2)(xxvi) of this section must 

be placed directly below the table, in a 

format substantially similar to any of the 

applicable tables found in G–15 in 

Appendix G to this part. Disclosures 

required by paragraphs (a)(3) through 

(a)(5) of this section that are not 

otherwise required to be in the table (or 

directly above or below the table) and 

other information may be presented 

with the account agreement or accountopening disclosure statement, provided 

such information appears outside the 

required table. 

(iii) Highlighting. The following 

disclosures must be disclosed in bold 

text: 

(A) Any annual percentage rates 

required to be disclosed under 

paragraph (a)(2)(vi) of this section. 

(B) Any percentage or dollar amount 

required to be disclosed under 

paragraphs (a)(2)(vii) through (a)(2)(xiv), 

(a)(2)(xvii), (a)(2)(xviii) and (a)(2)(xx) of 

this section, except the amount of any 

periodic fee disclosed pursuant to 

paragraph (a)(2)(viii) of this section that 

is not an annualized amount. 

(C) If a creditor is required under 

paragraph (a)(2)(v) of this section to 

provide a disclosure in a format 

substantially similar to the format used 

in any of the applicable tables found in 

Samples G–15(B), G–15(C) and G–15(D) 

in Appendix G to this part, the creditor 

must provide in bold text any terms and 

phrases that are shown in bold text for 

that disclosure in the applicable tables. 

(D) Disclosures required by 

paragraphs (a)(2)(xxiv)(A), 

(a)(2)(xxiv)(C) and (a)(2)(xxv) through 

(a)(2)(xxvi) of this section. 

(iv) Fees based on a percentage. 

Except for disclosing fees under 

paragraph (a)(2)(vii) of this section, if 

the amount of any fee required to be 

disclosed under paragraph (a)(2) of this 

section or if the amount of any 

transaction requirement required to be 

disclosed under paragraph (a)(2)(xvii) of 

this section is determined on the basis 

of a percentage of another amount, the 

percentage used and the identification 

of the amount against which the 

percentage is applied may be disclosed 

instead of the amount of the fee or 

transaction amount, as applicable. 

(2) Required disclosures for accountopening table for home-equity plans. 

The creditor shall disclose the items in 

paragraph (a)(2) of this section to the 

extent applicable. In making the 

disclosures required by paragraph (a)(2) 

of this section (except under paragraph 

(a)(2)(xix) of this section), a creditor 

must not disclose in the table described 

in paragraph (a)(1) of this section any 

terms applicable to fixed-rate and -term 

payment plans offered during the draw 

period of the plan, unless fixed-rate and 

-term payment plans are the only 

payment plans offered during the draw 

period of the plan. 

(i) Identification information. The 

following information: 

(A) The consumer’s name, address, 

and account number. 

(B) The identity of the creditor 

making the disclosures. 

(C) The date the disclosure was 

prepared. 

(D) The loan originator’s unique 

identifier, as defined by the Secure and 

Fair Enforcement for Mortgage 

Licensing Act of 2008 Sections 1503(3) 

and (12), 12 U.S.C. 5102(3) and (12). 

(ii) Security interest and risk to home. 

A statement that the creditor will 

acquire a security interest in the 

consumer’s dwelling and that loss of the 

dwelling may occur in the event of 

default. 

(iii) Possible actions by creditor. (A) A 

statement that, under certain conditions, 

the creditor may terminate the plan and 

require payment of the outstanding 

balance in full in a single payment and 

impose fees upon termination; prohibit 

additional extensions of credit or reduce 

the credit limit; and implement changes 

in the plan. 

(B) A statement that information 

about the conditions under which the 

creditor may take the actions described 

in paragraph (a)(2)(iii)(A) of this section 

is included in the account-opening 

disclosures or agreement, as applicable. 

(iv) Tax implications. A statement 

that the interest on the portion of the 

credit extension that is greater than the 

fair market value of the dwelling may 

not be tax deductible for Federal income 

tax purposes. A statement that the 

consumer should consult a tax adviser 

for further information regarding the 

deductibility of interest and charges. 

(v) Payment terms. The payment 

terms of the plan that will apply to the 

consumer at account opening, as 

follows. The creditor must distinguish 

payment terms applicable to the draw 

period and the repayment period, by 

using the applicable heading 

‘‘Borrowing Period’’ for the draw period 

and ‘‘Repayment Period’’ for the 

repayment period, in a format 

substantially similar to the format used 

in any of the applicable tables found in 

Samples G–15(B) and G–15(D) in 

Appendix G to this part. 

(A) The length of the plan, the length 

of the draw period and the length of any 


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43538 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

repayment period. When the length of 

the plan is definite, a creditor must 

disclose the length of the plan, the 

length of the draw period and the length 

of any repayment period in a format 

substantially similar to the format used 

in any of the applicable tables found in 

Samples G–15(B) and G–15(C) in 

Appendix G to this part. If there is no 

repayment period on the plan, a 

statement that after the draw period 

ends, the consumer must repay the 

remaining balance in full. 

(B) An explanation of how the 

minimum periodic payment will be 

determined and the timing of the 

payments. If paying only the minimum 

periodic payments may not repay any of 

the principal or may repay less than the 

outstanding balance by the end of the 

plan, a statement of this fact, as well as 

a statement that a balloon payment may 

result or will result, as applicable. If a 

balloon payment will not result under 

the payment plan, a creditor must not 

disclose in the table required by 

paragraph (a)(1) of this section the fact 

that a balloon payment will not result 

for the plan. 

(C)(1) For the payment plan described 

in paragraph (a)(2)(v) of this section, 

sample payments showing the first 

minimum periodic payment for the 

draw period and any repayment period, 

and the balance outstanding at the 

beginning of any repayment period, 

based on the following assumptions: 

(i) The consumer borrows the full 

credit line (as disclosed in paragraph 

(a)(2)(xviii) of this section) at account 

opening, and does not obtain any 

additional extensions of credit. 

(ii) The consumer makes only 

minimum periodic payments during the 

draw period and any repayment period. 

(iii) The annual percentage rate used 

to calculate the sample payments, as 

described in paragraph (a)(2)(v)(C)(2) of 

this section, will remain the same 

during the draw period and any 

repayment period. 

(2) A creditor must provide the 

information described in paragraph 

(a)(2)(v)(C)(1) of this section for the 

following two annual percentage rates: 

(i) The current annual percentage rate 

for the plan, as disclosed under 

paragraph (a)(2)(vi) of this section, 

except that if an introductory annual 

percentage rate applies, the creditor 

must use the rate that would otherwise 

apply to the plan after the introductory 

rate expires, as described in paragraph 

(a)(2)(vi)(B) of this section. 

(ii) The maximum annual percentage 

rate that may apply under the payment 

plan as described in paragraph 

(a)(2)(vi)(A)(1)(v). 

(3) In disclosing the payment samples 

as required by paragraph (a)(2)(v)(C) of 

this section, a creditor also must include 

the following information: 

(i) A statement that the sample 

payments show the first periodic 

payments at the current and maximum 

annual percentage rates if the consumer 

borrows the maximum credit available 

when the account is opened and does 

not borrow any more money. 

(ii) A statement that the sample 

payments are not the consumer’s actual 

payments. A statement that the actual 

payments each period will depend on 

the amount that the consumer has 

borrowed and the interest rate that 

period. 

(iii) If a creditor is disclosing a 

payment plan under paragraph 

(a)(2)(v)(B) of this section under which 

a consumer may pay a balloon payment, 

the creditor must disclose that fact, and 

the amount of the balloon payment 

based on the assumptions described in 

paragraphs (a)(2)(v)(C)(1) and 

(a)(2)(v)(C)(2) of this section. If a balloon 

payment will not result under the 

payment plan, a creditor must not 

disclose in the table required by 

paragraph (a)(1) of this section the fact 

that a balloon payment will not result 

for the plan. 

(4) A creditor must provide the 

information described in paragraph 

(a)(2)(v)(C) of this section in a format 

that is substantially similar to the format 

used in any of the applicable tables 

found in Samples G–15(B), G–15(C) and 

G–15(D) in Appendix G to this part. 

(D) A statement that the consumer can 

borrow money during the draw period. 

If a repayment period is provided, a 

statement that the consumer cannot 

borrow money during the repayment 

period. 

(E) A statement indicating whether 

minimum payments are due in the draw 

period and any repayment period. 

(vi) Annual percentage rate. Each 

periodic interest rate applicable to the 

payment plan disclosed under 

paragraph (a)(2)(v) of this section that 

may be used to compute the finance 

charge on an outstanding balance, 

expressed as an annual percentage rate 

(as determined by § 226.14(b)), except a 

creditor must not disclose any penalty 

rate set forth in the initial agreement 

that may be imposed in lieu of 

termination of the plan. The annual 

percentage rates disclosed pursuant to 

this paragraph shall be in at least 16- 

point type, except for the following: 

Any minimum or maximum annual 

percentage rates that may apply; and 

any disclosure of rate changes set forth 

in the initial agreement except for rates 

that would apply after the expiration of 

an introductory rate. 

(A) Disclosures for variable rate plans. 

(1) If a rate disclosed under paragraph 

(a)(2)(vi) of this section is a variable 

rate, the following disclosures, as 

applicable: 

(i) The fact that the annual percentage 

rate may change due to the variable-rate 

feature, using the term ‘‘variable rate’’ in 

underlined text as shown in any of the 

applicable tables found in Samples G– 

15(B), G–15(C) and G–15(D) in 

Appendix G of this part. 

(ii) An explanation of how the annual 

percentage rate will be determined. 

Except as provided in paragraph 

(a)(2)(vi)(A)(1)(vi) of this section, in 

providing this disclosure, a creditor 

must only identify the type of index 

used and the amount of any margin. 

(iii) The frequency of changes in the 

annual percentage rate. 

(iv) Any rules relating to changes in 

the index value and the annual 

percentage rate and resulting changes in 

the payment amount, including, for 

example, an explanation of payment 

limitations and rate carryover. 

(v) A statement of any limitations on 

changes in the annual percentage rate, 

including the minimum and maximum 

annual percentage rate that may be 

imposed under the payment plan 

disclosed under paragraph (a)(2)(v) of 

this section. If no annual or other 

periodic limitations apply to changes in 

the annual percentage rate, a statement 

that no annual limitation exists. 

(vi) The lowest and highest value of 

the index in the past 15 years. 

(2) A variable rate is accurate if it is 

a rate as of a specified date and this rate 

was in effect within the last 30 days 

before the disclosures are provided. 

(B) Introductory initial rate. If the 

initial rate is an introductory rate, the 

creditor must disclose the rate that 

would otherwise apply to the plan 

pursuant to paragraph (a)(2)(vi) of this 

section. Where the rate is fixed, the 

creditor must disclose the rate that will 

apply after the introductory rate expires. 

Where the rate is variable, the creditor 

must disclose the rate based on the 

applicable index or formula. A creditor 

must disclose in the table described in 

paragraph (a)(1) of this section the 

introductory rate along with the rate 

that would otherwise apply to the plan, 

and use the term ‘‘introductory’’ or 

‘‘intro’’ in immediate proximity to the 

introductory rate. The creditor must also 

disclose the time period during which 

the introductory rate will remain in 

effect. 

(vii) Fees imposed by the creditor and 

third parties to open the plan. The total 

of all one-time fees imposed by the 


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11 [Reserved]. 

creditor and any third parties to open 

the plan, stated as a dollar amount. An 

itemization of all one-time fees imposed 

by the creditor and any third parties to 

open the plan, stated as a dollar amount, 

and when such fees are payable. A 

cross-reference from the disclosure of 

the total of one-time fees, indicating that 

the itemization of the fees is located 

elsewhere in the table. A creditor must 

not disclose the amount of any property 

insurance premiums under this 

paragraph, even if the creditor requires 

property insurance. 

(viii) Fees imposed by the creditor for 

availability of the plan. Any annual or 

other periodic fees that may be imposed 

by the creditor for the availability of the 

plan, including any fee based on 

account activity or inactivity; how 

frequently the fee will be imposed; and 

the annualized amount of the fee. A 

creditor must not disclose the amount of 

any property insurance premiums under 

this paragraph, even if the creditor 

requires property insurance. 

(ix) Fees imposed by the creditor for 

early termination of the plan by the 

consumer. Any fee that may be imposed 

by the creditor if a consumer terminates 

the plan prior to its scheduled maturity. 

(x) Late-payment fee. Any fee 

imposed for a late payment. 

(xi) Over-the-limit fee. Any fee 

imposed for exceeding a credit limit. 

(xii) Transaction charges. Any 

transaction charge imposed by the 

creditor for use of the home-equity plan. 

(xiii) Returned-payment fee. Any fee 

imposed by the creditor for a returned 

payment. 

(xiv) Fees for failure to comply with 

transaction limitations. Any fee 

imposed by the creditor for a 

consumer’s failure to comply with: 

(A) Any limitations on the number of 

extensions of credit or the amount of 

credit that may be obtained during any 

time period. 

(B) Any minimum outstanding 

balance requirements. 

(C) Any minimum draw requirements. 

(xv) Statement about other fees. A 

cross-reference indicating that other fees 

are located elsewhere in the table. A 

statement that other fees may apply. A 

statement that information about other 

fees is included in the account-opening 

disclosures or agreement, as applicable. 

(xvi) Negative amortization. If 

applicable, a statement that negative 

amortization may occur and that 

negative amortization increases the 

principal balance and reduces the 

consumer’s equity in the dwelling. 

(xvii) Transaction requirements. Any 

limitations on the number of extensions 

of credit and the amount of credit that 

may be obtained during any time 

period, as well as any minimum 

outstanding balance and minimum draw 

requirements. 

(xviii) Credit limit. The credit limit 

applicable to the plan. 

(xix) Statements about fixed-rate and 

-term payment plans. (A) Except as 

provided in paragraph (a)(2)(xix)(B) of 

this section, if a creditor offers a fixedrate and -term payment plan under the 

plan, the following information: 

(1) A statement that the consumer has 

the option during the draw period to 

borrow at a fixed interest rate. 

(2) The amount of the credit line that 

the consumer may borrow at a fixed 

interest rate for a fixed term. 

(3) A statement that information about 

the fixed-rate and -term payment plan is 

included in the account-opening 

disclosures or agreement, as applicable. 

(B) A creditor must not make the 

disclosures required by paragraph 

(a)(2)(xix)(A) of this section if fixed-rate 

and -term payment plans are the only 

payment plans offered during the draw 

period. 

(xx) Required insurance, debt 

cancellation or debt suspension 

coverage. (A) A fee for insurance 

described in § 226.4(b)(7) or debt 

cancellation or suspension coverage 

described in § 226.4(b)(10), if the 

insurance or debt cancellation or 

suspension coverage is required as part 

of the plan; and 

(B) A cross reference to any additional 

information provided with the table 

described in paragraph (a)(1) of this 

section about the insurance or coverage, 

as applicable. 

(xxi) Grace period. The date by which 

or the period within which any credit 

extended may be repaid without 

incurring a finance charge due to a 

periodic interest rate and any conditions 

on the availability of the grace period. 

If no grace period is provided, that fact 

must be disclosed. If the length of the 

grace period varies, the creditor may 

disclose the range of days, the minimum 

number of days, or the average number 

of the days in the grace period, if the 

disclosure is identified as a range, 

minimum, or average. In disclosing a 

grace period that applies to all features 

on the account, the phrase ‘‘How to 

Avoid Paying Interest’’ shall be used as 

the heading for the information below 

the table describing the grace period. If 

a grace period is not offered on all 

features of the account, in disclosing 

this fact below the table, the phrase 

‘‘Paying Interest’’ shall be used as the 

heading for this information. 

(xxii) Balance computation method. 

The name of the balance computation 

method listed in § 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 paragraph 

(a)(4)(i)(D) of this section is provided 

with the account-opening disclosures. 

In determining which balance 

computation method to disclose, the 

creditor shall assume that credit 

extended will not be repaid within any 

grace period, if any. 

(xxiii) Billing error rights reference. A 

statement that information about 

consumers’ right to dispute transactions 

is included in the account-opening 

disclosures. 

(xxiv) No obligation statement. 

(A) A statement that the consumer has 

no obligation to accept the terms 

disclosed in the table. 

(B) A statement that the consumer 

should confirm that the terms disclosed 

in the table are the same terms for 

which the consumer applied. 

(C) If the creditor has a provision for 

the consumer’s signature, a statement 

that a signature by the consumer only 

confirms receipt of the disclosure 

statement. 

(xxv) Statement about asking 

questions. A statement that if the 

consumer does not understand any 

disclosure in the table the consumer 

should ask questions. 

(xxvi) Statement about Board’s Web 

site. A statement that the consumer may 

obtain additional information at the 

Web site of the Federal Reserve Board, 

and a reference to this Web site. 

(3) Disclosure of charges imposed as 

part of home-equity plans. A creditor 

shall disclose, to the extent 

applicable:fi 

[ (1) Finance charge. The 

circumstances under which a finance 

charge will be imposed and an 

explanation of how it will be 

determined, as follows.] 

fl(i) For charges imposed as part of 

a home-equity plan subject to the 

requirements of § 226.5b, the 

circumstances under which the charge 

may be imposed, including the amount 

of the charge or an explanation of how 

the charge is determined.11 For finance 

charges, afi [(i) A] statement of when 

flthe chargefi [finance charges] 

beginflsfi to accrue [, including] 

flandfi an explanation of whether or 

not any time period exists within which 

any credit flthat has been fi extended 

may be repaid without incurring 

flthefi [a finance] charge. If such a 

time period is provided, a creditor may, 

at its option and without disclosure, 

flelect not tofi impose [no] flafi 


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43540 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

12 [Reserved]. 

13 [Reserved]. 

finance charge when payment is 

received after the time period 

flexpires.fi [’s expiration.] 

fl(ii) Charges imposed as part of the 

plan are: 

(A) Finance charges identified under 

§ 226.4(a) and § 226.4(b). 

(B) Charges resulting from the 

consumer’s failure to use the plan as 

agreed, except amounts payable for 

collection activity after default; costs for 

protection of the creditor’s interest in 

the collateral for the plan due to default; 

attorney’s fees whether or not 

automatically imposed; foreclosure 

costs; and post-judgment interest rates 

imposed by law. 

(C) Taxes imposed on the credit 

transaction by a state or other 

governmental body, such as 

documentary stamp taxes on cash 

advances. 

(D) Charges for which the payment, or 

nonpayment, affect the consumer’s 

access to the plan, the duration of the 

plan, the amount of credit extended, the 

period for which credit is extended, or 

the timing or method of billing or 

payment. 

(E) Charges imposed for terminating a 

plan. 

(F) Charges for voluntary credit 

insurance, debt cancellation or debt 

suspension. 

(iii) Charges that are not imposed as 

part of the plan include: 

(A) Charges imposed on a cardholder 

by an institution other than the card 

issuer for the use of the other 

institution’s ATM in a shared or 

interchange system. 

(B) A charge for a package of services 

that includes an open-end credit feature, 

if the fee is required whether or not the 

open-end credit feature is included and 

the non-credit services are not merely 

incidental to the credit feature. 

(C) Charges under § 226.4(e) disclosed 

as specified. 

(4) Disclosure of rates for home-equity 

plans. A creditor shall disclose, to the 

extent applicable: 

(i) For each periodic rate that may be 

used to calculate interest: 

(A) Rates. The rate, expressed as a 

periodic rate and a corresponding 

annual percentage rate.12

(B) Range of balances. The range of 

balances to which the rate is applicable; 

however, a creditor is not required to 

adjust the range of balances disclosure 

to reflect the balance below which only 

a minimum charge applies.13

(C) Type of transaction. The type of 

transaction to which the rate applies, if 

different rates apply to different types of 

transactions. 

(D) Balance computation method. An 

explanation of the method used to 

determine the balance to which the rate 

is applied. 

(ii) Variable-rate accounts. For 

interest rate changes that are tied to 

increases in an index or formula 

(variable-rate accounts) specifically set 

forth in the account agreement: 

(A) The fact that the annual 

percentage rate may increase. 

(B) How the rate is determined, 

including the margin. 

(C) The circumstances under which 

the rate may increase. 

(D) The frequency with which the rate 

may increase. 

(E) Any limitation on the amount the 

rate may change. 

(F) The effect(s) of an increase. 

(G) A rate is accurate if it is a rate as 

of a specified date and this rate was in 

effect within the last 30 days before the 

disclosures are provided. 

(iii) Rate changes not due to index or 

formula. For interest rate changes that 

are specifically set forth in the account 

agreement and not tied to increases in 

an index or formula: 

(A) The initial rate (expressed as a 

periodic rate and a corresponding 

annual percentage rate) required under 

paragraph (a)(4)(i)(A) of this section. 

(B) How long the initial rate will 

remain in effect and the specific events 

that cause the initial rate to change. 

(C) The rate (expressed as a periodic 

rate and a corresponding annual 

percentage rate) that will apply when 

the initial rate is no longer in effect and 

any limitation on the time period the 

new rate will remain in effect. 

(D) The balances to which the new 

rate will apply. 

(E) The balances to which the current 

rate at the time of the change will 

apply.fi 

[(ii) A disclosure of each periodic rate 

that may be used to compute the finance 

charge, the range of balances to which 

it is applicable, and the corresponding 

annual percentage rate. If a creditor 

offers a variable-rate plan, the creditor 

shall also disclose: the circumstances 

under which the rate(s) may increase; 

any limitations on the increase; and the 

effect(s) of an increase. When different 

periodic rates apply to different types of 

transactions, the types of transactions to 

which the periodic rates shall apply 

shall also be disclosed. A creditor is not 

required to adjust the range of balances 

disclosure to reflect the balance below 

which only a minimum charge applies. 

(iii) An explanation of the method 

used to determine the balance on which 

the finance charge may be computed. 

(iv) An explanation of how the 

amount of any finance charge will be 

determined, including a description of 

how any finance charge other than the 

periodic rate will be determined. 

(2) Other charges. The amount of any 

charge other than a finance charge that 

may be imposed as part of the plan, or 

an explanation of how the charge will 

be determined. 

(3) Home-equity plan information. 

The following disclosures described in 

§ 226.5b(d), as applicable: 

(i) A statement of the conditions 

under which the creditor may take 

certain action, as described in 

§ 226.5b(d)(4)(i), such as terminating the 

plan or changing the terms. 

(ii) The payment information 

described in § 226.5b(d)(5)(i) and (ii) for 

both the draw period and any 

repayment period. 

(iii) A statement that negative 

amortization may occur as described in 

§ 226.5b(d)(9). 

(iv) A statement of any transaction 

requirements as described in 

§ 226.5b(d)(10). 

(v) A statement regarding the tax 

implications as described in 

§ 226.5b(d)(11). 

(vi) A statement that the annual 

percentage rate imposed under the plan 

does not include costs other than 

interest as described in § 226.5b(d)(6) 

and (d)(12)(ii). 

(vii) The variable-rate disclosures 

described in § 226.5b(d)(12)(viii), 

(d)(12)(x), (d)(12)(xi), and (d)(12)(xii), as 

well as the disclosure described in 

§ 226.5b(d)(5)(iii), unless the disclosures 

provided with the application were in a 

form the consumer could keep and 

included a representative payment 

example for the category of payment 

option chosen by the consumer.] 

fl(5) Additional disclosures for 

home-equity plans. A creditor shall 

disclose, to the extent applicable: 

(i) Voluntary credit insurance, debt 

cancellation or debt suspension. The 

disclosures in §§ 226.4(d)(1)(i) and 

(d)(1)(ii) and (d)(3)(i) through (d)(3)(iii) 

if the creditor offers optional credit 

insurance or debt cancellation or debt 

suspension coverage that is identified in 

§ 226.4(b)(7) or (b)(10).fi 

fl(ii)fi[(4)] Security interests. The 

fact that the creditor has or will acquire 

a security interest in the property 

purchased under the plan, or in other 

property identified by item or type. 

fl(iii)fi[(5)] Statement of billing 

rights. A statement that outlines the 

consumer’s rights and the creditor’s 

responsibilities under §§ 226.12(c) and 

226.13 and that is substantially similar 

to the statement found in Model Form 

G–3 [or, at the creditor’s option G–3(A),] 

in Appendix G to this part. 


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14 [Reserved]. 

15 [Reserved]. 

fl(iv) Possible creditor actions. A 

statement of the conditions under which 

the creditor may take certain actions, as 

described in § 226.5b(c)(7)(i), such as 

terminating the plan or changing the 

terms. 

(v) Additional information on fixedrate and -term payment plans. 

Information related to any fixed-rate and 

-term payment plans, as follows. 

(A) The period during which the plan 

can be selected. 

(B) The length of time over which 

repayment can occur. 

(C) An explanation of how the 

minimum periodic payment will be 

determined for the payment plan. 

(D) Any limitations on the number of 

extensions of credit or the amount of 

credit that may be obtained under the 

payment plan. Any minimum 

outstanding balance requirements or 

any minimum draw requirements 

applicable to the payment plan.fi 

* * * * * 

6. Section 226.7, as amended on 

January 29, 2009 (74 FR 5409) is 

amended by republishing the 

introductory text and by revising 

paragraph (a), as follows: 

§ 226.7 Periodic Statement. 

The creditor shall furnish the 

consumer with a periodic statement that 

discloses the following items, to the 

extent applicable: 

(a) Rules affecting home-equity plans. 

The requirements of paragraph (a) of 

this section apply only to home-equity 

plans subject to the requirements of 

§ 226.5b. [Alternatively, a creditor 

subject to this paragraph may, at its 

option, comply with any of the 

requirements of paragraph (b) of this 

section; however, any creditor that 

chooses not to provide a disclosure 

under paragraph (a)(7) of this section 

must comply with paragraph (b)(6) of 

this section.] 

(1) Previous balance. The account 

balance outstanding at the beginning of 

the billing cycle. 

(2) Identification of transactions. An 

identification of each credit transaction 

in accordance with § 226.8. 

(3) Credits. Any credit to the account 

during the billing cycle, including the 

amount and the date of crediting. The 

date need not be provided if a delay in 

[accounting] flcreditingfi does not 

result in any finance or other charge. 

(4) Periodic rates. (i) Except as 

provided in paragraph (a)(4)(ii) of this 

section, each periodic rate that may be 

used to compute the [finance charge,] 

flinterest charge expressed as an 

annual percentage rate and using the 

term, Annual Percentage Rate,14 along 

withfi the range of balances to which 

it is applicable [, and the corresponding 

annual percentage rate].15 If no [finance] 

flinterestfi charge is imposed when 

the outstanding balance is less than a 

certain amount, the creditor is not 

required to disclose that fact, or the 

balance below which no [finance] 

flinterestfi charge will be imposed. If 

different periodic rates apply to 

different types of transactions, the types 

of transactions to which the periodic 

rates apply shall also be disclosed. For 

variable-rate plans, the fact that the 

[periodic rate(s)] flannual percentage 

ratefi may vary. 

(ii) Exception. An annual percentage 

rate that differs from the rate that would 

otherwise apply and is offered only for 

a promotional period need not be 

disclosed except in periods in which the 

offered rate is actually applied. 

(5) Balance on which finance charge 

computed. The amount of the balance to 

which a periodic rate was applied and 

an explanation of how that balance was 

determined flusing the term Balance 

Subject to Interest Ratefi. When a 

balance is determined without first 

deducting all credits and payments 

made during the billing cycle, the fact 

and the amount of the credits and 

payments shall be disclosed. flAs an 

alternative to providing an explanation 

of how the balance was determined, a 

creditor that uses a balance computation 

method identified in § 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 § 226.5a(g), the creditor 

shall provide a brief explanation of the 

method used.fi 

fl(6) Charges imposed. (i) The 

amounts of any charges imposed as part 

of a plan as stated in § 226.6(a)(3) 

grouped together, in proximity to 

transactions identified under paragraph 

(a)(2) of this section, substantially 

similar to Sample G–24(A) in Appendix 

G to this part. 

(ii) Interest. A total of finance charges 

attributable to periodic interest rates, 

using the term Total Interest, must be 

disclosed for the statement period and 

calendar year to date. If different 

periodic rates apply to different types of 

transactions, finance charges 

attributable to periodic interest rates, 

using the term Interest Charge, must be 

grouped together under the heading 

Interest Charged, itemized and totaled 

by type of transaction or group of 

transactions subject to different periodic 

rates. The disclosures made pursuant to 

this paragraph must be provided using 

a format substantially similar to Sample 

G–24(A) in Appendix G to this part. 

(iii) Fees. Charges imposed as part of 

the plan other than charges attributable 

to periodic interest rates must be 

grouped together under the heading 

Fees, identified consistent with the 

feature or type, and itemized, and a total 

of charges, using the term Fees, must be 

disclosed for the statement period and 

calendar year to date, using a format 

substantially similar to Sample G–24(A) 

in Appendix G. 

(7) Change-in-terms and increased 

penalty rate summary for home-equity 

loans. Creditors that provide a changein-terms notice required by § 226.9(c)(1), 

or a rate increase notice required by 

§ 226.9(i), on or with the periodic 

statement, must disclose the 

information in § 226.9(c)(1)(iii)(A) or 

§ 226.9(i)(3) on the periodic statement in 

accordance with the format 

requirements in § 226.9(c)(1)(iii)(B), and 

§ 226.9(i)(4). See Samples G–25 and G– 

26 in Appendix G to this part.fi 

[(6) Amount of finance charge and 

other charges. Creditors may comply 

with paragraphs (a)(6) of this section, or 

with paragraph (b)(6) of this section, at 

their option. 

(i) Finance charges. The amount of 

any finance charge debited or added to 

the account during the billing cycle, 

using the term finance charge. The 

components of the finance charge shall 

be individually itemized and identified 

to show the amount(s) due to the 

application of any periodic rates and the 

amount(s) of any other type of finance 

charge. If there is more than one 

periodic rate, the amount of the finance 

charge attributable to each rate need not 

be separately itemized and identified. 

(ii) Other charges. The amounts, 

itemized and identified by type, of any 

charges other than finance charges 

debited to the account during the billing 

cycle. 

(7) Annual percentage rate. At a 

creditor’s option, when a finance charge 

is imposed during the billing cycle, the 

annual percentage rate(s) determined 

under § 226.14(c) using the term annual 

percentage rate.] 

(8) Grace period. The date by which 

or the time period within which the 

new balance or any portion of the new 

balance must be paid to avoid 

additional finance charges. If such a 

time period is provided, a creditor may, 

at its option and without disclosure, 

impose no finance charge if payment is 


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43542 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

received after the time period’s 

expiration. 

(9) Address for notice of billing errors. 

The address to be used for notice of 

billing errors. Alternatively, the address 

may be provided on the billing rights 

statement permitted by § 226.9(a)(2). 

(10) Closing date of billing cycle; new 

balance. The closing date of the billing 

cycle and the account balance 

outstanding on that date. 

7. Section 226.9, as amended on 

January 29, 2009 (74 FR 5412), is 

amended by revising paragraph (c)(1), 

and adding new paragraphs (i) and (j), 

as follows 

§ 226.9 Subsequent disclosure 

requirements. 

* * * * * 

(c) Change in terms—(1) Rules 

affecting home-equity plans—(i) Written 

notice required. For home-equity plans 

subject to the requirements of § 226.5b, 

flexcept as provided in paragraphs 

(c)(1)(ii) and (c)(1)(iv) of this section,fi 

whenever any term required to be 

disclosed under § 226.6(a) is changed 

[or the required minimum periodic 

payment is increased], flafi[the] 

creditor flmust provide afi[shall mail 

or deliver] written notice of the change 

flat least 45 days prior to the effective 

date of the changefi to each consumer 

who may be affected. [The notice shall 

be mailed or delivered at least 15 days 

prior to the effective date of the change.] 

The fl45-dayfi[15-day] timing 

requirement does not apply if the 

flconsumer has agreed to a particularfi 

change [has been agreed to by the 

consumer]; the notice shall be given, 

however, before the effective date of the 

change. flIncreases in the rate 

applicable to a consumer’s account due 

to delinquency, default or as a penalty 

described in paragraph (i) of this section 

must be disclosed pursuant to paragraph 

(i) of this section.fi 

fl(ii) Charges not covered by 

§ 226.6(a)(1) and (a)(2). Except as 

provided in paragraph (c)(1)(iv) of this 

section, if a creditor increases any 

component of a charge or introduces a 

new charge required to be disclosed 

under § 226.6(a)(3) that is not required 

to be disclosed in a tabular format under 

§ 226.6(a)(2), a creditor may either, at its 

option: 

(A) Comply with the requirements of 

paragraph (c)(1)(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. 

(iii) Disclosure requirements—(A) 

Changes to terms described in accountopening table. If a creditor changes a 

term required to be disclosed in a 

tabular format pursuant to § 226.6(a)(1) 

and (a)(2), the creditor must provide the 

following information on the notice 

provided pursuant to paragraph (c)(1)(i) 

of this section: 

(1) A summary of the changes made 

to terms required by § 226.6(a)(1) and 

(2); 

(2) A statement that changes are being 

made to the account; 

(3) A statement indicating the 

consumer has the right to opt out of 

these changes, if applicable, and a 

reference to additional information 

describing the opt-out right provided in 

the notice, if applicable; 

(4) The date the changes will become 

effective; and 

(5) If applicable, a statement that the 

consumer may find additional 

information about the summarized 

changes, and other changes to the 

account, in the notice. 

(B) Format requirements—(1) Tabular 

format. The summary of changes 

described in paragraph (c)(1)(iii)(A)(1) 

of this section must be in a tabular 

format, with headings and format 

substantially similar to any of the 

account-opening tables found in G–15 

in Appendix G to this part. The table 

must disclose the changed term(s) and 

information relevant to the change(s), if 

that relevant information is required by 

§ 226.6(a)(1) and (a)(2). The new terms 

must be described with the same level 

of detail as required when disclosing the 

terms under § 226.6(a)(2). 

(2) Notice included with periodic 

statement. If a notice required by 

paragraph (c)(1)(i) of this section is 

included on or with a periodic 

statement, the information described in 

paragraph (c)(1)(iii)(A)(1) of this section 

must be disclosed on the front of any 

page of the statement. The summary of 

changes described in paragraph 

(c)(1)(iii)(A)(1) of this section must 

immediately follow the information 

described in paragraph (c)(1)(iii)(A)(2) 

through (c)(1)(iii)(A)(5) of this section, 

and be substantially similar to the 

format shown in Sample G–25 in 

Appendix G to this part. 

(3) Notice provided separately from 

periodic statement. If a notice required 

by paragraph (c)(1)(i) of this section is 

not included on or with a periodic 

statement, the information described in 

paragraph (c)(1)(iii)(A)(1) of this section 

must, at the creditor’s option, be 

disclosed on the front of the first page 

of the notice or segregated on a separate 

page from other information given with 

the notice. The summary of changes 

required to be in a table pursuant to 

paragraph (c)(1)(iii)(A)(1) of this section 

may be on more than one page, and may 

use both the front and reverse sides, so 

long as the table begins on the front of 

the first page of the notice and there is 

a reference on the first page indicating 

that the table continues on the following 

page. The summary of changes 

described in paragraph (c)(1)(iii)(A)(1) 

of this section must immediately follow 

the information described in paragraph 

(c)(1)(iii)(A)(2) through (c)(1)(iii)(A)(5) 

of this section, substantially similar to 

the format shown in Sample G–25 in 

Appendix G to this part.fi 

fl(iv)fi[(ii)] Notice not required. For 

home-equity plans subject to the 

requirements of § 226.5b, a creditor is 

not required to provide notice under 

this section when the change involves a 

reduction of any component of a finance 

or other charge or when the change 

results from an agreement involving a 

court proceeding. flSuspension of 

credit privileges, reduction of a credit 

limit, or termination of an account do 

not require notice under paragraph 

(c)(1)(i) of this section, but must be 

disclosed pursuant to paragraph (j) of 

this section.fi 

[(iii) Notice to restrict credit. For 

home-equity plans subject to the 

requirements of § 226.5b, if the creditor 

prohibits additional extensions of credit 

or reduces the credit limit pursuant to 

§ 226.5b(f)(3)(i) or (f)(3)(vi), the creditor 

shall mail or deliver written notice of 

the action to each consumer who will be 

affected. The notice must be provided 

not later than three business days after 

the action is taken and shall contain 

specific reasons for the action. If the 

creditor requires the consumer to 

request reinstatement of credit 

privileges, the notice also shall state that 

fact.] 

* * * * * 

(g) Increase in rates due to 

delinquency or default or as a penalty 

fl—rules affecting open-end (not homesecured) plansfi. 

* * * * * 

fl(i) Increase in rates due to 

delinquency or default or as a penalty— 

rules affecting home-equity plans—(1) 

Increases subject to this section. For 

home-equity plans subject to the 

requirements of § 226.5b, except as 

provided in paragraph (i)(5) of this 

section, a creditor must provide a 

written notice to each consumer who 

may be affected when: 

(i) A rate is increased due to the 

consumer’s delinquency or default as 

specified in the account agreement; or 

(ii) A rate is increased as a penalty for 

one or more events, other than a 


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31a [Reserved]. 

consumer’s default or delinquency, as 

specified in the account agreement. 

(2) Timing of written notice. 

Whenever any notice is required to be 

given pursuant to paragraph (i)(1) of this 

section, the creditor shall provide 

written notice of the increase in rates at 

least 45 days prior to the effective date 

of the increase. The notice must be 

provided after the occurrence of the 

events described in paragraphs (i)(1)(i) 

and (i)(1)(ii) of this section that trigger 

the imposition of the rate increase. 

(3) Disclosure requirements for rate 

increases. If a creditor is increasing the 

rate due to delinquency or default or as 

a penalty, the creditor must provide the 

following information on the notice sent 

pursuant to paragraph (i)(1) of this 

section: 

(i) A statement that the delinquency, 

default, or penalty rate, as applicable, 

has been triggered; 

(ii) The date on which the 

delinquency, default, or penalty rate 

will apply; 

(iii) The circumstances under which 

the delinquency, default, or penalty 

rate, as applicable, will cease to apply 

to the consumer’s account, or that the 

delinquency, default, or penalty rate 

will remain in effect for a potentially 

indefinite time period; and 

(iv) A statement indicating to which 

balances the delinquency or default rate 

or penalty rate will be applied. 

(4) Format requirements. (i) If a notice 

required by paragraph (i)(1) of this 

section is included on or with a periodic 

statement, the information described in 

paragraph (i)(3) of this section must be 

in the form of a table and provided on 

the front of any page of the periodic 

statement, above the notice described in 

paragraph (c)(1)(iii)(A) of this section if 

that notice is provided on the same 

statement. 

(ii) If a notice required by paragraph 

(i)(1) of this section is not included on 

or with a periodic statement, the 

information described in paragraph 

(i)(3) of this section must be disclosed 

on the front of the first page of the 

notice. Only information related to the 

increase in the rate to a penalty rate may 

be included with the notice, except that 

this notice may be combined with a 

notice described in paragraph 

(c)(1)(iii)(A) of this section. 

(5) Exception for workout and 

temporary hardship arrangements. A 

creditor is not required to provide a 

notice pursuant to paragraph (i)(1) of 

this section if a rate applicable to a 

category of transactions is increased due 

to the consumer’s completion of a 

workout or temporary hardship 

arrangement or as a result of the 

consumer’s failure to comply with the 

terms of a workout or temporary 

hardship arrangement between the 

creditor and the consumer, provided 

that: 

(i) The rate following any such 

increase does not exceed the rate that 

applied to the category of transactions 

prior to commencement of the workout 

or temporary hardship arrangement; or 

(ii) If the rate that applied to a 

category of transactions prior to the 

commencement of the workout or 

temporary hardship arrangement was a 

variable rate, the rate following any 

such increase is a variable rate 

determined by the same formula (index 

and margin) that applied to the category 

of transactions prior to commencement 

of the workout or temporary hardship 

arrangement.fi 

fl(j) Notices of action taken for homeequity plans. 

(1) For home-equity plans subject to 

the requirements of § 226.5b, if the 

creditor prohibits additional extensions 

of credit or reduces the credit limit 

pursuant to § 226.5b(f)(3)(i) or 

226.5b(f)(3)(vi), the creditor shall mail 

or deliver written notice of the action to 

any consumer who will be affected. The 

notice must be provided not later than 

three business days after the action is 

taken and shall contain [specific reasons 

for the action. If the creditor requires the 

consumer to request reinstatement of 

credit privileges, the notice shall state 

that fact.] the following information (see 

Model Clauses G–23(A) in Appendix G 

of this part): 

(i) a statement of the action taken, 

including the date on which the action 

was effective and, if the credit limit was 

reduced, the amount of the new credit 

limit; 

(ii) a statement of specific reasons for 

the action taken; 

(iii) if the creditor requires the 

consumer to request reinstatement of 

credit privileges under 

§ 226.5b(g)(1)(ii)— 

(A) a statement that the consumer has 

a right to request reinstatement of the 

account at any time and the method 

with which the consumer may request 

reinstatement, including specific 

contact information for submitting 

reinstatement requests to the creditor; 

(B) a statement that, upon receiving a 

reinstatement request, the creditor will 

complete an investigation of whether a 

reason for continuing the suspension or 

reduction exists within 30 days of 

receiving the request, and that if no 

reason is found to exist, the creditor will 

restore the consumer’s credit privileges; 

and 

(C) a statement that, to investigate the 

consumer’s first reinstatement request 

after advances have been suspended or 

the credit limit reduced, the creditor 

may not charge the consumer any fees, 

but that for subsequent reinstatement 

requests by the consumer, the creditor 

has a right to charge the consumer bona 

fide and reasonable property valuation 

or credit report fees associated with the 

investigation. 

(2) For home-equity plans subject to 

the requirements of § 226.5b, if a 

creditor suspends advances or decreases 

the credit limit on an account under 

§ 226.5b(f)(3)(i) or (f)(3)(vi), the creditor 

may not charge a fee for denied 

advances or exceeding the credit limit 

provided for in the original agreement 

until the consumer has received the 

notice of action taken required by 

§ 226.9(j)(1). 

(3) For home-equity plans subject to 

the requirements of § 226.5b, if, 

pursuant to § 226.5b(f)(2), a creditor 

terminates a plan and demands 

repayment of the entire outstanding 

balance in advance of the original term 

or temporarily or permanently suspends 

further advances or reduces the credit 

limit applicable to a home-equity plan, 

the creditor shall mail or deliver written 

notice of the action to any consumer 

who will be affected. The notice must be 

provided not later than three business 

days after the action is taken and shall 

contain the following information (see 

Model Clauses G–23(B) in Appendix G 

of this part): 

(i) a statement of the action taken; and 

(ii) a statement of specific reasons for 

the action taken. 

(4) If, pursuant to § 226.5b(f)(2), a 

creditor takes any action other than 

terminating a plan and demanding 

repayment of the entire outstanding 

balance in advance of the original term, 

or temporarily or permanently 

suspending further advances or 

reducing the credit limit for a homeequity plan, the creditor must comply 

with the notice requirements of 

§ 226.9(c)(1) or (i), as applicable.fi 

8. Section 226.14 is revised to read as 

follows: 

§ 226.14 Determination of annual 

percentage rate. 

(a) General rule. The annual 

percentage rate is a measure of the cost 

of credit, expressed as a yearly rate. An 

annual percentage rate shall be 

considered accurate if it is not more 

than 1⁄8th of 1 percentage point above or 

below the annual percentage rate 

determined in accordance with this 

section.31a An error in disclosure of the 

annual percentage rate or finance charge 


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43544 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

32 [Reserved]. 

33 [Reserved]. 

34 [Reserved]. 

35 [Reserved]. 1 [Reserved]. 

shall not, in itself, be considered a 

violation of this regulation if: 

(1) The error resulted from a 

corresponding error in a calculation tool 

used in good faith by the creditor; and 

(2) Upon discovery of the error, the 

creditor promptly discontinues use of 

that calculation tool for disclosure 

purposes, and notifies the Board in 

writing of the error in the calculation 

tool. 

(b) Annual percentage rate—in 

general. Where one or more periodic 

rates may be used to compute the 

finance charge, the annual percentage 

rate(s) to be disclosed for purposes of 

flsubpart B of this regulationfi 

[§§ 226.5a, 226.5b, 226.6, 226.7(a)(4) or 

(b)(4), 226.9, 226.15, 226.16, and 226.26] 

shall be computed by multiplying each 

periodic rate by the number of periods 

in a year. 

[(c) Optional effective annual 

percentage rate for periodic statements 

for creditors offering open-end plans 

subject to the requirements of § 226.5b. 

A creditor offering an open-end plan 

subject to the requirements of § 226.5b 

need not disclose an effective annual 

percentage rate. Such a creditor may, at 

its option, disclose an effective annual 

percentage rate(s) pursuant to 

§ 226.7(a)(7) and compute the effective 

annual percentage rate as follows: 

(1) Solely periodic rates imposed. If 

the finance charge is determined solely 

by applying one or more periodic rates, 

at the creditor’s option, either: 

(i) By multiplying each periodic rate 

by the number of periods in a year; or 

(ii) By dividing the total finance 

charge for the billing cycle by the sum 

of the balances to which the periodic 

rates were applied and multiplying the 

quotient (expressed as a percentage) by 

the number of billing cycles in a year. 

(2) Minimum or fixed charge, but not 

transaction charge, imposed. If the 

finance charge imposed during the 

billing cycle is or includes a minimum, 

fixed, or other charge not due to the 

application of a periodic rate, other than 

a charge with respect to any specific 

transaction during the billing cycle, by 

dividing the total finance charge for the 

billing cycle by the amount of the 

balance(s) to which it is applicable 32

and multiplying the quotient (expressed 

as a percentage) by the number of billing 

cycles in a year.33 If there is no balance 

to which the finance charge is 

applicable, an annual percentage rate 

cannot be determined under this 

section. Where the finance charge 

imposed during the billing cycle is or 

includes a loan fee, points, or similar 

charge that relates to opening, renewing, 

or continuing an account, the amount of 

such charge shall not be included in the 

calculation of the annual percentage 

rate. 

(3) Transaction charge imposed. If the 

finance charge imposed during the 

billing cycle is or includes a charge 

relating to a specific transaction during 

the billing cycle (even if the total 

finance charge also includes any other 

minimum, fixed, or other charge not due 

to the application of a periodic rate), by 

dividing the total finance charge 

imposed during the billing cycle by the 

total of all balances and other amounts 

on which a finance charge was imposed 

during the billing cycle without 

duplication, and multiplying the 

quotient (expressed as a percentage) by 

the number of billing cycles in a year,34

except that the annual percentage rate 

shall not be less than the largest rate 

determined by multiplying each 

periodic rate imposed during the billing 

cycle by the number of periods in a 

year.35 Where the finance charge 

imposed during the billing cycle is or 

includes a loan fee, points, or similar 

charge that relates to the opening, 

renewing, or continuing an account, the 

amount of such charge shall not be 

included in the calculation of the 

annual percentage rate. See Appendix F 

to this part regarding determination of 

the denominator of the fraction under 

this paragraph. 

(4) If the finance charge imposed 

during the billing cycle is or includes a 

minimum, fixed, or other charge not due 

to the application of a periodic rate and 

the total finance charge imposed during 

the billing cycle does not exceed 50 

cents for a monthly or longer billing 

cycle, or the pro rata part of 50 cents for 

a billing cycle shorter than monthly, at 

the creditor’s option, by multiplying 

each applicable periodic rate by the 

number of periods in a year, 

notwithstanding the provisions of 

paragraphs (c)(2) and (c)(3) of this 

section. 

(d) Calculations where daily periodic 

rate applied. If the provisions of 

paragraph (c)(1)(ii) or (c)(2) of this 

section apply and all or a portion of the 

finance charge is determined by the 

application of one or more daily 

periodic rates, the annual percentage 

rate may be determined either: 

(1) By dividing the total finance 

charge by the average of the daily 

balances and multiplying the quotient 

by the number of billing cycles in a 

year; or 

(2) By dividing the total finance 

charge by the sum of the daily balances 

and multiplying the quotient by 365.] 

9. Appendix F is removed and 

reserved as follows: 

Appendix F to Part 226 [—Optional 

Annual Percentage Rate Computations 

for Creditors Offering Open-End Plans 

Subject to the Requirements of § 226.5b] 

fl[Reserved]fi 

[In determining the denominator of the 

fraction under § 226.14(c)(3), no amount will 

be used more than once when adding the 

sum of the balances 1 subject to periodic rates 

to the sum of the amounts subject to specific 

transaction charges. (Where a portion of the 

finance charge is determined by application 

of one or more daily periodic rates, the 

phrase ‘‘sum of the balances’’ shall also mean 

the ‘‘average of daily balances.’’) In every 

case, the full amount of transactions subject 

to specific transaction charges shall be 

included in the denominator. Other balances 

or parts of balances shall be included 

according to the manner of determining the 

balance subject to a periodic rate, as 

illustrated in the following examples of 

accounts on monthly billing cycles: 

1. Previous balance—none. A specific 

transaction of $100 occurs on the first day of 

the billing cycle. The average daily balance 

is $100. A specific transaction charge of 3 

percent is applicable to the specific 

transaction. The periodic rate is 11⁄2 percent 

applicable to the average daily balance. The 

numerator is the amount of the finance 

charge, which is $4.50. The denominator is 

the amount of the transaction (which is 

$100), plus the amount by which the balance 

subject to the periodic rate exceeds the 

amount of the specific transactions (such 

excess in this case is 0), totaling $100. 

The annual percentage rate is the quotient 

(which is 41⁄2 percent) multiplied by 12 (the 

number of months in a year), i.e., 54 percent. 

2. Previous balance—$100. A specific 

transaction of $100 occurs at the midpoint of 

the billing cycle. The average daily balance 

is $150. A specific transaction charge of 3 

percent is applicable to the specific 

transaction. The periodic rate is 11⁄2 percent 

applicable to the average daily balance. The 

numerator is the amount of the finance 

charge which is $5.25. The denominator is 

the amount of the transaction (which is 

$100), plus the amount by which the balance 

subject to the periodic rate exceeds the 

amount of the specific transaction (such 

excess in this case is $50), totaling $150. As 

explained in example 1, the annual 

percentage rate is 31⁄2 percent × 12 = 42 

percent. 

3. If, in example 2, the periodic rate applies 

only to the previous balance, the numerator 

is $4.50 and the denominator is $200 (the 

amount of the transaction, $100, plus the 

balance subject only to the periodic rate, the 

$100 previous balance). As explained in 

example 1, the annual percentage rate is 21⁄4

percent × 12 = 27 percent. 

4. If, in example 2, the periodic rate applies 

only to an adjusted balance (previous balance 


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less payments and credits) and the consumer 

made a payment of $50 at the midpoint of the 

billing cycle, the numerator is $3.75 and the 

denominator is $150 (the amount of the 

transaction, $100, plus the balance subject to 

the periodic rate, the $50 adjusted balance). 

As explained in example 1, the annual 

percentage rate is 21⁄2 percent × 12 = 30 

percent. 

5. Previous balance—$100. A specific 

transaction (check) of $100 occurs at the 

midpoint of the billing cycle. The average 

daily balance is $150. The specific 

transaction charge is $.25 per check. The 

periodic rate is 11⁄2 percent applied to the 

average daily balance. The numerator is the 

amount of the finance charge, which is $2.50 

and includes the $.25 check charge and the 

$2.25 resulting from the application of the 

periodic rate. The denominator is the full 

amount of the specific transaction (which is 

$100) plus the amount by which the average 

daily balance exceeds the amount of the 

specific transaction (which in this case is 

$50), totaling $150. As explained in example 

1, the annual percentage rate would be 12⁄3

percent × 12 = 20 percent. 

6. Previous balance—none. A specific 

transaction of $100 occurs at the midpoint of 

the billing cycle. The average daily balance 

is $50. The specific transaction charge is 3 

percent of the transaction amount or $3.00. 

The periodic rate is 11⁄2 percent per month 

applied to the average daily balance. The 

numerator is the amount of the finance 

charge, which is $3.75, including the $3.00 

transaction charge and $.75 resulting from 

application of the periodic rate. The 

denominator is the full amount of the 

specific transaction ($100) plus the amount 

by which the balance subject to the periodic 

rate exceeds the amount of the transaction 

($0). Where the specific transaction amount 

exceeds the balance subject to the periodic 

rate, the resulting number is considered to be 

zero rather than a negative number ($50 ¥ 

$100 = ¥$50). The denominator, in this case, 

is $100. As explained in example 1, the 

annual percentage rate is 33⁄4 percent × 12 = 

45 percent.] 

10. Appendix G to Part 226 is 

amended by: 

A. Revising the table of contents at the 

beginning of the appendix; 

B. Removing Model Clauses and 

Forms G–1, G–2, G–3, and G–4; 

C. Redesignating Model Clauses and 

Forms G–1(A), G–2(A), G–3(A), and G– 

4(A) as Model Clauses and Forms G–1, 

G–2, G–3, and G–4, respectively; 

D. Removing Sample Forms and 

Model Clauses G–14A, G–14B, and G– 

15; and 

E. Adding new Model and Sample 

Forms and Clauses G–14(A) through G– 

14(E), G–15(A) through G–15(D), G– 

22(A), G–22(B), G–23(A), G–23(B), G– 

24(A) through G–24(C), G–25, and G–26, 

in numerical order, to read as follows: 

Appendix G to Part 226—Open-End 

Model Forms and Clauses 

G–1 Balance Computation Methods Model 

Clauses [(Home-equity Plans)] (§§ 226.6 

and 226.7) 

[G–1(A) Balance Computation Methods 

Model Clauses (Plans other than Homeequity Plans) (§§ 226.6 and 226.7)] 

G–2 Liability for Unauthorized Use Model 

Clause [(Home-equity Plans)] (§ 226.12) 

[G–2(A) Liability for Unauthorized Use 

Model Clause (Plans other than Homeequity Plans) (§ 226.12)] 

G–3 Long-Form Billing-Error Rights Model 

Form [(Home-equity Plans)] (§§ 226.6 

and fl226.7fi [226.9]) 

[G–3(A) Long-Form Billing-Error Rights 

Model Form (Plans other than Homeequity Plans) (§§ 226.6 and 226.9)] 

G–4 Alternative Billing-Error Rights Model 

Form [(Home-equity Plans)] (§fl226.7fi 

[226.9)]) 

[G–4(A) Alternative Billing-Error Rights 

Model Form (Plans other than Homeequity Plans) (§ 226.9)] 

G–5 Rescission Model Form (When 

Opening an Account) (§ 226.15) 

G–6 Rescission Model Form (For Each 

Transaction) (§ 226.15) 

G–7 Rescission Model Form (When 

Increasing the Credit Limit) (§ 226.15) 

G–8 Rescission Model Form (When Adding 

a Security Interest) (§ 226.15) 

G–9 Rescission Model Form (When 

Increasing the Security) (§ 226.15) 

G–10(A) Applications and Solicitations 

Model Form (Credit Cards) (§ 226.5a(b)) 

G–10(B) Applications and Solicitations 

Sample (Credit Cards) (§ 226.5a(b)) 

G–10(C) Applications and Solicitations 

Sample (Credit Cards) (§ 226.5a(b)) 

G–10(D) Applications and Solicitations 

Model Form (Charge Cards) (§ 226.5a(b)) 

G–10(E) Applications and Solicitations 

Sample (Charge Cards) (§ 226.5a(b)) 

G–11 Applications and Solicitations Made 

Available to General Public Model 

Clauses (§ 226.5a(e)) 

G–12 Reserved 

G–13(A) Change in Insurance Provider 

Model Form (Combined Notice) 

(§ 226.9(f)) 

G–13(B) Change in Insurance Provider 

Model Form (§ 226.9(f)(2)) 

[G–14A Home-equity Sample 

G–14B Home-equity Sample 

G–15 Home-equity Model Clauses] 

flG–14(A) Early Disclosure Model Form 

(Home-equity Plans) (§ 226.5b(c)) 

G–14(B) Early Disclosure Model Form 

(Home-equity Plans) (§ 226.5b(c)) 

G–14(C) Early Disclosure Sample (Homeequity Plans) (§ 226.5b(c)) 

G–14(D) Early Disclosure Sample (Homeequity Plans) (§ 226.5b(c)) 

G–14(E) Early Disclosure Sample (Homeequity Plans) (§ 226.5b(c)) 

G–15(A) Account-Opening Disclosure 

Model Form (Home-equity Plans) 

(§ 226.6(a)(2)) 

G–15(B) Account-Opening Disclosure 

Sample (Home-equity Plans) 

(§ 226.6(a)(2)) 

G–15(C) Account-Opening Disclosure 

Sample (Home-equity Plans) 

(§ 226.6(a)(2)) 

G–15(D) Account-Opening Disclosure 

Sample (Home-equity Plans) 

(§ 226.6(a)(2))fi 

G–16(A) Debt Suspension Model Clause 

(§ 226.4(d)(3)) 

G–16(B) Debt Suspension Sample 

(§ 226.4(d)(3)) 

G–17(A) Account-opening Model Form 

(§ 226.6(b)(2)) 

G–17(B) Account-opening Sample 

(§ 226.6(b)(2)) 

G–17(C) Account-opening Sample 

(§ 226.6(b)(2)) 

G–17(D) Account-opening Sample 

(§ 226.6(b)(2)) 

G–18(A) Transactions; Interest Charges; 

Fees Sample (§ 226.7(b)) 

G–18(B) Late Payment Fee Sample 

(§ 226.7(b)) 

G–18(C) Actual Repayment Period Sample 

Disclosure on Periodic Statement 

(§ 226.7(b)) 

G–18(D) New Balance, Due Date, Late 

Payment and Minimum Payment Sample 

(Credit cards) (§ 226.7(b)) 

G–18(E) New Balance, Due Date, and Late 

Payment Sample (Open-end Plans (Noncredit-card Accounts)) (§ 226.7(b)) 

G–18(F) Periodic Statement Form 

G–18(G) Periodic Statement Form 

G–19 Checks Accessing a Credit Card 

Account Sample (§ 226.9(b)(3)) 

G–20 Change-in-Terms Sample 

(§ 226.9(c)(2)) 

G–21 Penalty Rate Increase Sample 

(§ 226.9(g)(3)) 

flG–22(A) Home-equity Notice of 

Reinstatement Investigation Results 

Model Clauses (§ 226.5b(g)(2)(v)) 

G–22(B) Home-equity Notice of 

Reinstatement Investigation Results 

Model Clauses (§ 226.5b(g)(2)(v)) 

G–23(A) Home-equity Notice of Action 

Taken Model Clauses (§ 226.9(j)(1)) 

G–23(B) Home-equity Notice of Action 

Taken Model Clauses (§ 226.9(j)(2)) 

G–24(A) Periodic Statement Transactions; 

Interest Charges; Fees Sample (Homeequity Plans) (§ 226.7(a)) 

G–24(B) Periodic Statement Sample (Homeequity Plans) (§ 226.7(a)) 

G–24(C) Periodic Statement Sample (Homeequity Plans) (§ 226.7(a)) 

G–25 Change-in-Terms Sample (Homeequity Plans) (§ 226.9(c)(1)) 

G–26 Rate Increase Sample (Home-equity 

Plans) (§ 226.9(i)(3))fi 

[G–1—Balance Computation Methods Model 

Clauses (Home-equity Plans) 

(a) Adjusted balance method 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the ‘‘adjusted balance’’ of your account. 

We get the ‘‘adjusted balance’’ by taking the 

balance you owed at the end of the previous 

billing cycle and subtracting [any unpaid 

finance charges and] any payments and 

credits received during the present billing 

cycle. 

(b) Previous balance method 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the amount you owe at the beginning of 

each billing cycle [minus any unpaid finance 


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43546 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

charges]. We do not subtract any payments or 

credits received during the billing cycle. [The 

amount of payments and credits to your 

account this billing cycle was $ ___.] 

(c) Average daily balance method (excluding 

current transactions) 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the ‘‘average daily balance’’ of your 

account (excluding current transactions). To 

get the ‘‘average daily balance’’ we take the 

beginning balance of your account each day 

and subtract any payments or credits [and 

any unpaid finance charges]. We do not add 

in any new [purchases/advances/loans]. This 

gives us the daily balance. Then, we add all 

the daily balances for the billing cycle 

together and divide the total by the number 

of days in the billing cycle. This gives us the 

‘‘average daily balance.’’ 

(d) Average daily balance method (including 

current transactions) 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the ‘‘average daily balance’’ of your 

account (including current transactions). To 

get the ‘‘average daily balance’’ we take the 

beginning balance of your account each day, 

add any new [purchases/advances/loans], 

and subtract any payments or credits, [and 

unpaid finance charges]. This gives us the 

daily balance. Then, we add up all the daily 

balances for the billing cycle and divide the 

total by the number of days in the billing 

cycle. This gives us the ‘‘average daily 

balance.’’ 

(e) Ending balance method 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the amount you owe at the end of each 

billing cycle (including new purchases and 

deducting payments and credits made during 

the billing cycle). 

(f) Daily balance method (including current 

transactions) 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the ‘‘daily balance’’ of your account for 

each day in the billing cycle. To get the 

‘‘daily balance’’ we take the beginning 

balance of your account each day, add any 

new [purchases/advances/fees], and subtract 

[any unpaid finance charges and] any 

payments or credits. This gives us the daily 

balance.] 

G–1[(A)]—Balance Computation Methods 

Model Clauses [(Plans Other Than HomeEquity Plans)] 

(a) Adjusted balance method 

We figure the interest charge on your 

account by applying the periodic rate to the 

‘‘adjusted balance’’ of your account. We get 

the ‘‘adjusted balance’’ by taking the balance 

you owed at the end of the previous billing 

cycle and subtracting [any unpaid interest or 

other finance charges and] any payments and 

credits received during the present billing 

cycle. 

(b) Previous balance method 

We figure the interest charge on your 

account by applying the periodic rate to the 

amount you owe at the beginning of each 

billing cycle. We do not subtract any 

payments or credits received during the 

billing cycle. 

(c) Average daily balance method (excluding 

current transactions) 

We figure the interest charge on your 

account by applying the periodic rate to the 

‘‘average daily balance’’ of your account. To 

get the ‘‘average daily balance’’ we take the 

beginning balance of your account each day 

and subtract [any unpaid interest or other 

finance charges and] any payments or credits. 

We do not add in any new [purchases/ 

advances/fees]. This gives us the daily 

balance. Then, we add all the daily balances 

for the billing cycle together and divide the 

total by the number of days in the billing 

cycle. This gives us the ‘‘average daily 

balance.’’ 

(d) Average daily balance method (including 

current transactions) 

We figure the interest charge on your 

account by applying the periodic rate to the 

‘‘average daily balance’’ of your account. To 

get the ‘‘average daily balance’’ we take the 

beginning balance of your account each day, 

add any new [purchases/advances/fees], and 

subtract [any unpaid interest or other finance 

charges and] any payments or credits. This 

gives us the daily balance. Then, we add up 

all the daily balances for the billing cycle and 

divide the total by the number of days in the 

billing cycle. This gives us the ‘‘average daily 

balance.’’ 

(e) Ending balance method 

We figure the interest charge on your 

account by applying the periodic rate to the 

amount you owe at the end of each billing 

cycle (including new [purchases/advances/ 

fees] and deducting payments and credits 

made during the billing cycle). 

(f) Daily balance method (including current 

transactions) 

We figure the interest charge on your 

account by applying the periodic rate to the 

‘‘daily balance’’ of your account for each day 

in the billing cycle. To get the ‘‘daily 

balance’’ we take the beginning balance of 

your account each day, add any new 

[purchases/advances/fees], and subtract [any 

unpaid interest or other finance charges and] 

any payments or credits. This gives us the 

daily balance. 

[G–2—Liability for Unauthorized Use Model 

Clause (Home-Equity Plans) 

You may be liable for the unauthorized use 

of your credit card [or other term that 

describes the credit card]. You will not be 

liable for unauthorized use that occurs after 

you notify [name of card issuer or its 

designee] at [address], orally or in writing, of 

the loss, theft, or possible unauthorized use. 

[You may also contact us on the Web: 

[Creditor Web or e-mail address]] In any case, 

your liability will not exceed [insert $50 or 

any lesser amount under agreement with the 

cardholder].] 

G–2[(A)]—Liability for Unauthorized Use 

Model Clause [(Plans Other Than Homeequity Plans)] 

If you notice the loss or theft of your credit 

card or a possible unauthorized use of your 

card, you should write to us immediately at: 

[address] [address listed on your bill], 

or call us at [telephone number]. 

[You may also contact us on the Web: 

[Creditor Web or e-mail address]] 

You will not be liable for any unauthorized 

use that occurs after you notify us. You may, 

however, be liable for unauthorized use that 

occurs before your notice to us. In any case, 

your liability will not exceed [insert $50 or 

any lesser amount under agreement with the 

cardholder]. 

[G–3—Long-Form Billing-Error Rights Model 

Form (Home-Equity Plans) 

YOUR BILLING RIGHTS 

KEEP THIS NOTICE FOR FUTURE USE 

This notice contains important information 

about your rights and our responsibilities 

under the Fair Credit Billing Act. 

Notify Us in Case of Errors or Questions 

About Your Bill 

If you think your bill is wrong, or if you 

need more information about a transaction on 

your bill, write us [on a separate sheet] at 

[address] [the address listed on your bill]. 

Write to us as soon as possible. We must hear 

from you no later than 60 days after we sent 

you the first bill on which the error or 

problem appeared. [You may also contact us 

on the Web: [Creditor Web or e-mail 

address]] You can telephone us, but doing so 

will not preserve your rights. 

In your letter, give us the following 

information: 

• Your name and account number. 

• The dollar amount of the suspected 

error. 

• Describe the error and explain, if you 

can, why you believe there is an error. If you 

need more information, describe the item you 

are not sure about. 

If you have authorized us to pay your 

credit card bill automatically from your 

savings or checking account, you can stop the 

payment on any amount you think is wrong. 

To stop the payment your letter must reach 

us three business days before the automatic 

payment is scheduled to occur. 

Your Rights and Our Responsibilities After 

We Receive Your Written Notice 

We must acknowledge your letter within 

30 days, unless we have corrected the error 

by then. Within 90 days, we must either 

correct the error or explain why we believe 

the bill was correct. 

After we receive your letter, we cannot try 

to collect any amount you question, or report 

you as delinquent. We can continue to bill 

you for the amount you question, including 

finance charges, and we can apply any 

unpaid amount against your credit limit. You 

do not have to pay any questioned amount 

while we are investigating, but you are still 

obligated to pay the parts of your bill that are 

not in question. 

If we find that we made a mistake on your 

bill, you will not have to pay any finance 

charges related to any questioned amount. If 

we didn’t make a mistake, you may have to 

pay finance charges, and you will have to 

make up any missed payments on the 

questioned amount. In either case, we will 

send you a statement of the amount you owe 

and the date that it is due. 


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If you fail to pay the amount that we think 

you owe, we may report you as delinquent. 

However, if our explanation does not satisfy 

you and you write to us within ten days 

telling us that you still refuse to pay, we must 

tell anyone we report you to that you have 

a question about your bill. And, we must tell 

you the name of anyone we reported you to. 

We must tell anyone we report you to that 

the matter has been settled between us when 

it finally is. 

If we don’t follow these rules, we can’t 

collect the first $50 of the questioned 

amount, even if your bill was correct. 

Special Rule for Credit Card Purchases 

If you have a problem with the quality of 

property or services that you purchased with 

a credit card, and you have tried in good faith 

to correct the problem with the merchant, 

you may have the right not to pay the 

remaining amount due on the property or 

services. 

There are two limitations on this right: 

(a) You must have made the purchase in 

your home state or, if not within your home 

state within 100 miles of your current 

mailing address; and 

(b) The purchase price must have been 

more than $50. 

These limitations do not apply if we own 

or operate the merchant, or if we mailed you 

the advertisement for the property or 

services.] 

G–3[(A)]—Long-Form Billing-Error Rights 

Model Form [(Plans Other Than Home-equity 

Plans)] 

Your Billing Rights: Keep this Document for 

Future Use 

This notice tells you about your rights and 

our responsibilities under the Fair Credit 

Billing Act. 

What To Do If You Find a Mistake on Your 

Statement 

If you think there is an error on your 

statement, write to us at: 

[Creditor Name] 

[Creditor Address] 

[You may also contact us on the Web: 

[Creditor Web or e-mail address]] 

In your letter, give us the following 

information: 

• Account information: Your name and 

account number. 

• Dollar amount: The dollar amount of the 

suspected error. 

• Description of problem: If you think 

there is an error on your bill, describe what 

you believe is wrong and why you believe it 

is a mistake. 

You must contact us: 

• Within 60 days after the error appeared 

on your statement. 

• At least 3 business days before an 

automated payment is scheduled, if you want 

to stop payment on the amount you think is 

wrong. 

You must notify us of any potential errors 

in writing [or electronically]. You may call 

us, but if you do we are not required to 

investigate any potential errors and you may 

have to pay the amount in question. 

What Will Happen After We Receive Your 

Letter 

When we receive your letter, we must do 

two things: 

1. Within 30 days of receiving your letter, 

we must tell you that we received your letter. 

We will also tell you if we have already 

corrected the error. 

2. Within 90 days of receiving your letter, 

we must either correct the error or explain to 

you why we believe the bill is correct. 

While we investigate whether or not there 

has been an error: 

• We cannot try to collect the amount in 

question, or report you as delinquent on that 

amount. 

• The charge in question may remain on 

your statement, and we may continue to 

charge you interest on that amount. 

• While you do not have to pay the 

amount in question, you are responsible for 

the remainder of your balance. 

• We can apply any unpaid amount 

against your credit limit. 

After we finish our investigation, one of 

two things will happen: 

• If we made a mistake: You will not have 

to pay the amount in question or any interest 

or other fees related to that amount. 

• If we do not believe there was a mistake: 

You will have to pay the amount in question, 

along with applicable interest and fees. We 

will send you a statement of the amount you 

owe and the date payment is due. We may 

then report you as delinquent if you do not 

pay the amount we think you owe. 

If you receive our explanation but still 

believe your bill is wrong, you must write to 

us within 10 days telling us that you still 

refuse to pay. If you do so, we cannot report 

you as delinquent without also reporting that 

you are questioning your bill. We must tell 

you the name of anyone to whom we 

reported you as delinquent, and we must let 

those organizations know when the matter 

has been settled between us. 

If we do not follow all of the rules above, 

you do not have to pay the first $50 of the 

amount you question even if your bill is 

correct. 

Your Rights If You Are Dissatisfied With 

Your Credit Card Purchases 

If you are dissatisfied with the goods or 

services that you have purchased with your 

credit card, and you have tried in good faith 

to correct the problem with the merchant, 

you may have the right not to pay the 

remaining amount due on the purchase. 

To use this right, all of the following must 

be true: 

1. The purchase must have been made in 

your home state or within 100 miles of your 

current mailing address, and the purchase 

price must have been more than $50. (Note: 

Neither of these are necessary if your 

purchase was based on an advertisement we 

mailed to you, or if we own the company that 

sold you the goods or services.) 

2. You must have used your credit card for 

the purchase. Purchases made with cash 

advances from an ATM or with a check that 

accesses your credit card account do not 

qualify. 

3. You must not yet have fully paid for the 

purchase. 

If all of the criteria above are met and you 

are still dissatisfied with the purchase, 

contact us in writing [or electronically] at: 

[Creditor Name] 

[Creditor Address] 

[[Creditor Web or e-mail address]] 

While we investigate, the same rules apply 

to the disputed amount as discussed above. 

After we finish our investigation, we will tell 

you our decision. At that point, if we think 

you owe an amount and you do not pay, we 

may report you as delinquent. 

[G–4—Alternative Billing-Error Rights Model 

Form (Home-equity Plans) 

BILLING RIGHTS SUMMARY 

In Case of Errors or Questions About Your 

Bill 

If you think your bill is wrong, or if you 

need more information about a transaction on 

your bill, write us [on a separate sheet] at 

[address] [the address shown on your bill] as 

soon as possible. [You may also contact us 

on the Web: [Creditor Web or e-mail 

address]] We must hear from you no later 

than 60 days after we sent you the first bill 

on which the error or problem appeared. You 

can telephone us, but doing so will not 

preserve your rights. 

In your letter, give us the following 

information: 

• Your name and account number. 

• The dollar amount of the suspected 

error. 

• Describe the error and explain, if you 

can, why you believe there is an error. If you 

need more information, describe the item you 

are unsure about. 

You do not have to pay any amount in 

question while we are investigating, but you 

are still obligated to pay the parts of your bill 

that are not in question. While we investigate 

your question, we cannot report you as 

delinquent or take any action to collect the 

amount you question. 

Special Rule for Credit Card Purchases 

If you have a problem with the quality of 

goods or services that you purchased with a 

credit card, and you have tried in good faith 

to correct the problem with the merchant, 

you may not have to pay the remaining 

amount due on the goods or services. You 

have this protection only when the purchase 

price was more than $50 and the purchase 

was made in your home state or within 100 

miles of your mailing address. (If we own or 

operate the merchant, or if we mailed you the 

advertisement for the property or services, all 

purchases are covered regardless of amount 

or location of purchase.)] 

G–4[(A)]—Alternative Billing-Error Rights 

Model Form [(Plans Other Than Home-equity 

Plans)] 

What To Do If You Think You Find a 

Mistake on Your Statement 

If you think there is an error on your 

statement, write to us at: 

[Creditor Name] 

[Creditor Address] 

[You may also contact us on the Web: 

[Creditor Web or e-mail address]] 

In your letter, give us the following 

information: 


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43548 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

• Account information: Your name and 

account number. 

• Dollar amount: The dollar amount of the 

suspected error. 

• Description of Problem: If you think 

there is an error on your bill, describe what 

you believe is wrong and why you believe it 

is a mistake. 

You must contact us within 60 days after 

the error appeared on your statement. 

You must notify us of any potential errors 

in writing [or electronically]. You may call 

us, but if you do we are not required to 

investigate any potential errors and you may 

have to pay the amount in question. 

While we investigate whether or not there 

has been an error, the following are true: 

• We cannot try to collect the amount in 

question, or report you as delinquent on that 

amount. 

• The charge in question may remain on 

your statement, and we may continue to 

charge you interest on that amount. But, if we 

determine that we made a mistake, you will 

not have to pay the amount in question or 

any interest or other fees related to that 

amount. 

• While you do not have to pay the 

amount in question, you are responsible for 

the remainder of your balance. 

• We can apply any unpaid amount 

against your credit limit. 

Your Rights If You Are Dissatisfied With 

Your Credit Card Purchases 

If you are dissatisfied with the goods or 

services that you have purchased with your 

credit card, and you have tried in good faith 

to correct the problem with the merchant, 

you may have the right not to pay the 

remaining amount due on the purchase. 

To use this right, all of the following must 

be true: 

1. The purchase must have been made in 

your home state or within 100 miles of your 

current mailing address, and the purchase 

price must have been more than $50. (Note: 

Neither of these are necessary if your 

purchase was based on an advertisement we 

mailed to you, or if we own the company that 

sold you the goods or services.) 

2. You must have used your credit card for 

the purchase. Purchases made with cash 

advances from an ATM or with a check that 

accesses your credit card account do not 

qualify. 

3. You must not yet have fully paid for the 

purchase. 

If all of the criteria above are met and you 

are still dissatisfied with the purchase, 

contact us in writing [or electronically] at: 

[Creditor Name] 

[Creditor Address] 

[Creditor Web address] 

While we investigate, the same rules apply 

to the disputed amount as discussed above. 

After we finish our investigation, we will tell 

you our decision. At that point, if we think 

you owe an amount and you do not pay we 

may report you as delinquent. 

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BILLING CODE 6210–01–C 


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* * * * * 

flG–22(A)—Home-equity Notice of 

Reinstatement Investigation Results Model 

Clauses (§ 226.5b(g)(2)(v)) (The Same Reason 

Originally Permitting Action Still Exists) 

We received your request to have your 

credit privileges on your account reinstated 

and have investigated this matter. Based on 

the results of our investigation, we are not 

able to reinstate your credit privileges at this 

time. 

Our investigation showed that 

[your property value as of [date] is [property 

value], which still shows a significant 

decline in value. To determine the value of 

your home, we relied on [property valuation 

type, such as a tax record, automated 

valuation model, appraisal]. You have a right 

to receive a copy of information supporting 

this property value. You may send your 

request to the following [mail/e-mail address 

or telephone number: ]]. 

[your financial circumstances have not 

[improved] [improved enough to reinstate 

your credit privileges]. To review your 

financial circumstances, we relied on 

[information about your income] [credit 

report information] [other]. 

You have the right to ask us to reinstate 

your credit privileges at any time [by sending 

a request for reinstatement in writing to: 

[mail/e-mail address]] [other method of 

requesting reinstatement and corresponding 

contact information designated by the 

creditor, such as by telephone]. 

We will complete an investigation within 

30 days of receiving your request. If no 

reason for [suspending your credit privileges] 

[reducing your credit limit] is found, we will 

restore your credit privileges. 

If you ask us again to reinstate your 

account, we may charge you fees for credit 

report information and property valuation 

reports to investigate your request. 

G–22(B)—Home-equity Notice of 

Reinstatement Investigation Results Model 

Clauses (§ 226.5b(g)(2)(v)) (A different reason 

than the original reason permitting action 

exists) 

Our investigation showed that [your 

property value as of [date] is [property 

value]]. However, our investigation also 

showed that [your financial circumstances 

have materially changed.] As a result, we will 

not be able to reinstate your credit privileges 

at this time. To review your financial 

circumstances, we relied on [information 

about your income] [credit report 

information] [other]. 

You have the right to ask us to reinstate 

your credit privileges at any time [by sending 

a request for reinstatement in writing to: 

[mail/e-mail address]] [other method of 

requesting reinstatement and corresponding 

contact information designated by the 

creditor, such as by telephone]. 

We will complete an investigation within 

30 days of receiving your request. If no 

reason for [suspending your credit privileges] 

[reducing your credit limit] is found, we will 

restore your credit privileges. 

If you ask us again to reinstate your 

account, we may charge you fees for credit 

information and property valuation reports to 

investigate your request. 

G–23(A) Home-equity Notice of Action Taken 

Model Clauses (§ 226.9(j)(1)) 

(a) Action Based on a Significant Decline in 

the Property Value 

As of [month/day/year], your [line of credit 

has been suspended] [credit limit has been 

reduced] to [new credit limit] because the 

value of the property securing your loan has 

declined significantly. The value of your 

property as of [month/day/year] has declined 

to [property value obtained]. 

The property valuation method used to 

obtain your updated property value was 

[property valuation type, such as a tax 

record, automated valuation model, 

appraisal]. You have a right to receive a copy 

of information supporting this property 

value. You may send your request to the 

following [mail/e-mail address or telephone 

number:]. 

(b) Action Based on a Material Change in the 

Consumer’s Financial Circumstances 

As of [date], [your line of credit has been 

suspended] [credit limit has been reduced] 

because your financial circumstances have 

materially changed. To review your financial 

circumstances, we relied on [information 

about your income] [credit report 

information] [other]. 

(c) Action Taken Based on the Consumer’s 

Default of a Material Obligation 

As of [month/day/year], [your line of credit 

has been suspended] [credit limit has been 

reduced] because you defaulted on your 

obligation under your HELOC agreement to 

[material obligation]. 

You have the right to ask us to reinstate 

your credit privileges at any time [by sending 

a request for reinstatement in writing to: 

[mail/e-mail address]] [other method of 

requesting reinstatement and corresponding 

contact information designated by the 

creditor, such as by telephone]. 

We will complete an investigation within 

30 days of receiving your request. If no 

reason for [suspending your credit privileges] 

[reducing your credit limit] is found, we will 

restore your credit privileges. 

We do not charge you any fees to 

investigate the first time you ask us to 

reinstate your credit privileges after your 

[line of credit has been suspended] [credit 

limit has been reduced]. If you ask us to 

reinstate your account after the first request, 

we may charge you a fee for a credit report 

or property valuation needed to investigate 

your request. 

G–23(B) Home-equity Notice of Action Taken 

Model Clauses (§ 226.9(j)(2)) 

As of [month/day/year], your 

[line of credit has been terminated. The 

outstanding balance on your account is due 

on [month/day/year]] 

[line of credit has been suspended] 

[credit limit has been reduced to [new 

credit limit]]. 

The specific reason[s] for the action on 

your account [is][are] the following: 

[your payment is [more than 30 days 

overdue.] 

[Our interest in the property securing your 

HELOC has been adversely affected because 

[you transferred title to the property without 

our permission.] [you failed to maintain 

property insurance on the property.] [you did 

not pay required taxes on the property.]] 

[We have reason to believe that fraud or 

material misrepresentation regarding your 

account has occurred.] 

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BILLING CODE 6210–01–C 

11. In Supplement I to Part 226: 

A. Under Section 226.2—Definitions 

and Rules of Construction, 2(a)(6) 

Business day, paragraph 2 is revised. 

B. Section 226.5—General Disclosure 

Requirements is revised. 

C. Under Section 226.5b— 

Requirements for Home-equity Plans: 

i. Paragraph 1 is republished; 

paragraph 2 is revised; paragraphs 3 and 

4 are removed; and paragraphs 5 and 6 

are redesignated as paragraphs 3 and 4, 

respectively. 

ii. 5b(a) Form of disclosures and 5b(b) 

Time of disclosures are removed. 

iii. New 5b(a) Home-equity document 

provided on or with the application and 

5b(b) Home-equity disclosures provided 

no later than account opening or three 

business days after application, 

whichever is earlier are added. 

iv. 5b(c) Duties of third parties is 

removed. 

v. 5b(d) Content of disclosures is 

redesignated 5b(c) Content of 

disclosures and revised. 

vi. 5b(g) Refund of fees is 

redesignated 5b(d) Refund of fees and 

revised. 

vii. 5b(e) Brochure is removed. 

viii. 5b(h) Imposition of 

nonrefundable fees is redesignated 5b(e) 

Imposition of nonrefundable fees and 

revised. 

ix. Under 5b(f) Limitations on homeequity plans, Paragraph 5b(f)(2)(ii) is 

revised; new Paragraph 5b(f)(2)(iv) is 

added; and Paragraphs 5b(f)(3), 

5b(f)(3)(i), 5b(f)(3)(iv), 5b(f)(3)(v) and 

5b(f)(3)(vi) are revised. 

x. New 5b(g) Reinstatement of Credit 

Privileges is added. 

D. Under Section 226.6—Accountopening Disclosures, 6(a) Rules affecting 

home-equity plans is revised. 

E. Under Section 226.7—Periodic 

Statement, 7(a) Rules affecting homeequity plans is revised. 

F. Under Section 226.9—Subsequent 

Disclosure Requirements, 9(c) Change in 

terms, 9(c)(1) Rules affecting homeequity plans is revised; 9(g) Increase in 

rates due to delinquency or default or as 

a penalty, the heading is revised; and 

new 9(i) Increase in rates due to 

delinquency or default or as a penalty— 

rules affecting home-equity plans and 

(9)(j) Notices of action taken for homeequity plans are added. 

G. Section 226.14—Determination of 

Annual Percentage Rate is revised. 

H. Appendix F—Optional Annual 

Percentage Rate Computations for 

Creditors Offering Open-end Plans 

Subject to the Requirements of § 226.5b 

is removed and reserved. 

I. Under Appendices G and H—Openend and Closed-end Model Forms and 

Clauses, paragraph 1 is revised. 

J. Under Appendix G—Open-end 

Model Forms and Clauses, paragraphs 1, 

2, and 3 are revised and new paragraphs 

12, 13, 14, and 15 are added. 

Supplement I to Part 226—Official Staff 

Interpretations 

* * * * * 

Subpart A—General 

* * * * * 

§ 226.2—Definitions and Rules of 

Construction. 

2(a) Definitions. 

* * * * * 

2(a)(6) Business day. 

* * * * * 

2. Rule for rescission and disclosures 

for certain mortgage fland home-equity 

line of creditfi transactions. A more 

precise rule for what is a business day 

(all calendar days except Sundays and 

the federal legal holidays specified in 5 

U.S.C. 6103(a)) applies when the right of 

rescission or the receipt of disclosures 

for certain dwelling-secured mortgage 

transactions flfor purposes offi [under] 

§§fl226.5b(e), 226.9(j)(2),fi 

226.19(a)(1)(ii), 226.19(a)(2), or 

226.31(c) is involved. Four federal legal 

holidays are identified in 5 U.S.C. 

6103(a) by a specific date: New Year’s 

Day, January 1; Independence Day, July 

4; Veterans Day, November 11; and 

Christmas Day, December 25. When one 

of these holidays (July 4, for example) 

falls on a Saturday, federal offices and 

other entities might observe the holiday 

on the preceding Friday (July 3). In 

cases where the more precise rule 

applies, the observed holiday (in the 

example, July 3) is a business day. 

* * * * * 

Subpart B—Open-end Credit 

§ 226.5—General Disclosure 

Requirements 

fl1. Guidance on compliance with 

rules for open-end (not home-secured) 

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plans. In some cases creditors offering 

open-end credit plans secured by 

residential property may not know 

whether the property is, or remains, the 

consumer’s principal residence, second 

or vacation home, or rental or 

investment property. If the property is 

the consumer’s principal residence or a 

second or vacation home (and not rental 

property), the credit plan is subject to 

§ 226.5b and the associated rules for 

home-equity plans elsewhere in 

Regulation Z such as those in 

§§ 226.6(a), 226.7(a), 226.9(c)(1), 

226.9(i), and 226.9(j). If the property is 

the consumer’s rental or investment 

property, and the credit plan is used 

primarily for personal, family, or 

household purposes, the credit plan is 

subject to the rules for open-end (not 

home-secured) credit set forth in 

§§ 226.6(b), 226.7(b), 226.9(c)(2), and 

226.9(g). (In this case, if the credit plan 

is accessible by credit card, the creditor 

must also comply with the rules 

applicable to open-end credit card plans 

under § 226.5a.) If the credit plan is 

used primarily for business purposes 

rather than personal, family, or 

household purposes, the credit plan is 

not subject to Regulation Z. (See 

§ 226.3(a) and the related staff 

commentary provisions for guidance in 

determining whether credit is 

considered to be used primarily for 

business purposes.) In determining 

which rules apply, creditors may rely on 

the following guidance: 

i. For existing credit plans, if the 

creditor does not know whether the 

property is or remains the consumer’s 

principal residence or second or 

vacation home, and the creditor has 

been complying with the rules under 

§ 226.5b and associated other rules, the 

creditor may continue to do so. 

ii. Alternatively, the creditor in these 

circumstances may investigate the use 

of the property. If the creditor ascertains 

that the property is not used as the 

consumer’s principal residence or as a 

second or vacation home, but the credit 

plan is nonetheless used for personal, 

family, or household purposes, the 

creditor may begin complying with the 

rules applicable to open-end (not homesecured) credit under Regulation Z. In 

this case, if the credit plan is accessible 

by credit card, the creditor must comply 

with the rules for open-end (not homesecured) credit card plans under 

§ 226.5a and associated sections in the 

regulation, in addition to the rules 

applicable to open-end credit generally. 

iii. When a new open-end credit plan 

is opened, the creditor may attempt to 

ascertain the status of the property 

securing the plan, and comply 

accordingly with the appropriate set of 

rules. However, if the creditor is not 

able, or chooses not, to determine the 

status of the property, the creditor may 

comply with the rules for home-equity 

plans under § 226.5b and associated 

sections of the regulation.fi 

5(a) Form of disclosures. 

5(a)(1) General. 

1. Clear and conspicuous standard. 

The ‘‘clear and conspicuous’’ standard 

generally requires that disclosures be in 

a reasonably understandable form. 

Disclosures for credit card applications 

and solicitations under § 226.5a, 

fldisclosures for home-equity plans 

required three business days after 

application under § 226.5b(b),fi 

highlighted account-opening disclosures 

under fl§ 226.6(a)(1) andfi 

§ 226.6(b)(1), highlighted disclosure on 

checks that access a credit card under 

§ 226.9(b)(3), highlighted change-interms disclosures under 

fl§ 226.9(c)(1)(iii)(B) andfi 

§ 226.9(c)(2)(iii)(B), and highlighted 

disclosures when a rate is increased due 

to delinquency, default or flotherwise 

asfi [for] a penalty under 

§ 226.9(g)(3)(ii) fland § 226.9(i)(4)fi 

must also be readily noticeable to the 

consumer flto meet the ‘‘clear and 

conspicuous’’ standardfi. 

2. Clear and conspicuous—reasonably 

understandable form. Except where 

otherwise provided, the reasonably 

understandable form standard does not 

require that disclosures be segregated 

from other material or located in any 

particular place on the disclosure 

statement, or that numerical amounts or 

percentages be in any particular type 

size. For disclosures that are given 

orally, the standard requires that they be 

given at a speed and volume sufficient 

for a consumer to hear and comprehend 

them. (See comment 5(b)(1)(ii)–1.) 

Except where otherwise provided, the 

standard does not prohibit: 

i. Pluralizing required terminology 

(‘‘finance charge’’ and ‘‘annual 

percentage rate’’). 

ii. Adding to the required disclosures 

such items as contractual provisions, 

explanations of contract terms, state 

disclosures, and translations. 

iii. Sending promotional material 

with the required disclosures. 

iv. Using commonly accepted or 

readily understandable abbreviations 

(such as ‘‘mo.’’ for ‘‘month’’ or ‘‘Tx.’’ for 

‘‘Texas’’) in making any required 

disclosures. 

v. Using codes or symbols such as 

‘‘APR’’ (for annual percentage rate), 

‘‘FC’’ (for finance charge), or ‘‘Cr’’ (for 

credit balance), so long as a legend or 

description of the code or symbol is 

provided on the disclosure statement. 

3. Clear and conspicuous—readily 

noticeable standard. To meet the readily 

noticeable standard, disclosures for 

credit card applications and 

solicitations under § 226.5a, 

fldisclosures for home-equity plans 

required three business days after 

application under § 226.5b(b),fi 

highlighted account-opening disclosures 

under fl§ 226.6(a)(1) andfi 

§ 226.6(b)(1), highlighted disclosures on 

checks that access a credit card account 

under § 226.9(b)(3), highlighted changein-terms disclosures under 

fl§ 226.9(c)(1)(iii)(B) andfi 

§ 226.9(c)(2)(iii)(B), and highlighted 

disclosures when a rate is increased due 

to delinquency, default or penalty 

pricing under § 226.9(g)(3)(ii) fland 

§ 226.9(i)(4)fi must be given in a 

minimum of 10-point font. (See special 

rule for font size requirements for the 

annual percentage rate for purchases 

flin an open-end (not home-secured) 

planfi under §§ 226.5a(b)(1) and 

226.6(b)(2)(i)fl, and for the annual 

percentage rate in a home-equity plan 

under §§ 226.5b(c)(10) and 

226.6(a)(2)(vi)fi.) 

4. Integrated document. The creditor 

may make both the account-opening 

disclosures (§ 226.6) and the periodicstatement disclosures (§ 226.7) on more 

than one page, and use both the front 

and the reverse sides, except where 

otherwise indicated, so long as the 

pages constitute an integrated 

document. An integrated document 

would not include disclosure pages 

provided to the consumer at different 

times or disclosures interspersed on the 

same page with promotional material. 

An integrated document would include, 

for example: 

i. Multiple pages provided in the 

same envelope that cover related 

material and are folded together, 

numbered consecutively, or clearly 

labeled to show that they relate to one 

another; or 

ii. A brochure that contains 

disclosures and explanatory material 

about a range of services the creditor 

offers, such as credit, checking account, 

and electronic fund transfer features. 

5. Disclosures covered. Disclosures 

that must meet the ‘‘clear and 

conspicuous’’ standard include all 

required communications under this 

subpart. For example, disclosures made 

by a person other than the card issuer, 

such as disclosures of finance charges 

imposed at the time of honoring a 

consumer’s credit card under § 226.9(d), 

and notices, such as the correction 

notice required to be sent to the 

consumer under § 226.13(e), must also 

be clear and conspicuous. 

Paragraph 5(a)(1)(ii)(A). 


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1. Electronic disclosures. Disclosures 

that need not be provided in writing 

under § 226.5(a)(1)(ii)(A) may be 

provided in writing, orally, or in 

electronic form. If the consumer 

requests the service in electronic form, 

such as on the creditor’s Web site, the 

specified disclosures may be provided 

in electronic form without regard to the 

consumer consent or other provisions of 

the Electronic Signatures in Global and 

National Commerce Act (E-Sign Act) (15 

U.S.C. 7001 et seq.). 

Paragraph 5(a)(1)(iii). 

1. Disclosures not subject to E-Sign 

Act. See the commentary to 

§ 226.5(a)(1)(ii)(A) regarding disclosures 

(in addition to those specified under 

§ 226.5(a)(1)(iii)) that may be provided 

in electronic form without regard to the 

consumer consent or other provisions of 

the E-Sign Act. 

5(a)(2) Terminology. 

[1. When disclosures must be more 

conspicuous. For home-equity plans 

subject to § 226.5b, the terms finance 

charge and annual percentage rate, 

when required to be used with a 

number, must be disclosed more 

conspicuously than other required 

disclosures, except in the cases 

provided in § 226.5(a)(2)(ii). At the 

creditor’s option, finance charge and 

annual percentage rate may also be 

disclosed more conspicuously than the 

other required disclosures even when 

the regulation does not so require. The 

following examples illustrate these 

rules: 

i. In disclosing the annual percentage 

rate as required by § 226.6(a)(1)(ii), the 

term annual percentage rate is subject 

to the more conspicuous rule. 

ii. In disclosing the amount of the 

finance charge, required by 

§ 226.7(a)(6)(i), the term finance charge 

is subject to the more conspicuous rule. 

iii. Although neither finance charge 

nor annual percentage rate need be 

emphasized when used as part of 

general informational material or in 

textual descriptions of other terms, 

emphasis is permissible in such cases. 

For example, when the terms appear as 

part of the explanations required under 

§ 226.6(a)(1)(iii) and (a)(1)(iv), they may 

be equally conspicuous as the 

disclosures required under 

§§ 226.6(a)(1)(ii) and 226.7(a)(7). 

2. Making disclosures more 

conspicuous. In disclosing the terms 

finance charge and annual percentage 

rate more conspicuously for homeequity plans subject to § 226.5b, only 

the words finance charge and annual 

percentage rate should be accentuated. 

For example, if the term total finance 

charge is used, only finance charge 

should be emphasized. The disclosures 

may be made more conspicuous by, for 

example: 

i. Capitalizing the words when other 

disclosures are printed in lower case. 

ii. Putting them in bold print or a 

contrasting color. 

iii. Underlining them. 

iv. Setting them off with asterisks. 

v. Printing them in larger type. 

3. Disclosure of figures—exception to 

more conspicuous rule. For home-equity 

plans subject to § 226.5b, the terms 

annual percentage rate and finance 

charge need not be more conspicuous 

than figures (including, for example, 

numbers, percentages, and dollar 

signs).] 

fl1.fi[4.] Consistent terminology. 

Language used in disclosures required 

in this subpart must be close enough in 

meaning to enable the consumer to 

relate the different disclosures; 

however, the language need not be 

identical. 

5(b) Time of disclosures. 

5(b)(1) Account-opening disclosures. 

5(b)(1)(i) General rule. 

1. Disclosure before the first 

transaction. When disclosures must be 

furnished ‘‘before the first transaction,’’ 

account-opening disclosures must be 

delivered before the consumer becomes 

obligated on the plan. Examples 

include: 

i. Purchases. The consumer makes the 

first purchase, such as when a consumer 

opens a credit plan and makes 

purchases contemporaneously at a retail 

store, except when the consumer places 

a telephone call to make the purchase 

and opens the plan contemporaneously 

(see commentary to § 226.5(b)(1)(iii) 

below). 

ii. Advances. The consumer receives 

the first advance. If the consumer 

receives a cash advance check at the 

same time the account-opening 

disclosures are provided, disclosures are 

still timely if the consumer can, after 

receiving the disclosures, return the 

cash advance check to the creditor 

without obligation (for example, 

without paying finance charges). 

2. Reactivation of suspended account. 

If an account is temporarily suspended 

(for example, flfor open-end (not homesecured) plans,fi because the consumer 

has exceeded a credit limit, or because 

a credit card is reported lost or stolen) 

and then is reactivated, no new accountopening disclosures are required. 

3. Reopening closed account. If an 

account has been closed (for example, 

flfor open-end (not home-secured) 

plans,fi due to inactivity, cancellation, 

or expiration) and then is reopened, 

new account-opening disclosures are 

required. No new account-opening 

disclosures are required, however, when 

the account is closed merely to assign it 

a new number (for example, when a 

credit card is reported lost or stolen) 

and the ‘‘new’’ account then continues 

on the same terms. 

4. Converting closed-end to open-end 

credit. If a closed-end credit transaction 

is converted to an open-end credit 

account under a written agreement with 

the consumer, account-opening 

disclosures under § 226.6 must be given 

before the consumer becomes obligated 

on the open-end credit plan. (See the 

commentary to § 226.17 on converting 

open-end credit to closed-end credit.) 

5. Balance transfers. A creditor that 

solicits the transfer by a consumer of 

outstanding balances from an existing 

account to a new open-end plan must 

furnish the disclosures required by 

§ 226.6 so that the consumer has an 

opportunity, after receiving the 

disclosures, to contact the creditor 

before the balance is transferred and 

decline the transfer. For example, 

assume a consumer responds to a card 

issuer’s solicitation for a credit card 

account subject to § 226.5a that offers a 

range of balance transfer annual 

percentage rates, based on the 

consumer’s creditworthiness. If the 

creditor opens an account for the 

consumer, the creditor would comply 

with the timing rules of this section by 

providing the consumer with the annual 

percentage rate (along with the fees and 

other required disclosures) that would 

apply to the balance transfer in time for 

the consumer to contact the creditor and 

withdraw the request. A creditor that 

permits consumers to withdraw the 

request by telephone has met this timing 

standard if the creditor does not affect 

the balance transfer until 10 days after 

the creditor has sent account-opening 

disclosures to the consumer, assuming 

the consumer has not contacted the 

creditor to withdraw the request. Card 

issuers that are subject to the 

requirements of § 226.5a may establish 

procedures that comply with both 

§§ 226.5a and 226.6 in a single 

disclosure statement. 

5(b)(1)(ii) Charges imposed as part of 

an open-end [(not home-secured)] plan. 

1. Disclosing charges before the fee is 

imposed. Creditors may disclose charges 

imposed as part of an open-end [(not 

home-secured)] plan orally or in writing 

at any time before a consumer agrees to 

pay the fee or becomes obligated for the 

charge, unless the charge is specified 

under fl§ 226.6(a)(2) orfi § 226.6(b)(2). 

(Charges imposed as part of an open-end 

[(not home-secured plan)] that are not 

specified under fl§ 226.6(a)(2) orfi 

§ 226.6(b)(2) may alternatively be 

disclosed in electronic form; see the 

commentary to § 226.5(a)(1)(ii)(A).) 


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Creditors must provide such disclosures 

at a time and in a manner flsuchfi that 

a consumer would be likely to notice 

them. For example, if a consumer 

telephones a flcreditorfi [card issuer] 

to discuss a particular service, a creditor 

would meet the standard if the creditor 

clearly and conspicuously discloses the 

fee associated with the service that is 

the topic of the telephone call orally to 

the consumer. Similarly, a creditor 

providing marketing materials in 

writing to a consumer about a particular 

service would meet the standard if the 

creditor provided a clear and 

conspicuous written disclosure of the 

fee for that service in those same 

materials. A creditor that provides 

written materials to a consumer about a 

particular service but provides a fee 

disclosure for another service not 

promoted in such materials would not 

meet the standard. For example, if a 

creditor provided marketing materials 

promoting payment by Internet, but 

included the fee for a replacement card 

on such materials with no explanation, 

the creditor would not be disclosing the 

fee at a time and in a manner that the 

consumer would be likely to notice the 

fee. 

fl2. Relationship to rule prohibiting 

changes in home-equity plans. Creditors 

offering home-equity plans subject to 

§ 226.5b are subject to the rules under 

§ 226.5b(f) restricting changes in terms. 

Therefore, even though the rule in 

§ 226.5(b)(1)(ii) permits certain charges 

to be disclosed at a time later than 

account opening, a home-equity plan 

creditor would not be permitted to 

impose a charge for a feature or service 

previously not subject to a charge, or to 

increase a charge for a feature or service 

previously subject to a lower charge, 

even if the absence of a charge, or the 

lower charge, had not been previously 

disclosed to the consumer.fi 

5(b)(1)(iii) Telephone purchases. 

1. Return policies. In order for 

creditors to provide disclosures in 

accordance with the timing 

requirements of this paragraph, 

consumers must be permitted to return 

merchandise purchased at the time the 

plan was established without paying 

mailing or return-shipment costs. 

Creditors may impose costs to return 

subsequent purchases of merchandise 

under the plan, or to return 

merchandise purchased by other means 

such as a credit card issued by another 

creditor. A reasonable return policy 

would be of sufficient duration that the 

consumer is likely to have received the 

disclosures and had sufficient time to 

make a decision about the financing 

plan before his or her right to return the 

goods expires. Return policies need not 

provide a right to return goods if the 

consumer consumes or damages the 

goods, or for installed appliances or 

fixtures, provided there is a reasonable 

repair or replacement policy to cover 

defective goods or installations. If the 

consumer chooses to reject the financing 

plan, creditors comply with the 

requirements of this paragraph by 

permitting the consumer to pay for the 

goods with another reasonable form of 

payment acceptable to the merchant and 

keep the goods although the creditor 

cannot require the consumer to do so. 

5(b)(1)(iv) Membership fees. 

1. Membership fees. See § 226.5a(b)(2) 

and related commentary for guidance on 

fees for issuance or availability of a 

credit or charge card. 

2. Rejecting the plan. If a consumer 

has paid or promised to pay a 

membership fee including an 

application fee excludable from the 

finance charge under § 226.4(c)(1) before 

receiving account-opening disclosures, 

the consumer may, after receiving the 

disclosures, reject the plan and not be 

obligated for the membership fee, 

application fee, or any other fee or 

charge. A consumer who has received 

the disclosures and uses the account, or 

makes a payment on the account after 

receiving a billing statement, is deemed 

not to have rejected the plan. 

3. Using the account. A consumer 

uses an account by obtaining an 

extension of credit after receiving the 

account-opening disclosures, such as by 

making a purchase or obtaining an 

advance. A consumer does not ‘‘use’’ 

the account by activating the account. A 

consumer also does not ‘‘use’’ the 

account when the creditor assesses fees 

on the account (such as start-up fees or 

fees associated with credit insurance or 

debt cancellation or suspension 

programs agreed to as a part of the 

application and before the consumer 

receives account-opening disclosures). 

For example, the consumer does not 

‘‘use’’ the account when a creditor sends 

a billing statement with start-up fees, 

there is no other activity on the account, 

the consumer does not pay the fees, and 

the creditor subsequently assesses a late 

fee or interest on the unpaid fee 

balances. A consumer also does not 

‘‘use’’ the account by paying an 

application fee excludable from the 

finance charge under § 226.4(c)(1) prior 

to receiving the account-opening 

disclosures. 

4. Home-equity plans. Creditors 

offering home-equity plans subject to 

the requirements of § 226.5b are subject 

to the requirements of § 226.5b[(g)]fl(d) 

and (e)fi regarding the collection fland 

refundabilityfi of fees. 

5(b)(2) Periodic statements. 

Paragraph 5(b)(2)(i). 

1. Periodic statements not required. 

Periodic statements need not be sent in 

the following cases: 

i. If the creditor adjusts an account 

balance so that at the end of the cycle 

the balance is less than $1—so long as 

no finance charge has been imposed on 

the account for that cycle. 

ii. If a statement was returned as 

undeliverable. If a new address is 

provided, however, within a reasonable 

time before the creditor must send a 

statement, the creditor must resume 

sending statements. Receiving the 

address at least 20 days before the end 

of a cycle would be a reasonable amount 

of time to prepare the statement for that 

cycle. For example, if an address is 

received 22 days before the end of the 

June cycle, the creditor must send the 

periodic statement for the June cycle. 

(See § 226.13(a)(7).) 

2. Termination of draw privileges. 

When a consumer’s ability to draw on 

an open-end account is terminated 

without being converted to closed-end 

credit under a written agreement, the 

creditor must continue to provide 

periodic statements to those consumers 

entitled to receive them under 

§ 226.5(b)(2)(i), for example, when the 

draw period of an open-end credit plan 

ends and consumers are paying off 

outstanding balances according to the 

account agreement or under the terms of 

a workout agreement that is not 

converted to a closed-end transaction. In 

addition, creditors must continue to 

follow all of the other open-end credit 

requirements and procedures in subpart 

B. 

3. Uncollectible accounts. An account 

is deemed uncollectible for purposes of 

§ 226.5(b)(2)(i) when a creditor has 

ceased collection efforts, either directly 

or through a third party. 

4. Instituting collection proceedings. 

Creditors institute a delinquency 

collection proceeding by filing a court 

action or initiating an adjudicatory 

process with a third party. Assigning a 

debt to a debt collector or other third 

party would not constitute instituting a 

collection proceeding. 

Paragraph 5(b)(2)(ii). 

1. 14-day rule. The 14-day rule for 

mailing or delivering periodic 

statements does not apply if charges (for 

example, transaction or activity charges) 

are imposed regardless of the timing of 

a periodic statement. The 14-day rule 

does apply, for example: 

i. If current debits retroactively 

become subject to finance charges when 

the balance is not paid in full by a 

specified date. 

ii. For open-end plans not subject to 

12 CFR part 227, subpart C; 12 CFR part 


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535, subpart C; or 12 CFR part 706, 

subpart C, if charges other than finance 

charges will accrue when the consumer 

does not make timely payments (for 

example, late payment charges or 

charges for exceeding a credit limit). 

(For consumer credit card accounts 

subject to 12 CFR part 227, subpart C; 

12 CFR part 535, subpart C; or 12 CFR 

part 706, subpart C, see 12 CFR 227.22, 

12 CFR 535.22, or 12 CFR 706.22, as 

applicable.) 

2. Deferred interest transactions. See 

comment 7(b)–1.iv. 

Paragraph 5(b)(2)(iii). 

1. Computer malfunction. The 

exceptions identified in § 226.5(b)(2)(iii) 

of this section do not extend to the 

failure to provide a periodic statement 

because of computer malfunction. 

2. Calling for periodic statements. 

When the consumer initiates a request, 

the creditor may permit, but may not 

require, consumers to pick up their 

periodic statements. If the consumer 

wishes to pick up the statement and the 

plan has a grace period, the statement 

must be made available in accordance 

with the 14-day rule. 

5(c) Basis of disclosures and use of 

estimates. 

1. Legal obligation. The disclosures 

should reflect the credit terms to which 

the parties are legally bound at the time 

of giving the disclosures. 

i. The legal obligation is determined 

by applicable state or other law. 

ii. The fact that a term or contract may 

later be deemed unenforceable by a 

court on the basis of equity or other 

grounds does not, by itself, mean that 

disclosures based on that term or 

contract did not reflect the legal 

obligation. 

iii. The legal obligation normally is 

presumed to be contained in the 

contract that evidences the agreement. 

But this may be rebutted if another 

agreement between the parties legally 

modifies that contract. 

2. Estimates—obtaining information. 

Disclosures may be estimated when the 

exact information is unknown at the 

time disclosures are made. Information 

is unknown if it is not reasonably 

available to the creditor at the time 

disclosures are made. The reasonably 

available standard requires that the 

creditor, acting in good faith, exercise 

due diligence in obtaining information. 

In using estimates, the creditor is not 

required to disclose the basis for the 

estimated figures, but may include such 

explanations as additional information. 

The creditor normally may rely on the 

representations of other parties in 

obtaining information. For example, the 

creditor might look to insurance 

companies for the cost of insurance. 

3. Estimates—redisclosure. If the 

creditor makes estimated disclosures, 

redisclosure is not required for that 

consumer, even though more accurate 

information becomes available before 

the first transaction. For example, in an 

open-end plan to be secured by real 

estate, the creditor may estimate the 

appraisal fees to be charged; such an 

estimate might reasonably be based on 

the prevailing market rates for similar 

appraisals. If the exact appraisal fee is 

determinable after the estimate is 

furnished but before the consumer 

receives the first advance under the 

plan, no new disclosure is necessary. 

5(d) Multiple creditors; multiple 

consumers. 

1. Multiple creditors. Under 

§ 226.5(d): 

i. Creditors must choose which 

flcreditorfi[of them] will make the 

disclosures. 

ii. A single, complete set of 

disclosures must be provided, rather 

than partial disclosures from several 

creditors. 

iii. All disclosures for the open-end 

credit plan must be given, even if the 

disclosing creditor would not otherwise 

have been obligated to make a particular 

disclosure. 

2. Multiple consumers. Disclosures 

may be made to either obligor on a joint 

account. Disclosure responsibilities are 

not satisfied by giving disclosures to 

only a surety or guarantor for a principal 

obligor or to an authorized user. In 

rescindable transactions, however, 

separate disclosures must be given to 

each consumer who has the right to 

rescind under § 226.15. 

3. Card issuer and person extending 

credit not the same person. Section 

127(c)(4)(D) of the Truth in Lending Act 

(15 U.S.C. 1637(c)(4)(D)) contains rules 

pertaining to charge card issuers with 

plans that allow access to an open-end 

credit plan that is maintained by a 

person other than the charge card issuer. 

These rules are not implemented in 

Regulation Z (although they were 

formerly implemented in § 226.5a(f)). 

However, the statutory provisions 

remain in effect and may be used by 

charge card issuers with plans meeting 

the specified criteria. 

5(e) Effect of subsequent events. 

1. Events causing inaccuracies. 

Inaccuracies in disclosures are not 

violations if attributable to events 

occurring after disclosures are made. 

For example, when the consumer fails 

to fulfill a prior commitment to keep the 

collateral insured and the creditor then 

provides the coverage and charges the 

consumer for it, such a change does not 

make the original disclosures 

inaccurate. The creditor may, however, 

be required to provide a new 

disclosure(s) under § 226.9(c). 

2. Use of inserts. When changes in a 

creditor’s plan affect required 

disclosures, the creditor may use inserts 

with outdated disclosure forms. Any 

insert: 

i. Should clearly refer to the 

disclosure provision it replaces. 

ii. Need not be physically attached or 

affixed to the basic disclosure statement. 

iii. May be used only until the supply 

of outdated forms is exhausted. 

* * * * * 

§ 226.5b—Requirements for Homeequity Plans. 

1. Coverage. This section applies to all 

open-end credit plans secured by the 

consumer’s ‘‘dwelling,’’ as defined in 

§ 226.2(a)(19), and is not limited to 

plans secured by the consumer’s 

principal dwelling. (See the 

commentary to § 226.3(a), which 

discusses whether transactions are 

consumer or business-purpose credit, 

for guidance on whether a home-equity 

plan is subject to Regulation Z.) 

2. Changes to home-equity plans 

[entered into on or after November 7, 

1989]. Section 226.9(c) applies if, by 

written agreement under 

§ 226.5b(f)(3)(iii), a creditor changes the 

terms of a home-equity plan [—entered 

into on or after November 7, 1989—] at 

or before its scheduled expiration, for 

example, by renewing a plan on 

different terms. A new plan results, 

however, if the plan is renewed (with or 

without changes to the terms) after the 

scheduled expiration. The new plan is 

subject to all open-end credit rules, 

including §§ 226.5b, 226.6, and 226.15. 

[3. Transition rules and renewals of 

preexisting plans. The requirements of 

this section do not apply to home-equity 

plans entered into before November 7, 

1989. The requirements of this section 

also do not apply if the original 

consumer, on or after November 7, 1989, 

renews a plan entered into prior to that 

date (with or without changes to the 

terms). If, on or after November 7, 1989, 

a security interest in the consumer’s 

dwelling is added to a line of credit 

entered into before that date, the 

substantive restrictions of this section 

apply for the remainder of the plan, but 

no new disclosures are required under 

this section. 

4. Disclosure of repayment phase— 

applicability of requirements. Some 

plans provide in the initial agreement 

for a period during which no further 

draws may be taken and repayment of 

the amount borrowed is made. All of the 

applicable disclosures in this section 

must be given for the repayment phase. 

Thus, for example, a creditor must 


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provide payment information about the 

repayment phase as well as about the 

draw period, as required by 

§ 226.5b(d)(5). If the rate that will apply 

during the repayment phase is fixed at 

a known amount, the creditor must 

provide an annual percentage rate under 

§ 226.5b(d)(6) for that phase. If, 

however, a creditor uses an index to 

determine the rate that will apply at the 

time of conversion to the repayment 

phase—even if the rate will thereafter be 

fixed—the creditor must provide the 

information in § 226.5b(d)(12), as 

applicable.] 

fl3.fi[5.] Payment terms— 

applicability of closed-end provisions 

and substantive rules. All payment 

terms that are provided for in the initial 

agreement are subject to the 

requirements of subpart B and not 

subpart C of the regulation. Payment 

terms that are subsequently added to the 

agreement may be subject to subpart B 

or to subpart C, depending on the 

circumstances. The following examples 

apply these general rules to different 

situations: 

(i) If the initial agreement provides for 

a repayment phase or for other payment 

terms such as options permitting 

conversion of part or all of the balance 

to a fixed rate during the draw period, 

these terms must be disclosed pursuant 

to §§ 226.5b and 226.6, and not under 

subpart C. Furthermore, the creditor 

must continue to provide periodic 

statements under § 226.7 and comply 

with other provisions of subpart B (such 

as the substantive requirements of 

§ 226.5b(f)) throughout the plan, 

including the repayment phase. 

(ii) If the consumer and the creditor 

enter into an agreement during the draw 

period to repay all or part of the 

principal balance on different terms (for 

example, with a fixed rate of interest) 

and the amount of available credit will 

be replenished as the principal balance 

is repaid, the creditor must continue to 

comply with subpart B. For example, 

the creditor must continue to provide 

periodic statements and comply with 

the substantive requirements of 

§ 226.5b(f) throughout the plan. 

(iii) If the consumer and creditor enter 

into an agreement during the draw 

period to repay all or part of the 

principal balance and the amount of 

available credit will not be replenished 

as the principal balance is repaid, the 

creditor must give closed-end credit 

disclosures pursuant to subpart C for 

that new agreement. In such cases, 

subpart B, including the substantive 

rules, does not apply to the closed-end 

credit transaction, although it will 

continue to apply to any remaining 

open-end credit available under the 

plan. 

fl4.fi[6.] Spreader clause. When a 

creditor holds a mortgage or deed of 

trust on the consumer’s dwelling and 

that mortgage or deed of trust contains 

a spreader clause (also known as a 

dragnet or cross-collateralization 

clause), subsequent occurrences such as 

the opening of an open-end plan are 

subject to the rules applicable to homeequity plans to the same degree as if a 

security interest were taken directly to 

secure the plan, unless the creditor 

effectively waives its security interest 

under the spreader clause with respect 

to the subsequent open-end credit 

extensions. 

fl5b(a) Home-equity Document 

Provided on or with the Application. 

5b(a)(1) In General. 

1. Mail and telephone applications. If 

an application is sent through the mail, 

the document required by § 226.5b(a) 

must accompany the application. If an 

application is taken over the telephone, 

the document must be delivered or 

mailed not later than account opening 

or three business days following receipt 

of a consumer’s application by the 

creditor, whichever is earlier. If an 

application is mailed to the consumer 

following a telephone request, however, 

the document must be sent along with 

the application. 

2. General purpose applications. The 

document required by § 226.5b(a) need 

not be provided when a general purpose 

application is given to a consumer 

unless (1) the application or materials 

accompanying it indicate that it can be 

used to apply for a home-equity plan or 

(2) the application is provided in 

response to a consumer’s specific 

inquiry about a home-equity plan. On 

the other hand, if a general purpose 

application is provided in response to a 

consumer’s specific inquiry only about 

credit other than a home-equity plan, 

the document need not be provided 

even if the application indicates it can 

be used for a home-equity plan, unless 

it is accompanied by promotional 

information about home-equity plans. 

3. Publicly-available applications. 

Some creditors make applications for 

home-equity plans, such as take-ones, 

available without the need for a 

consumer to request them. These 

applications must be accompanied by 

the document required by § 226.5b(a), 

such as by attaching the document to 

the application form. 

4. Response cards. A creditor may 

solicit consumers for its home-equity 

plan by mailing a response card which 

the consumer returns to the creditor to 

indicate interest in the plan. If the only 

action taken by the creditor upon 

receipt of the response card is to send 

the consumer an application form or to 

telephone the consumer to discuss the 

plan, the creditor need not send the 

document required by § 226.5b(a) with 

the response card. See comment 

5b(a)(1)–1 discussing mail and 

telephone applications. 

5. Denial or withdrawal of 

application. Section 226.5b(a)(1)(ii) 

provides that for telephone applications 

and applications received through an 

intermediary agent or broker, creditors 

must deliver or mail the document 

required by § 226.5b(a)(1)(i) to the 

consumer not later than account 

opening or three business days 

following receipt of a consumer’s 

application by the creditor, whichever is 

earlier. If the creditor determines within 

that three-day period that an application 

will not be approved, the creditor need 

not provide the document. Similarly, if 

the consumer withdraws the application 

within this three-day period, the 

creditor need not provide the document. 

6. Prominent location. i. When 

document not given in electronic form. 

The document required by § 226.5b(a)(1) 

must be prominently located on or with 

the application. The document is 

deemed to be prominently located, for 

example, if the document is on the same 

page as an application. If the document 

appears elsewhere, it is deemed to be 

prominently located if the application 

contains a clear and conspicuous 

reference to the location of the 

document and indicates that the 

document provides information about 

home-equity lines of credit. 

ii. Form of electronic document 

provided on or with electronic 

applications. Generally, creditors must 

provide the document required by 

§ 226.5b(a)(1) in a prominent location 

on or with a blank application that is 

made available to the consumer in 

electronic form, such as on a creditor’s 

Internet Web site. (See comment 

5b(a)(2)–1) Creditors have flexibility in 

satisfying this requirement. Methods 

creditors could use to satisfy the 

requirement include, but are not limited 

to, the following examples: 

A. The document could automatically 

appear on the screen when the 

application appears; 

B. The document could be located on 

the same Web page as the application 

(whether or not they appear on the 

initial screen), if the application 

contains a clear and conspicuous 

reference to the location of the 

document and indicates the document 

provides information about home-equity 

lines of credit. 

C. Creditors could provide a link to 

the electronic document on or with the 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43581 

application as long as consumers cannot 

bypass the document before submitting 

the application. The link would take the 

consumer to the document, but the 

consumer need not be required to scroll 

completely through the document; or 

D. The document could be located on 

the same web page as the application 

without necessarily appearing on the 

initial screen, immediately preceding 

the button that the consumer will click 

to submit the application. 

Whatever method is used, a creditor 

need not confirm that the consumer has 

read the document. 

7. Intermediary agent or broker. In 

determining whether or not an 

application involves an intermediary 

agent or broker as discussed in 

§ 226.5b(a)(1)(ii), creditors should 

consult the provisions in comment 

19(d)(3)–3. 

8. Definition of ‘‘business day’’. The 

general definition of ‘‘business day’’ in 

§ 226.2(a)(6)—a day on which the 

creditor’s offices are open to the public 

for carrying on substantially all of its 

business functions—is used for 

purposes of § 226.5b(a)(1)(ii). See 

comment 2(a)(6)–1. 

9. As published. The document 

required by § 226.5b(a)(1) must be 

provided as published by the Board. A 

creditor may not revise the document 

required by § 226.5b(a)(1). 

5b(a)(2) Electronic Disclosures. 

1. When electronic disclosure must be 

given. Whether the document required 

by § 226.5b(a)(1) must be in electronic 

form depends upon the following: 

i. If a consumer accesses a homeequity credit line application 

electronically (other than as described 

under ii. below), such as online at a 

home computer, the creditor must 

provide the disclosure required by 

§ 226.5b(a)(1) in electronic form (such as 

with the application form on its Web 

site) in order to meet the requirement to 

provide the disclosure in a timely 

manner on or with the application. If 

the creditor instead mailed a paper 

disclosure to the consumer, this 

requirement would not be met. 

ii. In contrast, if a consumer is 

physically present in the creditor’s 

office, and accesses a home-equity 

credit line application electronically, 

such as via a terminal or kiosk (or if the 

consumer uses a terminal or kiosk 

located on the premises of an affiliate or 

third party that has arranged with the 

creditor to provide applications to 

consumers), the creditor may provide 

the disclosure in either electronic or 

paper form, provided the creditor 

complies with the timing, delivery, and 

retainability requirements of the 

regulation. 

5b(a)(3) Duties of Third Parties. 

1. Duties of third parties. The duties 

under § 226.5b(a)(3) are those of the 

third party; the creditor is not 

responsible for ensuring that a third 

party complies with those obligations. 

2. Effect of third party delivery of 

document required by § 226.5b(a)(1). If 

a creditor determines that a third party 

has provided a consumer with the 

document required by § 226.5b(a)(1), the 

creditor need not give the consumer a 

second copy of the document. 

3. Telephone applications taken by 

third party. For telephone applications 

taken by a third party, the third party is 

not required to provide the document 

required by § 226.5b(a)(1). The 

document required by § 226.5b(a)(1) 

must be provided by the creditor not 

later than account opening or three 

business days following receipt of the 

consumer’s application by the creditor, 

whichever is earlier, along with the 

disclosures required by § 226.5b(b). 

5b(b) Home-Equity Disclosures Provided 

No Later Than Account Opening or 

Three Business Days After Application, 

Whichever is Earlier 

5b(b)(1) Timing. 

1. Denial or withdrawal of 

application. Section 226.5b(b)(1) 

provides that creditors must deliver or 

mail disclosures required by § 226.5b(b) 

to the consumer not later than account 

opening or three business days 

following receipt of a consumer’s 

application by the creditor, whichever is 

earlier. If the creditor determines within 

the three-day period that an application 

will not be approved, the creditor need 

not provide the disclosures. Similarly, if 

the consumer withdraws the application 

within this three-day period, the 

creditor need not provide the 

disclosures. 

2. Definition of ‘‘business day’’. The 

general definition of ‘‘business day’’ in 

§ 226.2(a)(6)—a day on which the 

creditor’s offices are open to the public 

for carrying on substantially all of its 

business functions—is used for 

purposes of § 226.5b(b)(1). See comment 

2(a)(6)–1. 

5b(b)(2) Form of disclosures; tabular 

format. 

1. Terminology. Section 

226.5b(b)(2)(i) generally requires that 

the headings, content and format of the 

tabular disclosures be substantially 

similar, but need not be identical, to the 

applicable tables in Appendix G–14 to 

part 226. See § 226.5(a)(2) for 

terminology requirements applicable to 

disclosures provided pursuant to 

§ 226.5b(b). 

2. Other format requirements. See 

§ 226.5b(c)(9) for formatting 

requirements applicable to disclosure of 

certain payment terms in the table 

required by § 226.5b(b). See 

§ 226.5b(c)(10)(i)(A)(1) for formatting 

requirements applicable to disclosure of 

variable rates in the table required by 

§ 226.5b(b). See comments 5b(c)(7)(ii)–1, 

5b(c)(9)(ii)–5, 5b(c)(14)–1 and 5b(c)(18)– 

2 for format requirements that apply to 

information that a creditor provides to 

a consumer upon request. 

3. Highlighting of disclosures. i. In 

general. See Samples G–14(C), G–14(D) 

and G–14(E) for guidance on providing 

the disclosures described in 

§ 226.5b(b)(2)(vi) in bold text. 

ii. Periodic fees. Section 

226.5b(b)(2)(vi)(D) provides that any 

periodic fee disclosed pursuant to 

§ 226.5b(c)(12) that is not an annualized 

amount must not be disclosed in bold. 

For example, if a creditor imposes a $10 

monthly maintenance fee for a HELOC 

account, the creditor must disclose in 

the table that there is a $10 monthly 

maintenance fee, and that the fee is 

$120 on an annual basis. In this 

example, the $10 fee disclosure would 

not be disclosed in bold, but the $120 

annualized amount must be disclosed in 

bold. In addition, if a creditor must 

disclose any annual fee in the table, the 

amount of the annual fee must be 

disclosed in bold. 

iii. Format requirements under 

§ 226.5b(c)(9). Section 

226.5b(b)(2)(vi)(E) provides that if a 

creditor is required under § 226.5b(c)(9) 

to provide a disclosure in a format 

substantially similar to the format used 

in any of the applicable tables found in 

Samples G–14(C), 14(D) or 14(E), the 

creditor in making that disclosure must 

provide in bold text any terms and 

phrases that are shown in bold text with 

regard to that disclosure in the 

applicable tables. For example, 

§ 226.5b(c)(9) provides that a creditor 

must distinguish payment terms 

applicable to the draw period from 

payment terms applicable to the 

repayment period, by using the 

applicable heading ‘‘Borrowing Period’’ 

for the draw period and ‘‘Repayment 

Period’’ for the repayment period in a 

format substantially similar to the 

format used in any of the applicable 

tables found in Samples G–14(C) and G– 

14(E). Because the tables found in 

Samples G–14(C) and G–14(E) show the 

heading ‘‘Borrowing Period’’ and 

‘‘Repayment Period’’ in bold text, a 

creditor must disclose these headings in 

bold text. See § 226.5b(c)(9)(i) and 

(c)(9)(iii)(D) for other instances in which 

a creditor may be required to provide 

disclosures in a format substantially 

similar to the format used in any of the 


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43582 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

applicable tables found in Samples G– 

14(C), G–14(D) and G–14(E). 

iv. Itemized list of fees to open the 

plan. The total amount of accountopening fees disclosed under 

§ 226.5b(c)(11) must be disclosed in 

bold text. The itemization of those fees 

also required to be disclosed under 

§ 226.5b(c)(11) must not be disclosed in 

bold text. 

4. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

§ 226.5b(b) disclosures. 

5b(b)(3) Disclosures Based on a 

Percentage. 

1. Transaction requirements. Section 

226.5b(c)(16) requires a creditor to 

disclose in the table required under 

§ 226.5b(b) any limitations on the 

number of extensions of credit and the 

amount of credit that may be obtained 

during any time period, as well as any 

minimum outstanding balance and 

minimum draw requirements. If any 

amount that must be disclosed under 

§ 226.5b(c)(16) is determined on the 

basis of a percentage of another amount, 

the percentage used and the 

identification of the amount against 

which the percentage is applied may be 

disclosed instead of the transaction 

amount. 

[5b(a) Form of Disclosures 

5b(a)(1) General. 

1. Written disclosures. The 

disclosures required under this section 

must be clear and conspicuous and in 

writing, but need not be in a form the 

consumer can keep. (See the 

commentary to § 226.6(a)(3) for special 

rules when disclosures required under 

§ 226.5b(d) are given in a retainable 

form.) 

2. Disclosure of annual percentage 

rate—more conspicuous requirement. 

As provided in § 226.5(a)(2), when the 

term annual percentage rate is required 

to be disclosed with a number, it must 

be more conspicuous than other 

required disclosures. 

3. Segregation of disclosures. While 

most of the disclosures must be grouped 

together and segregated from all 

unrelated information, the creditor is 

permitted to include information that 

explains or expands on the required 

disclosures, including, for example: 

• Any prepayment penalty 

• How a substitute index may be 

chosen 

• Actions the creditor may take short 

of terminating and accelerating an 

outstanding balance 

• Renewal terms 

• Rebate of fees 

An example of information that does 

not explain or expand on the required 

disclosures and thus cannot be included 

is the creditor’s underwriting criteria, 

although the creditor could provide 

such information separately from the 

required disclosures. 

4. Method of providing disclosures. A 

creditor may provide a single disclosure 

form for all of its home-equity plans, as 

long as the disclosure describes all 

aspects of the plans. For example, if the 

creditor offers several payment options, 

all such options must be disclosed. (See, 

however, the commentary to 

§ 226.5b(d)(5)(iii) and (d)(12)(x) and (xi) 

for disclosure requirements relating to 

these provisions.) If any aspects of a 

plan are linked together, the creditor 

must disclose clearly the relationship of 

the terms to each other. For example, if 

the consumer can only obtain a 

particular payment option in 

conjunction with a certain variable-rate 

feature, this fact must be disclosed. A 

creditor has the option of providing 

separate disclosure forms for multiple 

options or variations in features. For 

example, a creditor that offers different 

payment options for the draw period 

may prepare separate disclosure forms 

for the two payment options. A creditor 

using this alternative, however, must 

include a statement on each disclosure 

form that the consumer should ask 

about the creditor’s other home-equity 

programs. (This disclosure is required 

only for those programs available 

generally to the public. Thus, if the only 

other programs available are employee 

preferred-rate plans, for example, the 

creditor would not have to provide this 

statement.) A creditor that receives a 

request for information about other 

available programs must provide the 

additional disclosures as soon as 

reasonably possible. 

5. Form of electronic disclosures 

provided on or with electronic 

applications. Creditors must provide the 

disclosures required by this section 

(including the brochure) on or with a 

blank application that is made available 

to the consumer in electronic form, such 

as on a creditor’s Internet Web site. 

Creditors have flexibility in satisfying 

this requirement. Methods creditors 

could use to satisfy the requirement 

include, but are not limited to, the 

following examples: 

i. The disclosures could automatically 

appear on the screen when the 

application appears; 

ii. The disclosures could be located 

on the same web page as the application 

(whether or not they appear on the 

initial screen), if the application 

contains a clear and conspicuous 

reference to the location of the 

disclosures and indicates that the 

disclosures contain rate, fee, and other 

cost information, as applicable; 

iii. Creditors could provide a link to 

the electronic disclosures on or with the 

application as long as consumers cannot 

bypass the disclosures before submitting 

the application. The link would take the 

consumer to the disclosures, but the 

consumer need not be required to scroll 

completely through the disclosures; or 

iv. The disclosures could be located 

on the same web page as the application 

without necessarily appearing on the 

initial screen, immediately preceding 

the button that the consumer will click 

to submit the application. 

Whatever method is used, a creditor 

need not confirm that the consumer has 

read the disclosures. 

5b(a)(2) Precedence of Certain 

Disclosures. 

1. Precedence rule. The list of 

conditions provided at the creditor’s 

option under § 226.5b(d)(4)(iii) need not 

precede the other disclosures. 

Paragraph 5b(a)(3). 

1. Form of disclosures. Whether 

disclosures must be in electronic form 

depends upon the following: 

i. If a consumer accesses a homeequity credit line application 

electronically (other than as described 

under ii. below), such as online at a 

home computer, the creditor must 

provide the disclosures in electronic 

form (such as with the application form 

on its Web site) in order to meet the 

requirement to provide disclosures in a 

timely manner on or with the 

application. If the creditor instead 

mailed paper disclosures to the 

consumer, this requirement would not 

be met. 

ii. In contrast, if a consumer is 

physically present in the creditor’s 

office, and accesses a home-equity 

credit line application electronically, 

such as via a terminal or kiosk (or if the 

consumer uses a terminal or kiosk 

located on the premises of an affiliate or 

third party that has arranged with the 

creditor to provide applications to 

consumers), the creditor may provide 

disclosures in either electronic or paper 

form, provided the creditor complies 

with the timing, delivery, and 

retainability requirements of the 

regulation. 

5b(b) Time of Disclosures 

1. Mail and telephone applications. If 

the creditor sends applications through 

the mail, the disclosures and a brochure 

must accompany the application. If an 

application is taken over the telephone, 

the disclosures and brochure may be 

delivered or mailed within three 

business days of taking the application. 

If an application is mailed to the 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43583 

consumer following a telephone request, 

however, the creditor also must send the 

disclosures and a brochure along with 

the application. 

2. General purpose applications. The 

disclosures and a brochure need not be 

provided when a general purpose 

application is given to a consumer 

unless (1) the application or materials 

accompanying it indicate that it can be 

used to apply for a home-equity plan or 

(2) the application is provided in 

response to a consumer’s specific 

inquiry about a home-equity plan. On 

the other hand, if a general purpose 

application is provided in response to a 

consumer’s specific inquiry only about 

credit other than a home-equity plan, 

the disclosures and brochure need not 

be provided even if the application 

indicates it can be used for a homeequity plan, unless it is accompanied by 

promotional information about homeequity plans. 

3. Publicly-available applications. 

Some creditors make applications for 

home-equity plans, such as take-ones, 

available without the need for a 

consumer to request them. These 

applications must be accompanied by 

the disclosures and a brochure, such as 

by attaching the disclosures and 

brochure to the application form. 

4. Response cards. A creditor may 

solicit consumers for its home-equity 

plan by mailing a response card which 

the consumer returns to the creditor to 

indicate interest in the plan. If the only 

action taken by the creditor upon 

receipt of the response card is to send 

the consumer an application form or to 

telephone the consumer to discuss the 

plan, the creditor need not send the 

disclosures and brochure with the 

response card. 

5. Denial or withdrawal of 

application. In situations where 

footnote 10a permits the creditor a 

three-day delay in providing disclosures 

and the brochure, if the creditor 

determines within that period that an 

application will not be approved, the 

creditor need not provide the consumer 

with the disclosures or brochure. 

Similarly, if the consumer withdraws 

the application within this three-day 

period, the creditor need not provide 

the disclosures or brochure. 

6. Intermediary agent or broker. In 

determining whether or not an 

application involves an intermediary 

agent or broker as discussed in footnote 

10a, creditors should consult the 

provisions in comment 19(b)–3. 

5b(c) Duties of Third Parties 

1. Disclosure requirements. Although 

third parties who give applications to 

consumers for home-equity plans must 

provide the brochure required under 

§ 226.5b(e) in all cases, such persons 

need provide the disclosures required 

under § 226.5b(d) only in certain 

instances. A third party has no duty to 

obtain disclosures about a creditor’s 

home-equity plan or to create a set of 

disclosures based on what it knows 

about a creditor’s plan. If, however, a 

creditor provides the third party with 

disclosures along with its application 

form, the third party must give the 

disclosures to the consumer with the 

application form. The duties under this 

section are those of the third party; the 

creditor is not responsible for ensuring 

that a third party complies with those 

obligations. If an intermediary agent or 

broker takes an application over the 

telephone or receives an application 

contained in a magazine or other 

publication, footnote 10a permits that 

person to mail the disclosures and 

brochure within three business days of 

receipt of the application. (See the 

commentary to § 226.5b(h) about 

imposition of nonrefundable fees.)] 

5b[(d)]fl(c)fi Content of Disclosures 

1. Disclosures given as applicable. 

The disclosures required under this 

section generally need be made only as 

applicable. Thus, for example, if 

negative amortization cannot occur in a 

home-equity plan, a reference to it need 

not be made. Nonetheless, there are 

exceptions to this general rule. 

Specifically, in certain circumstances, a 

creditor must state that a balloon 

payment will not result for payment 

plans in which no balloon payment 

would occur, as set forth in 

§ 226.5b(c)(9)(ii)(B)(3) and 

(c)(9)(iii)(C)(4). In addition, if there are 

no annual or other periodic limitations 

on changes in the annual percentage 

rate, a creditor must state that no annual 

limitation exists, as set forth in 

§ 226.5b(c)(10)(i)(A)(5). 

2. Duty to respond to requests for 

information. If the consumer, prior to 

the opening of a plan, requests 

information fldescribedfi[as 

suggested] in the disclosures (such as 

fladditional information about fees 

applicable to the plan or the conditions 

under which the creditor may make take 

certain actions with respect to the 

planfi[the current index value or 

margin]), the creditor must provide this 

information as soon as reasonably 

possible after the request. flSee 

comments 5b(c)(7)(ii)–1, 5b(c)(9)(ii)–5, 

5b(c)(14)–1 and 5b(c)(18)–2 for format 

requirements that apply to information 

that a creditor provides to a consumer 

upon request.fi 

fl3. Disclosure of repayment phase— 

applicability of requirements. Some 

plans provide in the initial agreement 

for a period during which the consumer 

may make no further draws and must 

repay all or a portion of the amount 

borrowed. All of the applicable 

disclosures in this section must be given 

for the repayment phase. Thus, for 

example, a creditor must provide 

payment information about the 

repayment phase as well as about the 

draw period, as required by 

§ 226.5b(c)(9). To the extent required 

disclosures are the same for the draw 

and repayment phase, the creditor need 

not repeat such information, as long as 

it is clear that the information applies to 

both phases. 

4. Fixed-rate and -term payment plans 

during draw period. Home-equity plans 

typically offer a variable-rate feature 

during the draw period. Specifically, 

withdrawals on a home-equity plan 

typically will access a general-revolving 

feature to which a variable rate applies. 

Nonetheless, some home-equity plans 

also offer a fixed-rate and -term payment 

feature, where a consumer is permitted 

to repay all or part of the balance during 

the draw period at a fixed rate (rather 

than a variable rate) and over a specified 

time period. If a home-equity plan offers 

a variable-rate feature and a fixed-rate 

and -term feature during the draw 

period, a creditor generally may not 

disclose in the table the terms 

applicable to the fixed-rate and -term 

feature in making the disclosures under 

§ 226.5b(c), except as required under 

§ 226.5b(c)(18). For example, the 

creditor would not be allowed to 

disclose in the table information about 

the payment terms and the annual 

percentage rate applicable to the fixedrate and -term payment feature, under 

§ 226.5b(c)(9) and (c)(10), respectively. 

In this case, the creditor would only be 

allowed to disclose this information for 

the variable-rate feature; for the fixedrate and -term feature, the creditor 

would be allowed to disclose in the 

table only information specified in 

§ 226.5b(c)(18). The creditor may, 

however, disclose additional 

information relating to the fixed-rate 

and -term feature outside of the table. 

See § 226.5b(b)(2)(v). If a home-equity 

plan does not offer a variable-rate 

feature during the draw period, but only 

offers fixed-rate and -term payment 

features during the draw period, a 

creditor must disclose in the table 

information for the fixed-rate and -term 

features when making the disclosures 

required by § 226.5b(c). 

5b(c)(1) Identification Information. 

1. Identification of creditor. The 

creditor making the disclosures must be 

identified. Use of the creditor’s name is 

sufficient, but the creditor may also 


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43584 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

include an address and/or telephone 

number. In transactions with multiple 

creditors, any one of them may make the 

disclosures; the one doing so must be 

identified. 

2. Multiple loan originators. In 

transactions with multiple loan 

originators, each loan originator’s 

unique identifier must be disclosed. For 

example, in a transaction where a 

mortgage broker meets the definition of 

a loan originator under the Secure and 

Fair Enforcement for Mortgage 

Licensing Act of 2008, Section 1503(3), 

12 U.S.C. 5102(3), the identifiers for the 

broker and for its employee originator 

meeting that definition must be 

disclosed.fi 

[5b(d)(1) Retention of Information. 

1. When disclosure not required. The 

creditor need not disclose that the 

consumer should make or otherwise 

retain a copy of the disclosures if they 

are retainable—for example, if the 

disclosures are not part of an 

application that must be returned to the 

creditor to apply for the plan.] 

fl5b(c)(4)fi[5b(d)(2)] Conditions for 

Disclosed Terms. 

Paragraph fl5b(c)(4)(i)fi [5b(d)(2)(i)] 

1. Guaranteed terms. [The 

requirement that the creditor disclose 

the time by which an application must 

be submitted to obtain the disclosed 

terms does not require the creditor to 

guarantee any terms.] If a creditor 

chooses not to guarantee any terms, it 

must disclose that all of the terms are 

subject to change prior to opening the 

plan. The creditor also is permitted to 

guarantee some terms and not others, 

but must indicate which terms are 

subject to change. 

[2. Date for obtaining disclosed terms. 

The creditor may disclose either a 

specific date or a time period for 

obtaining the disclosed terms. If the 

creditor discloses a time period, the 

consumer must be able to determine 

from the disclosure the specific date by 

which an application must be submitted 

to obtain any guaranteed terms. For 

example, the disclosure might read, ‘‘To 

obtain the following terms, you must 

submit your application within 60 days 

after the date appearing on this 

disclosure,’’ provided the disclosure 

form also shows the date.] 

Paragraph 

fl5b(c)(4)(ii)fi[5b(d)(2)(ii)]. 

1. Relation to other provisions. 

Creditors should consult the rules in 

fl§ 226.5b(d)fi [§ 226.5b(g)] regarding 

refund of fees flwhen terms changefi. 

fl5b(c)(5) Refund of Fees Under 

§ 226.5b(e). 

1. Relation to other provisions. 

Creditors should consult the rules in 

§ 226.5b(e) regarding refund of fees if 

the consumer rejects the plan within 

three business days of receiving the 

disclosures required by § 226.5b(b). 

fl5b(c)(7)fi[5b(d)(4)] Possible 

Actions by Creditor. 

Paragraph fl5b(c)(7)(i)fi[5b(d)(4)(i)]. 

1. Fees imposed upon termination. 

This disclosure applies only to fees 

(such as penalty or prepayment fees) 

that the creditor imposes if it terminates 

the plan prior to normal expiration. The 

disclosure does not apply to fees that 

are imposed either when the plan 

expires in accordance with the 

agreement or if the consumer terminates 

the plan prior to its scheduled maturity. 

In addition, the disclosure does not 

apply to fees associated with collection 

of the debt, such as attorneys’ fees and 

court costs, or to increases in the annual 

percentage rate linked to the consumer’s 

failure to make payments. The actual 

amount of the fee need not be disclosed. 

2. Changes flto the planfi [specified 

in the initial agreement]. If changes may 

occur pursuant to § 226.5b(f)(3)(i)fl– 

(v)fi, a creditor must state that flthe 

creditor can make changes to the 

plan.fi[certain changes will be 

implemented as specified in the initial 

agreement]. 

flParagraph 5b(c)(7)(ii)fi [Paragraph 

5b(d)(4)(iii)]. 

1. Disclosure of conditions. flA 

creditor may disclose the conditions 

under which a creditor may take certain 

actions as specified in § 226.5b(c)(7) 

either upon the consumer’s request 

(prior to account opening) or with the 

disclosures required by § 226.5b(b).fi In 

making this disclosure, the creditor may 

provide a highlighted copy of the 

document that contains such 

information, such as the contract or 

security agreement. The relevant items 

must be distinguished from the other 

information contained in the document. 

For example, the creditor may provide 

a cover sheet that specifically points out 

which contract provisions contain the 

information, or may mark the relevant 

items on the document itself. As an 

alternative to disclosing the conditions 

in this manner, the creditor may simply 

describe the conditions using the 

language in § [§ ] 226.5b(f)(2)(i)– 

[(iii)]fl(iv)fi, [226.5b](f)(3)(i) (regarding 

freezing the line when the maximum 

annual percentage rate is reached), and 

[226.5b](f)(3)(vi) or language that is 

substantially similar. [The condition 

contained in § 226.5b(f)(2)(iv) need not 

be stated.] In describing [specified] 

changes that may be implemented 

during the plan flunder 

§ 226.5b(f)(3)(i)–(v)fi, the creditor may 

provide a disclosure such as, ‘‘flWe are 

allowed to make certain changes in the 

terms of the line, such asfi [Our 

agreement permits us to make certain] 

changes [to the terms of the line] at 

specified times or upon the occurrence 

of specified events flas set forth in the 

initial agreementfi.’’ flSee comment 

5b(c)-2 regarding how soon after the 

consumer’s request the creditor must 

disclose this information to the 

consumer.fi 

[2. Form of disclosure. The list of 

conditions under § 226.5b(d)(4)(iii) may 

appear with the segregated disclosures 

or apart from them. If the creditor elects 

to provide the list of conditions with the 

segregated disclosures, the list need not 

comply with the precedence rule in 

§ 226.5b(a)(2).] 

fl5b(c)(9)fi[5b(d)(5)] Payment 

Terms. 

fl1. Balloon payments. i. In general. 

Section 226.5b(c)(9)(ii) and (iii) require 

disclosures of balloon payments. A 

balloon payment results if paying the 

minimum periodic payments does not 

fully amortize the outstanding balance 

by a specified date or time, and the 

consumer must repay the entire 

outstanding balance at such time. The 

creditor must not make a disclosure 

about balloon payments if the final 

payment could not be more than twice 

the amount of other minimum payments 

under the plan. The balloon payment 

disclosures in § 226.5b(c)(9)(ii) and (iii) 

do not apply in cases where repayment 

of the entire outstanding balance would 

occur only as a result of termination and 

acceleration. 

ii. Terminology. In disclosing a 

balloon payment under § 226.5b(c)(9)(ii) 

and (iii), a creditor must disclose that a 

balloon payment ‘‘may’’ result if a 

balloon payment under a payment plan 

is possible, even if such a payment is 

uncertain or unlikely; a creditor must 

disclose that a balloon payment ‘‘will’’ 

result if a balloon payment will occur 

under a payment plan, such as a 

payment plan with interest-only 

payments during the draw period and 

no repayment period. 

fl2. Disclosing balloon payment 

when one payment plan is disclosed. If 

under the payment plan, paying only 

the minimum periodic payments may 

not repay any of the principal or may 

repay less than the outstanding balance 

by the end of the plan, the creditor must 

disclose information about the balloon 

payment twice in the table—under 

§ 226.5b(c)(9)(ii)(A) and (c)(9)(iii)(C)(4). 

See the row ‘‘Balloon Payment’’ in the 

‘‘Borrowing and Repayment Terms’’ 

section of Sample G–14(D) for guidance 

on how to comply with the 

requirements in § 226.5b(c)(9)(ii)(A). See 

the first paragraph in the ‘‘Sample 

Payments on a $80,000 Balance’’ section 


sroberts on DSKD5P82C1PROD with PROPOSALS
Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43585 

of Sample G–14(D) for guidance on how 

to comply with the requirements in 

§ 226.5b(c)(9)(iii)(C)(4). 

3. Disclosing balloon payments when 

two payment plans are disclosed. If 

under at least one of the payment plans, 

paying only the minimum periodic 

payments may not repay any of the 

principal or may repay less than the 

outstanding balance by the end of the 

plan, the creditor must disclose 

information about the balloon payment 

three times in the table—under 

§ 226.5b(c)(9)(ii)(B)(1), (c)(9)(ii)(B)(3), 

and (c)(9)(iii)(C)(4). See the row 

‘‘Balloon Payment’’ in the ‘‘Borrowing 

and Repayment Terms’’ section of 

Sample G–14(C) for guidance on how to 

comply with the requirements in 

§ 226.5b(c)(9)(ii)(B)(1). See the rows 

‘‘Plan A’’ and ‘‘Plan B’’ in the ‘‘Payment 

Plans’’ section of Sample G–14(C) for 

guidance on how to comply with the 

requirements in § 226.5b(c)(9)(ii)(B)(3). 

See the ‘‘Plan A vs. Plan B’’ part of the 

‘‘Plan Comparison: Sample Payments on 

an $80,000 Balance’’ section of Sample 

G–14(C) for guidance on how to comply 

with the requirements in 

§ 226.5b(c)(9)(iii)(C)(4).fi 

Paragraph fl5b(c)(9)(i)fi[5b(d)(5)(i)]. 

1. Length of the plan. [The combined 

length of the draw period and any 

repayment period need not be stated. If 

the length of the repayment phase 

cannot be determined because, for 

example, it depends on the balance 

outstanding at the beginning of the 

repayment period, the creditor must 

state that the length are determined by 

the size of the balance. If the length of 

the plan is indefinite (for example, 

because there is no time limit on the 

period during which the consumer can 

take advances), the creditor must state 

that fact.] fli. If a maturity date is set 

forth for the plan, the length of the plan, 

the length of the draw period and the 

length of any repayment period are 

definite. The length of the plan must be 

based on the maturity date of the plan, 

regardless of whether the outstanding 

balance will be paid off before or after 

the maturity date. For example, assume 

that a plan has a draw period of 10 years 

and a maturity date of 20 years. If the 

outstanding balance on the plan is not 

paid off by the maturity date, the 

creditor will extend the maturity date of 

the plan and require the consumer to 

make minimum payments until the 

outstanding balance is repaid. In this 

example, the creditor must disclose the 

length of the plan as 20 years, the draw 

period as 10 years and the repayment 

period as 10 years, even though in some 

cases the maturity date of the plan may 

be extended in the future. 

ii. If the plan does not have a maturity 

date and the length of the repayment 

period cannot be determined at the time 

the disclosures required by § 226.5b(b) 

must be given because the length of the 

plan and the length of the repayment 

period depend on the balance 

outstanding at the beginning of the 

repayment period or the balance at the 

time of the last advance during the draw 

period, the creditor must state that the 

length of the plan and the length of the 

repayment period is determined by the 

size of the balance outstanding at the 

beginning of the repayment period or 

the balance at the time of the last 

advance during the draw period, as 

applicable. The following examples 

illustrate this rule: 

A. Assume the plan has no maturity 

date, the draw period is 10 years, and 

the minimum payment during the 

repayment period is 1.5 percent of the 

outstanding balance at the time of the 

last advance during the draw period. In 

this example, the creditor would 

disclose that the lengths of the plan and 

the repayment period are determined by 

the size of the outstanding balance at 

the time of the last advance during the 

draw period. 

B. Assume the length of the draw 

period is 10 years and the length of the 

repayment period will be 15 years if the 

balance at the beginning of the 

repayment period is less than $20,000 

and 30 years if the balance is $20,000 

or more. In this example, the creditor 

must disclose that the length of the plan 

will be 25 or 40 years depending on the 

outstanding balance at the beginning of 

the repayment period. In addition, the 

creditor must disclose that the 

repayment period will be 15 years if the 

balance is less than $20,000 and 30 

years if the balance is $20,000 or more. 

The creditor may not simply disclose 

that the repayment period is determined 

by the size of the balance. See Sample 

G–14(E) for guidance on how to disclose 

this information. 

iii. If the length of the plan is 

indefinite (for example, because there is 

no time limit on the period during 

which the consumer can take advances), 

the creditor must state that fact.fi 

2. Renewal provisions. If, under the 

credit agreement, a creditor retains the 

right to review a line at the end of the 

specified draw period and determine 

whether to renew or extend the draw 

period of the plan, the possibility of 

renewal or extension—regardless of its 

likelihood—should be ignored for 

purposes of the disclosures. For 

example, if an agreement provides that 

the draw period is five years and that 

the creditor may renew the draw period 

for an additional five years, the 

possibility of renewal should be ignored 

and the draw period should be 

considered five years. 

fl3. Format. Under § 226.5b(c)(9)(i), if 

the length of the plan is definite, a 

creditor must disclose the length of the 

plan, the length of the draw period and 

the length of any repayment period in 

a format substantially similar to the 

format used in any of the applicable 

tables found in Samples G–14(C) and G– 

14(D) . (See comment 5b(c)(9)(i)-1 for 

guidance on determining whether the 

length of the plan is definite.) Sample 

G–14(D) shows the format a creditor 

must use for plans that have a definite 

length and have a draw period but no 

repayment period. Sample G–14(C) 

shows the format a creditor must use for 

plans that have a definite length and 

have a draw period and a repayment 

period. For example, in Sample G– 

14(C), the length of a plan is 20 years, 

and the length of the draw period and 

repayment period are 10 years each. As 

shown in Sample G–14(C), the length of 

the plan must be disclosed as 20 years, 

along with a statement indicating that 

this period is divided into two periods. 

In this example, the length of the draw 

period must be disclosed as ‘‘Years (1– 

10)’’ and the length of the repayment 

period must be disclosed as ‘‘Years (11– 

20).’’ The length of the draw period and 

repayment period must be included 

with the headings ‘‘Borrowing Period’’ 

(for the draw period) and ‘‘Repayment 

Period’’ (for the repayment period), 

respectively, each time these headings 

are used. See § 226.5b(c)(9) for when the 

headings must be used. 

4. Length of the plan and the length 

of the draw period are the same. If the 

length of the plan and the length of the 

draw period are the same, a creditor will 

be deemed to satisfy the requirement to 

disclose the length of plan by disclosing 

the length of the draw period.fi 

Paragraph 

fl5b(c)(9)(ii)fi[5b(d)(5)(ii)]. 

1. Determination of the minimum 

periodic payment. This disclosure [must 

reflect]floffi how the minimum 

periodic payment is determined [, but] 

flmustfi [need only] describe 

flonlyfi the principal and interest 

components of the payment. Other 

charges that may be part of the payment 

(as well as the balance computation 

method) flmust not befi [may, but 

need not, be] described under this 

provision. flIn addition, this disclosure 

must not include a description of any 

floor payment amount, where the 

payment will not go below this 

amount.fi 

fl2. Multiple payment plans. If a 

creditor only offers two payment plans 

(other than fixed-rate and -term 


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43586 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

payment plans unless those are the only 

payment plans offered during the draw 

period), both of those payment options 

must be disclosed in the table required 

by § 226.5b(b). If a creditor offers more 

than two payment options (other than 

fixed-rate and -term payment plans 

unless those are the only payment plans 

offered during the draw period), the 

creditor pursuant to § 226.5b(c)(9)(ii)(B) 

must only disclose two of the payment 

plans in the table required by 

§ 226.5b(b). The following would be 

considered two payment plans: The 

draw period is 10 years and the 

consumer has the choice between two 

repayment periods—10 and 20 years. 

The two payment plans would be (1) a 

10 year draw period and a 10 year 

repayment period, and (2) a 10 year 

draw period and a 20 year repayment 

period. 

3. Statement about additional 

payment plans not disclosed in table. 

Section 226.5b(c)(9)(ii)(B) provides that 

if a creditor offers more than the two 

payment plans described in the table 

required by § 226.5b(b)(2)(i) (other than 

fixed-rate and -term payment plans 

unless those are the only payment plans 

offered during the draw period), the 

creditor must disclose that other 

payment plans are available, and the 

consumer should ask the creditor for 

additional details about these other 

payment plans. This disclosure is 

required only if the creditor offers 

additional payment plans available to 

that consumer. If the only other 

payment plans available are employee 

preferred-rate plans, for example, the 

creditor must provide this statement 

only if the consumer would qualify for 

the employee preferred-rate plans.fi 

[2. Fixed rate and term payment 

options during draw period. If the 

home-equity plan permits the consumer 

to repay all or part of the balance during 

the draw period at a fixed rate (rather 

than a variable rate) and over a specified 

time period, this feature must be 

disclosed. To illustrate, a variable-rate 

plan may permit a consumer to elect 

during a ten-year draw period to repay 

all or a portion of the balance over a 

three-year period at a fixed rate. The 

creditor must disclose the rules relating 

to this feature including the period 

during which the option can be 

selected, the length of time over which 

repayment can occur, any fees imposed 

for such a feature, and the specific rate 

or a description of the index and margin 

that will apply upon exercise of this 

choice. For example, the index and 

margin disclosure might state: ‘‘If you 

choose to convert any portion of your 

balance to a fixed rate, the rate will be 

the highest prime rate published in the 

‘Wall Street Journal’ that is in effect at 

the date of conversion plus a margin.’’ 

If the fixed rate is to be determined 

according to an index, it must be one 

that is outside the creditor’s control and 

is publicly available in accordance with 

§ 226.5b(f)(1). The effect of exercising 

the option should not be reflected 

elsewhere in the disclosures, such as in 

the historical example required in 

§ 226.5b(d)(12)(xi).] 

[3] fl4fi. Balloon payments. flSee 

comments 5b(c)(9)–1 through –3 for 

guidance on disclosing balloon 

payments under § 226.5b(c)(9)(ii).fi [In 

programs where the occurrence of a 

balloon payment is possible, the 

creditor must disclose the possibility of 

a balloon payment even if such a 

payment is uncertain or unlikely. In 

such cases, the disclosure might read, 

‘‘Your minimum payments may not be 

sufficient to fully repay the principal 

that is outstanding on your line. If they 

are not, you will be required to pay the 

entire outstanding balance in a single 

payment.’’ In programs where a balloon 

payment will occur, such as programs 

with interest-only payments during the 

draw period and no repayment period, 

the disclosures must state that fact. For 

example, the disclosure might read, 

‘‘Your minimum payments will not 

repay the principal that is outstanding 

on your line. You will be required to 

pay the entire outstanding balance in a 

single payment.’’ In making this 

disclosure, the creditor is not required 

to use the term ‘‘balloon payment.’’ The 

creditor also is not required to disclose 

the amount of the balloon payment. 

(See, however, the requirement under 

§ 226.5b(d)(5)(iii).) The balloon payment 

disclosure does not apply in cases 

where repayment of the entire 

outstanding balance would occur only 

as a result of termination and 

acceleration. The creditor also need not 

make a disclosure about balloon 

payments if the final payment could not 

be more than twice the amount of other 

minimum payments under the plan.] 

fl5. Consumer’s request for 

additional information on other 

payment plans. If the creditor offers any 

other payment plans than the two 

payment plans disclosed in the table 

required under § 226.5b(b) (except for 

fixed-rate and -term payment plans 

unless those are the only payment plans 

offered during the draw period), and a 

consumer requests additional 

information about this other plan prior 

to account opening, the creditor must 

disclose an additional table under 

§ 226.5b(b) to the consumer with the 

terms of the other payment plan 

described in the table. If the creditor 

offers multiple payment plans that were 

not disclosed in the table required 

under § 226.5b(b), only one payment 

plan may be disclosed on each 

additional table given to the consumer. 

For example, if a creditor offers two 

payment plans that were not disclosed 

in the table required under § 226.5b(b), 

the creditor must provide the consumer, 

upon request, two additional tables— 

one table for each payment plan. See 

comment 5b(c)–2 regarding how soon 

after the consumer’s request the creditor 

must disclose this information to the 

consumer. 

6. Reverse mortgages. Reverse 

mortgages, also known as reverse 

annuity or home-equity conversion 

mortgages, in addition to permitting the 

consumer to obtain advances, may 

involve the disbursement of monthly 

advances to the consumer for a fixed 

period or until the occurrence of an 

event such as the consumer’s death. 

Repayment of the reverse mortgage 

(generally a single payment of principal 

and accrued interest) may be required to 

be made at the end of the disbursements 

or, for example, upon the death of the 

consumer. In disclosing these plans, 

creditors must apply the following 

rules, as applicable: 

i. If the reverse mortgage has a 

specified period for advances and 

disbursements but repayment is due 

only upon occurrence of a future event 

such as the death of the consumer, the 

creditor must assume that 

disbursements will be made until they 

are scheduled to end. The creditor must 

assume repayment will occur when 

disbursements end (or within a period 

following the final disbursement which 

is not longer than the regular interval 

between disbursements). This 

assumption should be used even though 

repayment may occur before or after the 

disbursements are scheduled to end. In 

such cases, the creditor may include a 

statement such as ‘‘The disclosures 

assume that you will repay the line at 

the time the borrowing period and our 

payments to you end. As provided in 

your agreement, your repayment may be 

required at a different time.’’ The single 

payment should be considered the 

‘‘minimum periodic payment’’ and 

consequently would not be treated as a 

balloon payment. The examples of the 

minimum payment under 

§ 226.5b(c)(9)(iii) should assume the 

consumer borrows the full credit line (as 

disclosed in § 226.5b(c)(17)) at the 

beginning of the draw period. 

ii. If the reverse mortgage has neither 

a specified period for advances or 

disbursements nor a specified 

repayment date and these terms will be 

determined solely by reference to future 

events, including the consumer’s death, 


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the creditor may assume that the draws 

and disbursements will end upon the 

consumer’s death (estimated by using 

actuarial tables, for example) and that 

repayment will be required at the same 

time (or within a period following the 

date of the final disbursement which is 

not longer than the regular interval for 

disbursements). Alternatively, the 

creditor may base the disclosures upon 

another future event it estimates will be 

most likely to occur first. (If terms will 

be determined by reference to future 

events which do not include the 

consumer’s death, the creditor must 

base the disclosures upon the 

occurrence of the event estimated to be 

most likely to occur first.) 

iii. In making the disclosures, the 

creditor must assume that all draws and 

disbursements and accrued interest will 

be paid by the consumer. For example, 

if the note has a non-recourse provision 

providing that the consumer is not 

obligated for an amount greater than the 

value of the house, the creditor must 

nonetheless assume that the full amount 

to be drawn or disbursed will be repaid. 

In this case, however, the creditor may 

include a statement such as ‘‘The 

disclosures assume full repayment of 

the amount advanced plus accrued 

interest, although the amount you may 

be required to pay is limited by your 

agreement.’’ 

iv. Some reverse mortgages provide 

that some or all of the appreciation in 

the value of the property will be shared 

between the consumer and the creditor. 

The creditor must disclose the 

appreciation feature, including 

describing how the creditor’s share will 

be determined, any limitations, and 

when the feature may be exercised. fi 

Paragraph 

fl5b(c)(9)(iii)fi[5b(d)(5)(iii)]. 

1. Minimum periodic payment 

examples. flA creditor must provide 

examples for each payment option 

disclosed in the table pursuant to 

§ 226.5b(c)(9)(ii). In calculating the 

payment examples, a creditor must take 

into account any significant terms 

related to each payment option, such as 

any payment caps or payment floor 

amounts. (A creditor must take payment 

floor amounts into account when 

calculating the payment examples even 

though the creditor may not disclose 

that payment floor in the table when 

describing how minimum payments 

will be calculated. See comment 

5b(c)(9)(ii)–1.) For example, assume that 

under a payment plan, the monthly 

payment for the draw period will be 

calculated as the interest accrued during 

that month, or $50, whichever is greater. 

In the table described in § 226.5b(b), a 

creditor must disclose that the 

minimum monthly payment during the 

draw period only covers interest. The 

creditor must not disclose in the table 

the payment floor of $50. Nonetheless, 

the creditor must take into account this 

$50 payment floor in calculating the 

disclosures shown as part of the 

payment examples.fi In disclosing the 

payment exampleflsfi, the creditor 

flmust assume that the consumer 

borrows the full credit line (as disclosed 

in § 226.5b(c)(17)) at the beginning of 

the draw period and that this advance 

is reduced according to the terms of the 

plan. The creditor must not assume that 

an additional advance is taken at any 

time, including at the beginning of any 

repayment period. A creditor must 

assume that the annual percentage rate 

used to calculate each payment example 

required by § 226.5b(c)(9)(iii) will 

remain the same during the draw period 

and any repayment period as specified 

in § 226.5b(c)(9)(iii)(A)(3) even if that 

annual percentage rate is a variable rate 

under the plan. fi [ may assume that 

the credit limit as well as the 

outstanding balance is $10,000 if such 

an assumption is relevant to calculating 

payments. (If the creditor only offers 

lines of credit for less than $10,000, the 

creditor may assume an outstanding 

balance of $5,000 instead of $10,000 in 

making this disclosure.)] The 

exampleflsfi should reflect the 

payment comprised only of principal 

and interest. flThe sample payments in 

the table showing the first minimum 

periodic payment for the draw period 

and any repayment period, and the 

balance outstanding at the beginning of 

any repayment period, must be rounded 

to the nearest whole dollar.fi[Creditors 

may provide an additional example 

reflecting other charges that may be 

included in the payment, such as credit 

insurance premiums.] Creditors may 

assume that all months have an equal 

number of days, that payments are 

collected in whole cents, and that 

payments will fall on a business day 

even though they may be due on a nonbusiness day. [For variable-rate plans, 

the example must be based on the last 

rate in the historical example required 

in § 226.5b(d)(12)(xi), or a more recent 

rate. In cases where the last rate shown 

in the historical example is different 

from the index value and margin (for 

example, due to a rate cap), creditors 

should calculate the rate by using the 

index value and margin. A discounted 

rate may not be considered a more 

recent rate in calculating this payment 

example for either variable- or fixed-rate 

plans.] 

[2. Representative examples. In plans 

with multiple payment options within 

the draw period or within any 

repayment period, the creditor may 

provide representative examples as an 

alternative to providing examples for 

each payment option. The creditor may 

elect to provide representative payment 

examples based on three categories of 

payment options. The first category 

consists of plans that permit minimum 

payment of only accrued finance 

charges (interest only plans). The 

second category includes plans in 

which a fixed percentage or a fixed 

fraction of the outstanding balance or 

credit limit (for example, 2% of the 

balance or 1/180th of the balance) is 

used to determine the minimum 

payment. The third category includes all 

other types of minimum payment 

options, such as a specified dollar 

amount plus any accrued finance 

charges. Creditors may classify their 

minimum payment arrangements within 

one of these three categories even if 

other features exist, such as varying 

lengths of a draw or repayment period, 

required payment of past due amounts, 

late charges, and minimum dollar 

amounts. The creditor may use a single 

example within each category to 

represent the payment options in that 

category. For example, if a creditor 

permits minimum payments of 1%, 2%, 

3% or 4% of the outstanding balance, it 

may pick one of these four options and 

provide the example required under 

§ 226.5b(d)(5)(iii) for that option alone. 

The example used to represent a 

category must be an option commonly 

chosen by consumers, or a typical or 

representative example. (See the 

commentary to § 226.5b(d)(12) (x) and 

(xi) for a discussion of the use of 

representative examples for making 

those disclosures. Creditors using a 

representative example within each 

category must use the same example for 

purposes of the disclosures under 

§ 226.5b(d)(5)(iii) and (d)(12)(x) and 

(xi).) Creditors may use representative 

examples under § 226.5b(d)(5) only with 

respect to the payment example 

required under paragraph (d)(5)(iii). 

Creditors must provide a full narrative 

description of all payment options 

under § 226.5b(d)(5)(i) and (ii). 

3. Examples for draw and repayment 

periods. Separate examples must be 

given for the draw and repayment 

periods unless the payments are 

determined the same way during both 

periods. In setting forth payment 

examples for any repayment period 

under this section (and the historical 

example under § 226.5b(d)(12)(xi)), 

creditors should assume a $10,000 

advance is taken at the beginning of the 

draw period and is reduced according to 

the terms of the plan. Creditors should 


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43588 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

not assume an additional advance is 

taken at any time, including at the 

beginning of any repayment period.] 

fl2. Balloon payments. See 

comments 5b(c)(9)–1 through –3 for 

guidance on disclosing balloon 

payments under § 226.5b(c)(9)(iii)(D). 

3. fi[4.] Reverse mortgages. flSee 

comment 5b(c)(9)(ii)–6 for guidance on 

providing the payment examples 

required under § 226.5b(c)(9)(iii) for 

reverse mortgages.fi [Reverse 

mortgages, also known as reverse 

annuity or home-equity conversion 

mortgages, in addition to permitting the 

consumer to obtain advances, may 

involve the disbursement of monthly 

advances to the consumer for a fixed 

period or until the occurrence of an 

event such as the consumer’s death. 

Repayment of the reverse mortgage 

(generally a single payment of principal 

and accrued interest) may be required to 

be made at the end of the disbursements 

or, for example, upon the death of the 

consumer. In disclosing these plans, 

creditors must apply the following 

rules, as applicable: 

i. If the reverse mortgage has a 

specified period for advances and 

disbursements but repayment is due 

only upon occurrence of a future event 

such as the death of the consumer, the 

creditor must assume that 

disbursements will be made until they 

are scheduled to end. The creditor must 

assume repayment will occur when 

disbursements end (or within a period 

following the final disbursement which 

is not longer than the regular interval 

between disbursements). This 

assumption should be used even though 

repayment may occur before or after the 

disbursements are scheduled to end. In 

such cases, the creditor may include a 

statement such as ‘‘The disclosures 

assume that you will repay the line at 

the time the draw period and our 

payments to you end. As provided in 

your agreement, your repayment may be 

required at a different time.’’ The single 

payment should be considered the 

‘‘minimum periodic payment’’ and 

consequently would not be treated as a 

balloon payment. The example of the 

minimum payment under 

§ 226.5b(d)(5)(iii) should assume a 

single $10,000 draw. 

ii. If the reverse mortgage has neither 

a specified period for advances or 

disbursements nor a specified 

repayment date and these terms will be 

determined solely by reference to future 

events, including the consumer’s death, 

the creditor may assume that the draws 

and disbursements will end upon the 

consumer’s death (estimated by using 

actuarial tables, for example) and that 

repayment will be required at the same 

time (or within a period following the 

date of the final disbursement which is 

not longer than the regular interval for 

disbursements). Alternatively, the 

creditor may base the disclosures upon 

another future event it estimates will be 

most likely to occur first. (If terms will 

be determined by reference to future 

events which do not include the 

consumer’s death, the creditor must 

base the disclosures upon the 

occurrence of the event estimated to be 

most likely to occur first.) 

iii. In making the disclosures, the 

creditor must assume that all draws and 

disbursements and accrued interest will 

be paid by the consumer. For example, 

if the note has a non-recourse provision 

providing that the consumer is not 

obligated for an amount greater than the 

value of the house, the creditor must 

nonetheless assume that the full amount 

to be drawn or disbursed will be repaid. 

In this case, however, the creditor may 

include a statement such as ‘‘The 

disclosures assume full repayment of 

the amount advanced plus accrued 

interest, although the amount you may 

be required to pay is limited by your 

agreement.’’ 

iv. Some reverse mortgages provide 

that some or all of the appreciation in 

the value of the property will be shared 

between the consumer and the creditor. 

The creditor must disclose the 

appreciation feature, including 

describing how the creditor’s share will 

be determined, any limitations, and 

when the feature may be exercised.] 

fl5b(c)(10)fi[5b(d)(6)] Annual 

Percentage Rate. 

fl1. Rates disclosed. The only rates 

that may be disclosed in the table 

required by § 226.5b(b) are annual 

percentage rates determined under 

§ 226.14(b). Periodic rates must not be 

disclosed in the table. 

2. Rate changes set forth in initial 

agreement. This paragraph requires 

disclosure of the rate changes set forth 

in the initial agreement, as discussed in 

§ 226.5b(f)(3)(i), that are applicable to 

the payment plans disclosed pursuant to 

§ 226.5b(c)(9). For example, this 

paragraph requires disclosure of 

preferred-rate provisions, where the rate 

will increase upon the occurrence of 

some event, such as the borroweremployee leaving the creditor’s employ 

or the consumer closing an existing 

deposit account with the creditor. The 

creditor must disclose the preferred rate 

that applies to the plan, and the rate that 

would apply if the event is triggered, 

such as the borrower-employee leaving 

the creditor’s employ or the consumer 

closing an existing deposit account with 

the creditor. If the preferred rate and the 

rate that would apply if the event is 

triggered are variable rates, the creditor 

must disclose those rates based on the 

applicable index or formula, and 

disclose other information required by 

§ 226.5b(c)(10)(i). 

3. Rates applicable to payment plans 

disclosed. A creditor is only required to 

disclose the rates applicable to the 

payment plans that are disclosed in 

§ 226.5b(c)(9). If the creditor offers other 

payment plans than the ones disclosed 

in the table required under § 226.5b(b), 

and a consumer requests additional 

information about those other plans, the 

creditor must disclose the annual 

percentage rates applicable to those 

other plans (as well as other 

information) when disclosing those 

other payment plans to the consumer. 

See comment 5b(c)(9)(ii)–5 and 

comment 5b(c)(18)–2 for the 

information a creditor must provide to 

a consumer that requests additional 

information about other payment plans 

offered by the creditor.fi 

[1. Preferred-rate plans. If a creditor 

offers a preferential fixed-rate plan in 

which the rate will increase a specified 

amount upon the occurrence of a 

specified event, the creditor must 

disclose the specific amount the rate 

will increase.] 

flParagraph 5b(c)(10)(i) Disclosures 

for Variable-rate Plans. 

1. Variable-rate accounts—definition. 

For purposes of § 226.5b(c)(10)(i), 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 § 226.6(a)(4)(ii)–1 for 

examples of variable-rate plans.) 

2. Variable-rate accounts—fact that 

the rate varies and how the rate will be 

determined. In describing how the 

applicable rate will be determined, the 

creditor must identify in the table 

described in § 226.5b(b) the type of 

index used and the amount of any 

margin. In describing the index, a 

creditor may not include in the table 

details about the index. For example, if 

a creditor uses a prime rate, the creditor 

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. 

Except as permitted by 

§ 226.5b(c)(10)(i)(A)(6), a creditor may 

not disclose in the table the current 

value of the index (such as that the 

prime rate is currently 7.5 percent). See 

Samples G–14(C), G–14(D) and G–14(E) 

for guidance on how to disclose the fact 

that the applicable rate varies and how 

it is determined. 


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3. Rate during any repayment period. 

If a creditor uses an index to determine 

the rate that will apply at the time of 

conversion to the repayment phase— 

even if the rate will thereafter be fixed— 

the creditor must provide the 

information in § 226.5b(c)(10)(i), as 

applicable. 

4. Limitations on increases in rates. 

The creditor must disclose in the table 

required by § 226.5b(b) any limitations 

on increases in the annual percentage 

rate, including the minimum and 

maximum annual percentage rate that 

may be imposed under each payment 

plan disclosed under § 226.5b(c)(9)(ii). 

For example, a creditor must disclose 

any rate limitations that occur every two 

years, annually or on less than an 

annual basis. If the creditor bases its rate 

limitation on 12 monthly billing cycles, 

such a limitation must be treated as an 

annual cap. Rate limitations imposed on 

more or less than an annual basis must 

be stated in terms of a specific amount 

of time. For example, if the creditor 

imposes rate limitations on only a 

semiannual basis, this must be 

expressed as a rate limitation for a sixmonth time period. If the creditor does 

not impose annual or other periodic 

limitations on rate increases, the fact 

must be stated in the table described in 

§ 226.5b(b). 

5. Maximum limitations on increases 

in rates. The maximum annual 

percentage rate that may be imposed 

under each payment option disclosed 

under § 226.5b(c)(9)(ii) over the term of 

the plan (including the draw period and 

any repayment period provided for in 

the initial agreement) must be provided 

in the table described in § 226.5b(b). If 

separate overall limitations apply to rate 

increases resulting from events such as 

leaving the creditor’s employ, those 

limitations also must be stated. 

Limitations do not include legal limits 

in the nature of usury or rate ceilings 

under state or federal statutes or 

regulations. 

6. Sample forms. Samples G–14(C), 

G–14(D) and G–14(E) provide 

illustrative guidance on the variable-rate 

rules. 

Paragraph 5b(c)(10)(ii) Introductory 

Initial Rate. 

1. Preferred rates. If a creditor offers 

a preferred rate that will increase a 

specified amount upon the occurrence 

of a specified event other than the 

expiration of a specific time period, 

such as the borrower-employee leaving 

the creditor’s employ, the preferred rate 

is not an introductory rate under 

§ 226.5b(C)(10)(ii), but must be 

disclosed in accordance with 

§ 226.5b(C)(10). See comment 5b(C)(10)– 

2. 

2. Immediate proximity. i. In general. 

If the term ‘‘introductory’’ is in the same 

phrase as the introductory rate, it will 

be deemed to be in immediate proximity 

of the listing. For example, a creditor 

that uses the phrase ‘‘introductory APR 

X percent’’ has used the word 

‘‘introductory’’ within the same phrase 

as the rate. (See Samples G–14(C) and 

G–14(E) 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. 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 a creditor offers an 

introductory rate of 8.99% on the plan 

for six months, and an introductory rate 

of 10.99% for the following six months, 

the term ‘‘introductory’’ need only be 

used to describe the 8.99% rate. 

3. Rate that applies after introductory 

rate expires. If the initial rate is an 

introductory rate, the creditor must 

disclose the introductory rate, how long 

the introductory rate will remain in 

effect, and the rate that would otherwise 

apply to the plan. Where the rate that 

would otherwise apply is fixed, the 

creditor must disclose the rate that will 

apply after the introductory rate expires. 

Where the rate that would otherwise 

apply is variable, the creditor must 

disclose the rate based on the applicable 

index or formula, and disclose the other 

variable-rate disclosures required under 

§ 226.5b(c)(10)(i).fi 

fl5b(c)(11)fi[5b(d)(7)] Fees Imposed 

by Creditor fland Third Parties to Open 

the Planfi. 

1. Applicability. flSection 

226.5b(c)(11) applies only to one-time 

fees imposed by the creditor or third 

parties to open the plan. The fees 

referred to in § 226.5b(c)(11) include 

items such as application fees, points, 

appraisal or other property valuation 

fees, credit report fees, government 

agency fees, and attorneys’ fees. Annual 

fees or other periodic fees that may be 

imposed for the availability of the plan 

would not be disclosed under 

§ 226.5b(c)(11), but must be disclosed 

under § 226.5b(c)(12). A creditor must 

not state the amount of any property 

insurance premiums in the table, even 

in cases where property insurance is 

required by the creditor.fi [The fees 

referred to in section 226.5b(d)(7) 

include items such as application fees, 

points, annual fees, transaction fees, 

fees to obtain checks to access the plan, 

and fees imposed for converting to a 

repayment phase that is provided for in 

the original agreement. This disclosure 

includes any fees that are imposed by 

the creditor to use or maintain the plan, 

whether the fees are kept by the creditor 

or a third party. For example, if a 

creditor requires an annual credit report 

on the consumer and requires the 

consumer to pay this fee to the creditor 

or directly to the third party, the fee 

must be specifically stated. Third party 

fees to open the plan that are initially 

paid by the consumer to the creditor 

may be included in this disclosure or in 

the disclosure under § 226.5b(d)(8).] 

2. Manner of describing itemized fees. 

flSection 226.5b(d)(11) provides that if 

the dollar amount of a one-time account 

opening fee is not known at the time the 

disclosures under § 226.5b(b) are 

delivered or mailed, a creditor must 

provide a range for such fee. If a range 

is shown, the highest amount of the fee 

in that range must assume that the 

consumer will borrow the full credit 

line at account opening. The lowest 

amount of the fee in the range must be 

the lowest amount of the fee that may 

be imposed.fi [Charges may be stated as 

an estimated dollar amount for each fee, 

or as a percentage of a typical or 

representative amount of credit. The 

creditor may provide a stepped fee 

schedule in which a fee will increase a 

specified amount at a specified date. 

(See the discussion contained in the 

commentary to § 226.5b(f)(3)(i).)] 

3. Fees not required to be disclosed. 

Fees that are not imposed to open [, use, 

or maintain] a plan, such as fees for 

researching an account, photocopying, 

paying late, stopping payment, having a 

check returned, exceeding the credit 

limit, or closing out an account, do not 

have to be disclosed under this section. 

Credit report and flproperty 

valuationfi [appraisal] fees imposed to 

investigate whether a condition 

permitting a freeze continues to exist— 

as discussed in fl226.5b(g)(3)(iv) and 

accompanying commentaryfi [the 

commentary to § 226.5b(f)(3)(vi)]—are 

not required to be disclosed under this 

section [or § 226.5b(d)(8)]. 

4. Rebates of flaccount opening 

feesfi[closing costs]. If fl one-time fees 

for account opening fi [closing costs] 

are imposed they must be disclosed, 

regardless of whether such costs may be 

rebated later (for example, rebated to the 

extent of any interest paid during the 

first year of the plan). 

[5. Terms used in disclosure. 

Creditors need not use the terms finance 

charge or other charge in describing the 

fees imposed by the creditor under this 

section or those imposed by third 


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parties, as applicable, under section 

226.5b(d)(8).] 

fl5. Disclosure of itemized list of fees 

to open a plan. A creditor will be 

deemed to provide the itemization of 

the account-opening fees clearly and 

conspicuously if the creditor provides 

this information in a bullet format as 

shown in Samples G–14(C), G–14(D) 

and G–14(E).fi 

fl5(b)(c)(12) Fees Imposed by the 

Creditor for Availability of the Plan. 

1. Fee to obtain access devices. The 

fees referred to in § 226.5b(c)(12) 

include fees to obtain access devices, 

such as fees to obtain checks or credit 

cards to access the plan. For example, 

a fee to obtain checks or a credit card 

on the account must be disclosed in the 

table as a fee for issuance or availability 

under § 226.5b(c)(12). This fee must be 

disclosed even if the fee is optional; that 

is, if the fee is charged only if the 

consumer requests checks or a credit 

card. 

2. Fees kept by third party. The fees 

referred to in § 226.5b(c)(12) include 

any fees that are imposed by the creditor 

for the availability of the plan, whether 

the fees are kept by the creditor or a 

third party. For example, if a creditor 

requires an annual credit report on the 

consumer and requires the consumer to 

pay this fee to the creditor or directly to 

the third party, the fee must be 

disclosed under § 226.5b(c)(12). 

3. Waived or reduced fees. If fees 

required to be disclosed under 

§ 226.5b(c)(12) are waived or reduced 

for a limited time, the introductory fees 

or the fact of fee waivers may be 

provided in the table in addition to the 

required fees if the creditor also 

discloses how long the reduced fees or 

waivers will remain in effect. 

5b(c)(13) Fees Imposed by the 

Creditor for Early Termination of the 

Plan by the Consumer. 

1. Applicability. This disclosure 

applies to fees (such as penalty or 

prepayment fees) that the creditor 

imposes if the consumer terminates the 

plan prior to its scheduled maturity. 

This disclosure includes waived 

account-opening fees for the plan, if the 

creditor will impose those costs on the 

consumer if the consumer terminates 

the plan within a certain amount of time 

after account opening. The disclosure 

does not apply to fees that the creditor 

may impose in lieu of termination under 

comment 5b(f)(2)–2. The disclosure also 

does not apply to fees that are imposed 

when the plan expires in accordance 

with the agreement or that are 

associated with collection of the debt if 

the creditor terminates the plan, such as 

attorneys’ fees and court costs. 

5b(c)(14) Statement about Other Fees. 

1. Disclosure of additional 

information upon request. A creditor 

generally must include in the table 

required by § 226.5b(b) a statement that 

the consumer may receive, upon 

request, additional information about 

fees applicable to the plan. 

Alternatively, a creditor may provide 

additional information about fees 

applicable to the plan along with the 

table required by § 226.5b(b). In that 

case, the creditor must disclose in the 

table that is required by § 226.5b(b) that 

additional information about fees 

applicable to the plan is enclosed with 

the table. In providing additional 

information about fees to a consumer 

upon the consumer’s request prior to 

account opening (or along with the table 

required under § 226.5b(b)), a creditor 

must disclose the penalty and 

transaction fees that are required to be 

disclosed under § 226.6(a)(2)(x) through 

(xiv) and a statement that other fees may 

apply. A creditor must use a tabular 

format to disclose the additional 

information about fees that is provided 

upon request or provided with the table 

required by § 226.5b(b). See comment 

5b(c)–2 regarding how soon after the 

consumer’s request the creditor must 

disclose this information to the 

consumer.fi 

[5b(d)(8) Fees Imposed by Third 

Parties to Open a Plan. 

1. Applicability. Section 226.5b(d)(8) 

applies only to fees imposed by third 

parties to open the plan. Thus, for 

example, this section does not require 

disclosure of a fee imposed by a 

government agency at the end of a plan 

to release a security interest. Fees to be 

disclosed include appraisal, credit 

report, government agency, and 

attorneys’ fees. In cases where property 

insurance is required by the creditor, 

the creditor either may disclose the 

amount of the premium or may state 

that property insurance is required. For 

example, the disclosure might state, 

‘‘You must carry insurance on the 

property that secures this plan.’’ 

2. Itemization of third-party fees. In 

all cases creditors must state the total of 

third-party fees as a single dollar 

amount or a range except that the total 

need not include costs for property 

insurance if the creditor discloses that 

such insurance is required. A creditor 

has two options with regard to 

providing the more detailed information 

about third party fees. Creditors may 

provide a statement that the consumer 

may request more specific cost 

information about third party fees from 

the creditor. As an alternative to 

including this statement, creditors may 

provide an itemization of such fees (by 

type and amount) with the early 

disclosures. Any itemization provided 

upon the consumer’s request need not 

include a disclosure about property 

insurance. 

3. Manner of describing fees. A good 

faith estimate of the amount of fees must 

be provided. Creditors may provide, 

based on a typical or representative 

amount of credit, a range for such fees 

or state the dollar amount of such fees. 

Fees may be expressed on a unit cost 

basis, for example, $5 per $1,000 of 

credit. 

4. Rebates of third party fees. Even if 

fees imposed by third parties may be 

rebated, they must be disclosed. (See the 

commentary to § 226.5b(d)(7).)] 

fl5b(c)(15)fi[5b(d)(9)] Negative 

Amortization. 

1. Disclosure required. In transactions 

where the minimum payment will not 

or may not be sufficient to cover the 

interest that accrues on the outstanding 

balance, the creditor must disclose that 

negative amortization will or may occur. 

This disclosure is required whether or 

not the unpaid interest is added to the 

outstanding balance upon which 

interest is computed. A disclosure is not 

required merely because a loan calls for 

non-amortizing or partially amortizing 

payments. flA creditor will be deemed 

to meet the requirements of 

§ 226.5b(c)(15) by providing the 

following disclosure, as applicable: 

‘‘Your minimum payment may cover/ 

covers only part of the interest you owe 

each month and none of the principal. 

The unpaid interest will be added to 

your loan amount, which over time will 

increase the total amount you are 

borrowing and cause you to lose equity 

in your home.’’fi 

fl5b(c)(16)fi [5b(d)(10)] Transaction 

Requirements. 

1. Applicability. A limitation on 

automated teller machine usage need 

not be disclosed under this paragraph 

unless that is the only means by which 

the consumer can obtain funds. 

fl5b(c)(18) Statements About FixedRate and -Term Payment Plans. 

1. Disclosure of fixed-rate and -term 

payment plans in the table. See 

comment 5b(c)–4 regarding disclosure 

of terms relating to fixed-rate and -term 

payment plans during the draw period 

in the table required by § 226.5b(b). 

2. Disclosure of additional 

information upon request. A creditor 

generally must disclose in the table 

required by § 226.5b(b) a statement that 

the consumer may receive, upon 

request, further details about the fixedrate and -term payment plans. 

Alternatively, a creditor may provide 

additional detail about the fixed-rate 

and -term payment plans with the table 

required by § 226.5b(b). In that case, the 


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creditor must state that information 

about the fixed-rate and -term payment 

plans are provided along with the table 

required by § 226.5b(b). In disclosing 

additional information about the fixedrate and -term payment plans upon a 

consumer’s request prior to account 

opening (or along with the table 

required by § 226.5b(b)), a creditor must 

disclose in the form of a table (1) the 

information described by § 226.5b(c) 

applicable to the fixed-rate and -term 

payment plans, and (2) any fees 

imposed related to the use of the fixedrate and -term payment plans, such as 

fees to exercise the fixed-rate and -term 

payment plans or to convert a balance 

under a fixed-rate and -term payment 

feature to a variable-rate feature under 

the HELOC plan. See comment 5b(c)–2 

regarding how soon after the consumer’s 

request the creditor must disclose this 

information to the consumer. 

5b(c)(19) Required Insurance, Debt 

Cancellation, or Debt Suspension 

Coverage. 

1. Content. See Samples G–14(D) and 

G–14(E) for guidance on how to comply 

with the requirements in 

§ 226.5b(c)(19).fi 

[5b(d)(12) Disclosures for VariableRate Plans. 

1. Variable-rate provisions. Sample 

forms in appendix G–14 provide 

illustrative guidance on the variable-rate 

rules. 

Paragraph 5b(d)(12)(iv). 

1. Determination of annual 

percentage rate. If the creditor adjusts 

its index through the addition of a 

margin, the disclosure might read, 

‘‘Your annual percentage rate is based 

on the index plus a margin.’’ The 

creditor is not required to disclose a 

specific value for the margin. 

Paragraph 5b(d)(12)(viii). 

1. Preferred-rate provisions. This 

paragraph requires disclosure of 

preferred-rate provisions, where the rate 

will increase upon the occurrence of 

some event, such as the borroweremployee leaving the creditor’s employ 

or the consumer closing an existing 

deposit account with the creditor. 

2. Provisions on conversion to fixed 

rates. The commentary to 

§ 226.5b(d)(5)(ii) discusses the 

disclosure requirements for options 

permitting the consumer to convert from 

a variable rate to a fixed rate. 

Paragraph 5b(d)(12)(ix). 

1. Periodic limitations on increases in 

rates. The creditor must disclose any 

annual limitations on increases in the 

annual percentage rate. If the creditor 

bases its rate limitation on 12 monthly 

billing cycles, such a limitation should 

be treated as an annual cap. Rate 

limitations imposed on less than an 

annual basis must be stated in terms of 

a specific amount of time. For example, 

if the creditor imposes rate limitations 

on only a semiannual basis, this must be 

expressed as a rate limitation for a sixmonth time period. If the creditor does 

not impose periodic limitations (annual 

or shorter) on rate increases, the fact 

that there are no annual rate limitations 

must be stated. 

2. Maximum limitations on increases 

in rates. The maximum annual 

percentage rate that may be imposed 

under each payment option over the 

term of the plan (including the draw 

period and any repayment period 

provided for in the initial agreement) 

must be provided. The creditor may 

disclose this rate as a specific number 

(for example, 18%) or as a specific 

amount above the initial rate. For 

example, this disclosure might read, 

‘‘The maximum annual percentage rate 

that can apply to your line will be 5 

percentage points above your initial 

rate.’’ If the creditor states the maximum 

rate as a specific amount above the 

initial rate, the creditor must include a 

statement that the consumer should 

inquire about the rate limitations that 

are currently available. If an initial 

discount is not taken into account in 

applying maximum rate limitations, that 

fact must be disclosed. If separate 

overall limitations apply to rate 

increases resulting from events such as 

the exercise of a fixed-rate conversion 

option or leaving the creditor’s employ, 

those limitations also must be stated. 

Limitations do not include legal limits 

in the nature of usury or rate ceilings 

under state or federal statutes or 

regulations. 

3. Form of disclosures. The creditor 

need not disclose each periodic or 

maximum rate limitation that is 

currently available. Instead, the creditor 

may disclose the range of the lowest and 

highest periodic and maximum rate 

limitations that may be applicable to the 

creditor’s home-equity plans. Creditors 

using this alternative must include a 

statement that the consumer should 

inquire about the rate limitations that 

are currently available. 

Paragraph 5b(d)(12)(x). 

1. Maximum rate payment example. 

In calculating the payment creditors 

should assume the maximum rate is in 

effect. Any discounted or premium 

initial rates or periodic rate limitations 

should be ignored for purposes of this 

disclosure. If a range is used to disclose 

the maximum cap under 

§ 226.5b(d)(12)(ix), the highest rate in 

the range must be used for the 

disclosure under this paragraph. As an 

alternative to making disclosures based 

on each payment option, the creditor 

may choose a representative example 

within the three categories of payment 

options upon which to base this 

disclosure. (See the commentary to 

§ 226.5b(d)(5).) However, separate 

examples must be provided for the draw 

period and for any repayment period 

unless the payment is determined the 

same way in both periods. Creditors 

should calculate the example for the 

repayment period based on an assumed 

$10,000 balance. (See the commentary 

to § 226.5b(d)(5) for a discussion of the 

circumstances in which a creditor may 

use a lower outstanding balance.) 

2. Time the maximum rate could be 

reached. In stating the date or time 

when the maximum rate could be 

reached, creditors should assume the 

rate increases as rapidly as possible 

under the plan. In calculating the date 

or time, creditors should factor in any 

discounted or premium initial rates and 

periodic rate limitations. This 

disclosure must be provided for the 

draw phase and any repayment phase. 

Creditors should assume the index and 

margin shown in the last year of the 

historical example (or a more recent 

rate) is in effect at the beginning of each 

phase. 

Paragraph 5b(d)(12)(xi). 

1. Index movement. Index values and 

annual percentage rates must be shown 

for the entire 15 years of the historical 

example and must be based on the most 

recent 15 years. The example must be 

updated annually to reflect the most 

recent 15 years of index values as soon 

as reasonably possible after the new 

index value becomes available. If the 

values for an index have not been 

available for 15 years, a creditor need 

only go back as far as the values have 

been available and may start the 

historical example at the year for which 

values are first available. 

2. Selection of index values. The 

historical example must reflect the 

method of choosing index values for the 

plan. For example, if an average of 

index values is used in the plan, 

averages must be used in the example, 

but if an index value as of a particular 

date is used, a single index value must 

be shown. The creditor is required to 

assume one date (or one period, if an 

average is used) within a year on which 

to base the history of index values. The 

creditor may choose to use index values 

as of any date or period as long as the 

index value as of this date or period is 

used for each year in the example. Only 

one index value per year need be 

shown, even if the plan provides for 

adjustments to the annual percentage 

rate or payment more than once in a 

year. In such cases, the creditor can 

assume that the index rate remained 


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43592 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

constant for the full year for the purpose 

of calculating the annual percentage rate 

and payment. 

3. Selection of margin. A value for the 

margin must be assumed in order to 

prepare the example. A creditor may 

select a representative margin that it has 

used with the index during the six 

months preceding preparation of the 

disclosures and state that the margin is 

one that it has used recently. The 

margin selected may be used until the 

creditor annually updates the disclosure 

form to reflect the most recent 15 years 

of index values. 

4. Amount of discount or premium. In 

reflecting any discounted or premium 

initial rate, the creditor may select a 

discount or premium that it has used 

during the six months preceding 

preparation of the disclosures, and 

should disclose that the discount or 

premium is one that the creditor has 

used recently. The discount or premium 

should be reflected in the example for 

as long as it is in effect. The creditor 

may assume that a discount or premium 

that would have been in effect for any 

part of a year was in effect for the full 

year for purposes of reflecting it in the 

historical example. 

5. Rate limitations. Limitations on 

both periodic and maximum rates must 

be reflected in the historical example. If 

ranges of rate limitations are provided 

under § 226.5b(d)(12)(ix), the highest 

rates provided in those ranges must be 

used in the example. Rate limitations 

that may apply more often than 

annually should be treated as if they 

were annual limitations. For example, if 

a creditor imposes a 1% cap every six 

months, this should be reflected in the 

example as if it were a 2% annual cap. 

6. Assumed advances. The creditor 

should assume that the $10,000 balance 

is an advance taken at the beginning of 

the first billing cycle and is reduced 

according to the terms of the plan, and 

that the consumer takes no subsequent 

draws. As discussed in the commentary 

to § 226.5b(d)(5), creditors should not 

assume an additional advance is taken 

at the beginning of any repayment 

period. If applicable, the creditor may 

assume the $10,000 is both the advance 

and the credit limit. (See the 

commentary to § 226.5b(d)(5) for a 

discussion of the circumstances in 

which a creditor may use a lower 

outstanding balance.) 

7. Representative payment options. 

The creditor need not provide an 

historical example for all of its various 

payment options, but may select a 

representative payment option within 

each of the three categories of payments 

upon which to base its disclosure. (See 

the commentary to § 226.5b(d)(5).) 

8. Payment information. The payment 

figures in the historical example must 

reflect all significant program terms. For 

example, features such as rate and 

payment caps, a discounted initial rate, 

negative amortization, and rate 

carryover must be taken into account in 

calculating the payment figures if these 

would have applied to the plan. The 

historical example should include 

payments for as much of the length of 

the plan as would occur during a 15- 

year period. For example: 

• If the draw period is 10 years and 

the repayment period is 15 years, the 

example should illustrate the entire 10- 

year draw period and the first 5 years 

of the repayment period. 

• If the length of the draw period is 

15 years and there is a 15-year 

repayment phase, the historical example 

must reflect the payments for the 15- 

year draw period and would not show 

any of the repayment period. No 

additional historical example would be 

required to reflect payments for the 

repayment period. 

• If the length of the plan is less than 

15 years, payments in the historical 

example need only be shown for the 

number of years in the term. In such 

cases, however, the creditor must show 

the index values, margin and annual 

percentage rates and continue to reflect 

all significant plan terms such as rate 

limitations for the entire 15 years. 

A creditor need show only a single 

payment per year in the example, even 

though payments may vary during a 

year. The calculations should be based 

on the actual payment computation 

formula, although the creditor may 

assume that all months have an equal 

number of days. The creditor may 

assume that payments are made on the 

last day of the billing cycle, the billing 

date or the payment due date, but must 

be consistent in the manner in which 

the period used to illustrate payment 

information is selected. Information 

about balloon payments and remaining 

balance may, but need not, be reflected 

in the example. 

9. Disclosures for repayment period. 

The historical example must reflect all 

features of the repayment period, 

including the appropriate index values, 

margin, rate limitations, length of the 

repayment period, and payments. For 

example, if different indices are used 

during the draw and repayment periods, 

the index values for that portion of the 

15 years that reflect the repayment 

period must be the values for the 

appropriate index. 

10. Reverse mortgages. The historical 

example for reverse mortgages should 

reflect 15 years of index values and 

annual percentage rates, but the 

payment column should be blank until 

the year that the single payment will be 

made, assuming that payment is 

estimated to occur within 15 years. (See 

the commentary to § 226.5b(d)(5) for a 

discussion of reverse mortgages.) 

5b(e) Brochure 

1. Substitutes. A brochure is a suitable 

substitute for the Board’s home-equity 

brochure if it is, at a minimum, 

comparable to the Board’s brochure in 

substance and comprehensiveness. 

Creditors are permitted to provide more 

detailed information than is contained 

in the Board’s brochure. 

2. Effect of third-party delivery of 

brochure. If a creditor determines that a 

third party has provided a consumer 

with the required brochure pursuant to 

section 226.5b(c), the creditor need not 

give the consumer a second brochure.] 

5b[(g)]fl(d)fi Refund of Fees 

1. Refund of fees required. If any 

disclosed term, including any term 

provided upon request pursuant to 

section 226.5bfl(c)fi[(d)], changes 

between the time the early disclosures 

are provided to the consumer and the 

time the plan is opened, and the 

consumer [as a result] decides to not 

enter into the plan, a creditor must 

refund all fees paid by the consumer [in 

connection with the application]. All 

fees, including credit-report fees and 

appraisal fees, must be refunded 

whether such fees are paid to the 

creditor or directly to third parties. A 

consumer is entitled to a refund of fees 

under these circumstances whether or 

not terms are guaranteed by the creditor 

under section 

226.5bfl(c)(4)(i)fi[(d)(2)(i)]. 

2. Variable-rate plans. The right to a 

refund of fees does not apply to changes 

in the annual percentage rate resulting 

from fluctuations in the index value in 

a variable-rate plan. Also, if the 

maximum annual percentage rate is 

[expressed as] an amount over the initial 

rate, the right to refund of fees would 

not apply to changes in the cap resulting 

from fluctuations in the index value. 

3. Changes in terms. If a term, such as 

fla feefi [the maximum rate], is stated 

as a range in the early disclosures 

flrequired under § 226.5b(b)fi, and the 

term ultimately applicable to the plan 

falls within that range, a change does 

not occur for purposes of this section. If, 

however, no range is used and the term 

is changed (for example, a rate cap of 6 

rather than 5 percentage points over the 

initial rate), the change would permit 

the consumer to obtain a refund of fees. 

If a fee imposed by the creditor is stated 

in the early disclosures as an estimate 

and the fee changes, the consumer could 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43593 

elect to not enter into the agreement and 

would be entitled to a refund of fees. 

[On the other hand, if fees imposed by 

third parties are disclosed as estimates 

and those fees change, the consumer is 

not entitled to a refund of fees paid in 

connection with the application. 

Creditors must, however, use the best 

information reasonably available in 

providing disclosures about such fees.] 

4. Timing of refunds and relation to 

other provisions. The refund of fees 

must be made as soon as reasonably 

possible after the creditor is notifiedfl, 

after a term has changed,fi that the 

consumer is not entering into the plan 

[because of the changed term,] or that 

the consumer wants a refund of fees. 

The fact that an application fee may be 

refunded to some applicants under this 

provision does not render such fees 

finance charges under section 

226.4(c)(1) of the regulation. 

5b[(h)] fl(e)fi Imposition of 

Nonrefundable Fees 

1. Collection of fees after consumer 

receives disclosures. A fee may be 

collected after the consumer receives 

the disclosures flrequired under this 

sectionfi [and brochure] and before the 

expiration of three flbusinessfi days, 

although the fee must be refunded if, 

within three flbusinessfi days of 

receiving the required information, the 

consumer decides not to enter into the 

agreement. In such a case, the consumer 

must be notified that the fee is 

refundable for three flbusinessfi days. 

The notice must be clear and 

conspicuous and in writing, and flmust 

fi [may] be included with the 

disclosures required under 

§ 226.5b[(d)]fl(b)fi [or as an 

attachment to them]. If disclosures 

flrequired under § 226.5b(b)fi [and 

brochure] are mailed to the consumer, 

fl§ 226.5b(e)fi [footnote 10d] of the 

regulation provides that a 

nonrefundable fee may not be imposed 

until six business days after the mailing. 

2. Collection of fees before consumer 

receives disclosures. An application fee 

may be collected before the consumer 

receives the disclosures flrequired 

under § 226.5b(b)fi [and brochure] (for 

example, when an application 

contained in a magazine is mailed in 

with an application fee) provided that 

[it] flthe feefi remains refundable until 

three business days after the consumer 

receives the section 226.5bfl(b)fi 

disclosures. No other fees except a 

refundable membership fee may be 

collected until after the consumer 

receives the disclosures required under 

section 226.5bfl(b)fi. 

3. Relation to other provisions. A fee 

collected before disclosures flrequired 

under § 226.5b(b)fi are provided may 

become nonrefundable except that, 

under section 226.5b[(g)]fl(d)fi, it 

must be refunded if fla term changes 

andfi the consumer elects not to enter 

into the plan [because of a change in 

terms]. (Of course, all fees must be 

refunded if the consumer later rescinds 

under section 226.15.) 

fl4. Definition of ‘‘Business Day’’. For 

purposes § 226.5b(e), the more precise 

definition of business day (meaning all 

calendar days except Sundays and 

specified federal holidays) under 

§ 226.2(a)(6) applies. See comment 

2(a)(6)–2.fi 

5b(f) Limitations on home-equity 

plans. 

Paragraph 5b(f)(2)(ii). 

fl1. Under this paragraph, a creditor 

may not terminate and accelerate a 

home-equity plan, or take the lesser 

actions of permanently suspending 

advances or reducing the credit limit, 

imposing a penalty rate of interest, or 

adding or increasing a fee (as permitted 

under comment 5b(f)(2)–2, unless the 

consumer’s required minimum payment 

is not received by the creditor within 30 

days after the due date for that payment. 

This paragraph does not prohibit a 

creditor from imposing a late-payment 

fee disclosed in the agreement, or from 

temporarily suspending advances or 

reducing the credit limit for a ‘‘default 

of any material obligation’’ (as permitted 

under § 226.5b(f)(3)(vi)(C)), for a 

delinquency of 30 days or fewer. 

2. A creditor may not take any action 

under this paragraph unless the creditor 

complies with notice requirements 

under § 226.9(j)(3), which requires 

notice of the action taken and the 

reasons for the action and, if applicable, 

notice of an increased annual 

percentage rate (under § 226.9(i)(1)) or 

notice of any other change in terms, 

such as the addition or increase of a fee 

(under § 226.9(c)(1)). This section does 

not override any state or other law that 

requires a right to cure notice, or 

otherwise places a duty on the creditor 

before it can terminate a plan and 

accelerate the balance.fi 

[1. Failure to meet repayment terms. 

A creditor may terminate a plan and 

accelerate the balance when the 

consumer fails to meet the repayment 

terms provided for in the agreement. 

However, a creditor may terminate and 

accelerate under this provision only if 

the consumer actually fails to make 

payments. For example, a creditor may 

not terminate and accelerate if the 

consumer, in error, sends a payment to 

the wrong location, such as a branch 

rather than the main office of the 

creditor. If a consumer files for or is 

placed in bankruptcy, the creditor may 

terminate and accelerate under this 

provision if the consumer fails to meet 

the repayment terms of the agreement. 

This section does not override any state 

or other law that requires a right to cure 

notice, or otherwise places a duty on the 

creditor before it can terminate a plan 

and accelerate the balance.] 

* * * * * 

flParagraph 5b(f)(2)(iv) 

1. ‘‘Federal law’’ under this provision 

is limited to any federal statute, its 

implementing regulation, and official 

interpretations issued by the regulatory 

agency with authority to implement the 

statute or regulation.fi 

* * * * * 

Paragraph 5b(f)(3). 

1. Scope of provision. In general, a 

creditor may not change the terms of a 

plan after it is opened. For example, a 

creditor may not increase any fee or 

impose a new fee once the plan has 

been opened, even if the fee is charged 

by a third party, such as a credit 

reporting agency, for a service. The 

change-of-terms prohibition applies to 

all features of a plan, not only those 

required to be disclosed under this 

section. [For example, this provision 

applies to charges imposed for late 

payment, although this fee is not 

required to be disclosed under 

§ 226.5b(d)(7).] 

2. [Charges not covered] flCertain tax 

and insurance charges.fi [There are 

three charges not covered by this 

provision.] A creditor may pass on 

increases in taxes since such charges are 

imposed by a governmental body and 

are beyond the control of the creditor. 

In addition, a creditor may pass on 

increases in premiums for property 

insurance that are excluded from the 

finance charge under § 226.4(d)(2), since 

such insurance provides a benefit to the 

consumer independent of the use of the 

line and is often maintained 

notwithstanding the line. A creditor also 

may pass on increases in premiums for 

credit insurance that are excluded from 

the finance charge under § 226.4(d)(1), 

since the insurance is voluntary and 

provides a benefit to the consumer. 

fl3. Certain default-related charges. 

This provision does not prohibit a 

creditor from passing on to the 

consumer bona fide and reasonable 

costs incurred by the creditor for 

collection activity after default, to 

protect the creditor’s interest in the 

property securing the plan, or to 

foreclose on the securing property. 

These costs might include, among 

others, attorneys’ fees, court costs, 

property repairs, payment of overdue 

taxes, or paying sums secured by a lien 

with priority over the lien securing the 


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43594 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

home-equity plan. The requirement that 

these costs be ‘‘bona fide and 

reasonable’’ means that the creditor 

must actually incur the costs and that 

the amount of the costs must be 

reasonably related to the services related 

to debt collection, collateral protection 

or foreclosure. A creditor may pass 

these costs on to the consumer only if 

the creditor incurs these costs due to the 

consumer’s default on an obligation 

under the agreement for the plan.fi 

Paragraph 5b(f)(3)(i). 

1. Changes provided for in agreement. 

A creditor may provide in the initial 

agreement that further advances may be 

prohibited or the credit line reduced 

during any period in which the 

maximum annual percentage rate is 

reached. A creditor may provide for 

other specific changes to take place 

upon the occurrence of specific events. 

Both the triggering event and the 

resulting modification must be stated 

with specificity. For example, in homeequity plans for employees, the 

agreement could provide that a 

specified higher rate or margin will 

apply if the borrower’s employment 

with the creditor ends, flor upon the 

occurrence of some other triggering 

event. However, the agreement would 

not be permitted to provide for a rate or 

margin higher than the one that would 

have been available to the consumer in 

the absence of special circumstances 

such as employment with the creditor 

(unless the triggering event is a 

circumstance that would permit the rate 

to be increased as a penalty under 

§ 226.5b(f)(2) and comment 5b(f)(2)– 

2)).fi A contract could contain a 

stepped-rate or stepped-fee schedule 

providing for specified changes in the 

rate or the fees on certain dates or after 

a specified period of time. A creditor 

also may provide in the initial 

agreement that it will be entitled to a 

share of the appreciation in the value of 

the property as long as the specific 

appreciation share and the specific 

circumstances which require the 

payment of it are set forth. A contract 

may permit a consumer to switch among 

minimum-payment options during the 

plan. 

* * * * * 

Paragraph 5b(f)(3)(iv). 

1. Beneficial changes. After a plan is 

opened, a creditor may make changes 

that unequivocally benefit the 

consumer. Under this provision, a 

creditor may offer more options to 

consumers, as long as existing options 

remain. For example, a creditor may 

offer the consumer the option of making 

lower monthly payments or could 

increase the credit limit. Similarly, a 

creditor wishing to extend the length of 

the plan on the same terms may do so. 

Creditors are permitted to temporarily 

reduce the rate or fees charged during 

the plan (though change-in-terms notice 

flwouldfi [may] be required under 

§ 226.9(c)fl(1)fi when the rate or fees 

are returned to their original level fl, 

unless these features are explained on 

the account-opening disclosure 

statement required under § 226.6 

(including an explanation of the terms 

upon resumption). Also, as long as the 

45-day advance notice timing 

requirement of § 226.9(c)(1) is met, 

notice of the increase in the rate or fees 

may be included with a notice to the 

consumer that the rate or fees are being 

reduced.fi Creditors also may offer an 

additional means of access to the line, 

even if fees are associated with using 

the device, provided the consumer 

retains the ability to use prior access 

devices on the original terms. 

Paragraph 5b(f)(3)(v). 

1. Insignificant changes. A creditor is 

permitted to make insignificant changes 

after a plan is opened. This rule 

accommodates operational and similar 

problems, such as changing the address 

of the creditor for purposes of sending 

payments. It does not permit a creditor 

to change a term such as a fee charged 

for late payments. 

2. Examples of insignificant changes. 

Creditors may make minor changes to 

features such as the billing cycle date, 

the payment due date (as long as the 

consumer does not have a diminished 

grace period if one is provided), and the 

day of the month on which index values 

are measured to determine changes to 

the rate for variable-rate plans. A 

creditor also may change its rounding 

practice in accordance with the 

tolerance rules set forth in § 226.14 (for 

example, stating an exact APR is 

14.3333 percent as 14.3 percent, even if 

it had previously been stated as 14.33 

percent.) A creditor may change the 

balance computation method it uses 

only if the change produces an 

insignificant difference in the finance 

charge paid by the consumer. For 

example, a creditor may switch from 

using the average-daily-balance method 

(including new transactions) to the daily 

balance method (including new 

transactions). flA creditor may also 

eliminate a means of access to the line, 

as long as one or more access devices 

available at account opening remain 

available to the consumer on the 

original terms. For example, a creditor 

could eliminate the option of accessing 

a plan via credit card, but only if the 

creditor originally offered access to the 

plan via check or a credit card, and the 

option of accessing the account via 

check remains, based on the terms in 

the initial agreement. A creditor may 

not change the original terms on which 

an existing access device is available 

under this provision, although such 

change may be permitted as a 

‘‘beneficial change’’ under 

§ 226.5b(f)(3)(iv).fi 

Paragraph 5b(f)(3)(vi). 

1. Suspension of credit or reduction of 

credit limit. A creditor may prohibit 

additional extensions of credit or reduce 

the credit limit in the circumstances 

specified in this section of the 

regulation. In addition, as discussed 

under § 226.5b(f)(3)(i), a creditor may 

contractually reserve the right to take 

such actions when the maximum annual 

percentage rate is reached. A creditor 

may not take these actions under other 

circumstances, unless the creditor 

would be permitted to terminate the line 

and accelerate the balance as described 

in section 226.5b(f)(2). The creditor’s 

right to reduce the credit limit does not 

permit reducing the limit below the 

amount of the outstanding balance if 

this would require the consumer to 

make a higher payment. 

[2. Temporary nature of suspension or 

reduction. Creditors are permitted to 

prohibit additional extensions of credit 

or reduce the credit limit only while one 

of the designated circumstances exists. 

When the circumstance justifying the 

creditor’s action ceases to exist, credit 

privileges must be reinstated, assuming 

that no other circumstance permitting 

such action exists at that time.] 

[3. Imposition of fees. If not 

prohibited by state law, a creditor may 

collect only bona fide and reasonable 

appraisal and credit-report fees if such 

fees are actually incurred in 

investigating whether the condition 

permitting the freeze continues to exist. 

A creditor may not, in any 

circumstances, charge a fee to reinstate 

a credit line that has been suspended or 

reduced once the condition has been 

determined not to exist.] 

[4. Reinstatement of credit privileges. 

Creditors are responsible for ensuring 

that credit privileges are restored as 

soon as reasonably possible after the 

condition that permitted the creditor’s 

action ceases to exist. One way a 

creditor can meet this responsibility is 

to monitor the line on an ongoing basis 

to determine when the condition ceases 

to exist. The creditor must investigate 

the condition frequently enough to 

assure itself that the condition 

permitting the freeze continues to exist. 

The frequency with which the creditor 

must investigate to determine whether a 

condition continues to exist depends 

upon the specific condition permitting 

the freeze. As an alternative to such 


sroberts on DSKD5P82C1PROD with PROPOSALS
Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43595 

monitoring, the creditor may shift the 

duty to the consumer to request 

reinstatement of credit privileges by 

providing a notice in accordance with 

§ 226.9(c)(3). A creditor may require a 

reinstatement request to be in writing if 

it notifies the consumer of this 

requirement on the notice provided 

under § 226.9(c)(3). Once the consumer 

requests reinstatement, the creditor 

must promptly investigate to determine 

whether the condition allowing the 

freeze continues to exist. Under this 

alternative, the creditor has a duty to 

investigate only upon the consumer’s 

request.] 

[5.]fl2.fi Suspension of credit 

privileges following request by 

consumer. A creditor may honor a 

specific request by a consumer to 

suspend credit privileges flor reduce 

the credit limitfi. If the consumer later 

requests that the creditor reinstate credit 

privileges, the creditor must do so 

provided no other circumstance 

justifying a suspension flor credit limit 

reductionfi exists at that time. flIf a 

circumstance justifying a suspension or 

credit limit reduction exists at that time 

and the creditor therefore does not 

reinstate credit privileges, the creditor 

must comply with the notice 

requirements of § 226.9(j)(1) or (j)(3), as 

applicable.fi If two or more consumers 

are obligated under a plan and each has 

the ability to take advances, the 

agreement may permit any of the 

consumers to direct the creditor not to 

make further advances flor to reduce 

the credit limitfi. A creditor may 

require that all persons obligated under 

a plan request reinstatement. 

[6.]fl4.fi Significant decline 

definedfl—safe harborsfi. What 

constitutes a significant decline for 

purposes of § 226.5b(f)(3)(vi)(A) will 

vary according to individual 

circumstances. flAt a minimum, this 

means that compliance with this 

provision requires the creditor to assess 

the value of the property based on 

specific characteristics of the property. 

For plans with a combined loan-to-value 

ratio at origination of 90 percent or 

higher, a five (5) percent reduction in 

the property value would constitute a 

significant decline under 

§ 226.5b(f)(3)(vi)(A). For plans with a 

combined loan-to-value ratio at 

origination of under 90 percent, a 

decline in value would be significant 

under § 226.5b(f)(3)(vi)(A)fi if the value 

of the dwelling declines such that the 

initial difference between the credit 

limit and the available equity (based on 

the property’s [appraised] value for 

purposes of the plan) is reduced by 50 

percent. For example, assume that a 

house with a first mortgage of $50,000 

is [appraised] flvaluedfi at origination 

at $100,000 and the credit limit is 

$30,000. The difference between the 

credit limit and the available equity is 

$20,000, half of which is $10,000. The 

creditor could prohibit further advances 

or reduce the credit limit if the value of 

the property declines from $100,000 to 

$90,000. [This provision does not 

require a creditor to obtain an appraisal 

before suspending credit privileges, 

although a significant decline must 

occur before suspension can occur.] 

fl5. Property valuation tools. Section 

226.5b(f)(3)(vi)(A) does not require a 

creditor to obtain an appraisal before 

suspending credit privileges or reducing 

the credit limit, although a significant 

decline must occur before a creditor 

suspends advances or reduces the credit 

limit. If not prohibited by state law, 

property valuation methods other than 

an appraisal that may be appropriate to 

use under this provision include, but 

are not limited to, automated valuation 

models, tax assessment valuations, and 

broker price opinions. Any property 

valuation method must, however, 

consider specific characteristics of the 

property, such as square footage and 

number of rooms, and not merely 

estimate the value based on property 

values or re-sale prices generally in a 

particular geographic area.fi 

[7.]fl6.fi Material change in 

financial circumstances. Two 

conditions must be met for 

§ 226.5b(f)(3)(vi)(B) to apply. First, there 

must be a ‘‘material change’’ in the 

consumer’s financial circumstances[, 

such as a significant decrease in the 

consumer’s income]. flWays in which 

this first condition may be met include, 

but are not limited to, demonstration of 

a significant decrease in the consumer’s 

income, or credit report information 

showing late payments or nonpayments 

on the part of the consumer, such as 

delinquencies, defaults, or derogatory 

collections or public records related to 

the consumer’s failure to pay other 

obligations according to their terms.fi 

Second, as a result of this change, the 

creditor must have a reasonable belief 

that the consumer will be unable to 

fulfill the payment obligations of the 

plan. flIn all cases, the creditor must 

have a basis to support the creditor’s 

reasonable belief that the consumer will 

be unable to fulfill the repayment 

obligations of the plan.fi A creditor 

may[, but does not have to,] rely onfl, 

for example, the consumer’s failure to 

pay other debts, such as significant 

delinquencies, defaults, or derogatory 

collections or public recordsfi [specific 

evidence (such as the failure to pay 

other debts)] in concluding that the 

second part of the test has been met. 

flHowever, late payments of 30 days or 

fewer, by themselves, would not be 

sufficient to satisfy the second part of 

the test. The payment failures that may 

serve as evidence under either prong of 

the two-part test must have occurred 

within a reasonable time from the date 

of the creditor’s review of the 

consumer’s credit performance. In all 

cases, a payment failure will be deemed 

to have occurred within a reasonable 

time from the date of the creditor’s 

review if it occurred within six months 

of the creditor’s suspending advances or 

reducing the credit limit, and the 

consumer has not brought the account 

or other obligation current as of the time 

of the review.fi A creditor may prohibit 

further advances or reduce the credit 

limit under this section if a consumer 

files for or is placed in bankruptcy. 

[8.]fl7.fi Default of a material 

obligation. Creditors flmustfi [may] 

specify events that would qualify as a 

default of a material obligation under 

§ 226.5b(f)(3)(vi)(C). For example, a 

creditor may provide that default of a 

material obligation will exist if the 

consumer moves out of the dwelling or 

permits an intervening lien to be filed 

that would take priority over future 

advances made by the creditor. 

[9.]fl8.fi Government limits on the 

annual percentage rate. Under 

§ 226.5b(f)(3)(vi)(D), a creditor may 

prohibit further advances or reduce the 

credit limit if, for example, a state usury 

law is enacted which prohibits a 

creditor from imposing the agreed-upon 

annual percentage rate. 

fl9. Suspensions and credit limit 

reductions required by federal law. 

‘‘Federal law’’ under this provision is 

limited to any federal statute, its 

implementing regulation, and official 

interpretations issued by the regulatory 

agency with authority to implement the 

statute or regulation. A creditor may 

prohibit either a single advance or 

multiple advances, depending on what 

the applicable federal law requires.fi 

fl5b(g) Reinstatement of Credit 

Privileges.fi 

1. Temporary nature of suspension or 

reduction. Creditors are permitted to 

prohibit additional extensions of credit 

or reduce the credit limit flunder 

§ 226.5b(f)(3)(i) and (f)(3)(vi)fi only 

while one of the designated 

circumstances exists. When the 

circumstance justifying the creditor’s 

action ceases to exist, the creditor must 

reinstate the consumer’s credit 

privileges, assuming that no other 

circumstance permitting the creditor’s 

action exists at that time. 

2. Imposition of fees to reinstate a 

credit line. A creditor may not, in any 

circumstances, charge a fee to reinstate 


sroberts on DSKD5P82C1PROD with PROPOSALS
43596 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

a credit line flthat has been suspended 

or reduced under paragraphs 

226.5b(f)(3)(i) or (f)(3)(vi)fi once [the] 

flnofi condition flpermitting the 

suspension or reductionfi [has been 

determined not to] existflsfi. 

flParagraph 5b(g)(1).fi 

1. Creditor responsibility for restoring 

credit privileges. Creditors are 

responsible for ensuring that credit 

privileges are restored as soon as 

reasonably possible after the condition 

that permitted the creditor’s action 

ceases to exist and flno other condition 

permitting a freeze or credit limit 

reduction exists at that time.fi One way 

flin whichfi a creditor can meet this 

obligation is to monitor the line on an 

ongoing basis to determine when the 

condition permitting the freeze or credit 

limit reduction ceases to exist. The 

creditor must investigate the condition 

frequently enough to assure itself that 

the condition permitting the freeze or 

credit limit reduction continues to exist. 

The frequency with which the creditor 

must investigate to determine whether a 

condition continues to exist depends 

upon the specific condition permitting 

the freeze. As an alternative to [such] 

flongoingfi monitoring, the creditor 

may shift the duty to the consumer to 

request reinstatement of credit 

privileges. [A creditor may require a 

reinstatement request to be in writing if 

it notifies the consumer of this 

requirement on the notice provided 

under § 226.9(c)(3). Once the consumer 

requests reinstatement, the creditor 

must promptly investigate to determine 

whether the condition allowing the 

freeze continues to exist. Under this 

alternative, the creditor has a duty to 

investigate only upon the consumer’s 

request.] 

flParagraph 5b(g)(2)(i). 

1. Disclosure of consumer obligation 

to request reinstatement. The creditor 

may shift the duty to the consumer to 

request reinstatement if, pursuant to 

§ 226.9(j)(1), the creditor discloses that 

the consumer must request 

reinstatement.fi 

fl Paragraph 5b(g)(2)(ii). 

1. Creditor responsibility to 

investigate reinstatement requests.fi 

Once the consumer requests 

reinstatement, the creditor must 

promptly investigate to determine 

whether the condition allowing the 

[freeze continues to] flsuspension or 

credit limit reductionfi existflsfi. The 

investigation should verify that the 

information on which the creditor relied 

to take action in fact pertained to the 

specific property securing the affected 

plan (as with a property valuation) or to 

the specific consumer (as with a credit 

report). To investigate whether a 

significant decline in property value 

exists under § 226.5b(f)(3)(vi)(A), the 

creditor should reassess the value of the 

property securing the line based on an 

updated property valuation meeting the 

standards in comment 5b(f)(3)(vi)–5. To 

investigate whether a material change in 

the consumer’s financial circumstances 

exists under § 226.5b(f)(3)(vi)(B), the 

creditor should obtain and evaluate 

information sufficient to assess whether 

the original finding on which action was 

based was accurate or, if accurate, 

remains current.fi 

flParagraph 5b(g)(3). 

1. Duty to provide documentation of 

property value. The creditor has a duty 

to provide to the consumer, upon 

request, a copy of documentation 

supporting the property value on which 

the creditor relied to suspend advances 

or reduce the credit limit due to a 

significant decline in the value of the 

property securing the line under 

§ 226.5b(f)(vi)(A), or to continue 

suspension or reduction of an account 

due to a significant decline in the 

property value under § 226.5b(f)(vi)(A). 

2. Appropriate documentation of 

property value. Appropriate 

documentation supporting the property 

value on which the action was based 

under this paragraph would include, as 

applicable, a copy of the appraisal 

report or a copy of any written evidence 

of an automated valuation model, tax 

assessment value, broker price opinion, 

or other valuation method used that 

clearly and conspicuously shows the 

property value specific to the subject 

property and factors considered to 

obtain the value.fi 

* * * * * 

[5b(g)]fl5b[(d)]fi 

* * * * * 

[5b(h)]fl5b[(e)]fi 

* * * * * 

§ 226.6—Account-opening 

Disclosures. 

6(a) Rules affecting home-equity 

plans. 

fl1. Fixed-rate and -term payment 

plans during draw period. Under some 

home-equity plans, a creditor will 

permit the consumer to repay all or part 

of the balance during the draw period at 

a fixed rate (rather than a variable rate) 

and over a specified time period. To 

illustrate, a variable-rate plan may 

permit a consumer to elect during a tenyear draw period to repay all or a 

portion of the balance over a three-year 

period at a fixed rate. A creditor 

generally may not disclose the terms 

applicable to this feature in the accountopening table required under 

§ 226.6(a)(2), except as required under 

§ 226.6(a)(2)(xix). A creditor must, 

however, disclose fixed-rate and -term 

payment features in the accountopening table if they are the only 

payment plans offered during the draw 

period of the plan. (See § 226.6(a)(2).) 

Even though a creditor generally may 

not disclose the terms of fixed-rate and 

-term payment plans in the accountopening table, the creditor must disclose 

information about these payment plans 

as required by § 226.6(a)(3), (a)(4) and 

(a)(5). For example, a creditor must 

disclose fee and rate information related 

to these features under § 226.6(a)(3) and 

(a)(4), and information about payment 

and other terms related to these features 

under § 226.6(a)(5)(v). 

2. Disclosures for the repayment 

period. The creditor must provide the 

disclosures under § 226.6 for both the 

draw and repayment phases when 

giving the disclosures under § 226.6. To 

the extent required disclosures are the 

same for the draw and repayment 

phases, the creditor need not repeat 

such information, as long as it is clear 

that the information applies to both 

phases. 

6(a)(1) Form of disclosures; tabular 

format. 

1. Relation to tabular disclosures 

required under § 226.5b(b). The 

commentary to § 226.5b(b) and (c) 

regarding format and content 

requirements are also applicable to 

disclosures required by § 226.6(a)(2), 

except for the following: 

i. A creditor may not disclose above 

the account-opening table a statement 

that the consumer has applied for a 

home-equity line of credit. 

ii. A creditor may not disclose below 

the account-opening table an 

identification of any disclosed term that 

is subject to change prior to opening the 

plan. 

iii. A creditor may not disclose in the 

account-opening table a statement about 

the right to a refund of fees pursuant to 

§ 226.5b(d) and (e). 

iv. A creditor must disclose the 

account number as part of the 

identification information required by 

§ 226.6(a)(2)(i)(A). 

v. With respect to the statements 

about the conditions under which the 

creditor may take certain actions, such 

as terminating the plan, a creditor must 

indicate in the account-opening table 

that information about the conditions is 

provided in the account-opening 

disclosures or agreement, as applicable. 

vi. A creditor must disclose in the 

account-opening table the payment 

terms applicable to the plan that will 

apply to the consumer at account 

opening (and may not disclose payment 

terms for two possible payment plans as 

allowed under § 226.5b(c)(9)(ii)(B)). 


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viii. A creditor must disclose in the 

account-opening table the total of all 

one-time fees imposed by the creditor 

and third parties to open the plan, and 

may not disclose the highest amount of 

possible fees as allowed under 

§ 226.5b(c)(11). In addition, a creditor 

must disclose in the account-opening 

table an itemization of all one-time fees 

imposed by the creditor and third 

parties to open the plan, and may not 

disclose a range for those fees, as 

otherwise allowed under 

§ 226.5b(c)(11). A creditor also must 

include in the account-opening table a 

cross-reference from the disclosure of 

the total of one-time fees for opening an 

account, indicating that the itemization 

of the fees is located elsewhere in the 

table. 

ix. A creditor must include in the 

account-opening table the following fees 

(that are not required to be disclosed in 

the table under § 226.5b(b)): Latepayment fees; over-the-limit fees; 

transaction charges; returned-payment 

fees; and fees for failure to comply with 

transaction limitations. 

x. A creditor must include in the 

account-opening table a statement that 

other fees are located elsewhere in the 

table, and a statement that information 

about other fees is included in the 

account-opening disclosures or 

agreement, as applicable. 

xi. A creditor must include in the 

account-opening table a statement that 

information about the fixed-rate and 

-term payment plans is disclosed in the 

account-opening disclosures or 

agreement, as applicable. 

xii. A creditor must include below the 

account-opening table an explanation of 

whether or not a grace period exists for 

all features on the account. 

xiii. A creditor must include below 

the account-opening table the name of 

the balance computation method used 

for each feature of the account and state 

that an explanation of the balance 

computation method(s) is provided in 

the account-opening disclosures or 

agreement, as applicable. 

xiv. A creditor must state below the 

account-opening table that consumers’ 

billing rights are provided in the 

account-opening disclosures or 

agreement, as applicable. 

xv. A creditor may not disclose below 

the account-opening table a statement 

that the consumer may be entitled to a 

refund of all fees paid if the consumer 

decides not to open the plan; and a 

cross reference to the ‘‘Fees’’ section in 

the table described in paragraph (b)(2)(i) 

of this section. 

xvi. A creditor must disclose below 

the account-opening table a statement 

that the consumer should confirm that 

the terms disclosed in the table are the 

same terms for which the consumer 

applied. 

xvii. The applicable forms providing 

safe harbors for account-opening tables 

are under Appendix G–15 to part 226. 

2. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

§ 226.6(a) disclosures. 

3. Terminology. Section 226.6(a)(1)(i) 

generally requires that the headings, 

content and format of the tabular 

disclosures be substantially similar, but 

need not be identical, to the applicable 

tables in appendix G–15 to part 226; but 

see § 226.5(a)(2) for terminology 

requirements applicable to disclosures 

provided pursuant to § 226.6(a). 

6(a)(2) Required disclosures for 

account-opening table for home-equity 

plans. 

1. Fixed-rate and -term payment 

plans. See comment 6(a)–1 for guidance 

on disclosing information related to 

fixed-rate and -term payment plans. 

Paragraph 6(a)(2)(vii) Fees imposed 

by the creditor and third parties to open 

the plan. 

1. Manner of disclosure. A creditor 

must disclose in the account-opening 

table the total of all one-time fees 

imposed by the creditor and third 

parties to open the plan, and may not 

disclose the highest amount of possible 

fees as allowed under § 226.5b(c)(11) for 

the disclosure table required under 

§ 226.5b(b). In addition, a creditor must 

disclose in the account-opening table an 

itemization of all one-time fees imposed 

by the creditor and third parties to open 

the plan, and may not disclose a range 

for those fees, as otherwise allowed 

under § 226.5b(c)(11) for the disclosure 

table required under § 226.5b(b). 

Paragraph 6(a)(2)(x) 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 § 226.4(c)(2) for 

additional guidance on late-payment 

fees. See Samples G–15(B), G–15(C) and 

G–15(D) for guidance on how to disclose 

clearly and conspicuously the latepayment fee.) 

Paragraph 6(a)(2)(xi) 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. (But see § 226.9(j)(2) for 

limitations on these fees.) See Samples 

G–15(B), G–15(C), and G–15(D) for 

guidance on how to disclose clearly and 

conspicuously the over-the-limit fee. 

Paragraph 6(a)(2)(xii) Transaction 

charges. 

1. Charges imposed by person other 

than creditor. 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 § 226.9(d)(1). 

2. Foreign transaction fees. A 

transaction charge imposed by the 

creditor for use of the home-equity plan 

includes any fee imposed by the 

creditor for transactions 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 

creditor.) See Sample G–15(D) for 

guidance on how to disclose a foreign 

transaction fee for use of a credit card 

where the same foreign transaction fee 

applies for purchases and cash advances 

in a foreign currency, or that take place 

outside the United States or with a 

foreign merchant. 

Paragraph 6(a)(2)(xxi) Grace period. 

1. Grace period. Creditors must state 

any conditions on the applicability of 

the grace period. A creditor that offers 

a grace period on all types of 

transactions for the account and 

conditions the grace period on the 

consumer paying his or her outstanding 

balance in full by the due date each 

billing cycle, or on the consumer paying 

the outstanding balance in full by the 

due date in the previous and/or the 

current billing cycle(s) will be deemed 

to meet these requirements by providing 

the following disclosure, as applicable: 

‘‘Your due date is [at least] ___ days 

after the close of each billing cycle. We 

will not charge you interest on your 

account if you pay your entire balance 

by the due date each month.’’ 

2. No grace period. Creditors may use 

the following language to describe that 

no grace period is offered, as applicable: 

‘‘We will begin charging interest on 

[applicable transactions] on the date the 

transaction is posted to your account.’’ 

Paragraph 6(b)(2)(xxii) Balance 

computation method. 

1. Form of disclosure. In cases where 

the creditor uses a balance computation 

method that is identified by name in the 

regulation, the creditor must disclose 

below the table only the name of the 

method. In cases where the creditor uses 

a balance computation method that is 

not identified by name in the regulation, 

the disclosure below the table must 

clearly explain the method in as much 


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43598 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

detail as set forth in the descriptions of 

balance computation methods in 

§ 226.5a(g). The explanation need not be 

as detailed as that required for the 

disclosures under § 226.6(a)(4)(i)(D). 

(See the commentary to § 226.5a(g) for 

guidance on particular methods.) 

2. Content. See Samples G–15(B), G– 

15(C) and G–15(D) for guidance on how 

to disclose the balance computation 

method where the same method is used 

for all features on the account. 

6(a)(3) Disclosure of charges imposed 

as part of home-equity plansfi [6(a)(1) 

Finance charge.] 

fl1. Fixed-rate and -term payment 

plans. See comment 6(a)–1 for guidance 

on disclosing information related to 

fixed-rate and -term payment plans.fi 

[Paragraph 6(a)(1)(i).] 

fl2.fi[1.] When finance charges 

accrue. Creditors are not required to 

disclose a specific date when fla cost 

that is a finance charge under § 226.4fi 

[finance charges] will begin to accrue. 

[Creditors may provide a general 

explanation such as that the consumer 

has 30 days from the closing date to pay 

the new balance before finance charges 

will accrue on the account.] 

fl3.fi[2.] Grace periods. In 

disclosing flin the account agreement 

or disclosure statementfi whether or 

not a grace period exists, the creditor 

need not use [‘‘free period,’’ ‘‘free-ride 

period,’’ ‘‘grace period’’ or] any [other] 

particular descriptive phrase or term. 

flHowever, the descriptive phrase or 

term must be sufficiently similar to the 

disclosures provided pursuant to 

§ 226.6(a)(2)(xxi) to satisfy a creditor’s 

duty to provide consistent terminology 

under § 226.5(a)(2).fi [For example, a 

statement that ‘‘the finance charge 

begins on the date the transaction is 

posted to your account’’ adequately 

discloses that no grace period exists. In 

the same fashion, a statement that 

‘‘finance charges will be imposed on 

any new purchases only if they are not 

paid in full within 25 days after the 

close of the billing cycle’’ indicates that 

a grace period exists in the interim.] 

fl4. No finance charge imposed 

below certain balance. Creditors are not 

required to disclose under § 226.6(a)(3) 

the fact that no finance charge is 

imposed when the outstanding balance 

is less than a certain amount or the 

balance below which no finance charge 

will be imposed. 

Paragraph 6(a)(3)(ii). 

1. Failure to use the plan as agreed. 

Late-payment fees, over-the-limit fees, 

and fees for payments returned unpaid 

are examples of charges resulting from 

consumers’ failure to use the plan as 

agreed. 

2. Examples of fees that affect the 

plan. Examples of charges the payment, 

or nonpayment, of which affects the 

consumer’s account are: 

i. Access to the plan. Fees for using 

a credit card at the creditor’s ATM to 

obtain a cash advance, fees to obtain 

additional checks or credit cards 

including replacements for lost or stolen 

cards, fees to expedite delivery of 

checks or credit cards or other credit 

devices, application and membership 

fees, and annual or other participation 

fees identified in § 226.4(c)(4). 

ii. Amount of credit extended. Fees 

for increasing the credit limit on the 

account, whether at the consumer’s 

request or unilaterally by the creditor. 

iii. Timing or method of billing or 

payment. Fees to pay by telephone or 

via the Internet. 

3. Threshold test. If the creditor is 

unsure whether a particular charge is a 

cost imposed as part of the plan, the 

creditor may at its option consider such 

charges as a cost imposed as part of the 

plan for purposes of the Truth in 

Lending Act. 

Paragraph 6(a)(3)(iii)(B). 

1. Fees for package of services. A fee 

to join a credit union is an example of 

a fee for a package of services that is not 

imposed as part of the plan, even if the 

consumer must join the credit union to 

apply for credit. In contrast, a 

membership fee is an example of a fee 

for a package of services that is 

considered to be imposed as part of a 

plan where the primary benefit of 

membership in the organization is the 

opportunity to apply for credit, and the 

other benefits offered (such as a 

newsletter or a member information 

hotline) are merely incidental to the 

credit feature. 

6(a)(4) Disclosure of rates for homeequity plans. 

1. Fixed-rate and -term payment 

plans. See comment 6(a)-1 for guidance 

on disclosing information related to 

fixed-rate and -term payment plans. 

Paragraph 6(a)(4)(i)(B).fi [Paragraph 

6(a)(1)(ii)] 

1. Range of balances. flCreditors are 

not required to disclose the range of 

balancesfi[The range of balances 

disclosure is inapplicable]: 

i. If only one periodic interest rate 

may be applied to the entire account 

balance. 

ii. If only one periodic interest rate 

may be applied to the entire balance for 

a feature (for example, cash advances), 

even though the balance for another 

feature (purchases) may be subject to 

two rates (a 1.5% monthly periodic 

interest rate on purchase balances of 

$0—$500, and a 1% periodic interest 

rate for balances above $500). In this 

example, the creditor must give a range 

of balances disclosure for the purchase 

feature. 

fl Paragraph 6(a)(4)(i)(D). 

1. Explanation of balance 

computation method. Creditors do not 

provide a sufficient explanation of a 

balance computation method by using a 

shorthand phrase such as ‘‘previous 

balance method’’ or the name of a 

balance computation method listed in 

§ 226.5a(g). (See Model Clauses G–1 in 

appendix G to part 226. See 

§ 226.6(a)(2)(xxii) regarding balance 

computation descriptions required to be 

disclosed below the account-opening 

table required by § 226.6(a)(1).) 

2. Allocation of payments. Creditors 

may, but need not, explain how 

payments and other credits are allocated 

to outstanding balances. 

Paragraph 6(a)(4)(ii) Variable-rate 

accounts.fi 

fl1.fi[2.] Variable-rate disclosures— 

coverage. 

i. Examples. This section covers openend credit plans under which rate 

changes are specifically set forth in the 

account agreement and are tied to an 

index or formula. A creditor would use 

variable-rate disclosures for plans 

involving rate changes such as the 

following: 

A. Rate changes that are tied to 

flTreasury bill ratesfi [the rate the 

creditor pays on its six-month 

certificates of deposit]. 

B. Rate changes that are tied to flthe 

prime ratefi[Treasury bill rates]. 

C. Rate changes that are tied to flthe 

Federal Reserve discount rate.fi 

[changes in the creditor’s commercial 

lending rate.] 

ii. flThe following is an example of 

open-end plans that permit the rate to 

change and are not considered variable 

rate: Rate changes that are triggered by 

a specific event such as anfi [An] openend credit plan in which the employee 

receives a lower rate contingent upon 

employmentfl, and the rate increases 

upon termination of employment.fi 

[(that is, with the rate to be increased 

upon termination of employment) is not 

a variable-rate plan.] 

[3. Variable-rate plan—rate(s) in 

effect. In disclosing the rate(s) in effect 

at the time of the account-opening 

disclosures (as is required by 

§ 226.6(a)(1)(ii)), the creditor may use an 

insert showing the current rate; may 

give the rate as of a specified date and 

then update the disclosure from time to 

time, for example, each calendar month; 

or may disclose an estimated rate under 

§ 226.5(c). 

4. Variable-rate plan—additional 

disclosures required. In addition to 

disclosing the rates in effect at the time 


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of the account-opening disclosures, the 

disclosures under § 226.6(a)(1)(ii) also 

must be made. 

5. Variable-rate plan—index. The 

index to be used must be clearly 

identified; the creditor need not give, 

however, an explanation of how the 

index is determined or provide 

instructions for obtaining it.] 

fl2.fi[6.] Variable-rate plan— 

circumstances for increase. 

i. flThe following are examples that 

comply with the requirement to disclose 

circumstances under which the rate(s) 

may increase:fi[Circumstances under 

which the rate(s) may increase include, 

for example:] 

A. fl ‘‘The Treasury bill rate 

increases.’’fi[An increase in the 

Treasury bill rate.] 

B. fl ‘‘The prime rate increases.’’ 

fi[An increase in the Federal Reserve 

discount rate.] 

ii. flDisclosing the frequency with 

which the rate may increase includes 

disclosing when the increase will take 

effect; for example:fi[The creditor must 

disclose when the increase will take 

effect; for example:] 

A. ‘‘An increase will take effect on the 

day that the Treasury bill rate 

increases.’’ [or] 

B. ‘‘An increase in the flprime ratefi 

[Federal Reserve discount rate] will take 

effect on the first day of the creditor’s 

billing cycle.’’ 

fl3.fi[7.] Variable-rate plan— 

limitations on increase. In disclosing 

any limitations on rate increases, 

limitations such as the maximum 

increase per year or the maximum 

increase over the duration of the plan 

must be disclosed. [When there are no 

limitations, the creditor may, but need 

not, disclose that fact. (A maximum 

interest rate must be included in 

dwelling-secured open-end credit plans 

under which the interest rate may be 

changed. See § 226.30 and the 

commentary to that section.)] Legal 

limits such as usury or rate ceilings 

under State or Federal statutes or 

regulations need not be disclosed. 

Examples of limitations that must be 

disclosed include: 

i. ‘‘The rate on the plan will not 

exceed 25% annual percentage rate.’’ 

ii. ‘‘Not more than 1⁄2% increase in the 

annual percentage rate per year will 

occur.’’ 

fl4.fi[8.] Variable-rate plan—effects 

of increase. Examples of effects of rate 

increases that must be disclosed 

include: 

i. Any requirement for additional 

collateral if the annual percentage rate 

increases beyond a specified rate. 

ii. Any increase in the scheduled 

minimum periodic payment amount. 

[9. Variable-rate plan—change-interms notice not required. No notice of 

a change in terms is required for a rate 

increase under a variable-rate plan as 

defined in comment 6(a)(1)(ii)–2.] 

fl5.fi[10.] Discounted variable-rate 

plans. In some variable-rate plans, 

creditors may set an initial interest rate 

that is not determined by the index or 

formula used to make later interest rate 

adjustments. Typically, this initial rate 

is lower than the rate would be if it were 

calculated using the index or formula. 

i. For example, a creditor may 

calculate interest rates according to a 

formula using the six-month Treasury 

bill rate plus a 2 percent margin. If the 

current Treasury bill rate is 10 percent, 

the creditor may forgo the 2 percent 

spread and charge only 10 percent for a 

limited time, instead of setting an initial 

rate of 12 percent, or the creditor may 

disregard the index or formula and set 

the initial rate at 9 percent. 

ii. When creditors fldisclose in the 

account-opening disclosures anfi [use 

an] initial rate that is not calculated 

using the index or formula for later rate 

adjustments, the [account-opening] 

disclosure [statement] should reflect: 

A. The initial rate (expressed as a 

periodic rate and a corresponding 

annual percentage rate), together with a 

statement of how long the initial rate 

will remain in effect; 

B. The current rate that would have 

been applied using the index or formula 

(also expressed as a periodic rate and a 

corresponding annual percentage rate); 

and 

C. The other variable-rate information 

required in fl§ 226.6(a)(4)(ii).fi 

[§ 226.6(a)(1)(ii).] 

flParagraph 6(a)(4)(iii) Rate changes 

not due to index or formula. 

1. Events that cause the initial rate to 

change. 

i. Changes based on expiration of time 

period. If the initial rate will change at 

the expiration of a time period, creditors 

must identify the expiration date and 

the fact that the initial rate will end at 

that time. 

ii. Changes based on specified 

contract terms. If the account agreement 

provides that the creditor may change 

the initial rate upon the occurrence of 

specified event or events, the creditor 

must identify the event or events. 

Examples include imposing a penalty 

rate in lieu of terminating the account, 

as allowed under comment 5b(f)(2)–2, or 

the termination of an employee 

preferred rate when the employment 

relationship is terminated. 

2. Rate that will apply after initial rate 

changes. 

i. Increased margins. If the initial rate 

is based on an index and the rate may 

increase due to a change in the margin 

applied to the index, the creditor must 

disclose the increased margin. If more 

than one margin could apply, the 

creditor may disclose the highest 

margin. 

ii. Risk-based pricing. In some plans, 

the amount of the rate change depends 

on how the creditor weighs the 

occurrence of events specified in the 

account agreement that authorize the 

creditor to change rates, as well as other 

factors. For example, a creditor may 

specify that a penalty rate may apply in 

lieu of termination of the account, as 

allowed under comment 5b(f)(2)–2. In 

these cases, a creditor must state the 

increased rate that may apply. At the 

creditor’s option, the creditor may state 

the possible rates as a range, or state 

only the highest rate that could be 

assessed. The creditor must disclose the 

period for which the increased rate will 

remain in effect, such as ‘‘until you 

make three timely payments,’’ or if there 

is no limitation, the fact that the 

increased rate may remain indefinitely. 

3. Effect of rate change on balances. 

Creditors must disclose information to 

consumers about the balance to which 

the new rate will apply and the balance 

to which the current rate at the time of 

the change will apply.fi 

[iii. In disclosing the current periodic 

and annual percentage rates that would 

be applied using the index or formula, 

the creditor may use any of the 

disclosure options described in 

comment 6(a)(1)(ii)–3. 

11. Increased penalty rates. If the 

initial rate may increase upon the 

occurrence of one or more specific 

events, such as a late payment or an 

extension of credit that exceeds the 

credit limit, the creditor must disclose 

the initial rate and the increased penalty 

rate that may apply. If the penalty rate 

is based on an index and an increased 

margin, the issuer must disclose the 

index and the margin. The creditor must 

also disclose the specific event or events 

that may result in the increased rate, 

such as ‘‘22% APR, if 60 days late.’’ If 

the penalty rate cannot be determined at 

the time disclosures are given, the 

creditor must provide an explanation of 

the specific event or events that may 

result in the increased rate. At the 

creditor’s option, the creditor may 

disclose the period for which the 

increased rate will remain in effect, 

such as ‘‘until you make three timely 

payments.’’ The creditor need not 

disclose an increased rate that is 

imposed when credit privileges are 

permanently terminated. 

Paragraph 6(a)(1)(iii). 

1. Explanation of balance 

computation method. A shorthand 


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43600 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

phrase such as ‘‘previous balance 

method’’ does not suffice in explaining 

the balance computation method. (See 

Model Clauses G–1 [and G–1(A)] to part 

226.) 

2. Allocation of payments. Creditors 

may, but need not, explain how 

payments and other credits are allocated 

to outstanding balances. For example, 

the creditor need not disclose that 

payments are applied to late charges, 

overdue balances, and finance charges 

before being applied to the principal 

balance; or in a multifeatured plan, that 

payments are applied first to finance 

charges, then to purchases, and then to 

cash advances. (See comment 7–1 for 

definition of multifeatured plan.) 

Paragraph 6(a)(1)(iv). 

1. Finance charges. In addition to 

disclosing the periodic rate(s) under 

§ 226.6(a)(1)(ii), creditors must disclose 

any other type of finance charge that 

may be imposed, such as minimum, 

fixed, transaction, and activity charges; 

required insurance; or appraisal or 

credit report fees (unless excluded from 

the finance charge under § 226.4(c)(7)). 

Creditors are not required to disclose 

the fact that no finance charge is 

imposed when the outstanding balance 

is less than a certain amount or the 

balance below which no finance charge 

will be imposed. 

6(a)(2) Other charges. 

1. General; examples of other charges. 

Under § 226.6(a)(2), significant charges 

related to the plan (that are not finance 

charges) must also be disclosed. For 

example: 

i. Late-payment and over-the-creditlimit charges. 

ii. Fees for providing documentary 

evidence of transactions requested 

under § 226.13 (billing error resolution). 

iii. Charges imposed in connection 

with residential mortgage transactions 

or real estate transactions such as title, 

appraisal, and credit-report fees (see 

§ 226.4(c)(7)). 

iv. A tax imposed on the credit 

transaction by a state or other 

governmental body, such as a 

documentary stamp tax on cash 

advances (See the commentary to 

§ 226.4(a)). 

v. A membership or participation fee 

for a package of services that includes 

an open-end credit feature, unless the 

fee is required whether or not the openend credit feature is included. For 

example, a membership fee to join a 

credit union is not an ‘‘other charge,’’ 

even if membership is required to apply 

for credit. For example, if the primary 

benefit of membership in an 

organization is the opportunity to apply 

for a credit card, and the other benefits 

offered (such as a newsletter or a 

member information hotline) are merely 

incidental to the credit feature, the 

membership fee would be disclosed as 

an ‘‘other charge.’’ 

vi. Charges imposed for the 

termination of an open-end credit plan. 

2. Exclusions. The following are 

examples of charges that are not ‘‘other 

charges’’ 

i. Fees charged for documentary 

evidence of transactions for income tax 

purposes. 

ii. Amounts payable by a consumer 

for collection activity after default; 

attorney’s fees, whether or not 

automatically imposed; foreclosure 

costs; post-judgment interest rates 

imposed by law; and reinstatement or 

reissuance fees. 

iii. Premiums for voluntary credit life 

or disability insurance, or for property 

insurance, that are not part of the 

finance charge. 

iv. Application fees under 

§ 226.4(c)(1). 

v. A monthly service charge for a 

checking account with overdraft 

protection that is applied to all checking 

accounts, whether or not a credit feature 

is attached. 

vi. Charges for submitting as payment 

a check that is later returned unpaid 

(See commentary to § 226.4(c)(2)). 

vii. Charges imposed on a cardholder 

by an institution other than the card 

issuer for the use of the other 

institution’s ATM in a shared or 

interchange system. (See also comment 

7(a)(2)–2.) 

viii. Taxes and filing or notary fees 

excluded from the finance charge under 

§ 226.4(e). 

ix. A fee to expedite delivery of a 

credit card, either at account opening or 

during the life of the account, provided 

delivery of the card is also available by 

standard mail service (or other means at 

least as fast) without paying a fee for 

delivery. 

x. A fee charged for arranging a single 

payment on the credit account, upon the 

consumer’s request (regardless of how 

frequently the consumer requests the 

service), if the credit plan provides that 

the consumer may make payments on 

the account by another reasonable 

means, such as by standard mail service, 

without paying a fee to the creditor.] 

fl 6(a)(5) Additional disclosures for 

home-equity plans.fi [6(a)(3) Homeequity plan information.] 

flParagraph 6(a)(5)(i) Voluntary 

credit insurance, debt cancellation or 

debt suspension. 

1. Timing. Under § 226.4(d), 

disclosures required to exclude the cost 

of voluntary credit insurance or debt 

cancellation or debt suspension 

coverage from the finance charge must 

be provided before the consumer agrees 

to the purchase of the insurance or 

coverage. Creditors comply with 

§ 226.6(a)(5)(i) if they provide those 

disclosures in accordance with 

§ 226.4(d). For example, if the 

disclosures required by § 226.4(d) are 

provided at application, creditors need 

not repeat those disclosures at account 

opening.fi 

[1. Additional disclosures required. 

For home-equity plans, creditors must 

provide several of the disclosures set 

forth in § 226.5b(d) along with the 

disclosures required under § 226.6. 

Creditors also must disclose a list of the 

conditions that permit the creditor to 

terminate the plan, freeze or reduce the 

credit limit, and implement specified 

modifications to the original terms. (See 

comment 5b(d)(4)(iii)–1.) 

2. Form of disclosures. The homeequity disclosures provided under this 

section must be in a form the consumer 

can keep, and are governed by 

§ 226.5(a)(1). The segregation standard 

set forth in § 226.5b(a) does not apply to 

home-equity disclosures provided under 

§ 226.6. 

3. Disclosure of payment and 

variable-rate examples. i. The paymentexample disclosure in § 226.5b(d)(5)(iii) 

and the variable-rate information in 

§ 226.5b(d)(12)(viii), (d)(12)(x), 

(d)(12)(xi), and (d)(12)(xii) need not be 

provided with the disclosures under 

§ 226.6 if the disclosures under 

§ 226.5b(d) were provided in a form the 

consumer could keep; and the 

disclosures of the payment example 

under § 226.5b(d)(5)(iii), the maximumpayment example under 

§ 226.5b(d)(12)(x) and the historical 

table under § 226.5b(d)(12)(xi) included 

a representative payment example for 

the category of payment options the 

consumer has chosen. 

ii. For example, if a creditor offers 

three payment options (one for each of 

the categories described in the 

commentary to § 226.5b(d)(5)), describes 

all three options in its early disclosures, 

and provides all of the disclosures in a 

retainable form, that creditor need not 

provide the § 226.5b(d)(5)(iii) or (d)(12) 

disclosures again when the account is 

opened. If the creditor showed only one 

of the three options in the early 

disclosures (which would be the case 

with a separate disclosure form rather 

than a combined form, as discussed 

under § 226.5b(a)), the disclosures 

under § 226.5b(d)(5)(iii), (d)(12)(viii), 

(d)(12)(x), (d)(12)(xi) and (d)(12)(xii) 

must be given to any consumer who 

chooses one of the other two options. If 

the § 226.5b(d)(5)(iii) and (d)(12) 

disclosures are provided with the 

second set of disclosures, they need not 


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be transaction-specific, but may be 

based on a representative example of the 

category of payment option chosen. 

4. Disclosures for the repayment 

period. The creditor must provide 

disclosures about both the draw and 

repayment phases when giving the 

disclosures under § 226.6. Specifically, 

the creditor must make the disclosures 

in § 226.6(a)(3), state the corresponding 

annual percentage rate, and provide the 

variable-rate information required in 

§ 226.6(a)(1)(ii) for the repayment phase. 

To the extent the corresponding annual 

percentage rate, the information in 

§ 226.6(a)(1)(ii), and any other required 

disclosures are the same for the draw 

and repayment phase, the creditor need 

not repeat such information, as long as 

it is clear that the information applies to 

both phases.] 

flParagraph 6(a)(5)(ii)fi [6(a)(4)] 

Security interests. 

1. General. Creditors are not required 

to use specific terms to describe a 

security interest, or to explain the type 

of security or the creditor’s rights with 

respect to the collateral. 

2. Identification of property. Creditors 

sufficiently identify collateral by type 

by stating, for example, flyour home.fi 

[motor vehicle or household appliances. 

(Creditors should be aware, however, 

that the federal credit practices rules, as 

well as some state laws, prohibit certain 

security interests in household goods.)] 

The creditor may, at its option, provide 

a more specific identification (for 

example, flthe address of property 

securing the line of credit.fi [a model 

and serial number.)] 

3. Spreader clause. If collateral for 

preexisting credit with the creditor will 

secure the plan being opened, the 

creditor must disclose that fact. (Such 

security interests may be known as 

‘‘spreader’’ or ‘‘dragnet’’ clauses, or as 

‘‘cross-collateralization’’ clauses.) The 

creditor need not specifically identify 

the collateral; a reminder such as 

‘‘collateral securing other loans with us 

may also secure this loan’’ is sufficient. 

At the creditor’s option, a more specific 

description of the property involved 

may be given. 

[4. Additional collateral. If collateral 

is required when advances reach a 

certain amount, the creditor should 

disclose the information available at the 

time of the account-opening disclosures. 

For example, if the creditor knows that 

a security interest will be taken in 

household goods if the consumer’s 

balance exceeds $1,000, the creditor 

should disclose accordingly. If the 

creditor knows that security will be 

required if the consumer’s balance 

exceeds $1,000, but the creditor does 

not know what security will be 

required, the creditor must disclose on 

the initial disclosure statement that 

security will be required if the balance 

exceeds $1,000, and the creditor must 

provide a change-in-terms notice under 

§ 226.9(c) at the time the security is 

taken. (See comment 6(a)(4)–2.) 

5. Collateral from third party. Security 

interests taken in connection with the 

plan must be disclosed, whether the 

collateral is owned by the consumer or 

a third party.] 

flParagraphfi 6(a)(5)fl(iii)fi 

Statement of billing rights. 

1. flModel forms.fi See the 

commentary to Model Forms flG–3 and 

G–4 fi [G–3, G–3(A), G–4, and G–4(A)]. 

flParagraph 6(a)(5)(iv) Possible 

creditor actions. 

1. Disclosure. Creditors must disclose 

under § 226.6(a)(5)(iv) a list of the 

conditions that permit the creditor to 

terminate the plan, freeze or reduce the 

credit limit, and implement specified 

modifications to the original terms. (See 

comment 5b(c)(7)(i).) 

Paragraph 6(a)(5)(v) Additional 

information on fixed-rate and -term 

payment plans. 

1. Fixed-rate and -term payment 

plans. See comment 6(a)–1 for guidance 

on disclosing information related to 

fixed-rate and -term payment plans.fi 

* * * * * 

§ 226.7—Periodic Statement. 

7(a) Rules affecting home-equity 

plans. 

7(a)(1) Previous balance. 

1. Credit balances. If the previous 

balance is a credit balance, it must be 

disclosed in such a way so as to inform 

the consumer that it is a credit balance, 

rather than a debit balance. 

2. Multifeatured plans. In a 

multifeatured plan, the previous balance 

may be disclosed either as an aggregate 

balance for the account or as separate 

balances for each feature (for example, 

a previous balance for purchases and a 

previous balance for cash advances). If 

separate balances are disclosed, a total 

previous balance is optional. 

3. Accrued finance charges allocated 

from payments. Some open-end credit 

plans provide that the amount of the 

finance charge that has accrued since 

the consumer’s last payment is directly 

deducted from each new payment, 

rather than being separately added to 

each statement and reflected as an 

increase in the obligation. In such a 

plan, the previous balance need not 

reflect finance charges accrued since the 

last payment. 

7(a)(2) Identification of transactions. 

1. Multifeatured plans. [In identifying 

transactions under § 226.7(a)(2) for 

multifeatured plans, creditors may, for 

example, choose to arrange transactions 

by feature (such as disclosing sale 

transactions separately from cash 

advance transactions) or in some other 

clear manner, such as by arranging the 

transactions in general chronological 

order.]fl Creditors may, but are not 

required to, arrange transactions by 

feature (such as disclosing purchase 

transactions separately from cash 

advance transactions). Pursuant to 

§ 226.7(a)(6), however, creditors must 

group all fees and all interest separately 

from transactions and may not disclose 

any fees or interest charges with 

transactions.fi 

2. Automated teller machine (ATM) 

charges imposed by other institutions in 

shared or interchange systems. A charge 

imposed on the cardholder by an 

institution other than the card issuer for 

the use of the other institution’s ATM in 

a shared or interchange system, and 

included by the terminal-operating 

institution in the amount of the 

transaction, need not be separately 

disclosed on the periodic statement. 

7(a)(3) Credits. 

1. Identification—sufficiency. The 

creditor need not describe each credit 

by type (returned merchandise, rebate of 

finance charge, etc.)—‘‘credit’’ would 

suffice—except if the creditor is using 

the periodic statement to satisfy the 

billing-error correction notice 

requirement. (See the commentary to 

§ 226.13(e) and (f).)fl 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.fi 

2. Format. A creditor may list credits 

relating to credit extensions flmade to 

the consumerfi under the plan (flsuch 

asfi paymentsfl orfi rebates[, etc.]) 

together with other types of credits 

(such as deposits to a checking account), 

as long as the entries are identified so 

as to inform the consumer which type 

of credit each entry represents. 

3. Date. If only one date is disclosed 

(that is, the crediting date as required by 

the regulation), no further identification 

of that date is necessary. More than one 

date may be disclosed for a single entry, 

as long as it is clear which date 

represents the date on which credit was 

given. 

4. Totals. A total of amounts credited 

during the billing cycle is not required. 

7(a)(4) Periodic rates. 

1. Disclosure of periodic flinterestfi 

rates—whether or not actually applied. 

Except as provided in § 226.7(a)(4)(ii), 

any periodic flinterestfi rate that may 

be used to compute finance charges 

[(and its corresponding annual 

percentage rate)] fl, expressed as and 


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43602 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

labeled ‘‘Annual Percentage Rate,’’fi 

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 

flannual percentagefi rate for each, 

even if the consumer only makes 

purchases fl(or cash advances)fi on 

the account during the billing cycle. 

ii. If the flannual percentagefi rate 

varies (such as when it is tied to a 

particular index), the creditor must 

disclose each flannual percentage fi 

rate in effect during the cycle for which 

the statement was issued. 

2. Disclosure of periodic flinterestfi 

rates required only if imposition 

possible. [With regard to the periodic 

rate disclosure (and its corresponding 

annual percentage rate), only rates] 

flWith regard to disclosure of periodic 

rates (expressed as annual percentage 

rates), only annual percentage ratesfi 

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 flannual 

percentagefi rates effective during the 

next billing cycle (because of a variablerate plan), the flannual percentagefi 

rates required to be disclosed under 

§ 226.7(a)(4) are only those in effect 

during the billing cycle reflected on the 

periodic statement. For example, if the 

flannual percentagefi [monthly] rate 

applied during May was [1.5] 

fl8.0fi%, but the creditor will increase 

the rate to [1.8%] fl11.0%fi effective 

June 1, [1.5%] fl8.0%fi [(and its 

corresponding annual percentage rate)] 

is the only required disclosure under 

§ 226.7(a)(4) for the periodic statement 

reflecting the May account activity. 

ii. If flannual percentagefi rates 

applicable to a particular type of 

transaction changed after a certain date 

and the old rate is only being applied to 

transactions that took place prior to that 

date, the creditor need not continue to 

disclose the old rate for those 

consumers that have no outstanding 

balances to which that rate could be 

applied. 

3. Multiple rates—same transaction. If 

two or more periodic rates are applied 

to the same balance for the same type 

of transaction (for example, if the 

[finance] flinterestfi charge consists of 

a monthly periodic flinterestfi rate of 

1.5% applied to the outstanding balance 

and a required credit life insurance 

component calculated at 0.1% per 

month on the same outstanding 

balance), flcreditors 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 

§ 226.7(a)(6)(iii). (See comment 7(a)(6)– 

2.) [the creditor may do either of the 

following: 

i. Disclose each periodic rate, the 

range of balances to which it is 

applicable, and the corresponding 

annual percentage rate for each. (For 

example, 1.5% monthly, 18% annual 

percentage rate; 0.1% monthly, 1.2% 

annual percentage rate.) 

ii. Disclose one composite periodic 

rate (that is, 1.6% per month) along with 

the applicable range of balances and the 

corresponding annual percentage rate. 

4. Corresponding annual percentage 

rate. In disclosing the annual percentage 

rate that corresponds to each periodic 

rate, the creditor may use 

‘‘corresponding annual percentage rate,’’ 

‘‘nominal annual percentage rate,’’ 

‘‘corresponding nominal annual 

percentage rate,’’ or similar phrases. 

5. Rate same as actual annual 

percentage rate. When the 

corresponding rate is the same as the 

annual percentage rate disclosed under 

§ 226.7(a)(7), the creditor need disclose 

only one annual percentage rate, but 

must use the phrase ‘‘annual percentage 

rate.’’] 

fl4. Fees. Creditors that identify fees 

in accordance with § 226.7(a)(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.fi 

[6]fl5.fi. Range of balances. See 

comment 6(a)(4)(i)(B)–1 [6(a)(1)(ii)–1]. A 

creditor is not required to adjust the 

range of balances disclosure to reflect 

the balance below which only a 

minimum charge applies. 

7(a)(5) Balance on which finance 

charge computed. 

[1. Limitation to periodic rates. 

Section 226.7(a)(5) only requires 

disclosure of the balance(s) to which a 

periodic rate was applied and does not 

apply to balances on which other kinds 

of finance charges (such as transaction 

charges) were imposed. For example, if 

a consumer obtains a $1,500 cash 

advance subject to both a 1% 

transaction fee and a 1% monthly 

periodic rate, the creditor need only 

disclose the balance subject to the 

monthly rate (which might include 

portions of earlier cash advances not 

paid off in previous cycles).] 

[2]fl1fi. Split rates applied to 

balance ranges. If split rates were 

applied to a balance because different 

portions of the balance fall within two 

or more balance ranges, the creditor 

need not separately disclose the 

portions of the balance subject to such 

different rates since the range of 

balances to which the rates apply has 

been separately disclosed. For example, 

a creditor could disclose a balance of 

$700 for purchases even though a 

monthly periodic rate of 1.5% applied 

to the first $500, and a monthly periodic 

rate of 1% to the remainder. This option 

to disclose a combined balance does not 

apply when the [finance] flinterestfi 

charge is computed by applying the 

split rates to each day’s balance (in 

contrast, for example, to applying the 

rates to the average daily balance). In 

that case, the balances must be 

disclosed using any of the options that 

are available if two or more daily rates 

are imposed. (See comment 7(a)(5)–4.) 

[3]fl2fi. Monthly rate on average 

daily balance. Creditors may apply a 

monthly periodic rate to an average 

daily balance. 

[4]fl3fi. 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 or group of 

features subject to different periodic 

rates or different balance computation 

methods. Separate balances are not 

required, however, merely because a 

grace period is available for some 

features but not others. A total balance 

for the entire plan is optional. This does 

not affect how many balances the 

creditor must disclose—or may 

disclose—within each feature. (See, for 

example, commentflsfi 7(a)(5)–4fland 

7(a)(4)–5fi.) 

[5]fl4fi. Daily rate on daily 

balances. i. If the finance charge is 

computed on the balance each day by 

application of one or more daily 

periodic flinterestfi rates, the balance 

on which the [finance] flinterestfi 

charge was computed may be disclosed 

in any of the following ways for each 

feature: 

ii. If a single daily periodic 

flinterestfi 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. 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43603 

D. The average daily balance during 

the billing cycle, in which case the 

creditor [shall] flmay, at its option,fi 

explain that the average daily balance is 

or can be multiplied by the number of 

days in the billing cycle and the 

periodic rate applied to the product to 

determine the amount of [the finance 

charge] flinterestfi. 

iii. If two or more daily periodic 

flinterestfi 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 flinterestfi rates imposed for 

the time that those rates were in 

effectfl.fi [, as long as the creditor] 

flThe creditor may, at its option,fi 

explain[s] that [the finance charge] 

flinterestfi is or may be determined by 

[(1)] multiplying each of the average 

balances by the number of days in the 

billing cycle (or if the daily rate varied 

during the cycle, by multiplying by the 

number of days the applicable rate was 

in effect), [(2)] multiplying each of the 

results by the applicable daily periodic 

rate, and [(3)] adding these products 

together. 

[6. Explanation of balance 

computation method. See the 

commentary to 6(a)(1)(iii).] 

[7]fl5fi. Information to compute 

balance. In connection with disclosing 

the [finance] flinterestfi charge 

balance, the creditor need not give the 

consumer all of the information 

necessary to compute the balance if that 

information is not otherwise required to 

be disclosed. For example, if current 

purchases are included from the date 

they are posted to the account, the 

posting date need not be disclosed. 

[8]fl6fi. 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 

(§ 226.7(a)(3)) and indicating which 

credits will not be deducted in 

determining the balance (for example, 

‘‘credits after the 15th of the month are 

not deducted in computing the [finance] 

flinterestfi charge.’’). 

[9]fl7fi. 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 

flor a single identification of the name 

(as permitted under § 226.7(a)(5)) fi of 

the balance computation method is 

sufficient. Sometimes the creditor 

separately discloses the portions of the 

balance that are subject to different rates 

because different portions of the balance 

fall within two or more balance ranges, 

even when a combined balance 

disclosure would be permitted under 

comment 7(a)(5)–2. In these cases, one 

explanation fl or a single identification 

of the name (as permitted under 

§ 226.7(a)(5))fi of the balance 

computation method is also sufficient 

(assuming, of course, that all portions of 

the balance were computed using the 

same method). 

[7(a)(6) Amount of finance charge and 

other charges. 

Paragraph 7(a)(6)(i). 

1. Total. A total finance charge 

amount for the plan is not required. 

2. Itemization—types of finance 

charges. Each type of finance charge 

(such as periodic rates, transaction 

charges, and minimum charges) 

imposed during the cycle must be 

separately itemized; for example, 

disclosure of only a combined finance 

charge attributable to both a minimum 

charge and transaction charges would 

not be permissible. Finance charges of 

the same type may be disclosed, 

however, individually or as a total. For 

example, five transaction charges of $1 

may be listed separately or as $5.] 

3. Itemization—different periodic 

rates. Whether different periodic rates 

are applicable to different types of 

transactions or to different balance 

ranges, the creditor may give the finance 

charge attributable to each rate or may 

give a total finance charge amount. For 

example, if a creditor charges 1.5% per 

month on the first $500 of a balance and 

1% per month on amounts over $500, 

the creditor may itemize the two 

components ($7.50 and $1.00) of the 

$8.50 charge, or may disclose $8.50. 

4. Multifeatured plans. In a 

multifeatured plan, in disclosing the 

amount of the finance charge 

attributable to the application of 

periodic rates no total periodic rate 

disclosure for the entire plan need be 

given. 

5. Finance charges not added to 

account. A finance charge that is not 

included in the new balance because it 

is payable to a third party (such as 

required life insurance) must still be 

shown on the periodic statement as a 

finance charge. 

6. Finance charges other than 

periodic rates. See comment 6(a)(1)(iv)– 

1 for examples. 

7. Accrued finance charges allocated 

from payments. Some plans provide that 

the amount of the finance charge that 

has accrued since the consumer’s last 

payment is directly deducted from each 

new payment, rather than being 

separately added to each statement and 

therefore reflected as an increase in the 

obligation. In such a plan, no disclosure 

is required of finance charges that have 

accrued since the last payment. 

8. Start-up fees. Points, loan fees, and 

similar finance charges relating to the 

opening of the account that are paid 

prior to the issuance of the first periodic 

statement need not be disclosed on the 

periodic statement. If, however, these 

charges are financed as part of the plan, 

including charges that are paid out of 

the first advance, the charges must be 

disclosed as part of the finance charge 

on the first periodic statement. 

However, they need not be factored into 

the annual percentage rate. (See 

§ 226.14(c)(3).) 

Paragraph 7(a)(6)(ii). 

1. Identification. In identifying any 

other charges actually imposed during 

the billing cycle, the type is adequately 

described as late charge or membership 

fee, for example. Similarly, closing costs 

or settlement costs, for example, may be 

used to describe charges imposed in 

connection with real estate transactions 

that are excluded from the finance 

charge under § 226.4(c)(7), if the same 

term (such as closing costs) was used in 

the initial disclosures and if the creditor 

chose to itemize and individually 

disclose the costs included in that term. 

Even though the taxes and filing or 

notary fees excluded from the finance 

charge under § 226.4(e) are not required 

to be disclosed as other charges under 

§ 226.6(a)(2), these charges may be 

included in the amount shown as 

closing costs or settlement costs on the 

periodic statement, if the charges were 

itemized and disclosed as part of the 

closing costs or settlement costs on the 

initial disclosure statement. (See 

comment 6(a)(2)–1 for examples of other 

charges.) 

2. Date. The date of imposing or 

debiting other charges need not be 

disclosed. 

3. Total. Disclosure of the total 

amount of other charges is optional. 

4. Itemization—types of other charges. 

Each type of other charge (such as latepayment charges, over-the-credit-limit 

charges, and membership fees) imposed 

during the cycle must be separately 


sroberts on DSKD5P82C1PROD with PROPOSALS
43604 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

itemized; for example, disclosure of 

only a total of other charges attributable 

to both an over-the-credit-limit charge 

and a late-payment charge would not be 

permissible. Other charges of the same 

type may be disclosed, however, 

individually or as a total. For example, 

three fees of $3 for providing copies 

related to the resolution of a billing 

error could be listed separately or as $9. 

7(a)(7) Annual percentage rate. 

1. Plans subject to the requirements of 

§ 226.5b. For home-equity plans subject 

to the requirements of § 226.5b, 

creditors are not required to disclose an 

effective annual percentage rate. 

Creditors that state an annualized rate in 

addition to the corresponding annual 

percentage rate required by § 226.7(a)(4) 

must calculate that rate in accordance 

with § 226.14(c). 

2. Labels. Creditors that choose to 

disclose an annual percentage rate 

calculated under § 226.14(c) and label 

the figure as ‘‘annual percentage rate’’ 

must label the periodic rate expressed as 

an annualized rate as the 

‘‘corresponding APR,’’ ‘‘nominal APR,’’ 

or a similar phrase as provided in 

comment 7(a)(4)–4. Creditors also 

comply with the label requirement if the 

rate calculated under § 226.14(c) is 

described as the ‘‘effective APR’’ or 

something similar. For those creditors, 

the periodic rate expressed as an 

annualized rate could be labeled 

‘‘annual percentage rate,’’ consistent 

with the requirement under 

§ 226.7(b)(4). If the two rates represent 

different values, creditors must label the 

rates differently to meet the clear and 

conspicuous standard under 

§ 226.5(a)(1).] 

fl7(a)(6) Charges imposed. 

1. Examples of charges. See 

commentary to § 226.6(a)(3). 

2. Fees. Costs attributable to periodic 

rates other than interest charges shall be 

disclosed as a fee. For example, if a 

consumer obtains credit life insurance 

that is calculated at 0.1% per month on 

an outstanding balance and a monthly 

interest rate of 1.5% applies to the same 

balance, the creditor must disclose the 

dollar cost attributable to interest as an 

‘‘interest charge’’ and the credit 

insurance cost as a ‘‘fee.’’ 

3. Total fees for calendar year to date. 

i. Monthly statements. Some creditors 

send monthly statements but the 

statement periods do not coincide with 

the calendar month. For creditors 

sending monthly statements, the 

following comply with the requirement 

to provide calendar year-to-date totals. 

A. A creditor may disclose a calendaryear-to-date total at the end of the 

calendar year by aggregating fees for 12 

monthly cycles, starting with the period 

that begins during January and finishing 

with the period that begins during 

December. For example, if statement 

periods begin on the 10th day of each 

month, the statement covering 

December 10, 2011, through January 9, 

2012, may disclose the year-to-date total 

for fees imposed from January 10, 2011, 

through January 9, 2012. Alternatively, 

the creditor could provide a statement 

for the cycle ending January 9, 2012, 

showing the year-to-date total for fees 

imposed January 1, 2011, through 

December 31, 2011. 

B. A creditor may disclose a calendaryear-to-date total at the end of the 

calendar year by aggregating fees for 12 

monthly cycles, starting with the period 

that begins during December and 

finishing with the period that begins 

during November. For example, if 

statement periods begin on the 10th day 

of each month, the statement covering 

November 10, 2011, through December 

9, 2011, may disclose the year-to-date 

total for fees imposed from December 

10, 2010, through December 9, 2011. 

ii. Quarterly statements. Creditors 

issuing quarterly statements may apply 

the guidance set forth for monthly 

statements to comply with the 

requirement to provide calendar year-todate 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. If an adjustment is 

made, creditors are not required to 

provide an explanation about the reason 

for the adjustment. Such adjustments 

would 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 § 226.7(a)(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 replacement. A creditor 

that replaces a consumer’s plan with 

another home equity line of credit plan 

with the consumer must include, as 

applicable, fees and charges imposed for 

that portion of the calendar year prior to 

the replacement in the aggregate 

disclosures provided pursuant to 

§ 226.7(a)(6) for the new plan. For 

example, assume a consumer has 

incurred $125 in fees for the calendar 

year to date for a plan, which is then 

replaced by a home equity line of credit 

plan also provided by the creditor. In 

this case, the creditor must reflect the 

$125 in fees incurred prior to the 

replacement in the calendar year-to-date 

totals provided for the new home equity 

line of credit plan. Alternatively, the 

institution may provide two separate 

totals reflecting activity prior and 

subsequent to the replacement of the 

plan. 

7(a)(7) Change-in-terms and increased 

penalty rate summary. 

1. Location of summary tables. If a 

change-in-terms notice required by 

§ 226.9(c)(1) is provided on or with a 

periodic statement, a tabular summary 

of key changes must appear on the front 

of any page of the statement. Similarly, 

if a notice of a rate increase due to 

delinquency or default or as a penalty 

required by § 226.9(i) 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 any page of the 

statement.fi 

7(a)(8) Grace period. 

1. Terminology. [Although the 

creditor is required to indicate any time 

period the consumer may have to pay 

the balance outstanding without 

incurring additional finance charges, no 

specific wording is required, so long as 

the language used is consistent with that 

used on the account-opening disclosure 

statement. For example, ‘‘To avoid 

additional finance charges, pay the new 

balance before _______’’ would suffice.] 

fl In describing the grace period, the 

language used must be consistent with 

that used on the account-opening 


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disclosure statement. (See 

§§ 226.5(a)(2)(i) and 226.6(a)(2)(xxi))fi 

7(a)(9) Address for notice of billing 

errors. 

1. Terminology. The periodic 

statement should indicate the general 

purpose for the address for billing-error 

inquiries, although a detailed 

explanation or particular wording is not 

required. 

2. Telephone number. A telephone 

number, e-mail address, or Web site 

location may be included, but the 

mailing address for billing-error 

inquiries, which is the required 

disclosure, must be clear and 

conspicuous. The address is deemed to 

be clear and conspicuous if a 

precautionary instruction is included 

that telephoning or notifying the 

creditor by e-mail or Web site will not 

preserve the consumer’s billing rights, 

unless the creditor has agreed to treat 

billing error notices provided by 

electronic means as written notices, in 

which case the precautionary 

instruction is required only for 

telephoning. 

7(a)(10) Closing date of billing cycle; 

new balance. 

1. Credit balances. See comment 

7(a)(1)–1. 

2. Multifeatured plans. In a 

multifeatured plan, the new balance 

may be disclosed for each feature or for 

the plan as a whole. If separate new 

balances are disclosed, a total new 

balance is optional. 

3. Accrued finance charges allocated 

from payments. Some plans provide that 

the amount of the finance charge that 

has accrued since the consumer’s last 

payment is directly deducted from each 

new payment, rather than being 

separately added to each statement and 

therefore reflected as an increase in the 

obligation. In such a plan, the new 

balance need not reflect finance charges 

accrued since the last payment. 

* * * * * 

§ 226.9—Subsequent Disclosure 

Requirements. 

* * * * * 

9(c) Change in terms. 

9(c)(1) Rules affecting home-equity 

plans. 

1. Changes initially disclosed. 

flExcept as provided in § 226.9(i), nofi 

[No] notice of a change in terms need be 

given if the specific change is set forth 

initially, such as[:]flafi rate increase[s] 

under a properly disclosed variable-rate 

plan[, a rate increase that occurs when 

an employee has been under a 

preferential rate agreement and 

terminates employment, or an increase 

that occurs when the consumer has been 

under an agreement to maintain a 

certain balance in a savings account in 

order to keep a particular rate and the 

account balance falls below the 

specified minimum]. The rules in 

§ 226.5b(f) relating to home-equity plans 

limit the ability of a creditor to change 

the terms of such plans. 

2. State law issues. Examples of issues 

not addressed by § 226.9(c) because they 

are controlled by state or other 

applicable law include: 

i. The types of changes a creditor may 

make. (But see § 226.5b(f)fl.fi) 

ii. How changed terms affect existing 

balances, such as when a periodic rate 

is changed and the consumer does not 

pay off the entire existing balance before 

the new rate takes effect. 

3. Change in billing cycle. Whenever 

the creditor changes the consumer’s 

billing cycle, it must give a change-interms notice if the change [either] affects 

any of the terms required to be disclosed 

under § 226.6(a) [or increases the 

minimum payment], unless an 

exception under 

§ 226.9(c)(1)[(ii)]fl(iv)fi applies[; for 

example, the creditor must give advance 

notice if the creditor initially disclosed 

a 25-day grace period on purchases and 

the consumer will have fewer days 

during the billing cycle change]. 

9(c)(1)(i) Written notice required. 

1. Affected consumers. Change-interms 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.]flFor example, a change in 

the balance computation method, from 

average-daily-balance to daily-balance 

(permissible under § 226.5b(f)(3)(v) as 

an ‘‘insignificant change’’) need not be 

disclosed to consumers for whose 

accounts the balance computation 

method will not change. If a single 

credit account involves multiple 

consumers that may be affected by the 

change, the creditor should refer to 

§ 226.5(d) to determine the number of 

notices that must be given.fi 

2. Timing—effective date of change. 

The rule that the notice of the change in 

terms be provided at least [15]fl45fi 

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]flincreasing the credit limit or 

extending the length of the planfi. Any 

change in the balance computation 

method, in contrast, would need to be 

disclosed at least [15]fl45fi days prior 

to the billing cycle in which the change 

is to be implemented. 

3. Timing—advance notice not 

required. Advance notice of [15]fl45fi 

days is not necessary—that is, a notice 

of change in terms is required, but it 

may be mailed or delivered as late as the 

effective date of the change [—in two 

circumstances: 

i. If there is an increased periodic rate 

or any other finance charge attributable 

to the consumer’s delinquency or 

default. 

ii. If]fliffi the consumer agrees to the 

particular change. This provision is 

intended flsolelyfi for use in the 

unusual instance [when a consumer 

substitutes collateral or when the 

creditor can advance additional credit 

only if a change relatively unique to that 

consumer is made, such as the 

consumer’s providing additional 

security or]flwhen the consumer and 

the creditor specifically agree to the 

change in writing before the effective 

date of the change, as permitted under 

§ 226.5b(f)(3)(iii), such as onfi paying 

an increased minimum payment 

amount. [Therefore, the following are 

not ‘‘agreements’’ between the consumer 

and the creditor for purposes of 

§ 226.9(c)(1)(i): The consumer’s general 

acceptance of the creditor’s contract 

reservation of the right to change terms; 

the consumer’s use of the account 

(which might imply acceptance of its 

terms under state law); and the 

consumer’s acceptance of a unilateral 

term change that is not particular to that 

consumer, but rather is of general 

applicability to consumers with that 

type of account.] 

4. Form of change-in-terms notice. fl 

Except if the tabular format requirement 

under § 226.9(c)(1)(iii) applies, afi[A] 

complete new set of the initial 

disclosures containing the changed term 

complies with § 226.9(c)(1)(i) if the 

change is highlighted in some way on 

the disclosure statement, or if the 

disclosure statement is accompanied by 

a letter or some other insert that 

indicates or draws attention to the term 

change. 

[5. Security interest change—form of 

notice. A copy of the security agreement 

that describes the collateral securing the 

consumer’s account may be used as the 

notice, when the term change is the 

addition of a security interest or the 

addition or substitution of collateral.] 

fl5fi[6]. Changes to home-equity 

plans[ entered into on or after 

November 7, 1989]. Section 226.9(c)(1) 

applies when, by written agreement 

under § 226.5b(f)(3)(iii), a creditor 

changes the terms of a home-equity plan 

[—entered into on or after November 7, 

1989—] at or before its scheduled 

expiration, for example, by renewing a 

plan on terms different from those of the 

original plan. In disclosing the change: 


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43606 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

i. If the index is changed, the 

maximum annual percentage rate is 

increased (to the limited extent 

permitted by § 226.30), or a variable-rate 

feature is added to a fixed-rate plan, the 

creditor must include the disclosures 

required by § 226.5b(c)(9)(iii) and 

(c)(10)(i)(A)(6), unless these disclosures 

are unchanged from those given earlier. 

ii. If the minimum payment 

requirement is changed, the creditor 

must include the disclosures required 

by § 226.5b(c)(9)(iii) (and, in variablerate plans, the disclosures required by 

§ 226.5b(c)(10)(i)(A)(6))fl.fi [unless the 

disclosures given earlier contained 

representative examples covering the 

new minimum payment requirement. 

(See the commentary to 

§ 226.5b(c)(9)(iii) and (c)(10)(i)(A)(6) for 

a discussion of representative 

examples.)] 

iii. When the terms are changed 

pursuant to a written agreement as 

described in § 226.5b(f)(3)(iii), the 

advance-notice requirement does not 

apply. 

fl9(c)(1)(ii) Charges not covered by 

§ 226.6(a)(1) and (a)(2). 

1. Applicability. Generally, if a 

creditor increases any component of a 

charge, or introduces a new charge 

(assuming in either case that such action 

is permitted under § 226.5b(f)), that is 

imposed as part of the plan under 

§ 226.6(a)(3) but is not required to be 

disclosed as part of the account-opening 

summary table under § 226.6(a)(2), the 

creditor may either, at its option, 

provide at least 45 days’ written 

advance notice before the change 

becomes effective to comply with the 

requirements of § 226.9(c)(1)(i), or 

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 

§ 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 § 226.6(a)(3) but is not 

required to be disclosed in the accountopening summary table under 

§ 226.6(a)(2). If a creditor adds 

expedited delivery of a credit card as a 

new service, the new service and the 

accompanying fee would be permissible 

under § 226.5b(f)(3)(iv) as a beneficial 

change. In these circumstances, 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)(1)(iii) Disclosure requirements. 

9(c)(1)(iii)(A) Changes to terms 

described in account-opening table. 

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 

§ 226.9(c)(1)(iii)(B), 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. (See 

§ 226.5b(f) for restrictions on a creditor’s 

right to change terms.) 

2. Changing index for calculating a 

variable rate. If the creditor is changing 

the index pursuant to § 226.5b(f)(3)(ii), 

the creditor must disclose the amount of 

the new rate (as calculated using the 

new index) and indicate that the rate 

varies and the how the rate is 

determined, as explained in 

§ 226.6(a)(2)(vi)(A). For example, if a 

creditor is changing from using a prime 

rate to using the LIBOR in calculating a 

variable rate, the creditor would 

disclose in the table the new rate (using 

the new index) and indicate that the rate 

varies with the market based on the 

LIBOR. 

3. Changing from a variable rate to a 

non-variable rate. If a creditor is 

changing from a variable rate to a nonvariable rate, the creditor must disclose 

the amount of the new rate (that is, the 

non-variable rate) in the table. (See 

§ 226.5b(f) for restrictions on a creditor’s 

right to change terms.) 

4. Changing from a non-variable rate 

to a variable rate. If a creditor is 

changing from a non-variable rate to a 

variable rate, the creditor must disclose 

the amount of the new rate (the variable 

rate using the index and margin), and 

indicate that the rate varies with the 

market based on the index used, such as 

the prime rate or the LIBOR. (See 

§ 226.5b(f) for restrictions on a creditor’s 

right to change terms.) 

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. (See § 226.5b(f) for 

restrictions on a creditor’s right to 

change terms.) 

6. Changes in fees. If a creditor is 

changing part of how a fee that is 

disclosed in a tabular format under 

§ 226.6(a)(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. The 

creditor in this example would disclose 

the following: ‘‘Either $10 or 3% of the 

transaction amount, whichever is 

greater. (Max: $100).’’ (See § 226.5b(f) 

for restrictions on a creditor’s right to 

change terms.) 

7. Combining a notice described in 

§ 226.9(c)(1)(iii) with a notice described 

in § 226.9(i). If a creditor is required to 

provide a notice described in 

§ 226.9(c)(1)(iii) and a notice described 

in § 226.9(i) 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. (See § 226.5b(f) for restrictions on 

a creditor’s right to change terms.) 

8. Content. Sample G–25 contains an 

example of how to comply with the 

requirements in § 226.9(c)(1)(iii) when 

the following terms are being changed: 

(i) the balance computation method is 

being changed from average-dailybalance to daily-balance; and (ii) the 

credit limit is being increased. 

9. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

disclosures required under 

§ 226.9(c)(1)(iii)(A)(1). 

10. Terminology. See § 226.5(a)(2) for 

terminology requirements applicable to 


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disclosures required under 

§ 226.9(c)(1)(iii)(A)(1). 

11. Opt-out disclosure. If a consumer 

has a right to opt out of one change 

(such as an increase in the credit limit), 

but not another being made at the same 

time (such as a change in the balance 

computation method), the notice should 

indicate that the consumer has ‘‘the 

right to opt out of some of these 

changes,’’ and refer to additional 

information specifying which change 

the opt-out right applies to.fi 

[9(c)(1)(iii) Notice to restrict credit. 

1. Written request for reinstatement. If 

a creditor requires the request for 

reinstatement of credit privileges to be 

in writing, the notice under 

§ 226.9(c)(1)(iii) must state that fact. 

2. Notice not required. A creditor 

need not provide a notice under this 

paragraph if, pursuant to the 

commentary to § 226.5b(f)(2), a creditor 

freezes a line or reduces a credit line 

rather than terminating a plan and 

accelerating the balance.] 

9(c)(1)fl(iv)fi[(ii)] Notice not 

required. 

1. Changes not requiring notice. The 

following are examples of changes that 

do not require a change-in-terms notice: 

[i. A change in the consumer’s credit 

limit.] 

fli.fi[ii.] A change in the name of the 

flhome equity creditfi[credit card or 

credit card] plan. 

flii.fi[iii.] The substitution of one 

insurer for another. 

[iv. A termination or suspension of 

credit privileges. (But see § 226.5b(f).)] 

fliiifi[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]. 

fliv. Suspension of credit privileges, 

reduction of a credit limit under 

§§ 226.5b(f)(2), 226.5b(f)(3)(i), or 

226.5b(f)(3)(vi), or termination of an 

account under § 226.5b(f)(2) do not 

require notice under paragraph (c)(1)(i) 

of this section, but must be disclosed 

pursuant to paragraph (j) of this 

section.fi 

2. Skip features. If a home-equity plan 

allows consumers to skip or reduce one 

or more payments during the year, or 

involves temporary reductions in 

finance charges fl(permissible as 

beneficial changes under 

§ 226.5b(f)(3)(iv))fi, no notice of the 

change in terms is required either prior 

to the reduction or upon resumption of 

the higher rates or payments if these 

features are explained on the flaccountopeningfi[initial] disclosure statement 

(including an explanation of the terms 

upon resumption). [For example, a 

merchant may allow consumers to skip 

the December payment to encourage 

holiday shopping, or a teachers’ credit 

union may not require payments during 

summer vacation.] Otherwise, the 

creditor must give notice prior to 

resuming the original schedule or rate, 

even though no notice is required prior 

to the reduction. The change-in-terms 

notice may be combined with the notice 

offering the reduction. For example, the 

periodic statement reflecting the 

reduction or skip feature may also be 

used to notify the consumer of the 

resumption of the original schedule or 

rate, either by stating explicitly when 

the higher payment or charges resume, 

or by indicating the duration of the skip 

option. Language such as ‘‘You may 

skip your October payment,’’ or ‘‘We 

will waive your finance charges for 

January,’’ may serve as the change-interms notice. flHowever, a creditor 

offering a temporary reduction in an 

interest rate must provide a notice in 

accordance with the timing 

requirements of § 226.9(c)(1)(i) and the 

content and format requirements of 

§ 226.9(c)(1)(iii)(A) and (B) prior to 

resuming the original rate.fi 

fl3. Changing from a variable rate to 

a non-variable rate. If a creditor is 

changing a rate applicable to a 

consumer’s account from a variable rate 

to a non-variable rate, the creditor must 

provide a notice as otherwise required 

under § 226.9(c)(1) even if the variable 

rate at the time of the change is higher 

than the non-variable rate. (See 

comment 9(c)(1)(iii)(A)–3.) (See 

§ 226.5b(f) for restrictions on a creditor’s 

right to change terms.) 

4. Changing from a non-variable rate 

to a variable rate. If a creditor is 

changing a rate applicable to a 

consumer’s account from a non-variable 

rate to a variable rate, the creditor must 

provide a notice as otherwise required 

under § 226.9(c)(1) even if the nonvariable rate is higher than the variable 

rate at the time of the change. (See 

comment 9(c)(1)(iii)(A)–4.) (See 

§ 226.5b(f) for restrictions on a creditor’s 

right to change terms.)fi 

* * * * * 

9(g) Increase in rates due to 

delinquency or default or as a 

penaltyfl—rules affecting open-end 

(not home-secured) plansfi. 

* * * * * 

fl9(i) Increase in rates due to 

delinquency or default or as a penalty— 

rules affecting home-equity plans. 

1. Affected consumers. If a single 

credit account involves multiple 

consumers that may be affected by the 

change, the creditor should refer to 

§ 226.5(d) to determine the number of 

notices that must be given. 

2. Combining a notice described in 

§ 226.9(i)(1) with a notice described in 

§ 226.9(c)(1). If a creditor is required to 

provide notices pursuant to both 

§ 226.9(c)(1) and (i)(1) to a consumer, 

the creditor may combine the two 

notices. This would occur when penalty 

pricing has been triggered, and other 

terms are changing on the consumer’s 

account at the same time. (See 

§ 226.5b(f) for restrictions on a creditor’s 

right to change terms.) 

3. Content. Model Clause G–26 

contains an example of how to comply 

with the requirements in § 226.9(i)(3)(i) 

when the rate on a consumer’s account 

is being increased to a penalty rate as 

described in § 226.9(i)(1)(ii). (See 

§ 226.5b(f) for restrictions on a creditor’s 

right to change terms.) 

4. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

disclosures required under § 226.9(i). 

5. Terminology. See § 226.5(a)(2) for 

terminology requirements applicable to 

disclosures required under § 226.9(i). 

* * * * * 

fl9(j) Notices of Action Taken for 

Home-equity Plans 

Paragraph 9(j)(1) 

1. Statement of action taken. The 

notice under § 226.9(j)(1) must state the 

specific action taken, such as whether 

the creditor suspended advances or 

reduced the credit limit. If the creditor 

reduced the credit limit, the notice must 

state the new credit limit. The statement 

of action taken under this section must 

include the date the action taken was 

effective. 

2. Statement of specific reasons for 

action taken. A creditor must disclose 

the principal reasons for prohibiting 

additional extensions of credit or 

reducing the credit limit for a homeequity plan under § 226.5b(f)(3)(i) or 

(f)(3)(vi). In addition to any information 

specified in comments 9(j)(1)–3, –4, and 

–5, as applicable, compliance with this 

provision requires stating the reason 

under the regulation permitting the 

action, such as that the maximum 

annual percentage has been reached, the 

property securing the plan has declined 

significantly, or the consumer’s 

financial circumstances have materially 

changed. 

3. Disclosure of specific reasons for 

action taken based on a significant 

decline in property value. When a 

creditor prohibits credit extensions or 

reduces a credit limit because the value 

of the property securing the plan has 

significantly declined under 


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43608 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

§ 226.5b(f)(3)(vi)(A), compliance with 

the requirement to disclose the specific 

reasons for the action taken is met by 

disclosing— 

i. the value of the property obtained 

by the creditor; 

ii. the type of valuation method used 

to obtain the property value; and 

iii. a statement that the consumer has 

a right to a copy of documentation. 

supporting the property value on which 

the action was based. 

4. Disclosure of specific reasons for 

action taken based on a material change 

in the consumer’s financial 

circumstances. When a creditor 

prohibits credit extensions or reduces a 

credit limit because the consumer’s 

financial circumstances have materially 

changed such that the creditor has a 

reasonable belief that the consumer will 

be unable to meet the repayment 

obligations of the plan under 

§ 226.5b(f)(3)(vi)(B), compliance with 

the requirement to disclose the specific 

reasons for the action taken is met by 

disclosing the type of information 

concerning the consumer’s financial 

circumstances on which the creditor 

relied, such as information about the 

consumer’s income, credit report 

information, or some other indicia of the 

consumer’s financial circumstances, as 

applicable. 

5. Specific reasons in other cases. 

When a creditor takes action due to a 

consumer’s default of a material 

obligation under § 226.5b(f)(3)(vi)(C), 

compliance with the requirement to 

disclose the specific reasons for the 

action taken is met by disclosing the 

material obligation under the agreement 

on which the consumer defaulted. 

When a creditor takes action under 

§ 226.5b(f)(3)(vi)(D) through (G), the 

creditor need disclose only the 

regulatory reason for the action. For 

example, if action was taken because a 

federal law required the action 

(pursuant to proposed 

§ 226.5b(f)(3)(vi)(G)), the creditor need 

disclose only that the line action was 

taken because federal law required the 

action. 

6. Method of request for 

reinstatement. If a creditor requires the 

consumer to request reinstatement of 

credit privileges under § 226.5b(g)(1)(ii), 

the notice under § 226.9(j)(1) must state 

the method or methods by which the 

consumer may request reinstatement. 

For example, if a creditor requires the 

request for reinstatement of credit 

privileges to be in writing, the notice 

under § 226.9(j)(1) must state that fact. 

The notice must also state the address 

to which the consumer should send the 

written request. 

7. Timing of notice. The creditor must 

mail or deliver the notice required 

under § 226.9(j)(1) within three business 

days after the action is taken. The 

general definition of ‘‘business day’’ in 

§ 226.2(a)(6)—a day on which the 

creditor’s offices are open to the public 

for carrying on substantially all of its 

business functions—is used for 

purposes of § 226.9(j)(1). See comment 

2(a)(6)–1. 

Paragraph 9(j)(2) 

1. Imposition of fees. If a creditor 

reduces the credit limit under 

§§ 226.5b(f)(3)(i) or (f)(3)(vi), the 

creditor may not charge the consumer a 

fee for exceeding the new credit limit 

until after the consumer has received 

notice of the action taken under 

§ 226.9(j)(1). Similarly, if a creditor 

suspends future advances on the 

account, the creditor may not charge the 

consumer a fee for any advances that the 

creditor denies until after the consumer 

has received notice of the action taken 

under § 226.9(j)(1). These limitations 

apply to fees disclosed in the original 

agreement for the plan. Imposing denied 

advance fees or over-the-limit fees not 

disclosed in the original agreement 

would be permitted only if an exception 

to the general limitations on changing 

home-equity plan terms under 

§ 226.5b(f) applies. 

2. Receipt of notice. For purposes of 

when a creditor may impose a fee for a 

denied advance or exceeding the credit 

limit after suspending advances on a 

line or reducing the credit limit, the 

consumer will be deemed to have 

received a notice required under 

§ 226.9(j)(1) mailed by the creditor after 

midnight on the third business day 

following mailing of the notice. The 

more precise definition of business day 

(meaning all calendar days except 

Sundays and specified federal holidays) 

applies. See comment 2(a)(6)–2. 

Paragraph 9(j)(3) 

1. Statement of action taken. The 

notice under § 226.9(j)(3) must disclose 

whether the creditor has terminated the 

plan and is accelerating the balance, 

and, if so, the date on which payment 

of the balance is due. If, pursuant to 

comment 5b(f)(2)–2, the creditor has 

suspended advances or reduced the 

credit limit, the notice must state this 

fact. If the creditor is reducing the credit 

limit, the notice must disclose the new 

credit limit. In all cases, the notice must 

include the date on which the action 

taken was effective. 

2. Statement of specific reasons for 

action taken. 

i. A creditor must disclose the 

principal reasons for action taken on a 

home-equity plan under § 226.5b(f)(2). 

In addition to any information specified 

in comments 9(j)(3)–2.ii, as applicable, 

compliance with the requirement to 

disclose the specific reasons for the 

action requires stating the reason under 

the regulation permitting the action, 

such as that the consumer failed to 

make a required minimum payment 

within 30 days after the due date for 

that payment (pursuant to 

§ 226.5b(f)(2)(ii)). 

ii. When a creditor takes action due to 

fraud or material misrepresentation by 

the consumer under § 226.5b(f)(2)(i), the 

creditor need only disclose that the 

action was taken due to either, as 

applicable, fraud or misrepresentation 

by the consumer; the creditor is not 

required to specify in the notice the 

nature of the fraud or misrepresentation. 

When a creditor takes action due to the 

consumer’s action or inaction that 

adversely affects the creditor’s interest 

in the property securing the plan under 

§ 226.5b(f)(2)(iii), the creditor should 

include in the notice the consumer’s 

action or inaction that jeopardizes the 

creditor’s interest in the property 

securing the account, such as failing to 

pay property taxes or allowing a new 

superior lien on the property. 

3. Timing of notice. The creditor must 

mail or deliver the notice required 

under § 226.9(j)(3) within three business 

days after the action is taken. The 

general definition of ‘‘business day’’ in 

§ 226.2(a)(6)—a day on which the 

creditor’s offices are open to the public 

for carrying on substantially all of its 

business functions—is used for 

purposes of § 226.9(j)(3). See comment 

2(a)(6)–1. 

Paragraph 9(j)(4) 

1. Notice of action taken under 

§ 226.5b(f)(2) other than termination 

and acceleration, suspension, and 

reduction. If, pursuant to comment 

5b(f)(2)–2, a creditor takes action under 

§ 226.5b(f)(2) other than termination and 

acceleration, suspension of advances, or 

reduction of the credit limit, such as 

imposing fees or raising the interest rate 

applicable to the account, the creditor 

must comply with the notice 

requirements of § 226.9(c)(1) (for fee 

changes) or (i) (for rate changes), as 

applicable. 

* * * * * 

§ 226.14 Determination of Annual 

Percentage Rate. 

14(a) General rule. 

1. Tolerance. The tolerance of Ath of 

1 percentage point above or below the 

annual percentage rate applies to any 

required disclosure of the annual 

percentage rate. The disclosure of the 

annual percentage rate is required in 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43609 

§§ 226.5a, 226.5b, 226.6, 226.7, 226.9, 

226.15, 226.16, and 226.26. 

2. Rounding. The regulation does not 

require that the annual percentage rate 

be calculated to any particular number 

of decimal places; rounding is 

permissible within the Ath of 1 percent 

tolerance. For example, an exact annual 

percentage rate of 14.33333% may be 

stated as 14.33% or as 14.3%, or even 

as 14 @%; but it could not be stated as 

14.2% or 14%, since each varies by 

more than the permitted tolerance. 

3. Periodic rates. No explicit tolerance 

exists for any periodic rate as such; a 

disclosed periodic rate may vary from 

precise accuracy (for example, due to 

rounding) only to the extent that its 

annualized equivalent is within the 

tolerance permitted by § 226.14(a). 

Further, a periodic rate need not be 

calculated to any particular number of 

decimal places. 

4. Finance charges. The regulation 

does not prohibit creditors from 

assessing finance charges on balances 

that include prior, unpaid finance 

charges; state or other applicable law 

may do so, however. 

5. Good faith reliance on faulty 

calculation tools. The regulation 

relieves a creditor of liability for an 

error in the annual percentage rate or 

finance charge that resulted from a 

corresponding error in a calculation tool 

used in good faith by the creditor. 

Whether or not the creditor’s use of the 

tool was in good faith must be 

determined on a case-by-case basis, but 

the creditor must in any case have taken 

reasonable steps to verify the accuracy 

of the tool, including any instructions, 

before using it. Generally, the safe 

harbor from liability is available only for 

errors directly attributable to the 

calculation tool itself, including 

software programs; it is not intended to 

absolve a creditor of liability for its own 

errors, or for errors arising from 

improper use of the tool, from incorrect 

data entry, or from misapplication of the 

law. 

14(b) Annual percentage rate—in 

general. 

1. Corresponding annual percentage 

rate computation. For [purposes of 

§§ 226.5a, 226.5b, 226.6, 226.7(a)(4) or 

(b)(4), 226.9, 226.15, 226.16, and 

226.26,] flopen-end credit under 

Subpart B of Regulation Z,fi the annual 

percentage rate is determined by 

multiplying the periodic rate by the 

number of periods in the year. [This 

computation reflects the fact that, in 

such disclosures, the rate (known as the 

corresponding annual percentage rate) is 

prospective and does not involve any 

particular finance charge or periodic 

balance.] 

[14(c) Optional effective annual 

percentage rate for periodic statements 

for creditors offering open-end plans 

subject to the requirements of § 226.5b. 

1. General rule. The periodic 

statement may reflect (under 

§ 226.7(a)(7)) the annualized equivalent 

of the rate actually applied during a 

particular cycle; this rate may differ 

from the corresponding annual 

percentage rate because of the inclusion 

of, for example, fixed, minimum, or 

transaction charges. Sections 

226.14(c)(1) through (c)(4) state the 

computation rules for the effective rate. 

2. Charges related to opening, 

renewing, or continuing an account. 

Sections 226.14(c)(2) and (c)(3) exclude 

from the calculation of the effective 

annual percentage rate finance charges 

that are imposed during the billing cycle 

such as a loan fee, points, or similar 

charge that relates to opening, renewing, 

or continuing an account. The charges 

involved here do not relate to a specific 

transaction or to specific activity on the 

account, but relate solely to the opening, 

renewing, or continuing of the account. 

For example, an annual fee to renew an 

open-end credit account that is a 

percentage of the credit limit on the 

account, or that is charged only to 

consumers that have not used their 

credit card for a certain dollar amount 

in transactions during the preceding 

year, would not be included in the 

calculation of the annual percentage 

rate, even though the fee may not be 

excluded from the finance charge under 

§ 226.4(c)(4). (See comment 4(c)(4)–2.) 

This rule applies even if the loan fee, 

points, or similar charges are billed on 

a subsequent periodic statement or 

withheld from the proceeds of the first 

advance on the account. 

3. Classification of charges. If the 

finance charge includes a charge not 

due to the application of a periodic rate, 

the creditor must use the annual 

percentage rate computation method 

that corresponds to the type of charge 

imposed. If the charge is tied to a 

specific transaction (for example, 3 

percent of the amount of each 

transaction), then the method in 

§ 226.14(c)(3) must be used. If a fixed or 

minimum charge is applied, that is, one 

not tied to any specific transaction, then 

the formula in § 226.14(c)(2) is 

appropriate. 

4. Small finance charges. Section 

226.14(c)(4) gives the creditor an 

alternative to § 226.14(c)(2) and (c)(3) if 

small finance charges (50 cents or less) 

are involved; that is, if the finance 

charge includes minimum or fixed fees 

not due to the application of a periodic 

rate and the total finance charge for the 

cycle does not exceed 50 cents. For 

example, while a monthly activity fee of 

50 cents on a balance of $20 would 

produce an annual percentage rate of 30 

percent under the rule in § 226.14(c)(2), 

the creditor may disclose an annual 

percentage rate of 18 percent if the 

periodic rate generally applicable to all 

balances is 1c percent per month. 

5. Prior-cycle adjustments. i. The 

annual percentage rate reflects the 

finance charges imposed during the 

billing cycle. However, finance charges 

imposed during the billing cycle may 

relate to activity in a prior cycle. 

Examples of circumstances when this 

may occur are: 

A. A cash advance occurs on the last 

day of a billing cycle on an account that 

uses the transaction date to figure 

finance charges, and it is impracticable 

to post the transaction until the 

following cycle. 

B. An adjustment to the finance 

charge is made following the resolution 

of a billing error dispute. 

C. A consumer fails to pay the 

purchase balance under a deferred 

payment feature by the payment due 

date, and finance charges are imposed 

from the date of purchase. 

ii. Finance charges relating to activity 

in prior cycles should be reflected on 

the periodic statement as follows: 

A. If a finance charge imposed in the 

current billing cycle is attributable to 

periodic rates applicable to prior billing 

cycles (such as when a deferred 

payment balance was not paid in full by 

the payment due date and finance 

charges from the date of purchase are 

now being debited to the account, or 

when a cash advance occurs on the last 

day of a billing cycle on an account that 

uses the transaction date to figure 

finance charges and it is impracticable 

to post the transaction until the 

following cycle), and the creditor uses 

the quotient method to calculate the 

annual percentage rate, the numerator 

would include the amount of any 

transaction charges plus any other 

finance charges posted during the 

billing cycle. At the creditor’s option, 

balances relating to the finance charge 

adjustment may be included in the 

denominator if permitted by the legal 

obligation, if it was impracticable to 

post the transaction in the previous 

cycle because of timing, or if the 

adjustment is covered by comment 

14(c)–5.ii.B. 

B. If a finance charge that is posted to 

the account relates to activity for which 

a finance charge was debited or credited 

to the account in a previous billing 

cycle (for example, if the finance charge 

relates to an adjustment such as the 

resolution of a billing error dispute, or 

an unintentional posting error, or a 


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43610 Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 

payment by check that was later 

returned unpaid for insufficient funds 

or other reasons), the creditor shall at its 

option: 

1. Calculate the annual percentage 

rate in accordance with ii.A. of this 

paragraph, or 

2. Disclose the finance charge 

adjustment on the periodic statement 

and calculate the annual percentage rate 

for the current billing cycle without 

including the finance charge adjustment 

in the numerator and balances 

associated with the finance charge 

adjustment in the denominator. 

14(c)(1) Solely periodic rates imposed. 

1. Periodic rates. Section 226.14(c)(1) 

applies if the only finance charge 

imposed is due to the application of a 

periodic rate to a balance. The creditor 

may compute the annual percentage rate 

either: 

i. By multiplying each periodic rate 

by the number of periods in the year; or 

ii. By the ‘‘quotient’’ method. This 

method refers to a composite annual 

percentage rate when different periodic 

rates apply to different balances. For 

example, a particular plan may involve 

a periodic rate of 1c percent on balances 

up to $500, and 1 percent on balances 

over $500. If, in a given cycle, the 

consumer has a balance of $800, the 

finance charge would consist of $7.50 

(500 × .015) plus $3.00 (300 × .01), for 

a total finance charge of $10.50. The 

annual percentage rate for this period 

may be disclosed either as 18% on $500 

and 12 percent on $300, or as 15.75 

percent on a balance of $800 (the 

quotient of $10.50 divided by $800, 

multiplied by 12). 

14(c)(2) Minimum or fixed charge, but 

not transaction charge, imposed. 

1. Certain charges not based on 

periodic rates. Section 226.14(c)(2) 

specifies use of the quotient method to 

determine the annual percentage rate if 

the finance charge imposed includes a 

certain charge not due to the application 

of a periodic rate (other than a charge 

relating to a specific transaction). For 

example, if the creditor imposes a 

minimum $1 finance charge on all 

balances below $50, and the consumer’s 

balance was $40 in a particular cycle, 

the creditor would disclose an annual 

percentage rate of 30 percent (1⁄40 × 12). 

2. No balance. If there is no balance 

to which the finance charge is 

applicable, an annual percentage rate 

cannot be determined under 

§ 226.14(c)(2). This could occur not only 

when minimum charges are imposed on 

an account with no balance, but also 

when a periodic rate is applied to 

advances from the date of the 

transaction. For example, if on May 19 

the consumer pays the new balance in 

full from a statement dated May 1, and 

has no further transactions reflected on 

the June 1 statement, that statement 

would reflect a finance charge with no 

account balance. 

14(c)(3) Transaction charge imposed. 

1. Transaction charges. i. Section 

226.14(c)(3) transaction charges include, 

for example: 

A. A loan fee of $10 imposed on a 

particular advance. 

B. A charge of 3 percent of the amount 

of each transaction. 

ii. The reference to avoiding 

duplication in the computation requires 

that the amounts of transactions on 

which transaction charges were 

imposed not be included both in the 

amount of total balances and in the 

‘‘other amounts on which a finance 

charge was imposed’’ figure. In a 

multifeatured plan, creditors may 

consider each bona fide feature 

separately in the calculation of the 

denominator. A creditor has 

considerable flexibility in defining 

features for open-end plans, as long as 

the creditor has a reasonable basis for 

the distinctions. For further explanation 

and examples of how to determine the 

components of this formula, see 

Appendix F to part 226. 

2. Daily rate with specific transaction 

charge. Section 226.14(c)(3) sets forth an 

acceptable method for calculating the 

annual percentage rate if the finance 

charge results from a charge relating to 

a specific transaction and the 

application of a daily periodic rate. This 

section includes the requirement that 

the creditor follow the rules in 

Appendix F to part 226 in calculating 

the annual percentage rate, especially 

the provision in the introductory section 

of Appendix F which addresses the 

daily rate/transaction charge situation 

by providing that the ‘‘average of daily 

balances’’ shall be used instead of the 

‘‘sum of the balances.’’ 

14(d) Calculations where daily 

periodic rate applied. 

1. Quotient method. Section 226.14(d) 

addresses use of a daily periodic rate(s) 

to determine some or all of the finance 

charge and use of the quotient method 

to determine the annual percentage rate. 

Since the quotient formula in 

§ 226.14(c)(1)(ii) and (c)(2) cannot be 

used when a daily rate is being applied 

to a series of daily balances, § 226.14(d) 

provides two alternative ways to 

calculate the annual percentage rate— 

either of which satisfies the provisions 

of § 226.7(a)(7). 

2. Daily rate with specific transaction 

charge. If the finance charge results 

from a charge relating to a specific 

transaction and the application of a 

daily periodic rate, see comment 

14(c)(3)–2 for guidance on an 

appropriate calculation method.] 

* * * * * 

Appendix F [—Optional Annual 

Percentage Rate Computations for 

Creditors Offering Open-End Plans 

Subject to the Requirements of § 226.5b] 

fl[Reserved]fi 

[1. Daily rate with specific transaction 

charge. If the finance charge results from a 

charge relating to a specific transaction and 

the application of a daily periodic rate, see 

comment 14(c)(3)–2 for guidance on an 

appropriate calculation method.] 

Appendices G and H—Open-End and 

Closed-End Model Forms and Clauses 

1. Permissible changes. Although use of the 

model forms and clauses is not required, 

creditors using them properly will be deemed 

to be in compliance with the regulation with 

regard to those disclosures. Creditors may 

make certain changes in the format or content 

of the forms and clauses and may delete any 

disclosures that are inapplicable to a 

transaction or a plan without losing the act’s 

protection from liabilityfl.fi [, except] 

flHowever,fi formatting changes may not be 

made to flthe followingfi model forms fl, 

model clauses,fi and samples in 

flAppendices G and H:fi G–2[(A)], G– 

3[(A)], G–4[(A)], G–10(A)–(E), flG–14(A)– 

(E), G–15(A)–(D),fi G–17(A)–(D), G–18(A) 

(except as permitted pursuant to 

§ 226.7(b)(2)), G–18(B)–(C), G–19, G–20, [and] 

G–21fl, G–22(A)–(B), G–23(A)–(B), G–24(A) 

(except as permitted pursuant to 

§ 226.7(a)(2)), G–25, and G–26; and H–4(B) 

through H–4(L), H–17(A) through (D), H– 

19(A)–(I), and H–20 through H–22fi. The 

rearrangement of the model forms and 

clauses may not be so extensive as to affect 

the substance, clarity, or meaningful 

sequence of the forms and clauses. Creditors 

making revisions with that effect will lose 

their protection from civil liability. Except as 

otherwise specifically required, acceptable 

changes include, for example: 

i. Using the first person, instead of the 

second person, in referring to the borrower. 

ii. Using ‘‘borrower’’ and ‘‘creditor’’ 

instead of pronouns. 

iii. Rearranging the sequences of the 

disclosures. 

iv. Not using bold type for headings. 

v. Incorporating certain state ‘‘plain 

English’’ requirements. 

vi. Deleting inapplicable disclosures by 

whiting out, blocking out, filling in ‘‘N/A’’ 

(not applicable) or ‘‘0,’’ crossing out, leaving 

blanks, checking a box for applicable items, 

or circling applicable items. (This should 

permit use of multipurpose standard forms 

flfor transactions not secured by real 

property or a dwellingfi.) 

[vii. Using a vertical, rather than a 

horizontal, format for the boxes in the closedend disclosures.] 

* * * * * 

Appendix G—Open-End Model Forms 

and Clauses 

1. Model[s] G–1 [and G–1(A)]. The model 

disclosures in G–1 [and G–1(A)] (different 


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Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / Proposed Rules 43611 

balance computation methods) may be used 

in both the account-opening disclosures 

under § 226.6 and the periodic disclosures 

under § 226.7. As is clear from the models 

given, ‘‘shorthand’’ descriptions of the 

balance computation methods are not 

sufficient, except where § 226.7(b)(5) applies. 

[For creditors using model G–1, the phrase ‘‘a 

portion of’’ the finance charge should be 

included if the total finance charge includes 

other amounts, such as transaction charges, 

that are not due to the application of a 

periodic rate.] If unpaid interest or finance 

charges are subtracted in calculating the 

balance, that fact must be stated so that the 

disclosure of the computation method is 

accurate. [Only model G–1(b) contains a final 

sentence appearing in brackets, which 

reflects the total dollar amount of payments 

and credits received during the billing cycle. 

The other models do not contain this 

language because they reflect plans in which 

payments and credits received during the 

billing cycle are subtracted. If this is not the 

case, however, the language relating to 

payments and credits should be changed, and 

the creditor should add either the disclosure 

of the dollar amount as in model G–1(b) or 

an indication of which credits (disclosed 

elsewhere on the periodic statement) will not 

be deducted in determining the balance. 

(Such an indication may also substitute for 

the bracketed sentence in model G–1(b).) (See 

the commentary to § 226.7(a)(5) and (b)(5).) 

For open-end plans subject to the 

requirements of § 226.5b, creditors may, at 

their option, use the clauses in G–1 or G– 

1(A).] 

2. Model[s] G–2 [and G–2(A)]. flThisfi 

[These] model[s] containflsfi the notice of 

liability for unauthorized use of a credit card. 

[For home-equity plans subject to the 

requirements of § 226.5b, at the creditor’s 

option, a creditor either may use G–2 or G– 

2(A). For open-end plans not subject to the 

requirements of § 226.5b, creditors properly 

use G–2(A).] 

3. Models G–3[, G–3(A),] flandfi G–4 [and 

G–4(A)]. 

i. These set out models for the long-form 

billing-error rights statement (for use with the 

account-opening disclosures and as an 

annual disclosure or, at the creditor’s option, 

with each periodic statement) and the 

alternative billing-error rights statement (for 

use with each periodic statement), 

respectively. [For home-equity plans subject 

to the requirements of § 226.5b, at the 

creditor’s option, a creditor either may use 

G–3 or G–3(A), and for creditors that use the 

short form, G–4 or G–4(A). For open-end (not 

home-secured) plans that not subject to the 

requirements of § 226.5b, creditors properly 

use G–3(A) and G–4(A).] Creditors must 

provide the billing-error rights statements in 

a form substantially similar to the models in 

order to comply with the regulation. The 

model billing-rights statements may be 

modified in any of the ways set forth in the 

first paragraph to the commentary on 

appendices G and H. The models may, 

furthermore, be modified by deleting 

inapplicable information, such as: 

A. The paragraph concerning stopping a 

debit in relation to a disputed amount, if the 

creditor does not have the ability to debit 

automatically the consumer’s savings or 

checking account for payment. 

B. The rights stated in the special rule for 

credit card purchases and any limitations on 

those rights. 

ii. The model billing rights statements also 

contain optional language that creditors may 

use. For example, the creditor may: 

A. Include a statement to the effect that 

notice of a billing error must be submitted on 

something other than the payment ticket or 

other material accompanying the periodic 

disclosures. 

B. Insert its address or refer to the address 

that appears elsewhere on the bill. 

C. Include instructions for consumers, at 

the consumer’s option, to communicate with 

the creditor electronically or in writing. 

iii. Additional information may be 

included on the statements as long as it does 

not detract from the required disclosures. For 

instance, information concerning the 

reporting of errors in connection with a 

checking account may be included on a 

combined statement as long as the 

disclosures required by the regulation remain 

clear and conspicuous. 

* * * * * 

fl12. Models G–22(A) and G–22(B). These 

model clauses illustrate the disclosures 

required under § 226.5b(g)(2)(v). They inform 

the consumer that the consumer’s 

reinstatement request has been received and 

that the creditor has investigated the request. 

They contain sample language for explaining 

the results of a reinstatement investigation in 

which the creditor found that a reason for 

suspension of advances or reduction of the 

credit limit still exists. Clauses in Model G– 

22(A) illustrate how a notice may explain 

that the same reason or reasons originally 

supporting the suspension or reduction still 

exist. Clauses in Model G–22(B) illustrate 

how a creditor may explain that a new reason 

or reasons for account suspension or 

reduction exist. Models G–22(A) and G–22(B) 

do not contain sample clauses for all reasons 

in which a creditor may temporarily suspend 

or reduce a home-equity plan. A creditor may 

comply with the disclosure requirements of 

§ 226.5b(g)(2)(v) by using language 

substantially similar to the language in the 

model clauses or by substituting applicable 

reasons for the action not represented in 

these model clauses, as long as the 

information required to be disclosed is clear 

and conspicuous. 

13. Models G–23(A) and G–23(B). These 

model clauses illustrate the disclosures 

required under § 226.9(j)(1) and (j)(3). 

i. Clauses in Model G–23(A) contain 

information regarding information required 

by § 226.9(j)(1) regarding the nature of the 

action taken on the home-equity plan under 

§ 226.5b(f)(3)(i) and (f)(3)(vi) and the specific 

reasons for the action taken. In particular, 

they illustrate language for a notice in which 

the creditor temporarily suspends advances 

or reduces a credit limit due to a significant 

decline in the value of the property securing 

the plan under § 226.5b(f)(3)(vi)(A); a 

material change in the consumer’s financial 

circumstances such that the creditor has a 

reasonable belief that the consumer will be 

unable to meet the repayment terms of the 

plan under § 226.5b(f)(3)(vi)(B)); and the 

consumer’s default of a material obligation 

under the plan under § 226.5b(f)(3)(vi)(C)). 

Model G–23(A) clauses also contain 

information regarding the consumer’s rights 

when the creditor requires the consumer to 

request reinstatement under § 226.5b(g)(1)(ii). 

ii. Clauses in Model G–23(B) contain 

information required under § 226.9(j)(3) 

regarding the nature of the action taken on 

the account under § 226.5b(f)(2) and the 

specific reasons for the action taken. In 

particular, they illustrate language for a 

notice in which the creditor takes action on 

an account due to the consumer’s failure to 

meet the repayment terms of the plan under 

§ 226.5b(f)(2)(ii) and the consumer’s action or 

inaction that adversely affected the creditor’s 

interest in the property securing the plan 

under § 226.5b(f)(2)(iii). Model clauses for 

the notice when a creditor takes action due 

to a consumer’s fraud or material 

misrepresentation under § 226.5b(f)(2)(i) are 

not included because a creditor need disclose 

only that the consumer’s fraud or 

misrepresentation is the reason for the action; 

if the creditor does not include this 

information. 

iii. A creditor may comply with the 

disclosure requirements of § 226.9(j)(1) and 

(j)(3) by using language substantially similar 

to the language in the model clauses or by 

substituting applicable reasons for the action 

not represented in these model clauses, as 

long as the information required to be 

disclosed is clear and conspicuous. 

14. Models G–14(A) and G–14(B), Samples 

G–14(C), G–14(D), and G–14(E), Model G– 

15(A), and Samples G–15(B), G–15(C), and 

G–15(D). 

i. Models G–14(A) and G–14(B) and 

Samples G–14(C), G–14(D), and G–14(E) 

illustrate, in the tabular format, the 

disclosures required under § 226.5b to be 

provided within three business days after a 

consumer makes an application for a home 

equity line of credit (HELOC). Model G– 

15(A) and Samples G–15(B), G–15(C), and G– 

15(D) illustrate, in the tabular format, the 

disclosures required under § 226.6(a)(1) and 

(a)(2) for HELOC account-opening 

disclosures. 

ii. Except as otherwise permitted, 

disclosures must be substantially similar in 

sequence and format to Models G–14(A), G– 

14(B), and G–15(A). While proper use of the 

model forms will be deemed in compliance 

with the regulation, creditors offering 

HELOCs are permitted to use headings other 

than those in the forms if they are clear and 

concise and are substantially similar to the 

headings contained in model forms, except 

that the terms ‘‘Borrowing Period,’’ 

‘‘Repayment Period,’’ ‘‘Balloon Payment,’’ 

and ‘‘Annual Percentage Rate’’ (or ‘‘APR’’), 

must be used as applicable. In addition, in 

relation to required insurance, or debt 

cancellation or suspension coverage, if 

applicable, the term ‘‘Required’’ and the 

name of the product must be used, and for 

headings that must be used to describe the 

grace period, or lack of grace period, the 

terms ‘‘Paying Interest’’ or ‘‘How to Avoid 

Paying Interest’’ must be used, as applicable. 

iii. Model G–14(A) and Sample G–14(C) 

provide guidance for creditors that offer two 

or more HELOC plans and that, accordingly, 


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are required under § 226.5b to disclose two 

HELOC plans and, if the creditor offers more 

than two plans, a statement that the 

consumer should ask for details about other 

plans that the creditor offers. Sample G–14(C) 

illustrates two plans, one (‘‘Plan B’’) with a 

balloon payment at the end of the repayment 

period and the other (‘‘Plan A’’) with no 

balloon payment, and shows the required 

disclosures about the balloon payment, as 

well as the required disclosures stating 

which plan results in the lesser and which 

results in the greater amount of interest. 

iv. Model G–14(B) and Samples G–14(D) 

and G–14(E) provide guidance for creditors 

that offer only one HELOC plan. Sample G– 

14(D) illustrates a plan with an interest-only 

draw period of 10 years, no repayment period 

(i.e., the consumer is required to pay the 

outstanding balance in full in a single 

payment at the end of the draw period), and 

a balloon payment. Sample G–14(E) 

illustrates a plan in which the length of the 

repayment period depends upon the 

outstanding balance at the end of the draw 

period, and in which no balloon payment 

will occur. 

v. Among the account-opening disclosure 

samples, Sample G–15(B) corresponds to 

early disclosure Sample G–14(C), and 

illustrates the situation where the consumer 

has chosen Plan B (the plan with a balloon 

payment) shown in Sample G–14(C). 

Account-opening disclosure Sample G–15(C) 

corresponds to early disclosure Sample G– 

14(D), showing the plan with an interest-only 

draw period, no repayment period, and a 

balloon payment. Account-opening 

disclosure Sample G–15(D) corresponds to 

early disclosure Sample G–14(E), showing 

the plan in which the length of the 

repayment period depends upon the 

outstanding balance at the end of the draw 

period, and in which no balloon payment 

will occur. 

vi. Samples G–14(C), G–14(E), G–15(B), 

and G–15(D) illustrate plans with discounted 

introductory APRs, and show the required 

use of the term ‘‘introductory’’ (‘‘intro’’ is 

also permissible, but is not shown in the 

samples) in immediate proximity to the term 

‘‘APR.’’ Samples G–14(D) and G–15(C) 

illustrate plans without discounted 

introductory APRs. All of the samples 

illustrate plans with variable-rate APRs, and 

show required use of the term ‘‘variable rate’’ 

in underlined text. 

vii. The samples do not contain all possible 

required disclosures. For example, the 

models show the format for disclosure of 

limits on number of credit transactions, 

limits on amount of credit borrowed, 

minimum APR, payment limitations, and 

negative amortization, but the samples do not 

show this information. Also, the accountopening disclosure samples show certain 

account-opening, penalty, and transaction 

fees in the table detailing fees, but the fees 

shown in the samples do not constitute an 

exhaustive list of all the fees in these 

categories that may have to be disclosed. 

viii. Although creditors are not required to 

use a certain paper size in disclosing the 

§§ 226.5b or 226.6(a)(1) and (2) disclosures, 

Samples G–14(C), G–14(D), G–14(E), G–15(B), 

G–15–(C), and G–15(D) are each designed to 

be printed on two 81⁄2 x 14 inch sheets of 

paper. A creditor may use a smaller sheet of 

paper, such as an 81⁄2 x 11 inch sheet of 

paper. A creditor must disclose the table on 

consecutive pages and may not include any 

intervening information between portions of 

the table. In addition, the following 

formatting techniques were used in 

presenting the information in the sample 

tables to ensure that the information is 

readable: 

A. A readable font style and font size (10- 

point Arial font style, except for annual 

percentage rates shown in 16-point type). 

B. Sufficient spacing between lines of the 

text. 

C. Adequate spacing between paragraphs 

when several pieces of information were 

included in the same row of the table, as 

appropriate. 

D. Standard spacing between words and 

characters. In other words, the text was not 

compressed to appear smaller than 10-point 

type. 

E. Sufficient white space around the text of 

the information in each row, by providing 

sufficient margins above, below and to the 

sides of the text. 

F. Sufficient contrast between the text and 

the background. Generally, black text was 

used on white paper. 

ix. While the Board is not requiring 

creditors to use the above formatting 

techniques in presenting information in the 

table (except for the 10-point and 16-point 

font requirement), the Board encourages 

creditors to consider these techniques when 

deciding how to disclose information in the 

table, to ensure that the information is 

presented in a readable format. 

x. Creditors are allowed to use color, 

shading and similar graphic techniques with 

respect to the table, so long as the table 

remains substantially similar to the model 

and sample forms in Appendix G. 

15. Samples G–24(A), G–24(B), G–24(C), G– 

25, and G–26. Samples G–24(A), G–24(B), 

and G–24(C) are intended as a compliance 

aid to illustrate front sides of a periodic 

statement, and how periodic statements for 

HELOC plans might be designed to comply 

with the requirements of § 226.7. The 

samples contain information that is not 

required by Regulation Z. The samples also 

present information in additional formats 

that are not required by Regulation Z. 

i. Creditors are not required to use a certain 

paper size in disclosing the § 226.7 

disclosures. However, Samples G–24(B) and 

G–24(C) are designed to be printed on two 8 

x 14 inch sheets of paper. 

ii. The summary of account activity 

presented on Samples G–24(B) and G–24(C) 

is not itself a required disclosure, although 

the previous balance and the new balance, 

presented in the summary, must be disclosed 

in a clear and conspicuous manner on 

periodic statements. 

iii. Additional information not required by 

Regulation Z may be presented on the 

statement. The information need not be 

located in any particular place or be 

segregated from disclosures required by 

Regulation Z. Any additional information 

must be presented consistent with the 

creditor’s obligation to provide required 

disclosures in a clear and conspicuous 

manner. 

iv. Samples G–24(B) and G–24(C) 

demonstrate two examples of ways in which 

transactions could be presented on the 

periodic statement. Sample G–24(B) presents 

transactions grouped by type and Sample G– 

24(C) presents transactions in a list in 

chronological order. Neither of these 

approaches to presenting transactions is 

required; a creditor may present transactions 

differently, such as in a list grouped by 

authorized user or other means. 

v. Samples G–24(B) and G–24(C) also 

illustrate how change-in-terms notices and 

rate increases notices would be required to 

appear, if given on a periodic statement. 

Sample G–24(B) provides an example of a 

rate increase notice on a periodic statement; 

Sample G–24(C) provides an example of a 

change-in-terms notice on a periodic 

statement. Change-in-terms notices and rate 

increase notices may alternatively be given 

separately from periodic statements, 

provided the formatting requirements of 

§ 226.9(c)(1) and (i) are followed; Sample G– 

25 provides an example of a change-in-terms 

notice, and Sample G–26 provides an 

example of a rate increase notice. 

By order of the Board of Governors of the 

Federal Reserve System, July 24, 2009. 

Robert deV. Frierson, 

Deputy Secretary of the Board. 

Note: The following appendix will not 

appear in the Code of Federal Regulations. 

BILLING CODE 6210–01–P 


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[FR Doc. E9–18121 Filed 8–25–09; 8:45 am] 

BILLING CODE 6210–01–C 


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