54124 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Regulation Z; Docket No. R–1370] 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Proposed rule; request for 

public comment. 

SUMMARY: The Board proposes to amend 

Regulation Z, which implements the 

Truth in Lending Act, and the staff 

commentary to the regulation in order to 

implement provisions of the Credit Card 

Accountability Responsibility and 

Disclosure Act of 2009 that are effective 

on February 22, 2010. This proposal 

would establish a number of new 

substantive and disclosure requirements 

to establish fair and transparent 

practices pertaining to open-end 

consumer credit plans, including credit 

card accounts. In particular, the 

proposed rule would limit the 

application of increased rates to existing 

credit card balances, require credit card 

issuers to consider a consumer’s ability 

to make the required payments, 

establish special requirements for 

extensions of credit to consumers who 

are under the age of 21, and limit the 

assessment of fees for exceeding the 

credit limit on a credit card account. 

DATES: Comments must be received on 

or before November 20, 2009. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1370, 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. 

• Facsimile: (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 form 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: 

Jennifer S. Benson or Stephen Shin, 

Attorneys, Amy Burke, Benjamin K. 

Olson, or Vivian Wong, Senior 

Attorneys, or Krista Ayoub or Ky TranTrong, Counsels, Division of Consumer 

and Community Affairs, Board of 

Governors of the Federal Reserve 

System, at (202) 452–3667 or 452–2412; 

for users of Telecommunications Device 

for the Deaf (TDD) only, contact (202) 

263–4869. 

SUPPLEMENTARY INFORMATION: 

I. Background and Implementation of 

the Credit Card Act 

January 2009 Regulation Z and FTC Act 

Rules 

On December 18, 2008, the Board 

adopted two final rules pertaining to 

open-end (not home-secured) credit. 

These rules were published in the 

Federal Register on January 29, 2009. 

The first rule makes comprehensive 

changes to Regulation Z’s provisions 

applicable to open-end (not homesecured) credit, including amendments 

that affect all of the five major types of 

required disclosures: credit card 

applications and solicitations, accountopening disclosures, periodic 

statements, notices of changes in terms, 

and advertisements. See 74 FR 5244 

(January 2009 Regulation Z Rule). The 

second is a joint rule published with the 

Office of Thrift Supervision (OTS) and 

the National Credit Union 

Administration (NCUA) under the 

Federal Trade Commission Act (FTC 

Act) to protect consumers from unfair 

acts or practices with respect to 

consumer credit card accounts. See 74 

FR 5498 (January 2009 FTC Act Rule). 

The effective date for both rules is July 

1, 2010. 

On May 5, 2009, the Board published 

proposed clarifications and technical 

amendments to the January 2009 

Regulation Z Rule (May 2009 Regulation 

Z Proposed Clarifications) in the 

Federal Register. See 74 FR 20784. The 

Board, the OTS, and the NCUA 

(collectively, the Agencies) concurrently 

published proposed clarifications and 

technical amendments to the January 

2009 FTC Act Rule. See 74 FR 20804 

(May 2009 FTC Act Rule Proposed 

Clarifications). In both cases, as stated 

in the Federal Register, these proposals 

were intended to clarify and facilitate 

compliance with the consumer 

protections contained in the January 

2009 final rules and not to reconsider 

the need for—or the extent of—those 

protections. The comment period on 

both of these proposed sets of 

amendments ended on June 4, 2009. 

Where relevant, the Board has 

considered the comments submitted in 

preparing this proposed rule and is 

republishing the proposed amendments 

with several revisions as discussed in V. 

Section-by-Section Analysis. The Board 

intends to finalize the amendments, 

with revisions as appropriate, in 

connection with this rulemaking. 

The Credit Card Act 

On May 22, 2009, the Credit Card 

Accountability Responsibility and 

Disclosure Act of 2009 (Credit Card Act) 

was signed into law. Public Law 111– 

24, 123 Stat. 1734 (2009). The Credit 

Card Act primarily amends the Truth in 

Lending Act (TILA) and establishes a 

number of new substantive and 

disclosure requirements to establish fair 

and transparent practices pertaining to 

open-end consumer credit plans. 

Several of the provisions of the Credit 

Card Act are similar to provisions in the 

Board’s January 2009 Regulation Z and 

FTC Act Rules, while other portions of 

the Credit Card Act address practices or 

mandate disclosures that were not 

addressed in the Board’s rules. 

The requirements of the Credit Card 

Act that pertain to credit cards or other 

open-end credit for which the Board has 

rulemaking authority become effective 

in three stages. First, provisions 

generally requiring that consumers 

receive 45 days’ advance notice of 

interest rate increases and significant 

changes in terms (new TILA Section 

127(i)) and provisions regarding the 

amount of time that consumers have to 

make payments (revised TILA Section 

163) became effective on August 20, 

2009 (90 days after enactment of the 

Credit Card Act). A majority of the 

requirements under the Credit Card Act 

for which the Board has rulemaking 

authority, including, among other 

things, provisions regarding interest rate 

increases (revised TILA Section 171), 

over-the-limit transactions (new TILA 

Section 127(k)), and student cards (new 

TILA Sections 127(c)(8), 127(p), and 

140(f)) become effective on February 22, 

2010 (9 months after enactment). 

Finally, two provisions of the Credit 

Card Act addressing the reasonableness 

and proportionality of penalty fees and 

charges (new TILA Section 149) and reevaluation by creditors of rate increases 

(new TILA Section 148) are effective on 

August 22, 2010 (15 months after 

enactment). The Credit Card Act also 

requires the Board to conduct several 

studies and to make several reports to 

Congress, and sets forth differing time 


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1The Board has already begun consideration of 

the comment letters received on the July 2009 

Regulation Z Interim Final Rule. However, the 

review of the comment letters is ongoing, and 

accordingly the supplementary information to this 

proposal does not discuss the comments received. 

The Board anticipates addressing the comments in 

their entirety when it issues a final rule based on 

this proposal. 

2See also OTS Memorandum for Chief Executive 

Officers: Credit CARD Act: Interest Rate Increases 

and Rules on Unfair Practices (issued July 13, 2009) 

(available at http://files.ots.treas.gov/25312.pdf); 

NCUA Press Release: Working with Other 

Regulators on Credit CARD Act and UDAP Rule 

(issued July 1, 2009) (available at http:// 

www.ncua.gov/news/press_releases/2009/MR09– 

0701.htm). 

periods in which these studies and 

reports must be completed. 

Implementation Plan 

On July 22, 2009, the Board published 

an interim final rule to implement those 

provisions of the Credit Card Act that 

became effective on August 20, 2009 

(July 2009 Regulation Z Interim Final 

Rule). See 74 FR 36077. As discussed in 

the supplementary information to the 

July 2009 Regulation Z Interim Final 

Rule, the Board is implementing the 

provisions of the Credit Card Act in 

stages, consistent with the statutory 

timeline established by Congress. 

Accordingly, the interim final rule 

implemented those provisions of the 

statute that became effective August 20, 

2009, primarily addressing change-interms notice requirements and the 

amount of time that consumers have to 

make payments. The Board issued rules 

in interim final form based on its 

determination that, given the short 

implementation period established by 

the Credit Card Act and the fact that 

similar rules were already the subject of 

notice-and-comment rulemaking, it 

would be impracticable and 

unnecessary to issue a proposal for 

public comment followed by a final 

rule. The Board solicited comment on 

the interim final rule; the comment 

period ended on September 21, 2009. 

The Board intends to consider 

comments on the interim final rule 

when finalizing this rulemaking 

implementing those provisions of the 

Credit Card Act that become effective 

February 22, 2010.1

The Board intends to separately 

consider the two remaining provisions 

under the Credit Card Act regarding 

reasonable and proportional penalty 

fees and charges and the re-evaluation 

of rate increases, and to finalize 

implementing regulations in accordance 

with the timeline established by 

Congress, upon notice and after giving 

the public an opportunity to comment. 

To the extent appropriate, the Board 

has used its January 2009 rules and the 

underlying rationale as the basis for its 

rulemakings under the Credit Card Act. 

The Board also intends to retain those 

portions of its January 2009 Regulation 

Z Rule that are unaffected by the Credit 

Card Act. The Board is not withdrawing 

any provisions of the January 2009 

Regulation Z Rule or its January 2009 

FTC Act Rule at this time. The Board 

anticipates that in connection with 

finalizing this proposed rule for those 

provisions of the Credit Card Act that 

are effective February 22, 2010, it will 

amend or withdraw those portions of 

the January 2009 Regulation Z Rule that 

are inconsistent with the requirements 

of the Credit Card Act. In addition, as 

discussed further in V. Section-bySection Analysis, the Board is proposing 

to move the requirements in its January 

2009 FTC Act Rule into Regulation Z 

and intends to withdraw the 

requirements adopted under Regulation 

AA, consistent with Congress’s 

approach of amending the Truth in 

Lending Act.2 Finally, except as 

otherwise noted, the Board is 

considering comments received on the 

May 2009 Regulation Z Proposed 

Clarifications and plans to incorporate 

those final clarifications, to the extent 

appropriate, when it promulgates final 

rules pursuant to this proposal. 

Republication of Provisions of January 

2009 Regulation Z Rule 

The Board has published four 

proposed or final rules in 2009 that 

amend or propose to amend Regulation 

Z’s provisions applicable to open-end 

(not home-secured) credit: the January 

2009 Regulation Z Rule, the May 2009 

Regulation Z Proposed Clarifications, 

the July 2009 Regulation Z Interim Final 

Rule, and the present proposal. The 

Board is aware that the existence of 

multiple concurrent Regulation Z 

rulemakings pertaining to open-end (not 

home-secured) credit has the potential 

to cause confusion. In particular, the 

Board understands that it may be 

difficult for interested parties to 

ascertain how the four proposed or final 

rules will read as an integrated whole 

once all final rules are adopted and 

effective. 

In order to more clearly illustrate the 

cumulative changes in the four 

proposed or final rules, the Board is 

republishing in this proposal all 

sections of Regulation Z from the four 

proposed or final rules that pertain to 

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

discussed further in this supplementary 

information, the requirements of the 

Board’s January 2009 FTC Act Rule are 

also being incorporated into this 

proposal under Regulation Z, with 

proposed amendments as necessary to 

conform to the requirements of the 

Credit Card Act. The Board believes that 

this is the clearest way to present the 

proposed and final revisions to 

Regulation Z in an integrated format. 

The Board thinks that it is important 

that commenters be able to consider the 

changes included in this proposal in 

light of the complete package of changes 

effected by the Board’s recent 

rulemakings pertaining to open-end (not 

home-secured) credit. 

The Board is not reconsidering the 

need for or the extent of the January 

2009 Regulation Z Rule, except to the 

extent that it is inconsistent with the 

requirements of the Credit Card Act. 

Accordingly, although the Board is 

republishing the provisions of 

Regulation Z that pertain to open-end 

(not home-secured) credit in their 

entirety, the Board is requesting that 

interested parties limit the scope of their 

comments to the proposed changes, 

which are discussed in the 

supplementary information. As 

necessary, the Board has made technical 

and conforming changes to the 

regulatory text from the January 2009 

Regulation Z Rule in order to conform 

with the proposed regulations 

implementing the Credit Card Act. 

These changes are not substantive in 

nature and are therefore not discussed 

in detail in V. Section-by-Section 

Analysis. 

The Board is not republishing in 

connection with this proposal several 

sections of the January 2009 Regulation 

Z Rule that are applicable only to homeequity lines of credit subject to the 

requirements of § 226.5b (HELOCs). In 

particular, the Board is not republishing 

§§ 226.6(a), 226.7(a) and 226.9(c)(1). 

These sections, as discussed in the 

supplementary information to the 

January 2009 Regulation Z Rule, are 

intended to preserve the existing 

requirements of Regulation Z for homeequity lines of credit until the Board’s 

ongoing review of the rules that apply 

to HELOCs is completed. On August 26, 

2009, the Board published proposed 

revisions to those portions of Regulation 

Z affecting HELOCs in the Federal 

Register. See 74 FR 43428 (August 2009 

Regulation Z HELOC Proposal). In order 

to clarify that this proposed rule is not 

intended to amend or otherwise affect 

the August 2009 Regulation Z HELOC 

Proposal, the Board is not republishing 

several sections of the January 2009 

Regulation Z Rule that apply only to 

HELOCs in this Federal Register notice. 

The Board anticipates, however, that 

a final rule will be issued with regard 

to this proposal prior to completion of 


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3The Board notes that the Credit Card Act does, 

however, require a tabular format for the repayment 

disclosures under proposed § 226.7(b)(12), and 

accordingly does not intend to provide a July 1, 

2010 mandatory compliance date for such 

formatting requirements. 

final rules regarding HELOCs. 

Therefore, the Board anticipates that it 

will include §§ 226.6(a), 226.7(a), and 

226.9(c)(1), as adopted in the January 

2009 Regulation Z Rule, in its final 

rulemaking based on this proposal, to 

give HELOC creditors clear guidance as 

to the applicable Regulation Z 

requirements between the effective date 

of this rule and the effective date of the 

forthcoming HELOC final rules. 

The Board is, however, republishing 

several provisions of general 

applicability to all credit subject to 

Regulation Z that were included in the 

January 2009 Regulation Z Rule, such as 

the definitions in § 226.2 and the rules 

regarding finance charges in § 226.4. 

The Board notes that these provisions, 

and any other provisions applicable to 

HELOCs, could be subject to revision in 

connection with finalizing the August 

2009 Regulation Z HELOC Proposal. In 

addition, on August 26, 2009, the Board 

also published in the Federal Register 

proposed revisions to Regulation Z’s 

provisions addressing closed-end credit 

secured by real property or a consumer’s 

dwelling. 74 FR 43232 (August 2009 

Regulation Z Closed-End Credit 

Proposal). Among other things, the 

August 2009 Regulation Z Closed-End 

Credit Proposal includes several 

proposed revisions to § 226.4, which 

addresses finance charges. This 

proposal is not intended to affect or 

withdraw any proposed changes to such 

provisions of general applicability 

included in either the August 2009 

Regulation Z HELOC Proposal or the 

August 2009 Regulation Z Closed-End 

Credit Proposal. 

Finally, the Board has incorporated in 

the regulatory text and commentary for 

§§ 226.1, 226.2, and 226.3 several 

changes that were adopted in the 

Board’s recent rulemaking pertaining to 

private education loans. See 74 FR 

41194 (August 14, 2009) for further 

discussion of these changes. The Board 

is not soliciting comment on these 

amendments. 

When publishing a proposed rule for 

comment under Regulation Z, the Board 

generally denotes regulatory and 

commentary text proposed to be deleted 

by use of bolded brackets. Similarly, the 

Board generally denotes the proposed 

insertion of text with bolded arrows. For 

this proposal, the Board is not 

displaying proposed insertions and 

deletions of text using brackets and 

arrows. As noted above, the Board has 

published four proposed or final rules 

pertaining to open-end (not homesecured) credit under Regulation Z in 

2009, many of which impact the same 

provisions, and therefore the Board 

believes that the use of brackets and 

arrows for just those changes introduced 

in this proposal could cause confusion. 

Effective Date 

As noted above, the effective date of 

the Board’s January 2009 Regulation Z 

Rule is July 1, 2010. However, the 

effective date of the provisions of the 

Credit Card Act implemented by this 

proposal is February 22, 2010. Many of 

the provisions of the Credit Card Act as 

implemented by this proposal are 

closely related to provisions of the 

January 2009 Regulation Z Rule. For 

example, proposed § 226.9(c)(2)(ii), 

which describes ‘‘significant changes in 

terms’’ for which 45 days’ advance 

notice is required, cross-references 

§ 226.6(b)(1) and (b)(2) as adopted in the 

January 2009 Regulation Z Rule. In 

order to implement the Credit Card Act 

in a manner consistent with the January 

2009 Regulation Z Rule, the Board 

intends to make the effective date for 

the final rule pursuant to this proposal 

February 22, 2010. The Board is 

considering whether this effective date 

should apply to both the provisions of 

the January 2009 Regulation Z Rule that 

are not directly affected by the Credit 

Card Act that are included in the 

proposed rule as well as new and 

amended requirements proposed 

pursuant to the Credit Card Act. 

The Board recognizes that there are 

certain provisions of the January 2009 

Regulation Z Rule that impose 

substantial operational burdens on 

creditors that are not directly required 

by the Credit Card Act. For such 

provisions, the Board is considering 

retaining the original mandatory 

compliance date of July 1, 2010, 

consistent with the effective date it 

adopted when the January 2009 

Regulation Z Rule was issued. In 

particular, the Board is considering 

whether the original mandatory 

compliance date of July 1, 2010 would 

be appropriate for certain tabular or 

other formatting requirements 

applicable to account-opening 

disclosures under § 226.6(b), portions of 

the periodic statement under 

§ 226.7(b),3 disclosures provided with 

checks that access a credit card account 

under § 226.9(b)(3), change-in-terms 

notices provided pursuant to 

§ 226.9(c)(2), and notices of a rate 

increase due to a consumer’s default, 

delinquency, or as a penalty pursuant to 

§ 226.9(g). The Board understands that 

creditors are already in the process of 

updating their systems in order to 

provide these disclosures in the 

appropriate tabular format by the July 1, 

2010 effective date of the January 2009 

Regulation Z Rule, and that retaining a 

July 1, 2010 effective date for the 

formatting requirements associated with 

such disclosures may be appropriate. 

The Board solicits comment on this 

approach, as well as whether there are 

other provisions of this proposed rule 

that are not directly required by the 

Credit Card Act for which a mandatory 

compliance date of July 1, 2010 would 

also be appropriate. The Board also 

seeks comment on appropriate 

transition rules for the proposed 

amendments to Regulation Z. 

II. Summary of Major Proposed 

Revisions 

A. Increases in Annual Percentage Rates 

Existing balances. Consistent with the 

Credit Card Act, the proposed rule 

would prohibit creditors from applying 

increased annual percentage rates and 

certain fees and charges to existing 

credit card balances, except in the 

following circumstances: (1) When a 

temporary rate lasting at least six 

months expires; (2) when the rate is 

increased due to the operation of an 

index (i.e., when the rate is a variable 

rate); (3) when the minimum payment 

has not been received within 60 days 

after the due date; and (4) when the 

consumer successfully completes or 

fails to comply with the terms of a 

workout arrangement. In addition, when 

the annual percentage rate on an 

existing balance has been reduced 

pursuant to the Servicemembers Civil 

Relief Act (SCRA), the proposed rule 

would permit the creditor to increase 

that rate once the SCRA ceases to apply. 

New transactions. The proposed rule 

would implement the Credit Card Act’s 

prohibition on increasing an annual 

percentage rate during the first year after 

an account is opened. After the first 

year, the proposed rule would provide 

that creditors are permitted to increase 

the annual percentage rates that apply to 

new transactions so long as the creditor 

complies with the Credit Card Act’s 45- 

day advance notice requirement, which 

was implemented in the July 2009 

Regulation Z Interim Final Rule. 

B. Evaluation of Consumer’s Ability To 

Pay 

General requirements. The Credit 

Card Act prohibits creditors from 

opening a new credit card account or 

increasing the credit limit for an 

existing credit card account unless the 

creditor considers the consumer’s 

ability to make the required payments 


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under the terms of the account. Because 

credit card accounts typically require 

consumers to make a minimum monthly 

payment that is a percentage of the total 

balance (plus, in some cases, accrued 

interest and fees), the proposed rule 

would require creditors to consider the 

consumer’s ability to make the required 

minimum payments. 

However, because a creditor will not 

know the exact amount of a consumer’s 

minimum payments at the time it is 

evaluating the consumer’s ability to 

make those payments, the proposal 

would require creditors to use a 

reasonable method for estimating a 

consumer’s minimum payments and 

would provide a safe harbor that 

creditors could use to satisfy this 

requirement. For example, with respect 

to the opening of a new credit card 

account, the safe harbor would provide 

that it would be reasonable for a creditor 

to estimate minimum payments based 

on a consumer’s utilization of the full 

credit line using the minimum payment 

formula employed by the creditor with 

respect to the credit card product for 

which the consumer is being 

considered. 

The proposed rule would also clarify 

the types of factors creditors should 

review in considering a consumer’s 

ability to make the required minimum 

payments. Specifically, an evaluation of 

a consumer’s ability to pay must include 

a review of the consumer’s income or 

assets as well as the consumer’s current 

obligations, and a creditor must 

establish reasonable policies and 

procedures for considering that 

information. When considering a 

consumer’s income or assets and current 

obligations, a creditor would be 

permitted to rely on information 

provided by the consumer or 

information in a consumer’s credit 

report. 

Specific requirements for underage 

consumers. Consistent with the Credit 

Card Act, the proposed rule prohibits a 

creditor from issuing a credit card to a 

consumer who has not attained the age 

of 21 unless the consumer has 

submitted a written application that 

meets certain requirements. 

Specifically, the application must 

include either: (1) The signature of a 

cosigner who has attained the age of 21, 

who has the means to repay debts 

incurred by the underage consumer in 

connection with the account, and who 

assumes joint liability for such debts; or 

(2) information indicating that the 

underage consumer has the ability to 

make the required payments for the 

account. 

C. Marketing to Students 

Prohibited inducements. The Credit 

Card Act limits a creditor’s ability to 

offer a student at an institution of higher 

education any tangible item to induce 

the student to apply for or open an 

open-end consumer credit plan offered 

by the creditor. Specifically, the Credit 

Card Act prohibits such offers: (1) On 

the campus of an institution of higher 

education; (2) near the campus of an 

institution of higher education; or (3) at 

an event sponsored by or related to an 

institution of higher education. 

The proposed commentary would 

provide guidance to assist creditors in 

complying with the rule. For example, 

the proposed commentary would clarify 

that ‘‘tangible item’’ means a physical 

item (such as a gift card, t-shirt, or 

magazine subscription) and does not 

include non-physical items (such as 

discounts, rewards points, or 

promotional credit terms). The proposed 

commentary would also clarify that a 

location that is within 1,000 feet of the 

border of the campus of an institution 

of higher education (as defined by the 

institution) is considered near the 

campus of that institution. Finally, 

consistent with guidance recently 

adopted by the Board with respect to 

certain private education loans, the 

proposed commentary would state that 

an event is related to an institution of 

higher education if the marketing of 

such event uses words, pictures, or 

symbols identified with the institution 

in a way that implies that the institution 

endorses or otherwise sponsors the 

event. 

Disclosure and reporting 

requirements. The proposed rule would 

also implement the provisions of the 

Credit Card Act requiring institutions of 

higher education to publicly disclose 

agreements with credit card issuers 

regarding the marketing of credit cards. 

The proposal would state that an 

institution may comply with this 

requirement by, for example, posting the 

agreement on its Web site or by making 

the agreement available upon request. 

D. Fees or Charges for Transactions 

That Exceed the Credit Limit 

Consumer consent requirement. 

Consistent with the Credit Card Act, the 

proposed rule would require that a 

creditor obtain a consumer’s express 

consent (or opt-in) before imposing any 

fees on a consumer’s credit card account 

for making an extension of credit that 

exceeds the account’s credit limit. Prior 

to obtaining this consent, the creditor 

must disclose, among other things, the 

dollar amount of any fees or charges that 

will be assessed for an over-the-limit 

transaction as well as any increased rate 

that may apply if the consumer exceeds 

the credit limit. In addition, if the 

consumer consents, the creditor is also 

required to provide a notice of the 

consumer’s right to revoke that consent 

on any periodic statement that reflects 

the imposition of an over-the-limit fee 

or charge. 

The proposed rule would apply these 

requirements to all consumers 

(including existing account holders) if 

the creditor imposes a fee or charge for 

paying an over-the-limit transaction. 

Thus, after the February 22, 2010 

effective date, creditors would be 

prohibited from assessing any over-thelimit fees or charges on an account until 

the consumer consents to the payment 

of transactions that exceed the credit 

limit. 

Prohibited practices. Even if the 

consumer has affirmatively consented to 

the creditor’s payment of over-the-limit 

transactions, the Credit Card Act 

prohibits certain practices in connection 

with the assessment of over-the-limit 

fees or charges. Consistent with these 

statutory prohibitions, the proposed rule 

would prohibit a creditor from imposing 

more than one over-the-limit fee or 

charge per billing cycle. In addition, a 

creditor could not impose an over-thelimit fee or charge on the account for the 

same over-the-limit transaction in more 

than three billing cycles. 

The Credit Card Act also directs the 

Board to prescribe regulations that 

prevent unfair or deceptive acts or 

practices in connection with the 

manipulation of credit limits designed 

to increase over-the-limit fees or other 

penalty fees. Pursuant to this authority, 

the proposed rule would prohibit a 

creditor from assessing an over-the-limit 

fee or charge that is caused by the 

creditor’s failure to promptly replenish 

the consumer’s available credit. The 

proposed rule would also prohibit 

creditors from conditioning the amount 

of available credit on the consumer’s 

consent to the payment of over-the-limit 

transactions. Finally, the proposed rule 

would prohibit the imposition of any 

over-the-limit fees or charges if the 

credit limit is exceeded solely because 

of the creditor’s assessment of fees or 

charges (including accrued interest 

charges) on the consumer’s account. 

E. Timely Settlement of Estates 

The Credit Card Act directs the Board 

to prescribe regulations requiring 

creditors to establish procedures 

ensuring that any administrator of an 

estate can resolve the outstanding credit 

card balance of a deceased 

accountholder in a timely manner. The 

proposed rule would impose two 


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specific requirements designed to 

enable administrators to determine the 

amount of and pay a deceased 

consumer’s balance in a timely manner. 

First, upon request by the administrator, 

the creditor would be required to 

disclose the amount of the balance in a 

timely manner. Second, once an 

administrator has made such a request, 

the creditor would be required to cease 

the imposition of fees and charges on 

the account (including the accrual of 

interest) so that the amount of the 

balance does not increase while the 

administrator is arranging for payment. 

F. On-line Disclosure of Credit Card 

Agreements 

The Credit Card Act requires creditors 

to post credit card agreements on their 

Web sites and to submit those 

agreements to the Board for posting on 

its Web site. The Credit Card Act further 

provides that the Board may establish 

exceptions to these requirements in any 

case where the administrative burden 

outweighs the benefit of increased 

transparency, such as where a credit 

card plan has a de minimis number of 

accountholders. 

The proposed rule would require a 

creditor to post on its Web site or 

otherwise make available its credit card 

agreements with its current cardholders. 

However, the proposed rule would 

establish two limitations with respect to 

the submission of agreements to the 

Board. First, the proposed rule would 

establish a de minimis exception for 

creditors with fewer than 10,000 open 

credit card accounts. Because the 

overwhelming majority of credit card 

accounts are held by creditors that have 

more than 10,000 open accounts, the 

information provided through the 

Board’s Web site would still reflect 

virtually all of the terms available to 

consumers. 

Second, creditors would not be 

required to submit agreements that are 

not currently offered to the public. The 

Board believes that the primary purpose 

of the information provided through the 

Board’s Web site is to assist consumers 

in comparing credit card agreements 

offered by different issuers when 

shopping for a new credit card. 

Including agreements that are no longer 

offered to the public would not facilitate 

comparison shopping by consumers. In 

addition, including such agreements 

could create confusion regarding which 

terms are currently available. 

G. Additional Provisions 

The proposed rule also implements 

the following provisions of the Credit 

Card Act, all of which go into effect on 

February 22, 2010. 

Limitations on fees. The Board’s 

January 2009 FTC Act Rule prohibited 

banks from charging to a credit card 

account during the first year after 

account opening certain accountopening and other fees that, in total, 

constituted the majority of the initial 

credit limit. The Credit Card Act 

contains a similar provision, except that 

it applies to all fees (other than fees for 

late payments, returned payments, and 

exceeding the credit limit) and limits 

the total fees to 25% of the initial credit 

limit. 

Payment allocation. When different 

rates apply to different balances on a 

credit card account, the Board’s January 

2009 FTC Act Rule required banks to 

allocate payments in excess of the 

minimum first to the balance with the 

highest rate or pro rata among the 

balances. The Credit Card Act contains 

a similar provision, except that excess 

payments must always be allocated first 

to the balance with the highest rate. 

Double-cycle billing. The Board’s 

January 2009 FTC Act Rule prohibited 

banks from imposing finance charges on 

balances for days in previous billing 

cycles as a result of the loss of a grace 

period (a practice sometimes referred to 

as ‘‘double-cycle billing’’). The Credit 

Card Act contains a similar prohibition. 

In addition, when a consumer pays 

some but not all of a balance prior to 

expiration of a grace period, the Credit 

Card Act prohibits the creditor from 

imposing finance charges on the portion 

of the balance that has been repaid. 

Fees for making payment. The Credit 

Card Act prohibits creditors from 

charging a fee for making a payment, 

except for payments involving an 

expedited service by a service 

representative of the creditor. 

Minimum payments. The Board’s 

January 2009 Regulation Z Rule 

implemented provisions of the 

Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2005 

requiring creditors to provide a toll-free 

telephone number where consumers 

could receive an estimate of the time to 

repay their account balances if they 

made only the required minimum 

payment each month. The Credit Card 

Act substantially revised the statutory 

requirements for these disclosures. In 

particular, the Credit Card Act requires 

the following new disclosures on the 

periodic statement: (1) The amount of 

time and the total cost (interest and 

principal) involved in paying the 

balance in full making only minimum 

payments; and (2) the monthly payment 

amount required to pay off the balance 

in 36 months and the total cost (interest 

and principal) of repaying the balance 

in 36 months. 

III. Statutory Authority 

Section 2 of the Credit Card Act states 

that the Board ‘‘may issue such rules 

and publish such model forms as it 

considers necessary to carry out this Act 

and the amendments made by this Act.’’ 

This proposed rule implements several 

sections of the Credit Card Act, which 

amend TILA. TILA mandates that the 

Board prescribe regulations to carry out 

its purposes and specifically authorizes 

the Board, among other things, to do the 

following: 

• Issue regulations that contain such 

classifications, differentiations, or other 

provisions, or that provide for such 

adjustments and exceptions for any 

class of transactions, that in the Board’s 

judgment are necessary or proper to 

effectuate the purposes of TILA, 

facilitate compliance with the act, or 

prevent circumvention or evasion. 15 

U.S.C. 1604(a). 

• Exempt from all or part of TILA any 

class of transactions if the Board 

determines that TILA coverage does not 

provide a meaningful benefit to 

consumers in the form of useful 

information or protection. The Board 

must consider factors identified in the 

act and publish its rationale at the time 

it proposes an exemption for comment. 

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

• Add or modify information required 

to be disclosed with credit and charge 

card applications or solicitations if the 

Board determines the action is 

necessary to carry out the purposes of, 

or prevent evasions of, the application 

and solicitation disclosure rules. 15 

U.S.C. 1637(c)(5). 

• Require disclosures in 

advertisements of open-end plans. 15 

U.S.C. 1663. 

For the reasons discussed in this 

notice, the Board is using its specific 

authority under TILA and the Credit 

Card Act, in concurrence with other 

TILA provisions, to effectuate the 

purposes of TILA, to prevent the 

circumvention or evasion of TILA, and 

to facilitate compliance with the act. 

IV. Applicability of Proposed 

Provisions 

While several provisions under the 

Credit Card Act apply to all open-end 

credit, others apply only to certain types 

of open-end credit, such as credit card 

accounts under open-end consumer 

credit plans. As a result, the Board 

understands that some additional 

clarification may be helpful as to which 

provisions of the Credit Card Act as 

proposed to be implemented in 

Regulation Z are applicable to which 

types of open-end credit products. In 

order to clarify the scope of the 


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4This table summarizes the applicability only of 

those new paragraphs or provisions added to 

Regulation Z in order to implement the Credit Card 

Act, as well as the applicability of proposed 

provisions addressing deferred interest or similar 

offers. The Board notes that it is not proposing to 

change the applicability of provisions of Regulation 

Z amended by the January 2009 Regulation Z Rule 

or May 2009 Regulation Z Proposed Clarifications. 

5 In certain cases, the Board has applied a 

statutory provision that refers to ‘‘credit card 

accounts under an open end consumer credit plan’’ 

to a wider range of products. Specifically, see the 

discussion below regarding the implementation of 

new TILA Section 127(i) in proposed § 226.9(c)(2), 

the implementation of new TILA Section 127(m) in 

proposed §§ 226.5(a)(2)(iii) and 226.16(f), and the 

implementation of new TILA Section 127(o) in 

proposed § 226.10(d). 

proposed revisions to Regulation Z, the 

Board is providing the below table, 

which summarizes the applicability of 

each of the major revisions to 

Regulation Z.4

Provision Applicability 

§ 226.5(a)(2)(iii) ............................................................... All open-end (not home-secured) consumer credit plans. 

§ 226.5(b)(2)(ii) ................................................................ All open-end consumer credit plans. 

§ 226.7(b)(11) .................................................................. Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.7(b)(12) .................................................................. Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.7(b)(14) .................................................................. All open-end (not home-secured) consumer credit plans. 

§ 226.9(c)(2) .................................................................... All open-end (not home-secured) consumer credit plans. 

§ 226.9(e) ......................................................................... Credit or charge card accounts subject to § 226.5a. 

§ 226.9(g) ......................................................................... All open-end (not home-secured) consumer credit plans. 

§ 226.9(h) ......................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.10(b)(2)(ii) .............................................................. All open-end consumer credit plans. 

§ 226.10(b)(3) .................................................................. Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.10(d) ....................................................................... All open-end consumer credit plans. 

§ 226.10(e) ....................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.10(f) ........................................................................ Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.11(c) ....................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.16(f) ........................................................................ All open-end consumer credit plans. 

§ 226.16(h) ....................................................................... All open-end (not home-secured) consumer credit plans. 

§ 226.51 ........................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.52 ........................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.53 ........................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.54 ........................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.55 ........................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.56 ........................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan. 

§ 226.57 ........................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan, except that § 226.57(c) applies to all open-end consumer credit plans. 

§ 226.58 ........................................................................... Credit card accounts under an open-end (not home-secured) consumer credit plan. 

V. Section-by-Section Analysis 

Section 226.2 Definitions and Rules of 

Construction 

2(a) Definitions 

2(a)(15) Credit Card 

In the January 2009 Regulation Z 

Rule, the Board revised § 226.2(a)(15) to 

read as follows: ‘‘Credit card means any 

card, plate, or other single credit device 

that may be used from time to time to 

obtain credit. Charge card means a 

credit card on an account for which no 

periodic rate is used to compute a 

finance charge.’’ 74 FR 5257. In order to 

clarify the application of certain 

provisions of the Credit Card Act that 

apply to ‘‘credit card account[s] under 

an open end consumer credit plan,’’ the 

Board proposes to further revise 

§ 226.2(a)(15) by adding a definition of 

‘‘credit card account under an open-end 

(not home-secured) consumer credit 

plan.’’ Specifically, proposed 

§ 226.2(a)(15)(ii) would define this term 

to mean any credit account accessed by 

a credit card except a credit card that 

accesses a home-equity plan subject to 

the requirements of § 226.5b or an 

overdraft line of credit accessed by a 

debit card. The definitions of ‘‘credit 

card’’ and ‘‘charge card’’ in the January 

2009 Regulation Z Rule would be 

moved to proposed § 226.2(a)(15)(i) and 

(iii), respectively. 

The exclusion of credit cards that 

access a home-equity plan subject to 

§ 226.5b is consistent with the approach 

adopted by the Board in the July 2009 

Regulation Z Interim Final Rule. See 74 

FR 36083. Specifically, the Board used 

its authority under TILA Section 105(a) 

and § 2 of the Credit Card Act to 

interpret the term ‘‘credit card account 

under an open-end consumer credit 

plan’’ in new TILA Section 127(i) to 

exclude home-equity lines of credit 

subject to § 226.5b, even if those lines 

could be accessed by a credit card. 

Instead, the Board applied the 

disclosure requirements in current 

§ 226.9(c)(2)(i) and (g)(1) to ‘‘credit card 

accounts under an open-end (not homesecured) consumer credit plan.’’ See 74 

FR 36094–36095. For consistency with 

the interim final rule, the Board would 

generally use its authority under TILA 

Section 105(a) and § 2 of the Credit Card 

Act to apply the same interpretation to 

other provisions of the Credit Card Act 

that apply to a ‘‘credit card account 

under an open end consumer credit 

plan.’’ See, e.g., revised TILA § 127(j), 

(k), (l), (n); revised TILA § 171; new 

TILA §§ 140A, 148, 149, 172.5 This 

interpretation is also consistent with the 

Board’s historical treatment of HELOC 

accounts accessible by a credit card 

under TILA; for example, the credit and 

charge card application and solicitation 

disclosure requirements under § 226.5a 

expressly do not apply to home-equity 

plans accessible by a credit card that are 

subject to § 226.5b. See current 

§ 226.5a(a)(3); revised § 226.5a(a)(5)(i), 

74 FR 5403. The Board has issued the 

August 2009 Regulation Z HELOC 

Proposal to address changes to 

Regulation Z that it believes are 

necessary and appropriate for HELOCs 

and will consider any appropriate 

revisions to the requirements for 

HELOCs in connection with that review. 

The Board also proposes to interpret 

the term ‘‘credit card account under an 

open end consumer credit plan’’ to 

exclude a debit card that accesses an 

overdraft line of credit. Although such 

cards are ‘‘credit cards’’ under current 


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6However, the error resolution provisions in 

§ 226.13(d) and (g) do apply to such transactions. 

See 12 CFR 205.12 comment 12(a)–1.ii.D; see also 

current §§ 226.12(g) and 13(i); current comments 

12(c)(1)–1 and 13(i)–3; new comment 12(c)–3, 74 

FR 5488; revised comment 12(c)(1)–1.iv., 74 FR 

5488. In addition, if the transaction solely involves 

an extension of credit and does not include a debit 

to a checking or other asset account, the liability 

limitations and error resolution requirements in 

Regulation Z apply. See 12 CFR 205.12(a)–1.i. 

7The 2007 Survey of Consumer Finances data 

indicates that few families (1.7 percent) had a 

balance on lines of credit other than a home-equity 

line or credit card at the time of the interview. In 

comparison, 73 percent of families had a credit 

card, and 60.3 percent of these families had a credit 

card balance at the time of the interview. See Brian 

Bucks, et al., Changes in U.S. Family Finances from 

2004 to 2007: Evidence from the Survey of 

Consumer Finances, Federal Reserve Bulletin 

(February 2009). 

§ 226.2(a)(15), the Board has generally 

excluded them from the provisions of 

Regulation Z that specifically apply to 

credit cards. For example, as with credit 

cards that access HELOCs, the 

provisions in § 226.5a regarding credit 

and charge card applications and 

solicitations do not apply to overdraft 

lines of credit tied to asset accounts 

accessed by debit cards. See current 

§ 226.5a(a)(3); revised § 226.5a(a)(5)(ii), 

74 FR 5403. 

Instead, Regulation E (Electronic 

Fund Transfers) generally governs debit 

cards that access overdraft lines of 

credit. See 12 CFR part 205. For 

example, Regulation E generally governs 

the issuance of debit cards that access 

an overdraft line of credit, although 

Regulation Z’s issuance provisions 

apply to the addition of a credit feature 

(such as an overdraft line) to a debit 

card. See 12 CFR 205.12(a)(1)(ii) and 

(a)(2)(i). Similarly, when a transaction 

that debits a checking or other asset 

account also draws on an overdraft line 

of credit, Regulation Z treats the 

extension of credit as incident to an 

electronic fund transfer and the error 

resolution provisions in Regulation E 

generally govern the transaction. See 12 

CFR 205.12 comment 12(a)–1.i.6

Consistent with this approach, the 

Board believes that debit cards that 

access overdraft lines of credit should 

not be subject to the regulations 

implementing the provisions of the 

Credit Card Act that apply to ‘‘credit 

card accounts under an open end 

consumer credit plan.’’ As discussed in 

the January 2009 Regulation Z Rule, the 

Board understands that overdraft lines 

of credit are not in wide use.7

Furthermore, as a general matter, the 

Board understands that creditors do not 

generally engage in the practices 

addressed in the relevant provisions of 

the Credit Card Act with respect to 

overdraft lines of credit. For example, as 

discussed in the January 2009 

Regulation Z Rule, overdraft lines of 

credit are not typically promoted as—or 

used for—long-term extensions of 

credit. See 74 FR 5331. Therefore, 

because proposed § 226.9(c)(2) would 

require a creditor to provide 45 days’ 

notice before increasing an annual 

percentage rate for an overdraft line of 

credit, a creditor is unlikely to engage in 

the practices prohibited by revised TILA 

Section 171 with respect to the 

application of increased rates to existing 

balances. Similarly, because creditors 

generally do not apply different rates to 

different balances or provide grace 

periods with respect to overdraft lines of 

credit, the provisions in proposed 

§§ 226.53 and 226.54 would not provide 

any meaningful protection. Accordingly, 

the Board proposes to use its authority 

under TILA Section 105(a) and § 2 of the 

Credit Card Act to create an exception 

for debit cards that access an overdraft 

line of credit. The Board notes this 

proposed definition is not intended to 

alter the scope or coverage of provisions 

of Regulation Z that refer generally to 

credit cards or open-end credit rather 

than the new defined term ‘‘credit card 

account under an open-end (not homesecured consumer credit plan.’’ 

Section 226.5 General Disclosure 

Requirements 

5(a) Form of Disclosures 

5(a)(2) Terminology 

Section 103 of the Credit Card Act 

creates a new TILA Section 127(m) (15 

U.S.C. 1637(m)), which states that with 

respect to the terms of any credit card 

account under an open-end consumer 

credit plan, the term ‘‘fixed,’’ when 

appearing in conjunction with a 

reference to the APR or interest rate 

applicable to such account, may only be 

used to refer to an APR or interest rate 

that will not change or vary for any 

reason over the period specified clearly 

and conspicuously in the terms of the 

account. 15 U.S.C. 1637(m). In the 

January 2009 Regulation Z Rule, the 

Board had adopted §§ 226.5(a)(2)(iii) 

and 226.16(f) to restrict the use of the 

term ‘‘fixed,’’ or any similar term, to 

describe a rate disclosed in certain 

required disclosures and in 

advertisements only to instances when 

that rate would not increase until the 

expiration of a specified time period. If 

no time period is specified, then the 

term ‘‘fixed,’’ or any similar term, may 

not be used to describe the rate unless 

the rate will not increase while the plan 

is open. 

The Board believes that 

§§ 226.5(a)(2)(iii) and 226.16(f), as 

adopted in the January 2009 Regulation 

Z Rule, would be consistent with new 

TILA Section 127(m). Therefore, the 

Board is not proposing any changes to 

these rules. 

While TILA Section 127(m) applies 

only to credit card accounts under an 

open-end consumer credit plan, 

§ 226.5(a)(2)(iii) applies to all open-end 

(not home-secured) plans and 

§ 226.16(f) applies to all open-end plans. 

The Board continues to believe this 

scope is appropriate, so consumers of 

non-credit card products that are openend (not home-secured) plans will still 

benefit from the protections of this 

requirement. The Board accordingly 

proposes to use its TILA Section 105(a) 

authority to apply the requirements of 

§ 226.5(a)(2)(iii) to all open-end (not 

home-secured) plans and § 226.16(f) to 

all open-end plans. Furthermore, 

although TILA Section 127(m) only 

references the term ‘‘fixed,’’ 

§§ 226.5(a)(2)(iii) and 226.16(f) restrict 

use of the word ‘‘fixed’’ as well as other 

similar terms. The Board believes this 

interpretation is necessary to prevent 

creditors from circumventing the rule by 

using different terminology that would 

essentially have the same meaning as 

‘‘fixed’’ in the minds of consumers. As 

a result, the Board proposes to use its 

authority under TILA Section 105(a) to 

apply the provision to other terms 

similar to the term ‘‘fixed.’’ 

Also, TILA Section 127(m) implies 

that a time period for which the rate is 

fixed must be specified in the account 

terms. While most creditors will likely 

state a term for the which the rate is 

fixed, the Board believes the rule should 

address instances when a rate is 

described as ‘‘fixed’’ but no time period 

is provided. The Board, therefore, 

proposes to use its authority under TILA 

Section 105(a) to provide that if a 

creditor describes a rate as ‘‘fixed,’’ but 

does not disclose a time period for 

which the rate will be fixed, the rate 

must not increase while the plan is 

open. Finally, TILA Section 127(m) 

states that a rate described as ‘‘fixed’’ 

may not change or vary for any reason. 

The Board believes, however, that it 

would be beneficial to consumers to 

permit a creditor to decrease a rate 

described as ‘‘fixed.’’ Accordingly, the 

Board proposes to use its authority 

under TILA Section 105(a) to provide 

that a rate described as ‘‘fixed’’ may not 

be increased. 

5(b) Time of Disclosures 

5(b)(1) Account-Opening Disclosures 

5(b)(1)(i) General Rule 

In certain circumstances, a creditor 

may substitute or replace one credit 

card account with another credit card 

account. For example, if an existing 


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8The comment also provides cross-references to 

other provisions in Regulation Z and its 

commentary that address the substitution or 

replacement of credit card accounts. 

cardholder requests additional features 

or benefits (such as rewards on 

purchases), the creditor may substitute 

or replace the existing credit card 

account with a new credit card account 

that provides those features or benefits. 

The Board also understands that 

creditors often charge higher annual 

percentage rates or annual fees to 

compensate for additional features and 

benefits. As discussed below, proposed 

§ 226.55 and its commentary address the 

application of the general prohibitions 

on increasing annual percentage rates, 

fees, and charges during the first year 

after account opening and on applying 

increased rates to existing balances in 

these circumstances. See proposed 

§ 226.55(d); proposed comments 

55(b)(3)–3 and 55(d)–1 through –3. 

In order to clarify the application of 

the disclosure requirements in 

§§ 226.6(b) and 226.9(c)(2) when one 

credit card account is substituted or 

replaced with another, the Board 

proposes to adopt comment 5(b)(1)(i)–6, 

which states that, when a card issuer 

substitutes or replaces an existing credit 

card account with another credit card 

account, the card issuer must either 

provide notice of the terms of the new 

account consistent with § 226.6(b) or 

provide notice of the changes in the 

terms of the existing account consistent 

with § 226.9(c)(2). The Board 

understands that, when an existing 

cardholder requests new features or 

benefits, disclosure of the new terms 

pursuant to § 226.6(b) may be preferable 

because the cardholder generally will 

not want to wait 45 days for the new 

terms to take effect (as would be the 

case if notice were provided pursuant to 

§ 226.9(c)(2)). Thus, this comment is 

intended to provide card issuers with 

some flexibility regarding whether to 

treat the substitution or replacement as 

the opening of a new account (subject to 

§ 226.6(b)) or a change in the terms of 

an existing account (subject to 

§ 226.9(c)(2)). 

However, the Board does not intend 

to permit card issuers to circumvent the 

disclosure requirements in § 226.9(c)(2) 

by treating a change in terms as the 

opening of a new account. Accordingly, 

the comment would further state that 

whether a substitution or replacement 

results in the opening of a new account 

or a change in the terms of an existing 

account for purposes of the disclosure 

requirements in §§ 226.6(b) and 

226.9(c)(2) is determined in light of all 

the relevant facts and circumstances. 

The comment provides the following 

list of relevant facts and circumstances: 

(1) Whether the card issuer provides the 

consumer with a new credit card; (2) 

whether the card issuer provides the 

consumer with a new account number; 

(3) whether the account provides new 

features or benefits after the substitution 

or replacement (such as rewards on 

purchases); (4) whether the account can 

be used to conduct transactions at a 

greater or lesser number of merchants 

after the substitution or replacement; (5) 

whether the card issuer implemented 

the substitution or replacement on an 

individualized basis; and (6) whether 

the account becomes a different type of 

open-end plan after the substitution or 

replacement (such as when a charge 

card is replaced by a credit card). The 

comment states that, when most of these 

facts and circumstances are present, the 

substitution or replacement likely 

constitutes the opening of a new 

account for which § 226.6(b) disclosures 

are appropriate. However, the comment 

also states that, when few of these facts 

and circumstances are present, the 

substitution or replacement likely 

constitutes a change in the terms of an 

existing account for which § 226.9(c)(2) 

disclosures are appropriate.8

The Board solicits comment on 

whether additional facts and 

circumstances are relevant. The Board 

also solicits comment on alternative 

approaches to determining whether a 

substitution or replacement results in 

the opening of a new account or a 

change in the terms of an existing 

account for purposes of the disclosure 

requirements in §§ 226.6(b) and 

226.9(c)(2). 

5(b)(2) Periodic Statements 

The Board is proposing to amend 

comment 5(b)(2)(ii)–2 in several 

respects in order to clarify the 

consequences of a failure to comply 

with the requirement in § 226.5(b)(2)(ii) 

that creditors adopt reasonable 

procedures designed to ensure that 

periodic statements for open-end credit 

plans are mailed or delivered at least 21 

days before the payment due date and 

the date on which any grace period 

expires. First, the title of the comment 

would be amended to cover both 

treating a payment as late for any 

purpose and collecting any finance or 

other charge. Second, because 

§ 226.5(b)(2)(ii) only prohibits the 

creditor from treating a payment as late 

for any purpose or collecting any 

finance or other charge as a result of a 

failure to comply with the general 21- 

day requirement, the comment would be 

amended to clarify that the prohibition 

in § 226.5(b)(2)(ii) on treating a payment 

as late for any purpose or collecting 

finance or other charges applies only 

during the 21-day period following 

mailing or delivery of the periodic 

statement. Thus, if a creditor does not 

receive a payment within 21 days of 

mailing or delivery of the periodic 

statement, the prohibition does not 

apply and the creditor may, for 

example, impose a late payment fee. 

Third, for similar reasons, the 

amended comment would clarify that, 

when an account is not eligible for a 

grace period, a creditor may impose a 

finance charge due to a periodic interest 

rate without treating a payment as late 

or collecting finance or other charges as 

a result of a failure to comply with 

§ 226.5(b)(2)(ii). 

The Board is also proposing to amend 

the cross-reference in comment 

5(b)(2)(ii)–6 to reflect the restructuring 

of the commentary to § 226.7. 

Section 226.5a Credit and Charge Card 

Applications and Solicitations 

5a(b) Required Disclosures 

5a(b)(1) Annual Percentage Rate 

To complement the proposed 

disclosure requirements for deferred 

interest or similar plans proposed in 

§§ 226.7(b) and 226.16(h) in the May 

2009 Regulation Z Proposed 

Clarifications, the Board also proposed 

a new comment 5a(b)(1)–9 to clarify that 

an issuer offering a deferred interest or 

similar plan may not disclose a rate as 

0% due to the possibility that the 

consumer may not be obligated for 

interest regarding the deferred interest 

or similar transaction. 74 FR 20797. The 

Board is republishing proposed 

comment 5a(b)(1)–9 in this Federal 

Register notice. 

Section 226.7 Periodic Statement 

7(b) Rules Affecting Open-End (Not 

Home-Secured) Plans 

7(b)(11) Due Date; Late Payment Costs 

In 2005, the Bankruptcy Act amended 

TILA to add Section 127(b)(12), which 

required creditors that charge a late 

payment fee to disclose on the periodic 

statement (1) the payment due date or, 

if the due date differs from when a late 

payment fee would be charged, the 

earliest date on which the late payment 

fee may be charged, and (2) the amount 

of the late payment fee. See 15 U.S.C. 

1637(b)(12). In the January 2009 

Regulation Z Rule, the Board 

implemented this section of TILA for 

open-end (not home-secured) credit 

plans. Specifically, the final rule added 

§ 226.7(b)(11) to require creditors 

offering open-end (not home-secured) 

credit plans that charge a fee or impose 


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a penalty rate for paying late to disclose 

on the periodic statement: the payment 

due date, and the amount of any late 

payment fee and any penalty APR that 

could be triggered by a late payment. 

For ease of reference, this 

supplementary information will refer to 

the disclosure of any late payment fee 

and any penalty APR that could be 

triggered by a late payment as ‘‘the late 

payment disclosures.’’ 

Section 226.7(b)(13), as adopted in the 

January 2009 Regulation Z Rule, sets 

forth formatting requirements for the 

due date and the late payment 

disclosures. Specifically, § 226.7(b)(13) 

requires that the due date be disclosed 

on the front side of the first page of the 

periodic statement. Further, the amount 

of any late payment fee and any penalty 

APR that could be triggered by a late 

payment must be disclosed in close 

proximity to the due date. 

Section 202 of the Credit Card Act 

amends TILA Section 127(b)(12) to 

provide that for a ‘‘credit card account 

under an open-end consumer credit 

plan,’’ a creditor that charges a late 

payment fee must disclose in a 

conspicuous location on the periodic 

statement (1) the payment due date, or, 

if the due date differs from when a late 

payment fee would be charged, the 

earliest date on which the late payment 

fee may be charged, and (2) the amount 

of the late payment fee. In addition, if 

a late payment may result in an increase 

in the APR applicable to the credit card 

account, a creditor also must provide on 

the periodic statement a disclosure of 

this fact, along with the applicable 

penalty APR. The disclosure related to 

the penalty APR must be placed in close 

proximity to the due-date disclosure 

discussed above. 

In addition, Section 106 of the Credit 

Card Act adds new TILA Section 127(o), 

which requires that the payment due 

date for a credit card account under an 

open-end (not home-secured) consumer 

credit plan be the same day each month. 

15 U.S.C. 1637(o). 

As discussed in more detail below, 

the Board proposes to retain the due 

date and the late payment disclosure 

provisions adopted in § 226.7(b)(11) as 

part of the January 2009 Regulation Z 

Rule, with several revisions. Format 

requirements relating to the due date 

and the late payment disclosure 

provisions are discussed in more detail 

in the section-by-section analysis to 

proposed § 226.7(b)(13). 

Applicability of the due date and the 

late payment disclosure requirements. 

The due date and the late payment 

disclosures added to TILA Section 

127(b)(12) by the Bankruptcy Act 

applied to all open-end credit plans. 

Consistent with TILA Section 

127(b)(12), as added by the Bankruptcy 

Act, the due date and the late payment 

disclosures in § 226.7(b)(11) (as adopted 

in the January 2009 Regulation Z Rule) 

apply to all open-end (not homesecured) credit plans, including credit 

card accounts, overdraft lines of credit 

and other general purpose lines of credit 

that are not home secured. 

The Credit Card Act amended TILA 

Section 127(b)(12) to apply the due date 

and the late payment disclosures only to 

creditors offering a credit card account 

under an open-end consumer credit 

plan. Consistent with newly-revised 

TILA Section 127(b)(12), the Board 

proposes to amend § 226.7(b)(11) to 

require the due date and the late 

payment disclosures only for a ‘‘credit 

card account under an open-end (not 

home-secured) consumer credit plan,’’ 

as that term is defined under proposed 

§ 226.2(a)(15)(ii). As discussed in more 

detail in the section-by-section analysis 

to proposed § 226.2(a)(15)(ii), the term 

‘‘credit card account under an open-end 

(not home-secured) consumer credit 

plan’’ means any account accessed by a 

credit card, except this term does not 

include HELOC accounts subject to 

§ 226.5b that are accessed by a credit 

card device or overdraft lines of credit 

that are accessed by a debit card. Thus, 

based on the proposed definition of 

‘‘credit card account under an open-end 

(not home-secured) consumer credit 

plan,’’ the due date and the late 

payment disclosures would not apply to 

(1) open-end credit plans that are not 

credit card accounts such as general 

purpose lines of credit that are not 

accessed by a credit card; (2) HELOC 

accounts subject to § 226.5b even if they 

are accessed by a credit card device; and 

(3) overdraft lines of credit even if they 

are accessed by a debit card. In addition, 

as discussed in more detail below, 

under proposed § 226.7(b)(11)(ii), the 

Board also proposes to exempt charge 

card accounts from the late payment 

disclosure requirements. 

Charge card accounts. As discussed 

above, the late payment disclosures in 

TILA Section 127(b)(12), as amended by 

the Credit Card Act, apply to ‘‘creditors’’ 

offering credit card accounts under an 

open-end consumer credit plan. Issuers 

of ‘‘charge cards’’ (which are typically 

products where outstanding balances 

cannot be carried over from one billing 

period to the next and are payable when 

a periodic statement is received) are 

‘‘creditors’’ for purposes of specifically 

enumerated TILA disclosure 

requirements. 15 U.S.C. 1602(f); 

§ 226.2(a)(17). The late payment 

disclosure requirement in TILA Section 

127(b)(12), as amended by the Credit 

Card Act, is not among those 

specifically enumerated. 

For the reasons discussed in more 

detail below, a charge card issuer would 

be required to disclose the due date on 

the periodic statement, and this 

payment due date must be the same day 

each month. Nonetheless, under 

proposed § 226.7(b)(11)(ii), a charge 

card issuer would not be required to 

disclose on the periodic statement the 

late payment disclosures, namely any 

late payment fee or penalty APR that 

could be triggered by a late payment. As 

discussed above, the late payment 

disclosure requirements are not 

specifically enumerated in TILA Section 

103(f) to apply to charge card issuers. In 

addition, the Board notes that for some 

charge card issuers, payments are not 

considered ‘‘late’’ for purposes of 

imposing a fee until a consumer fails to 

make payments in two consecutive 

billing cycles. It would be undesirable 

to encourage consumers who in January 

receive a statement with the balance due 

upon receipt, for example, to avoid 

paying the balance when due because a 

late payment fee may not be assessed 

until mid-February; if consumers 

routinely avoided paying a charge card 

balance by the due date, it could cause 

issuers to change their practice with 

respect to charge cards. 

Section 226.7(b)(11)(ii) makes clear 

the exemption is for periodic statements 

provided solely for charge card 

accounts; periodic statements provided 

for card accounts with a charge card 

feature and revolving feature must 

comply with the late payment 

disclosure provisions as to the revolving 

feature. The Board also proposes to 

retain comment app. G–9 (which was 

adopted in the January 2009 Regulation 

Z Rule). Comment app. G–9 explains 

that creditors offering card accounts 

with a charge card feature and a 

revolving feature may revise 

disclosures, such as the late payment 

disclosures and the repayment 

disclosures discussed in the section-bysection analysis to proposed 

§ 226.7(b)(12) below, to make clear the 

feature to which the disclosures apply. 

Payment due date. As adopted in the 

January 2009 Regulation Z Rule, 

§ 226.7(b)(11) requires creditors offering 

open-end (not home-secured) credit to 

disclose the due date for a payment if 

a late payment fee or penalty rate could 

be imposed under the credit agreement, 

as discussed in more detail as follows. 

As adopted in the January 2009 

Regulation Z Rule, § 226.7(b)(11) applies 

to all open-end (not home-secured) 

credit plans, even those plans that are 

not accessed by a credit card device. 

The Board proposes generally to retain 


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the due date disclosure, except that this 

disclosure would be required only for a 

card issuer offering a ‘‘credit card 

account under an open-end (not homesecured) consumer credit plan,’’ as that 

term is defined in proposed 

§ 226.2(a)(15)(ii). 

In addition, as discussed below, the 

Board is proposing several other 

revisions to § 226.7(b)(11) in order to 

implement new TILA Section 127(o), 

which requires that the payment due 

date for a credit card account under an 

open-end (not home-secured) consumer 

credit plan be the same day each month. 

In addition to requiring that the due 

date disclosed be the same day each 

month, in order to implement new TILA 

Section 127(o), the Board proposes to 

require that the due date disclosure be 

provided regardless of whether a late 

payment fee or penalty rate could be 

imposed. Second, the Board proposes to 

amend § 226.7(b)(11)(ii) to require that 

the due date be disclosed for charge 

card accounts, although charge card 

issuers would not be required to provide 

the late payment disclosures set forth in 

proposed § 226.7(b)(11)(i)(B). 

1. Courtesy periods. In the January 

2009 Regulation Z Rule, § 226.7(b)(11) 

interpreted the due date to be a date that 

is required by the legal obligation. 

Comment 7(b)(11)–1 clarified that 

creditors need not disclose informal 

‘‘courtesy periods’’ not part of the legal 

obligation that creditors may observe for 

a short period after the stated due date 

before a late payment fee is imposed, to 

account for minor delays in payments 

such as mail delays. The Board proposes 

to retain comment 7(b)(11)–1 with 

technical revisions to refer to card 

issuers, rather than creditors, consistent 

with the proposal to limit the due date 

and late payment disclosures to a 

‘‘credit card account under an open-end 

(not home-secured) consumer credit 

plan,’’ as that term is defined in 

proposed § 226.2(a)(15)(ii). 

2. Assessment of late fees. Under 

TILA Section 127(b)(12), as revised by 

the Credit Card Act, a card issuer must 

disclose on periodic statements the 

payment due date or, if different, the 

earliest date on which the late payment 

fee may be charged. Some State laws 

require that a certain number of days 

must elapse following a due date before 

a late payment fee may be imposed. 

Under such a State law, the later date 

arguably would be required to be 

disclosed on periodic statements. 

In the January 2009 Regulation Z 

Rule, the Board required creditors to 

disclose the due date under the terms of 

the legal obligation, and not a later date, 

such as when creditors are restricted by 

State or other law from imposing a late 

payment fee unless a payment is late for 

a certain number of days following the 

due date. Specifically, comment 

7(b)(12)–2 (as adopted as part of the 

January 2009 Regulation Z Rule) notes 

that some State or other laws require 

that a certain number of days must 

elapse following a due date before a late 

payment fee may be imposed. For 

example, assume a payment is due on 

March 10 and State law provides that a 

late payment fee cannot be assessed 

before March 21. Comment 7(b)(11)–2 

clarifies that creditors must disclose the 

due date under the terms of the legal 

obligation (March 10 in this example), 

and not a date different than the due 

date, such as when creditors are 

restricted by State or other law to delay 

from imposing a late payment fee unless 

a payment is late for a certain number 

of days following the due date (March 

21 in this example). Consumers’ rights 

under State law to avoid the imposition 

of late payment fees during a specified 

period following a due date are 

unaffected by the disclosure 

requirement. In this example, the 

creditor would disclose March 10 as the 

due date for purposes of § 226.7(b)(11), 

even if under State law the creditor 

could not assess a late payment fee 

before March 21. 

The Board was concerned that 

disclosure of the later date would not 

provide a meaningful benefit to 

consumers in the form of useful 

information or protection and would 

result in consumer confusion. In the 

example above, highlighting March 20 

as the last date to avoid a late payment 

fee may mislead consumers into 

thinking that a payment made any time 

on or before March 20 would have no 

adverse financial consequences. 

However, failure to make a payment 

when due is considered an act of default 

under most credit contracts, and can 

trigger higher costs due to loss of a grace 

period, interest accrual, and perhaps 

penalty APRs. The Board considered 

additional disclosures on the periodic 

statement that would more fully explain 

the consequences of paying after the due 

date and before the date triggering the 

late payment fee, but such an approach 

appeared cumbersome and overly 

complicated. 

For these reasons, notwithstanding 

TILA Section 127(b)(12), as revised by 

the Credit Card Act, the Board proposes 

to continue to require card issuers to 

disclose the due date under the terms of 

the legal obligation, and not a later date, 

such as when creditors are restricted by 

State or other law from imposing a late 

payment fee unless a payment is late for 

a certain number of days following the 

due date. The Board proposes this 

exception to the TILA requirement to 

disclose the later date pursuant to the 

Board’s authority under TILA Section 

105(a) to make adjustments that are 

necessary to effectuate the purposes of 

TILA. 15 U.S.C. 1604(a). 

The Board proposes to retain 

comment 7(b)(11)–2 with several 

revisions. First, the comment would be 

revised to refer to card issuers, rather 

than creditors, consistent with the 

proposal to limit the due date and late 

payment disclosures to a ‘‘credit card 

account under an open-end (not homesecured) consumer credit plan,’’ as that 

term is defined in proposed 

§ 226.2(a)(15)(ii). Second, the comment 

would be revised to address the 

situation where the terms of the account 

agreement (rather than State law) limit 

a card issuer from imposing a late 

payment fee unless a payment is late a 

certain number of days following a due 

date. The Board proposes to revise 

comment 7(b)(11)–2 to provide that in 

this situation a card issuer must disclose 

the date the payment is due under the 

terms of the legal obligation, and not the 

later date when a late payment fee may 

be imposed under the contract. 

3. Same due date each month. The 

Credit Card Act created a new TILA 

Section 127(o), which states in part that 

the payment due date for a credit card 

account under an open end consumer 

credit plan shall be the same day each 

month. The Board is proposing to 

implement this requirement by revising 

§ 226.7(b)(11)(i). The text the Board is 

proposing to insert into amended 

§ 226.7(b)(11)(i) would generally track 

the statutory language in new TILA 

Section 127(o) and would state that for 

credit card accounts under open-end 

(not home-secured) consumer credit 

plans, the due date disclosed pursuant 

to § 226.7(b)(11)(i) must be the same day 

of the month for each billing cycle. 

The Board is proposing several new 

comments to clarify the requirement 

that the due date be the same day of the 

month for each billing cycle. Proposed 

comment 7(b)(11)(i)–6 would clarify 

that the same day of the month means 

the same numerical day of the month. 

The comment notes that one example of 

a compliant practice would be to have 

a due date that is the 25th of every 

month. In contrast, it would not be 

permissible for the payment due date to 

be the same relative date, but not 

numerical date, of each month, such as 

the third Tuesday of the month. The 

Board believes that the intent of new 

TILA Section 127(o) is to promote 

predictability and to enhance consumer 

awareness of due dates each month to 

make it easier to make timely payments. 

The Board believes that requiring the 


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due date to be the same numerical day 

each month effectuates the statute, and 

that permitting the due date to be the 

same relative day each month would not 

as effectively promote predictability for 

consumers. 

The Board notes that in practice the 

requirement that the due date be the 

same numerical date each month would 

preclude creditors from setting due 

dates that are the 29th, 30th, or 31st of 

the month. The Board is aware that 

some credit card issuers currently set 

due dates for a portion of their accounts 

on every day of the month, in order to 

distribute the burden associated with 

processing payments more evenly 

throughout the month. The Board 

solicits comment on any operational 

burden associated with processing 

additional payments received on the 1st 

through 28th of the month in those 

months with more than 28 days. 

Proposed comment 7(b)(11)(i)–7 

would clarify that a creditor may adjust 

a consumer’s due date from time to 

time, for example in response to a 

consumer-initiated request, provided 

that the new due date will be the same 

numerical date each month on an 

ongoing basis. The proposed comment 

would cross-reference existing comment 

2(a)(4)–3 for guidance on transitional 

billing cycles that might result when the 

consumer’s due date is changed. The 

Board believes that it is appropriate to 

permit creditors to change the 

consumer’s due date from time to time, 

for example, if the creditor wishes to 

honor a consumer request for a new due 

date that better coincides with the time 

of the month when the consumer is paid 

by his or her employer. The Board notes 

that while the proposed comment refers 

to consumer-initiated requests as one 

example of when a change in due date 

might occur, proposed § 226.7(b)(11)(i) 

and comment 7(b)(11)(i)–7 would not 

prohibit changes in the consumer’s due 

date from time to time that are not 

consumer-initiated, for example, if a 

creditor acquires a portfolio and 

changes the consumer’s due date as it 

migrates acquired accounts onto its own 

systems. 

Regulation Z’s definition of ‘‘billing 

cycle’’ in § 226.2(a)(4) contemplates that 

the interval between the days or dates 

of regular periodic statements must be 

equal and no longer than a quarter of a 

year. Therefore, some creditors may 

have billing cycles that are two or three 

months in duration. The Board is 

proposing comment 7(b)(11)(i)–8 to 

clarify that new § 226.7(b)(11)(i) does 

not prohibit billing cycles that are two 

or three months, provided that the due 

date for each billing cycle is on the same 

numerical date of each month. The 

Board believes that it was not the intent 

of new TILA Section 127(o) to require 

that each billing cycle be exactly one 

month, so long as the due date is always 

the same day of the month for each 

billing cycle. For example, the comment 

notes that a creditor that establishes 

two-month billing cycles could send a 

consumer periodic statements 

disclosing due dates of January 25, 

March 25, and May 25. 

Finally, the Board is proposing 

comment 7(b)(11)(i)–9 to clarify the 

relationship between §§ 226.7(b)(11)(i) 

and 226.10(d). As discussed elsewhere 

in this supplementary information, 

proposed § 226.10(d) provides that if the 

payment due date is a day on which the 

creditor does not receive or accept 

payments by mail, the creditor is 

generally required to treat a payment 

received the next business day as 

timely. It is likely that, from time to 

time, a due date that is the same 

numerical date each month as required 

by § 226.7(b)(11)(i) may fall on a date on 

which the creditor does not accept or 

receive mailed payments, such as a 

holiday or weekend. However, proposed 

comment 7(b)(11)(i)–9 clarifies that in 

such circumstances the creditor must 

disclose the due date according to the 

legal obligation between the parties, not 

the date as of which the creditor is 

permitted to treat the payment as late. 

For example, assume that the 

consumer’s due date is the 4th of every 

month and the creditor does not accept 

or receive payments by mail on 

Thursday, July 4. Pursuant to 

§ 226.10(d), the creditor may not treat a 

mailed payment received on the 

following business day, Friday, July 5, 

as late for any purpose. The creditor 

must nonetheless, however, disclose 

July 4 as the due date on the periodic 

statement and may not disclose a July 5 

due date. This is consistent with the 

approach that the Board has taken with 

regard to payment due dates in 

comment 5(b)(2)(ii)–3 of the July 2009 

Regulation Z Interim Final Rule, where 

the due date disclosed is required to 

reflect the legal obligation between the 

parties, not any courtesy period offered 

by the creditor or required by State or 

other law. 

Late payment fee and penalty APR. In 

the January 2009 Regulation Z Rule, the 

Board adopted § 226.7(b)(11) to require 

creditors offering open-end (not homesecured) credit plans that charge a fee or 

impose a penalty rate for paying late to 

disclose on the periodic statement the 

amount of any late payment fee and any 

penalty APR that could be triggered by 

a late payment (in addition to the 

payment due date discussed above). 

Consistent with TILA Section 

127(b)(12), as revised by the Credit Card 

Act, proposed § 226.7(b)(11) would 

continue to require that a card issuer 

disclose any late payment fee and any 

penalty APR that may be imposed on 

the account as a result of a late payment, 

in addition to the payment due date 

discussed above. 

Fee or rate triggered by multiple 

events. In the January 2009 Regulation 

Z Rule, the Board added comment 

7(b)(11)–3 to provide guidance on 

complying with the late payment 

disclosure if a late fee or penalty APR 

is triggered after multiple events, such 

as two late payments in six months. 

Comment 7(b)(11)–3 provides that in 

such cases, the creditor may, but is not 

required to, disclose the late payment 

and penalty APR disclosure each 

month. The disclosures must be 

included on any periodic statement for 

which a late payment could trigger the 

late payment fee or penalty APR, such 

as after the consumer made one late 

payment in this example. The Board 

proposes to retain this comment with 

technical revisions to refer to card 

issuers, rather than creditors, consistent 

with the proposal to limit the late 

payment disclosures to a ‘‘credit card 

account under an open-end (not homesecured) consumer credit plan,’’ as that 

term is defined in proposed 

§ 226.2(a)(15)(ii). 

Range of fees and rates. In the January 

2009 Regulation Z Rule, 

§ 226.7(b)(11)(i)(B) provides that if a 

range of late payment fees or penalty 

APRs could be imposed on the 

consumer’s account, creditors may 

disclose the highest late payment fee 

and rate and at creditors’ option, an 

indication (such as using the phrase ‘‘up 

to’’) that lower fees or rates may be 

imposed. Comment 7(b)(11)–4 was 

added to illustrate the requirement. The 

final rule also permits creditors to 

disclose a range of fees or rates. The 

Board proposes to retain 

§ 226.7(b)(11)(i)(B) and comment 

7(b)(11)–4 with technical revisions to 

refer to card issuers, rather than 

creditors, consistent with the proposal 

to limit the late payment disclosures to 

a ‘‘credit card account under an openend (not home-secured) consumer credit 

plan,’’ as that term is defined in 

proposed § 226.2(a)(15)(ii). This 

approach recognizes the space 

constraints on periodic statements and 

provides card issuers flexibility in 

disclosing possible late payment fees 

and penalty rates. 

Penalty APR in effect. In the January 

2009 Regulation Z Rule, comment 

7(b)(11)–5 was added to provide that if 

the highest penalty APR has previously 

been triggered on an account, the 


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creditor may, but is not required to, 

delete as part of the late payment 

disclosure the amount of the penalty 

APR and the warning that the rate may 

be imposed for an untimely payment, as 

not applicable. Alternatively, the 

creditor may, but is not required to, 

modify the language to indicate that the 

penalty APR has been increased due to 

previous late payments, if applicable. 

The Board proposes to retain this 

comment with technical revisions to 

refer to card issuers, rather than 

creditors, consistent with the proposal 

to limit the late payment disclosures to 

a ‘‘credit card account under an openend (not home-secured) consumer credit 

plan,’’ as that term is defined in 

proposed § 226.2(a)(15)(ii). 

7(b)(12) Repayment Disclosures 

The Bankruptcy Act added TILA 

Section 127(b)(11) to require creditors 

that extend open-end credit to provide 

a disclosure on the front of each 

periodic statement in a prominent 

location about the effects of making only 

minimum payments. 15 U.S.C. 

1637(b)(11). This disclosure included: 

(1) a ‘‘warning’’ statement indicating 

that making only the minimum payment 

will increase the interest the consumer 

pays and the time it takes to repay the 

consumer’s balance; (2) a hypothetical 

example of how long it would take to 

pay off a specified balance if only 

minimum payments are made; and (3) a 

toll-free telephone number that the 

consumer may call to obtain an estimate 

of the time it would take to repay his or 

her actual account balance (‘‘generic 

repayment estimate’’). In order to 

standardize the information provided to 

consumers through the toll-free 

telephone numbers, the Bankruptcy Act 

directed the Board to prepare a ‘‘table’’ 

illustrating the approximate number of 

months it would take to repay an 

outstanding balance if the consumer 

pays only the required minimum 

monthly payments and if no other 

advances are made. The Board was 

directed to create the table by assuming 

a significant number of different APRs, 

account balances, and minimum 

payment amounts; the Board was 

required to provide instructional 

guidance on how the information 

contained in the table should be used to 

respond to consumers’ requests. 

Alternatively, the Bankruptcy Act 

provided that a creditor may use a tollfree telephone number to provide the 

actual number of months that it will 

take consumers to repay their 

outstanding balances (‘‘actual 

repayment disclosure’’) instead of 

providing an estimate based on the 

Board-created table. A creditor that does 

so would not need to include a 

hypothetical example on its periodic 

statements, but must disclose the 

warning statement and the toll-free 

telephone number on its periodic 

statements. 15 U.S.C. 1637(b)(11)(J)–(K). 

For ease of reference, this 

supplementary information will refer to 

the above disclosures in the Bankruptcy 

Act about the effects of making only the 

minimum payment as ‘‘the minimum 

payment disclosures.’’ 

In the January 2009 Regulation Z 

Rule, the Board implemented this 

section of TILA. In that rulemaking, the 

Board limited the minimum payment 

disclosures required by the Bankruptcy 

Act to credit card accounts, pursuant to 

the Board’s authority under TILA 

Section 105(a) to make adjustments that 

are necessary to effectuate the purposes 

of TILA. 15 U.S.C. 1604(a). In addition, 

the final rule in § 226.7(b)(12) provided 

that credit card issuers could choose 

one of three ways to comply with the 

minimum payment disclosure 

requirements set forth in the Bankruptcy 

Act: (1) Provide on the periodic 

statement a warning about making only 

minimum payments, a hypothetical 

example, and a toll-free telephone 

number where consumers may obtain 

generic repayment estimates; (2) provide 

on the periodic statement a warning 

about making only minimum payments, 

and a toll-free telephone number where 

consumers may obtain actual repayment 

disclosures; or (3) provide on the 

periodic statement the actual repayment 

disclosure. The Board issued guidance 

in Appendix M1 to part 226 for how to 

calculate the generic repayment 

estimates, and guidance in Appendix 

M2 to part 226 for how to calculate the 

actual repayment disclosures. Appendix 

M3 to part 226 provided sample 

calculations for the generic repayment 

estimates and the actual repayment 

disclosures discussed in Appendices 

M1 and M2 to part 226. 

The Credit Card Act substantially 

revised Section 127(b)(11) of TILA. 

Specifically, Section 201 of the Credit 

Card Act amends TILA Section 

127(b)(11) to provide that creditors that 

extend open-end credit must provide 

the following disclosures on each 

periodic statement: (1) A ‘‘warning’’ 

statement indicating that making only 

the minimum payment will increase the 

interest the consumer pays and the time 

it takes to repay the consumer’s balance; 

(2) the number of months that it would 

take to repay the outstanding balance if 

the consumer pays only the required 

minimum monthly payments and if no 

further advances are made; (3) the total 

cost to the consumer, including interest 

and principal payments, of paying that 

balance in full, if the consumer pays 

only the required minimum monthly 

payments and if no further advances are 

made; (4) the monthly payment amount 

that would be required for the consumer 

to pay off the outstanding balance in 36 

months, if no further advances are 

made, and the total cost to the 

consumer, including interest and 

principal payments, of paying that 

balance in full if the consumer pays the 

balance over 36 months; and (5) a tollfree telephone number at which the 

consumer may receive information 

about credit counseling and debt 

management services. For ease of 

reference, this supplementary 

information will refer to the above 

disclosures in the Credit Card Act as 

‘‘the repayment disclosures.’’ 

The Credit Card Act provides that the 

repayment disclosures discussed above 

(except for the warning statement) must 

be disclosed in the form and manner 

which the Board prescribes by 

regulation and in a manner that avoids 

duplication; and be placed in a 

conspicuous and prominent location on 

the billing statement. By regulation, the 

Board must require that the disclosure 

of the repayment information (except for 

the warning statement) be in the form of 

a table that contains clear and concise 

headings for each item of information 

and provides a clear and concise form 

stating each item of information 

required to be disclosed under each 

such heading. In prescribing the table, 

the Board must require that all the 

information in the table, and not just a 

reference to the table, be placed on the 

billing statement and the items required 

to be included in the table must be 

listed in the order in which such items 

are set forth above. In prescribing the 

table, the statute states that the Board 

shall use terminology different from that 

used in the statute, if such terminology 

is more easily understood and conveys 

substantially the same meaning. With 

respect to the toll-free telephone 

number for providing information about 

credit counseling and debt management 

services, the Credit Card Act provides 

that the Board must issue guidelines by 

rule, in consultation with the Secretary 

of the Treasury, for the establishment 

and maintenance by creditors of a tollfree telephone number for purposes of 

providing information about a accessing 

credit counseling and debt management 

services. These guidelines must ensure 

that referrals provided by the toll-free 

telephone number include only those 

nonprofit budget and credit counseling 

agencies approved by a U.S. bankruptcy 

trustee pursuant to 11 U.S.C. 111(a). 

As discussed in more detail below, 

the Board proposes to revise 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
54136 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

9Brian 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). 

§ 226.7(b)(12) to implement Section 201 

of the Credit Card Act. 

Proposal to limit the repayment 

disclosure requirements to credit card 

accounts. Under the Credit Card Act, 

the repayment disclosure requirements 

apply to all open-end accounts (such as 

credit card accounts, HELOCs, and 

general purpose credit lines). As 

discussed above, in the January 2009 

Regulation Z Rule, the Board limited the 

minimum payment disclosures required 

by the Bankruptcy Act to credit card 

accounts. For similar reasons, the Board 

proposes to limit the repayment 

disclosures in the Credit Card Act to 

credit card accounts under open-end 

(not home-secured) consumer credit 

plans, as that term is defined in 

proposed § 226.2(a)(15)(ii). 

As discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.2(a)(15)(ii), the term ‘‘credit card 

account under an open-end (not homesecured) consumer credit plan’’ means 

any account accessed by a credit card, 

except this term does not include 

HELOC accounts subject to § 226.5b that 

are accessed by a credit card device or 

overdraft lines of credit that are 

accessed by a debit card. Thus, based on 

the proposed exemption to limit the 

repayment disclosures to credit card 

accounts under open-end (not homesecured) consumer credit plans, the 

following products would be exempt 

from the repayment disclosures in TILA 

Section 127(b)(11), as set forth in the 

Credit Card Act: (1) HELOC accounts 

subject to § 226.5b even if they are 

accessed by a credit card device; (2) 

overdraft lines of credit even if they are 

accessed by a debit card; and (3) openend credit plans that are not credit card 

accounts, such as general purpose lines 

of credit that are not accessed by a 

credit card. 

The Board 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 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. 

As discussed in more detail below, 

the Board has considered each of these 

factors carefully, and based on that 

review, believes that the proposed 

exemption is appropriate. 

1. HELOC accounts. In the August 

2009 Regulation Z HELOC Proposal, the 

Board proposed that the repayment 

disclosures required by TILA Section 

127(b)(11), as amended by the Credit 

Card Act, not apply to HELOC accounts, 

including HELOC accounts that can be 

accessed by a credit card device. See 74 

FR 43428. The Board proposed this rule 

pursuant to its exception and exemption 

authorities under TILA Section 105(a) 

and 105(f), as discussed above. In the 

supplementary information to the 

August 2009 Regulation Z HELOC 

Proposal, the Board stated its belief that 

the minimum payment disclosures in 

the Credit Card Act would be of limited 

benefit to consumers for HELOC 

accounts and are not necessary to 

effectuate the purposes of TILA. First, 

the Board understands that most 

HELOCs have a fixed repayment period. 

Under the August 2009 Regulation Z 

HELOC Proposal, in proposed 

§ 226.5b(c)(9)(i), 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). In addition, this information 

also must be disclosed at account 

opening under proposed 

§ 226.6(a)(2)(v)(A), as set forth in the 

August 2009 Regulation Z HELOC 

Proposal. Thus, for a HELOC account 

with a fixed repayment period, a 

consumer could learn from those 

disclosures the amount of time it would 

take to repay the HELOC account if the 

consumer only makes required 

minimum payments. The cost to 

creditors of providing this information a 

second time, including the costs to 

reprogram periodic statement systems, 

appears not to be justified by the limited 

benefit to consumers. 

In addition, in the supplementary 

information to the August 2009 

Regulation Z HELOC Proposal, the 

Board stated its belief that the 

disclosure about total cost to the 

consumer of paying the outstanding 

balance in full (if the consumer pays 

only the required minimum monthly 

payments and if no further advances are 

made) would not be useful to consumers 

for HELOC accounts because of the 

nature of consumers’ use of HELOC 

accounts. The Board understands that 

HELOC consumers tend to use HELOC 

accounts for larger transactions that they 

can finance at a lower interest rate than 

is offered on unsecured credit cards, 

and intend to repay these transactions 

over the life of the HELOC account. By 

contrast, consumers tend to use 

unsecured credit cards to engage in a 

significant number of small dollar 

transactions per billing cycle, and may 

not intend to finance these transactions 

for many years. The Board also 

understands that HELOC consumers 

often will not have the ability to repay 

the balances on the HELOC account at 

the end of each billing cycle, or even 

within a few years. To illustrate, the 

Board’s 2007 Survey of Consumer 

Finances data indicates that the median 

balance on HELOCs (for families that 

had a balance at the time of the 

interview) was $24,000, while the 

median balance on credit cards (for 

families that had a balance at the time 

of the interview) was $3,000.9

As discussed in the supplementary 

information to the August 2009 

Regulation Z HELOC Proposal, the 

nature of consumers’ use of HELOCs 

also underlies the Board’s belief that 

periodic disclosure of the monthly 

payment amount required for the 

consumer to pay off the outstanding 

balance in 36 months, and the total cost 

to the consumer of paying that balance 

in full if the consumer pays the balance 

over 36 months, would not provide 

useful information to consumers for 

HELOC accounts. 

For all these reasons, in the August 

2009 Regulation Z HELOC Proposal, the 

Board proposed to exempt HELOC 

accounts (even when they are accessed 

by a credit card account) from the 

repayment disclosure requirements set 

forth in TILA Section 127(b)(11), as 

revised by the Credit Card Act. 


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Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54137 

10Brian 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). 

2. Overdraft lines of credit and other 

general purpose credit lines. The Board 

also proposes to exempt overdraft lines 

of credit (even if they are accessed by 

a debit card) and general purpose credit 

lines that are not accessed by a credit 

card from the repayment disclosure 

requirements set forth in TILA Section 

127(b)(11), as revised by the Credit Card 

Act, for several reasons. 15 U.S.C. 

1637(b)(11). First, these lines of credit 

are not in wide use. The 2007 Survey of 

Consumer Finances data indicates that 

few families—1.7 percent—had a 

balance on lines of credit other than a 

home-equity line or credit card at the 

time of the interview. (By comparison, 

73 percent of families had a credit card, 

and 60.3 percent of these families had 

a credit card balance at the time of the 

interview.) 10 Second, these lines of 

credit typically are neither promoted, 

nor used, as long-term credit options of 

the kind for which the repayment 

disclosures are intended. Third, the 

Board is concerned that the operational 

costs of requiring creditors to comply 

with the repayment disclosure 

requirements for overdraft lines of credit 

and other general purpose lines of credit 

may cause some institutions to no 

longer provide these products as 

accommodations to consumers, to the 

detriment of consumers who currently 

use these products. For these reasons, 

the Board proposes to use its TILA 

Section 105(a) and 105(f) authority (as 

discussed above) to exempt overdraft 

lines of credit and other general purpose 

credit lines from the repayment 

disclosure requirements, because in this 

context the Board believes the 

repayment disclosures are not necessary 

to effectuate the purposes of TILA. 15 

U.S.C. 1604(a) and (f). 

7(b)(12)(i) In General 

TILA Section 127(b)(11)(A), as 

amended by the Credit Card Act, 

requires that a creditor that extends 

open-end credit must provide the 

following disclosures on each periodic 

statement: (1) A ‘‘warning’’ statement 

indicating that making only the 

minimum payment will increase the 

interest the consumer pays and the time 

it takes to repay the consumer’s balance; 

(2) the number of months that it would 

take to repay the outstanding balance if 

the consumer pays only the required 

minimum monthly payments and if no 

further advances are made; (3) the total 

cost to the consumer, including interest 

and principal payments, of paying that 

balance in full, if the consumer pays 

only the required minimum monthly 

payments and if no further advances are 

made; (4) the monthly payment amount 

that would be required for the consumer 

to pay off the outstanding balance in 36 

months, if no further advances are 

made, and the total cost to the 

consumer, including interest and 

principal payments, of paying that 

balance in full if the consumer pays the 

balance over 36 months; and (5) a tollfree telephone number at which the 

consumer may receive information 

about accessing credit counseling and 

debt management services. 

In implementing these statutory 

disclosures, proposed § 226.7(b)(12)(i) 

sets forth the repayment disclosures that 

a credit card issuer generally must 

provide on the periodic statement. As 

discussed in more detail below, 

proposed § 226.7(b)(12)(ii) sets forth the 

repayment disclosures that a credit card 

issuer must provide on the periodic 

statement when negative or no 

amortization occurs on the account. 

Warning statement. TILA Section 

127(b)(11)(A), as amended by the Credit 

Card Act, requires that a creditor 

include the following statement on each 

periodic statement: ‘‘Minimum Payment 

Warning: Making only the minimum 

payment will increase the amount of 

interest you pay and the time it takes to 

repay your balance,’’ or a similar 

statement that is required by the Board 

pursuant to consumer testing. 15 U.S.C. 

1637(b)(11)(A). Under proposed 

§ 226.7(b)(12)(i)(A), if amortization 

occurs on the account, a credit card 

issuer generally would be required to 

disclose the following statement with a 

bold heading on each periodic 

statement: ‘‘Minimum Payment 

Warning: If you make only the 

minimum payment each period, you 

will pay more in interest and it will take 

you longer to pay off your balance.’’ The 

proposed warning statement contains 

several stylistic revisions to the 

statutory language, based on plain 

language principles, in an attempt to 

make the language of the warning more 

understandable to consumers. The 

Board tested the proposed warning 

statement as part of the consumer 

testing conducted by the Board on credit 

card disclosures in relation to the 

January 2009 Regulation Z Rule. 

Participants in that consumer testing 

reviewed periodic statement disclosures 

with the proposed warning statement, 

and they indicated they understood 

from this statement that paying only the 

minimum payment would increase both 

interest charges and the length of time 

it would take to pay off a balance. 

Minimum payment disclosures. TILA 

Section 127(b)(11)(B)(i) and (ii), as 

amended by the Credit Card Act, 

requires that a creditor provide on each 

periodic statement: (1) The number of 

months that it would take to pay the 

entire amount of the outstanding 

balance, if the consumer pays only the 

required minimum monthly payments 

and if no further advances are made; 

and (2) the total cost to the consumer, 

including interest and principal 

payments, of paying that balance in full, 

if the consumer pays only the required 

minimum monthly payments and if no 

further advances are made. 15 U.S.C. 

1637(b)(11)(B)(i) and (ii). The Board 

proposes new § 226.7(b)(12)(i)(B) and 

(C) to implement these statutory 

provisions. 

1. Minimum payment repayment 

estimate. Under proposed 

§ 226.7(b)(12)(i)(B), if amortization 

occurs on the account, a credit card 

issuer generally would be required to 

disclose on each periodic statement the 

minimum payment repayment estimate, 

as described in proposed Appendix M1 

to part 226. As described in more detail 

in the section-by-section analysis to 

proposed Appendix M1 to part 226, the 

minimum payment repayment estimate 

would be an estimate of the number of 

months that it would take to pay the 

entire amount of the outstanding 

balance shown on the periodic 

statement, if the consumer pays only the 

required minimum monthly payments 

and if no further advances are made. 

Under proposed Appendix M1 to part 

226, a credit card issuer generally would 

calculate the minimum payment 

repayment estimate based on the 

minimum payment formula(s), the APRs 

and the outstanding balance currently 

applicable to a consumer’s account. For 

other terms that may impact the 

calculation of the minimum payment 

repayment estimate, the Board proposes 

to allow issuers to make certain 

assumption about these terms. 

Proposed § 226.7(b)(12)(i)(B) provides 

that if the minimum payment 

repayment estimate is less than 2 years, 

a credit card issuer must disclose the 

estimate in months. Otherwise, the 

estimate would be disclosed in years. If 

the estimate is 2 years or more, the 

estimate would be rounded to the 

nearest whole year, meaning that if the 

estimate contains a fractional year less 

than 0.5, the estimate would be rounded 

down to the nearest whole year. The 

estimate would be rounded up to the 

nearest whole year if the estimate 

contains a fractional year equal to or 

greater than 0.5. The Board proposes 

that the minimum payment repayment 

estimate be disclosed in years (if the 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
54138 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

estimated payoff period is 2 years or 

more), pursuant to the Board’s authority 

to make adjustments to TILA’s 

requirements to effectuate the statute’s 

purposes, which include facilitating 

consumers’ ability to compare credit 

terms and helping consumers avoid the 

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

1601(a), 1604(a). 

The Board believes that disclosing the 

estimated minimum payment 

repayment period in years (if the 

estimated payoff period is 2 years or 

more) allows consumers to better 

comprehend longer repayment periods 

without having to convert the 

repayment periods themselves from 

months to years. In consumer testing 

conducted by the Board on credit card 

disclosures in relation to the January 

2009 Regulation Z Rule, participants 

reviewed disclosures with estimated 

minimum payment repayment periods 

in years, and they indicated they 

understood the length of time it would 

take to repay the balance if only 

minimum payments were made. 

2. Minimum payment total cost 

estimate. Consistent with TILA Section 

127(b)(11)(B)(ii), as revised by the Credit 

Card Act, proposed § 226.7(b)(12)(i)(C) 

provides that if amortization occurs on 

the account, a credit card issuer 

generally must disclose on each 

periodic statement the minimum 

payment total cost estimate, as 

described in proposed Appendix M1 to 

part 226. As described in more detail in 

the section-by-section analysis to 

proposed Appendix M1 to part 226, the 

minimum payment total cost estimate 

would be an estimate of the total dollar 

amount of the interest and principal that 

the consumer would pay if he or she 

made minimum payments for the length 

of time calculated as the minimum 

payment repayment estimate, as 

described in proposed Appendix M1 to 

part 226. Under the proposal, the 

minimum payment total cost estimate 

must be rounded to the nearest whole 

dollar. 

3. Disclosure of assumptions used to 

calculate the minimum payment 

repayment estimate and the minimum 

payment total cost estimate. Under the 

proposal, a creditor would be required 

to provide on the periodic statement the 

following statements: (1) A statement 

that the minimum payment repayment 

estimate and the minimum payment 

total cost estimate are based on the 

current outstanding balance shown on 

the periodic statement; and (2) a 

statement that the minimum payment 

repayment estimate and the minimum 

payment total cost estimate are based on 

the assumption that only minimum 

payments are made and no other 

amounts are added to the balance. The 

Board believes that this information is 

needed to help consumers understand 

the minimum payment repayment 

estimate and the minimum payment 

total cost estimate. The Board does not 

propose to require issuers to disclose 

other assumptions used to calculate 

these estimates. The many assumptions 

that are necessary to calculate the 

minimum payment repayment estimate 

and the minimum payment total cost 

estimate are complex and unlikely to be 

meaningful or useful to most 

consumers. 

Repayment disclosures based on 

repayment in 36 months. TILA Section 

127(b)(11)(B)(iii), as revised by the 

Credit Card Act, requires that a creditor 

disclose on each periodic statement: (1) 

The monthly payment amount that 

would be required for the consumer to 

pay off the outstanding balance in 36 

months, if no further advances are 

made; and (2) the total costs to the 

consumer, including interest and 

principal payments, of paying that 

balance in full if the consumer pays the 

balance over 36 months. 15 U.S.C. 

1637(b)(11)(B)(iii). 

1. Estimated monthly payment for 

repayment in 36 months and total cost 

estimate for repayment in 36 months. In 

implementing TILA Section 

127(b)(11)(B)(iii), as revised by the 

Credit Card Act, proposed 

§ 226.7(b)(12)(i)(F) provides that except 

when the minimum payment repayment 

estimate disclosed under proposed 

§ 226.7(b)(12)(i)(B) is 3 years or less, a 

credit card issuer must disclose on each 

periodic statement the estimated 

monthly payment for repayment in 36 

months and the total cost estimate for 

repayment in 36 months, as described in 

proposed Appendix M1 to part 226. As 

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

Appendix M1 to part 226, the estimated 

monthly payment for repayment in 36 

months would be an estimate of the 

monthly payment amount that would be 

required to pay off the outstanding 

balance shown on the statement within 

36 months, assuming the consumer paid 

the same amount each month for 36 

months. Also, as described in proposed 

Appendix M1 to part 226, the total cost 

estimate for repayment in 36 months 

would be the total dollar amount of the 

interest and principal that the consumer 

would pay if he or she made the 

estimated monthly payment each month 

for 36 months. Under the proposal, the 

estimated monthly payment for 

repayment in 36 months and the total 

cost estimate for repayment in 36 

months must be rounded to the nearest 

whole dollar. Proposed 

§ 226.7(b)(12)(i)(F)(2) provides that a 

credit card issuer generally must 

disclose on each periodic statement a 

statement that the card issuer estimates 

that the consumer will repay the 

outstanding balance shown on the 

periodic statement in 3 years if the 

consumer pays the estimated monthly 

payment each month for 3 years. The 

Board believes that this information is 

needed to help consumers understand 

the estimated monthly payment for 

repayment in 36 months. The Board 

does not propose to require issuers to 

disclose assumptions used to calculate 

this estimated monthly payment. The 

many assumptions that are necessary to 

calculate the estimated monthly 

payment for repayment in 36 months 

are complex and unlikely to be 

meaningful or useful to most 

consumers. 

2. Savings estimate for repayment in 

36 months. In addition to the disclosure 

of the estimated monthly payment for 

repayment in 36 months and the total 

cost estimate for repayment in 36 

months, proposed § 226.7(b)(12)(i)(F) 

also requires that a credit card issuer 

generally must disclose on each 

periodic statement the savings estimate 

for repayment in 36 months, as 

described in proposed Appendix M1 to 

part 226. As described in proposed 

Appendix M1 to part 226, the savings 

estimate for repayment in 36 months 

would be calculated as the difference 

between the minimum payment total 

cost estimate and the total cost estimate 

for repayment in 36 months. Thus, the 

savings estimate for repayment in 36 

months would represent an estimate of 

the amount of interest that a consumer 

would ‘‘save’’ if the consumer repaid 

the balance shown on the statement in 

3 years by making the estimated 

monthly payment for repayment in 36 

months each month, rather than making 

minimum payments each month. The 

Board proposes to require that credit 

card issuers disclose the savings 

estimate for repayment in 36 months on 

the periodic statement pursuant to the 

Board’s authority to make adjustments 

to TILA’s requirements to effectuate the 

statute’s purposes, which include 

facilitating consumers’ ability to 

compare credit terms and helping 

consumers avoid the uninformed use of 

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

The Board believes that the savings 

estimate for repayment in 36 months 

will allow consumers more easily to 

understand the potential savings of 

paying the balance shown on the 

periodic statement in 3 years rather than 

making minimum payments each 

month. This potential savings appears to 

be Congress’ purpose in requiring that 


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the total cost for making minimum 

payments and the total cost for 

repayment in 36 months be disclosed on 

the periodic statement. The Board 

believes that including the savings 

estimate on the periodic statement 

allows consumers to comprehend better 

the potential savings without having to 

compute this amount themselves from 

the total cost estimates disclosed on the 

periodic statement. In consumer testing 

conducted by the Board on closed-end 

mortgage disclosures in relation to the 

August 2009 Regulation Z Closed-End 

Credit Proposal, some participants were 

shown two offers for mortgage loans 

with different APRs and different totals 

of payments. In that consumer testing, 

in comparing the two mortgage loans, 

participants tended not to calculate for 

themselves the difference between the 

total of payments for the two loans (i.e., 

the potential savings in choosing one 

loan over another), and use that amount 

to compare the two loans. Instead, 

participants tended to disregard the 

total of payments for both loans, 

because both totals were large numbers. 

Given the results of that consumer 

testing, the Board believes it is 

important to disclose the savings 

estimate on the periodic statement to 

focus consumers’ attention explicitly on 

the potential savings of repaying the 

balance in 36 months. 

3. Minimum payment repayment 

estimate disclosed on the periodic 

statement is three years or less. Under 

proposed § 226.7(b)(12)(i)(F), a credit 

card issuer would not be required to 

provide the disclosures related to 

repayment in 36 months if the 

minimum payment repayment estimate 

disclosed under proposed 

§ 226.7(b)(12)(i)(B) is 3 years or less. The 

Board proposes this exemption pursuant 

to the Board’s authority exception and 

exemption authorities under TILA 

Section 105(a) and (f). The Board has 

considered the statutory factors 

carefully, and based on that review, 

believes that the proposed exemption is 

appropriate. The Board believes that the 

estimated monthly payment for 

repayment in 36 months, and the total 

cost estimate for repayment in 36 

months would not be useful and may be 

misleading to consumers where based 

on the minimum payments that would 

be due on the account, a consumer 

would be required to repay the 

outstanding balance in three years or 

less. For example, assume that based on 

the minimum payments due on an 

account, a consumer would repay his or 

her outstanding balance in two years if 

the consumer only makes minimum 

payments and take no additional 

advances. The consumer under the 

account terms would not have the 

option to repay the outstanding balance 

in 36 months (i.e., 3 years). In this 

example, disclosure of the estimated 

monthly payment for repayment in 36 

months and the total cost estimate for 

repayment in 36 months would be 

misleading, because under the account 

terms the consumer does not have the 

option to make the estimated monthly 

payment each month for 36 months. 

Requiring that this information be 

disclosed on the periodic statement 

where it might be misleading to 

consumers would undermine TILA’s 

goal of consumer protection, and could 

make the credit process more expensive 

by requiring card issuers to incur costs 

to address customer confusion about 

these disclosures. 

Toll-free telephone number. TILA 

Section 127(b)(11)(B)(iii), as revised by 

the Credit Card Act, requires that a 

creditor disclose on each periodic 

statement a toll-free telephone number 

at which the consumer may receive 

information about credit counseling and 

debt management services. 15 U.S.C. 

1637(b)(11)(B)(iii). Proposed 

§ 226.7(b)(12)(i)(E) provides that a credit 

card issuer generally must disclose on 

each periodic statement a toll-free 

telephone number where the consumer 

may obtain information about credit 

counseling services consistent with the 

requirements set forth in proposed 

§ 226.7(b)(12)(iv). As discussed in more 

detail below, proposed § 226.7(b)(12)(iv) 

sets forth the information that a credit 

card issuer must provide through the 

toll-free telephone number. 

7(b)(12)(ii) Negative or No Amortization 

Negative or no amortization can occur 

if the required minimum payment is the 

same as or less than the total finance 

charges and other fees imposed during 

the billing cycle. Several major credit 

card issuers have established minimum 

payment requirements that prevent 

prolonged negative or no amortization. 

But some creditors may use a minimum 

payment formula that allows negative or 

no amortization (such as by requiring a 

payment of 2 percent of the outstanding 

balance, regardless of the finance 

charges or fees incurred). 

The Credit Card Act appears to 

require the following disclosures even 

when negative or no amortization 

occurs: (1) A ‘‘warning’’ statement 

indicating that making only the 

minimum payment will increase the 

interest the consumer pays and the time 

it takes to repay the consumer’s balance; 

(2) the number of months that it would 

take to repay the outstanding balance if 

the consumer pays only the required 

minimum monthly payments and if no 

further advances are made; (3) the total 

cost to the consumer, including interest 

and principal payments, of paying that 

balance in full, if the consumer pays 

only the required minimum monthly 

payments and if no further advances are 

made; (4) the monthly payment amount 

that would be required for the consumer 

to pay off the outstanding balance in 36 

months, if no further advances are 

made, and the total cost to the 

consumer, including interest and 

principal payments, of paying that 

balance in full if the consumer pays the 

balance over 36 months; and (5) a tollfree telephone number at which the 

consumer may receive information 

about credit counseling and debt 

management services. 

Nonetheless, for the reasons discussed 

in more detail below, the Board 

proposes to make adjustments to the 

above statutory requirements when 

negative or no amortization occurs, 

pursuant to the Board’s authority under 

TILA Section 105(a) to make 

adjustments or exceptions to effectuate 

the purposes of TILA. 15 U.S.C. 1604(a). 

Specifically, when negative or no 

amortization occurs, the Board proposes 

in new § 226.7(b)(12)(ii) to require a 

credit card issuer to disclose to the 

consumer on the periodic statement the 

following information: (1) The following 

statement: ‘‘Minimum Payment 

Warning: Even if you make no more 

charges using this card, if you make 

only the minimum payment each month 

we estimate you will never pay off the 

balance shown on this statement 

because your payment will be less than 

the interest charged each month’’; (2) 

the following statement: ‘‘If you make 

more than the minimum payment each 

period, you will pay less in interest and 

pay off your balance sooner’’; (3) the 

estimated monthly payment for 

repayment in 36 months; (4) the fact 

that the card issuer estimates that the 

consumer will repay the outstanding 

balance shown on the periodic 

statement in 3 years if the consumer 

pays the estimated monthly payment 

each month for 3 years; and (5) the tollfree telephone number for obtaining 

information about credit counseling 

services. 

When negative or no amortization 

occurs, the number of months to repay 

the balance shown on the statement if 

minimum payments are made and the 

total cost in interest and principal if the 

balance is repaid making only minimum 

payments cannot be calculated because 

the balance will never be repaid if only 

minimum payments are made. The 

Board proposes to replace these 

statutory disclosures with a warning 


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that the consumer will never repay the 

balance if making minimum payments 

each month. 

In addition, if negative or no 

amortization occurs, card issuers would 

be required to disclose the following 

statement: ‘‘If you make more than the 

minimum payment each period, you 

will pay less in interest and pay off your 

balance sooner.’’ This sentence is 

similar to, and accomplishes the goals 

of, the statutory warning statement, by 

informing consumers that they can pay 

less interest and pay off the balance 

sooner if the consumer pays more than 

the minimum payment each month. 

In addition, consistent with TILA 

Section 127(b)(11) as revised by the 

Credit Card Act, if negative or no 

amortization occurs, the Board proposes 

that the credit card issuer disclose to the 

consumer the estimated monthly 

payment for repayment in 36 months 

and a statement of the fact the card 

issuer estimates that the consumer will 

repay the outstanding balance shown on 

the periodic statement in 3 years if the 

consumer pays the estimated monthly 

payment each month for 3 years. 

If negative or no amortization occurs, 

a card issuer, however, would not 

disclose the total cost estimate for 

repayment in 36 months, as described in 

proposed Appendix M1 to part 226. The 

Board proposes an exception to TILA’s 

requirement to disclose the total cost 

estimate for repayment in 36 months 

pursuant to the Board’s exception and 

exemption authorities under TILA 

Section 105(f). 

The Board has considered each of the 

statutory factors carefully, and based on 

that review, believes that the proposed 

exemption is appropriate. As discussed 

above, when negative or no amortization 

occurs, a minimum payment cost 

estimate cannot be calculated because 

the balance shown on the statement will 

never be repaid if only minimum 

payments are made. Thus, under the 

proposal, a credit card issuer would not 

be required to disclose a minimum 

payment cost estimate as described in 

proposed Appendix M1 to part 226. 

Because the minimum payment cost 

estimate will not be disclosed when 

negative or no amortization occurs, the 

Board does not believe that the total cost 

estimate for repayment in 36 months 

would be useful to consumers. The 

Board believes that the total cost 

estimate for repayment in 36 months is 

useful when it can be compared to the 

minimum payment total cost estimate. 

Requiring that this information be 

disclosed on the periodic statement 

when it is not useful to consumers 

could distract consumers from more 

important information on the periodic 

statement, which could undermine 

TILA’s goal of consumer protection. 

7(b)(12)(iii) Format Requirements 

As discussed above, TILA Section 

127(b)(11)(D), as revised by the Credit 

Card Act, provides that the repayment 

disclosures (except for the warning 

statement) must be disclosed in the form 

and manner which the Board prescribes 

by regulation and in a manner that 

avoids duplication; and must be placed 

in a conspicuous and prominent 

location on the billing statement. 15 

U.S.C. 1637(b)(11)(D). By regulation, the 

Board must require that the disclosure 

of the repayment information (except for 

the warning statement) be in the form of 

a table that contains clear and concise 

headings for each item of information 

and provides a clear and concise form 

stating each item of information 

required to be disclosed under each 

such heading. In prescribing the table, 

the Board must require that all the 

information in the table, and not just a 

reference to the table, be placed on the 

billing statement. In addition, the items 

required to be included in the table 

must be listed in the following order: (1) 

The minimum payment repayment 

estimate; (2) the minimum payment 

total cost estimate; (3) the estimated 

monthly payment for repayment in 36 

months; (4) the total cost estimate for 

repayment in 36 months; and (5) the 

toll-free telephone number. In 

prescribing the table, the Board must 

use terminology different from that used 

in the statute, if such terminology is 

more easily understood and conveys 

substantially the same meaning. 

Samples G–18(C)(1), G–18(C)(2) and 

G–18(C)(3). Proposed § 226.7(b)(12)(iii) 

provides that a credit card issuer must 

provide the repayment disclosures in a 

format substantially similar to proposed 

Samples G–18(C)(1), G–18(C)(2) and 

G–18(C)(3) in Appendix G to part 226, 

as applicable. 

Proposed Sample G–18(C)(1) applies 

when amortization occurs and the 

minimum payment repayment estimate 

disclosed on the periodic statement is 

more than 3 years. In this case, as 

discussed above, a credit card issuer 

would be required under proposed 

§ 226.7(b)(12) to disclose on the periodic 

statement: (1) The warning statement; 

(2) the minimum payment repayment 

estimate; (3) the minimum payment 

total cost estimate; (4) the fact that the 

minimum payment repayment estimate 

and the minimum payment total cost 

estimate are based on the current 

outstanding balance shown on the 

periodic statement, and the fact that the 

minimum payment repayment estimate 

and the minimum payment total cost 

estimate are based on the assumption 

that only minimum payments are made 

and no other amounts are added to the 

balance; (5) the estimated monthly 

payment for repayment in 36 months; 

(6) the total cost estimate for repayment 

in 36 months; (7) the savings estimate 

for repayment in 36 months; (8) the fact 

that the card issuer estimates that the 

consumer will repay the outstanding 

balance shown on the periodic 

statement in 3 years if the consumer 

pays the estimated monthly payment 

each month for 3 years; and (9) the tollfree telephone number for obtaining 

information about credit counseling 

services. 

As shown in proposed Sample 

G–18(C)(1), a card issuer would be 

required to provide the following 

disclosures in the form of a table with 

headings, content and format 

substantially similar to proposed 

Sample G–18(C)(1): (1) The fact that the 

minimum payment repayment estimate 

and the minimum payment total cost 

estimate are based on the assumption 

that only minimum payments are made; 

(2) the minimum payment repayment 

estimate; (3) the minimum payment 

total cost estimate; (4) the estimated 

monthly payment for repayment in 36 

months; (5) the fact the card issuer 

estimates that the consumer will repay 

the outstanding balance shown on the 

periodic statement in 3 years if the 

consumer pays the estimated monthly 

payment each month for 3 years; (6) 

total cost estimate for repayment in 36 

months; and (7) the savings estimate for 

repayment in 36 months. The following 

information would be incorporated into 

the headings for the proposed table: (1) 

The fact that the minimum payment 

repayment estimate and the minimum 

payment total cost estimate are based on 

the current outstanding balance shown 

on the periodic statement; and (2) the 

fact that the minimum payment 

repayment estimate and the minimum 

payment total cost estimate are based on 

the assumption that no other amounts 

are added to the balance. The warning 

statement would be disclosed above the 

proposed table and the toll-free 

telephone number would be disclosed 

below the proposed table. 

Proposed Sample G–18(C)(2) applies 

when amortization occurs and the 

minimum payment repayment estimate 

disclosed on the periodic statement is 

equal to or less than 3 years. In this 

case, as discussed above, a credit card 

issuer would be required under 

proposed § 226.7(b)(12) to disclose on 

the periodic statement: (1) The warning 

statement; (2) the minimum payment 

repayment estimate; (3) the minimum 

payment total cost estimate; (4) the fact 


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that the minimum payment repayment 

estimate and the minimum payment 

total cost estimate are based on the 

current outstanding balance shown on 

the periodic statement, and the fact that 

the minimum payment repayment 

estimate and the minimum payment 

total cost estimate are based on the 

assumption that only minimum 

payments are made and no other 

amounts are added to the balance; and 

(5) the toll-free telephone number for 

obtaining information about credit 

counseling services. 

As shown in proposed Sample G– 

18(C)(2), disclosure of the above 

information would be similar in format 

to how this information is disclosed in 

proposed Sample G–18(C)(1). 

Specifically, as shown in proposed 

Sample G–18(C)(2), a card issuer would 

be required to disclose the following 

disclosures in the form of a table with 

headings, content and format 

substantially similar to proposed 

Sample G–18(C)(2): (1) The fact that the 

minimum payment repayment estimate 

and the minimum payment total cost 

estimate are based on the assumption 

that only minimum payments are made; 

(2) the minimum payment repayment 

estimate; and (3) the minimum payment 

total cost estimate. The following 

information would be incorporated into 

the headings for the proposed table: (1) 

The fact that the minimum payment 

repayment estimate and the minimum 

payment total cost estimate are based on 

the current outstanding balance shown 

on the periodic statement; and (2) the 

fact that the minimum payment 

repayment estimate and the minimum 

payment total cost estimate are based on 

the assumption that no other amounts 

are added to the balance. The warning 

statement would be disclosed above the 

proposed table and the toll-free 

telephone number would be disclosed 

below the proposed table. 

Proposed Sample G–18(C)(3) applies 

when negative or no amortization 

occurs. In this case, as discussed above, 

a credit card issuer would be required 

under proposed § 226.7(b)(12) to 

disclose on the periodic statement: (1) 

The following statement: Minimum 

Payment Warning: Even if you make no 

more charges using this card, if you 

make only the minimum payment each 

month we estimate you will never pay 

off the balance shown on this statement 

because your payment will be less than 

the interest charged each month;’’ (2) 

the following statement: ‘‘If you make 

more than the minimum payment each 

period, you will pay less in interest and 

pay off your balance sooner;’’ (3) the 

estimated monthly payment for 

repayment in 36 months; (4) the fact the 

card issuer estimates that the consumer 

will repay the outstanding balance 

shown on the periodic statement in 3 

years if the consumer pays the estimated 

monthly payment each month for 3 

years; and (5) the toll-free telephone 

number for obtaining information about 

credit counseling services. 

As shown in proposed Sample G– 

18(C)(3), none of the above information 

would be required to be in the form of 

a table, notwithstanding TILA’s 

requirement that the repayment 

information (except the warning 

statement) be in the form of a table. The 

Board proposes an exemption to this 

TILA requirement pursuant to the 

Board’s authority exception and 

exemption authorities under TILA 

Section 105(a). The Board does not 

believe that the tabular format is a 

useful format for disclosing that 

negative or no amortization is occurring. 

The Board believes that a narrative 

format is better than a tabular format for 

communicating to consumers that 

making only minimum payments will 

not repay the balance shown on the 

periodic statement. For consistency, 

proposed Sample G–18(C)(3) also 

provides the disclosures about 

repayment in 36 months in a narrative 

form as well. To help ensure that 

consumers notice the disclosures about 

negative or no amortization and the 

disclosures about repayment in 36 

months, the Board would require that 

card issuers disclose certain key 

information in bold text, as shown in 

proposed Sample G–18(C)(3). 

As discussed above, TILA Section 

127(b)(11)(D), as revised by the Credit 

Card Act, provides that the toll-free 

telephone number for obtaining credit 

counseling information must be 

disclosed in the table with: (1) The 

minimum payment repayment estimate; 

(2) the minimum payment total cost 

estimate; (3) the estimated monthly 

payment for repayment in 36 months; 

and (4) the total cost estimate for 

repayment in 36 months. As discussed 

above, the Board does not propose that 

the toll-free telephone number be in a 

tabular format. See proposed Samples 

G–18(C)(1), G–18(C)(2) and G–18(C)(3). 

The Board proposes this exemption 

pursuant to the Board’s exception and 

exemption authorities under TILA 

Section 105(a), as discussed above. The 

Board believes that it might be 

confusing to consumers to include the 

toll-free telephone number in the table 

because it does not logically flow from 

the other information included in the 

table. To help ensure that the toll-free 

telephone number is noticeable to 

consumer, the Board proposes to require 

that the toll-free telephone number be 

grouped with the other repayment 

information. 

Format requirements set forth in 

proposed § 226.7(b)(13). Proposed 

§ 226.7(b)(12)(iii) also provides that a 

credit card issuer must provide the 

repayment disclosures in accordance 

with the format requirements of 

proposed § 226.7(b)(13). As discussed in 

more detail in the section-by-section 

analysis to proposed § 226.7(b)(13), the 

Board proposes in § 226.7(b)(13) to 

require that the repayment disclosures 

required to be disclosed under proposed 

§ 226.7(b)(12) must be disclosed closely 

proximate to the minimum payment 

due. In addition, under the proposal, the 

repayment disclosures must be grouped 

together with the due date, late payment 

fee and annual percentage rate, ending 

balance, and minimum payment due, 

and this information must be disclosed 

on the front of the first page of the 

periodic statement. 

7(b)(12)(iv) Provision of Information 

About Credit Counseling Services 

Section 201(c) of the Credit Card Act 

requires the Board to issue guidelines by 

rule, in consultation with the Secretary 

of the Treasury, for the establishment 

and maintenance by creditors of the tollfree number disclosed on the periodic 

statement from which consumers can 

obtain information about accessing 

credit counseling and debt management 

services. The Credit Card Act requires 

that these guidelines ensure that 

consumers are referred ‘‘only [to] those 

nonprofit and credit counseling 

agencies approved by a United States 

bankruptcy trustee pursuant to [11 

U.S.C. 111(a)].’’ The Board proposes to 

implement Section 201(c) of the Credit 

Card Act in § 226.7(b)(12)(iv). In 

developing this proposal, the Board 

consulted with the Treasury Department 

as well as the Executive Office for 

United States Trustees. 

Prior to filing a bankruptcy petition, 

a consumer generally must have 

received ‘‘an individual or group 

briefing (including a briefing conducted 

by telephone or on the Internet) that 

outlined the opportunities for available 

credit counseling and assisted [the 

consumer] in performing a related 

budget analysis.’’ 11 U.S.C. 109(h). This 

briefing can only be provided by 

‘‘nonprofit budget and credit counseling 

agencies that provide 1 or more [of 

these] services * * * [and are] currently 

approved by the United States trustee 

(or the bankruptcy administrator, if 

any).’’ 11 U.S.C. 111(a)(1); see also 11 

U.S.C. 109(h). In order to be approved 

to provide credit counseling services, an 

agency must, among other things: Be a 

nonprofit entity; demonstrate that it will 


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11See U.S Trustee Program, List of Credit 

Counseling Agencies Approved Pursuant to 11 

U.S.C. 111 (available at http://www.usdoj.gov/ust/ 

eo/bapcpa/ccde/cc_approved.htm). 

12Similarly, proposed § 226.7(b)(12)(i)(E) and 

(ii)(E) only require a card issuer to disclose on the 

periodic statement a toll-free telephone number 

where the consumer may acquire from the card 

issuer information about obtaining credit 

counseling services. 

provide qualified counselors, maintain 

adequate provision for safekeeping and 

payment of client funds, and provide 

adequate counseling with respect to 

client credit problems; charge only a 

reasonable fee for counseling services 

and make such services available 

without regard to ability to pay the fee; 

and provide trained counselors who 

receive no commissions or bonuses 

based on the outcome of the counseling 

services. See 11 U.S.C. 111(c). 

Proposed § 226.7(b)(12)(iv)(A) 

provides that a card issuer must provide 

through the toll-free telephone number 

disclosed pursuant to proposed 

§ 226.7(b)(12)(i)(E) or (ii)(E) the name, 

street address, telephone number, and 

Web site address for at least three 

organizations that have been approved 

by the United States Trustee or a 

bankruptcy administrator pursuant to 11 

U.S.C. 111(a)(1) to provide credit 

counseling services in the State in 

which the billing address for the 

account is located or the State specified 

by the consumer. In addition, proposed 

§ 226.7(b)(12)(iv)(B) requires that, upon 

the request of the consumer and to the 

extent available from the United States 

Trustee or a bankruptcy administrator, 

the card issuer must provide the 

consumer with the name, street address, 

telephone number, and Web site address 

for at least one organization meeting the 

above requirements that provides credit 

counseling services in a language other 

than English that is specified by the 

consumer. 

The United States Trustee collects the 

name, street address, telephone number, 

and Web site address for approved 

organizations and provides that 

information to the public through its 

Web site.11 The United States Trustee’s 

Web site organizes this information by 

State as well as by the language in 

which the organization can provide 

credit counseling services. For 

jurisdictions where credit counseling 

organizations are approved by a 

bankruptcy administrator pursuant to 11 

U.S.C. 111(a)(1), a card issuer can obtain 

this information from the relevant 

administrator. Accordingly, the 

information that a card issuer is 

required to provide by proposed 

§ 226.7(b)(12)(iv) is readily available. 

Because different credit counseling 

organizations may provide different 

services and charge different fees, the 

Board believes that providing 

information regarding at least three 

approved organizations will enable 

consumers to make a choice about the 

organization that best suits their needs. 

However, the Board solicits comment on 

whether card issuers should provide 

information regarding a different 

number of approved organizations. 

As proposed, § 226.7(b)(12)(iv) relies 

in two respects on the Board’s authority 

under TILA Section 105(a) to make 

adjustments or exceptions to effectuate 

the purposes of TILA or to facilitate 

compliance therewith. See 15 U.S.C. 

1604(a). First, although revised TILA 

Section 127(b)(11)(B)(iv) and Section 

201(c)(1) of the Credit Card Act refer to 

the creditors’ obligation to provide 

information about accessing ‘‘credit 

counseling and debt management 

services,’’ proposed § 226.7(b)(12)(iv) 

only requires the creditor to provide 

information about obtaining credit 

counseling services.12 Although credit 

counseling may include information 

that assists the consumer in managing 

his or her debts, 11 U.S.C. 109(h) and 

111(a)(1) do not require the United 

States Trustee or a bankruptcy 

administrator to approve organizations 

to provide debt management services. 

Because Section 201(c) of the Credit 

Card Act requires that creditors only 

provide information about organizations 

approved pursuant to 11 U.S.C. 111(a), 

the Board does not believe that Congress 

intended to require creditors to provide 

information about services that are not 

subject to that approval process. 

Accordingly, proposed § 226.7(b)(12)(iv) 

would not require card issuers to 

disclose information about debt 

management services. 

Second, although Section 201(c)(2) of 

the Credit Card Act refers to credit 

counseling organizations approved 

pursuant to 11 U.S.C. 111(a), proposed 

§ 226.7(b)(12)(iv) clarifies that creditors 

may provide information only regarding 

organizations approved pursuant to 11 

U.S.C. 111(a)(1), which addresses the 

approval process for credit counseling 

organizations. In contrast, 11 U.S.C. 

111(a)(2) addresses a different approval 

process for instructional courses 

concerning personal financial 

management. 

Proposed comment 7(b)(12)(iv)–1 

would clarify that, when providing the 

information required by 

§ 226.7(b)(12)(iv)(A), the card issuer 

may use the billing address for the 

account or, at its option, allow the 

consumer to specify a State. The 

comment would also clarify that a card 

issuer does not satisfy the requirement 

to provide information regarding credit 

counseling agencies approved pursuant 

to 11 U.S.C. 111(a)(1) by providing 

information regarding providers that 

have been approved to offer personal 

financial management courses pursuant 

to 11 U.S.C. 111(a)(2). 

Proposed comment 7(b)(12)(iv)–2 

would clarify that a card issuer 

complies with the requirements of 

§ 226.7(b)(12)(iv) if it provides the 

consumer with the information 

provided by the United States Trustee or 

a bankruptcy administrator, including 

information provided on the Web site 

operated by the United States Trustee. 

If, for example, the Web site address for 

an organization approved by the United 

States Trustee is not available from the 

Web site operated by the United States 

Trustee, a card issuer is not required to 

provide a Web site address for that 

organization. However, at least 

annually, the card issuer must verify 

and update the information it provides 

for consistency with the information 

provided by the United States Trustee or 

a bankruptcy administrator. The Board 

solicits comment on whether card 

issuers should be required to verify and 

update the credit counseling 

information they provide to consumers 

more or less frequently. 

Proposed comment 7(b)(12)(iv)–3 

would clarify that, at their option, card 

issuers may use toll-free telephone 

numbers that connect consumers to 

automated systems, such as an 

interactive voice response system, 

through which consumers may obtain 

the information required by 

§ 226.7(b)(12)(iv) by inputting 

information using a touch-tone 

telephone or similar device. 

Proposed comment 7(b)(12)(iv)–4 

would clarify that a card issuer may 

provide a toll-free telephone number 

that is designed to handle customer 

service calls generally, so long as the 

option to receive the information 

required by § 226.7(b)(12)(iv) is 

prominently disclosed to the consumer. 

For automated systems, the option to 

receive the information required by 

§ 226.7(b)(12)(iv) is prominently 

disclosed to the consumer if it is listed 

as one of the options in the first menu 

of options given to the consumer, such 

as ‘‘Press or say ‘3’ if you would like 

information about credit counseling 

services.’’ If the automated system 

permits callers to select the language in 

which the call is conducted and in 

which information is provided, the 

menu to select the language may 

precede the menu with the option to 

receive information about accessing 

credit counseling services. 


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Proposed comment 7(b)(12)(iv)–5 

would clarify that, at their option, card 

issuers may use a third party to 

establish and maintain a toll-free 

telephone number for use by the issuer 

to provide the information required by 

§ 226.7(b)(12)(iv). 

Proposed comment 7(b)(12)(iv)–6 

would clarify that, when providing the 

toll-free telephone number on the 

periodic statement pursuant to 

§ 226.7(b)(12)(iv), a card issuer at its 

option may also include a reference to 

a Web site address (in addition to the 

toll-free telephone number) where its 

customers may obtain the information 

required by § 226.7(b)(12)(iv), so long as 

the information provided on the Web 

site complies with § 226.7(b)(12)(iv). 

The Web site address disclosed must 

take consumers directly to the Web page 

where information about accessing 

credit counseling may be obtained. In 

the alternative, the card issuer may 

disclose the Web site address for the 

Web page operated by the United States 

Trustee where consumers may obtain 

information about approved credit 

counseling organizations. Finally, 

proposed comment 7(b)(12)(iv)–7 would 

clarify that, if a consumer requests 

information about credit counseling 

services, the card issuer may not 

provide advertisements or marketing 

materials to the consumer (except for 

providing the name of the issuer) prior 

to providing the information required by 

§ 226.7(b)(12)(iv). However, educational 

materials that do not solicit business are 

not considered advertisements or 

marketing materials for this purpose. 

The comment would also provide 

examples of how the restriction on the 

provision of advertisements and 

marketing materials applies in the 

context of the toll-free number and a 

Web page. 

7(b)(12)(v) Exemptions 

As explained above, the Board 

proposes that the repayment disclosures 

required under proposed § 226.7(b)(12) 

be provided only for a ‘‘credit card 

account under an open-end (not homesecured) consumer credit plan,’’ as that 

term is defined in proposed 

§ 226.2(a)(15)(ii). 

In addition, as discussed below, the 

Board proposes several additional 

exemptions from the repayment 

disclosure requirements pursuant to the 

Board’s exception and exemption 

authorities under TILA Section 105(a) 

and (f). 

As discussed in more detail below, 

the Board has considered the statutory 

factors carefully, and based on that 

review, believes that the following 

proposed exemptions are appropriate. 

Exemption for charge cards. The 

Board proposes to exempt charge cards 

from the repayment disclosure 

requirements because the Board believes 

that the repayment disclosures would 

not be useful for consumers with charge 

card accounts. See proposed 

§ 226.7(b)(12)(vii)(A). Charge cards are 

used in connection with an account on 

which outstanding balances cannot be 

carried from one billing cycle to another 

and are payable when a periodic 

statement is received. 

Exemption where cardholders have 

paid their accounts in full for two 

consecutive billing cycles. In proposed 

§ 226.7(b)(vii)(B), the Board proposes to 

provide that a card issuer is not required 

to include the repayment disclosures on 

the periodic statement for a particular 

billing cycle immediately following two 

consecutive billing cycles in which the 

consumer paid the entire balance in full, 

had a zero balance or had a credit 

balance. The Board believes this 

approach strikes an appropriate balance 

between benefits to consumers of the 

repayment disclosures, and compliance 

burdens on issuers in providing the 

disclosures. Consumers who might 

benefit from the repayment disclosures 

would receive them. Consumers who 

carry a balance each month would 

always receive the repayment 

disclosures, and consumers who pay in 

full each month would not. Consumers 

who sometimes pay their bill in full and 

sometimes do not would receive the 

repayment disclosures if they do not 

pay in full two consecutive months 

(cycles). Also, if a consumer’s typical 

payment behavior changes from paying 

in full to revolving, the consumer would 

begin receiving the repayment 

disclosures after not paying in full one 

billing cycle, when the disclosures 

would appear to be useful to the 

consumer. In addition, credit card 

issuers typically provide a grace period 

on new purchases to consumers (that is, 

creditors do not charge interest to 

consumers on new purchases) if 

consumers paid both the current 

balance and the previous balance in full. 

Thus, card issuers already currently 

capture payment history for consumers 

for two consecutive months (or cycles). 

The Board notes that card issuers 

would not be required to use this 

proposed exemption. A card issuer 

would be allowed to provide the 

repayment disclosures to all of its 

cardholders, even to those cardholders 

that fall within this proposed 

exemption. If issuers choose to provide 

voluntarily the repayment disclosures to 

those cardholders that fall within this 

exemption, the Board would expect 

issuers to follow the disclosure rules set 

forth in proposed § 226.7(b)(12), the 

accompanying commentary, and 

proposed Appendix M1 to part 226 for 

those cardholders. 

Exemption where minimum payment 

would pay off the entire balance for a 

particular billing cycle. In proposed 

§ 226.7(b)(12)(v)(C), the Board proposes 

to exempt a card issuer from providing 

the repayment disclosure requirements 

for a particular billing cycle where 

paying the minimum payment due for 

that billing cycle will pay the 

outstanding balance on the account for 

that billing cycle. For example, if the 

entire outstanding balance on an 

account for a particular billing cycle is 

$20 and the minimum payment is $20, 

an issuer would not need to comply 

with the repayment disclosure 

requirements for that particular billing 

cycle. The Board believes that the 

repayment disclosures would not be 

helpful to consumers in this context. 

Other exemptions. In the January 

2009 Regulation Z Rule, the Board in 

§ 226.7(b)(12)(v)(E) exempted a credit 

card account from the minimum 

payment disclosure requirements where 

a fixed repayment period for the 

account is specified in the account 

agreement and the required minimum 

payments will amortize the outstanding 

balance within the fixed repayment 

period. This exemption would be 

applicable to, for example, accounts that 

have been closed due to delinquency 

and the required monthly payment has 

been reduced or the balance decreased 

to accommodate a fixed payment for a 

fixed period of time designed to pay off 

the outstanding balance. See comment 

7(b)(12)(v)–1. 

In addition, in the January 2009 

Regulation Z Rule, the Board in 

§ 226.7(b)(12)(v)(F) exempted credit 

card issuers from providing the 

minimum payment disclosures on 

periodic statements in a billing cycle 

where the entire outstanding balance 

held by consumers in that billing cycle 

is subject to a fixed repayment period 

specified in the account agreement and 

the required minimum payments 

applicable to that balance will amortize 

the outstanding balance within the fixed 

repayment period. Some retail credit 

cards have several credit features 

associated with the account. One of the 

features may be a general revolving 

feature, where the required minimum 

payment for this feature does not pay off 

the balance in a specific period of time. 

The card also may have another feature 

that allows consumers to make specific 

types of purchases (such as furniture 

purchases, or other large purchases), 

and the required minimum payments 

for that feature will pay off the purchase 


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54144 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

within a fixed period of time, such as 

one year. This exemption was meant to 

cover retail cards where the entire 

outstanding balance held by a consumer 

in a particular billing cycle is subject to 

a fixed repayment period specified in 

the account agreement. On the other 

hand, this exemption would not have 

applied in those cases where all or part 

of the consumer’s balance for a 

particular billing cycle is held in a 

general revolving feature, where the 

required minimum payment for this 

feature does not pay off the balance in 

a specific period of time set forth in the 

account agreement. See comment 

7(b)(12)(v)–2. 

In adopting these two exemptions to 

the minimum payment disclosure 

requirements in the January 2009 

Regulation Z Rule, the Board stated that 

in these two situations, the minimum 

payment disclosure does not appear to 

provide additional information to 

consumers that they do not already have 

in their account agreements. 

The Board proposes not to include 

these two exemptions in proposed 

§ 226.7(b)(12)(v). In implementing 

Section 201 of the Credit Card Act, 

proposed § 226.7(b)(12) would require 

additional repayment information 

beyond the disclosure of the estimated 

length of time it would take to repay the 

outstanding balance if only minimum 

payments are made, which was the 

main type of information that was 

required to be disclosed under the 

January 2009 Regulation Z Rule. As 

discussed above, under proposed 

§ 226.7(b)(12)(i), a card issuer would be 

required to disclose on the periodic 

statement information about the total 

costs in interest and principal to repay 

the outstanding balance if only 

minimum payments are made, and 

information about repayment of the 

outstanding balance in 36 months. 

Consumers would not know from the 

account agreements this additional 

information about the total cost in 

interest and principal of making 

minimum payments, and information 

about repayment of the outstanding 

balance in 36 months. Thus, these two 

exemptions may no longer be 

appropriate given the additional 

repayment information that must be 

provided on the periodic statement 

pursuant to proposed § 226.7(b)(12). 

Nonetheless, the Board solicits 

comment on whether these exemptions 

should be retained. For example, the 

Board solicits comment on whether the 

repayment disclosures relating to 

repayment in 36 months would be 

helpful where a fixed repayment period 

longer than 3 years is specified in the 

account agreement and the required 

minimum payments will amortize the 

outstanding balance within the fixed 

repayment period. For these types of 

accounts, the Board solicits comment on 

whether consumers tend to enter into 

the agreement with the intent (and the 

ability) to repay the account balance 

over the life of the account, such that 

the disclosures for repayment of the 

account in 36 months would not be 

useful to consumers. 

7(b)(13) Format Requirements 

Under the January 2009 Regulation Z 

Rule, creditors offering open-end (not 

home-secured) plans are required to 

disclose the payment due date (if a late 

payment fee or penalty rate may be 

imposed) on the front side of the first 

page of the periodic statement. The 

amount of any late payment fee and 

penalty APR that could be triggered by 

a late payment is required to be 

disclosed in close proximity to the due 

date. In addition, the ending balance 

and the minimum payment disclosures 

must be disclosed closely proximate to 

the minimum payment due. Also, the 

due date, late payment fee, penalty APR, 

ending balance, minimum payment due, 

and the minimum payment disclosures 

must be grouped together. See 

§ 226.7(b)(13). In the supplementary 

information to the January 2009 

Regulation Z Rule, the Board stated that 

these formatting requirements were 

intended to fulfill Congress’ intent to 

have the due date, late payment and 

minimum payment disclosures enhance 

consumers’ understanding of the 

consequences of paying late or making 

only minimum payments, and were 

based on consumer testing conducted 

for the Board in relation to the January 

2009 Regulation Z Rule that indicated 

improved understanding when related 

information is grouped together. For the 

reasons described below, the Board 

proposes to retain these format 

requirements, with several revisions. 

Proposed Sample G–18(D) in Appendix 

G to part 226 illustrates the proposed 

requirements. 

Due date and late payment 

disclosures. As discussed above under 

the section-by-section analysis to 

proposed § 226.7(b)(11), Section 202 of 

the Credit Card Act amends TILA 

Section 127(b)(12) to provide that for a 

‘‘credit card account under an open-end 

consumer credit plan,’’ a creditor that 

charges a late payment fee must disclose 

in a conspicuous location on the 

periodic statement (1) the payment due 

date, or, if the due date differs from 

when a late payment fee would be 

charged, the earliest date on which the 

late payment fee may be charged, and 

(2) the amount of the late payment fee. 

In addition, if a late payment may result 

in an increase in the APR applicable to 

the credit card account, a creditor also 

must provide on the periodic statement 

a disclosure of this fact, along with the 

applicable penalty APR. The disclosure 

related to the penalty APR must be 

placed in close proximity to the duedate disclosure discussed above. 

Consistent with TILA Section 

127(b)(12), as revised by the Credit Card 

Act, the Board proposes to retain the 

requirement in § 226.7(b)(13) that credit 

card issuers disclose the payment due 

date on the front side of the first page 

of the periodic statement. In addition, 

credit card issuers would be required to 

disclose the amount of any late payment 

fee and penalty APR that could be 

triggered by a late payment in close 

proximity to the due date. Also, the due 

date, late payment fee, penalty APR, 

ending balance, minimum payment due, 

and the repayment disclosures required 

by proposed § 226.7(b)(12) must be 

grouped together. See § 226.7(b)(13). 

The Board believes that these format 

requirements fulfill Congress’ intent that 

the due date and late payment 

disclosures be grouped together and be 

disclosed in a conspicuous location on 

the periodic statement. 

Repayment disclosures. As discussed 

above under the section-by-section 

analysis to proposed § 226.7(b)(12), 

TILA Section 127(b)(11)(D), as revised 

by the Credit Card Act, provides that the 

repayment disclosures (except for the 

warning statement) must be disclosed in 

the form and manner which the Board 

prescribes by regulation and in a 

manner that avoids duplication; and 

must be placed in a conspicuous and 

prominent location on the billing 

statement. 15 U.S.C. 1637(b)(11)(D). 

Under proposed § 226.7(b)(13), the 

ending balance and the repayment 

disclosures required under proposed 

§ 226.7(b)(12) must be disclosed closely 

proximate to the minimum payment 

due. In addition, proposed 

§ 226.7(b)(13) provides that the 

repayment disclosures must be grouped 

together with the due date, late payment 

fee, penalty APR, ending balance, and 

minimum payment due, and this 

information must appear on the front of 

the first page of the periodic statement. 

The Board believes that these proposed 

format requirements fulfill Congress’ 

intent that the repayment disclosures be 

placed in a conspicuous and prominent 

location on the billing statement. 

Samples G–18(D), 18(E), 18(F) and 

18(G). As adopted in the January 2009 

Regulation Z Rule, Samples G–18(D) 

and G–18(E) in Appendix G to part 226 

illustrate the requirement to group 

together the due date, late payment fee, 


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13For convenience, this section summarizes the 

provisions of the Credit Card Act that apply both 

to advance notices of changes in terms and rate 

increases. Consistent with the approach it took in 

the January 2009 Regulation Z Rule and the July 

2009 Regulation Z Interim Final Rule, the Board is 

implementing the advance notice requirements 

applicable to contingent rate increases set forth in 

the cardholder agreement in a separate section 

(§ 226.9(g)) from those advance notice requirements 

applicable to changes in the cardholder agreement 

(§ 226.9(c)). The distinction between these types of 

changes is that § 226.9(g) addresses changes in a 

rate being applied to a consumer’s account 

consistent with the existing terms of the cardholder 

agreement, while § 226.9(c) addresses changes in 

the underlying terms of the agreement. 

penalty APR, ending balance, minimum 

payment due, and the repayment 

disclosures required by § 226.7(b)(12). 

Sample G–18(D) applies to credit cards 

and includes all of the above disclosures 

grouped together. Sample G–18(E) 

applies to non-credit card accounts, and 

includes all of the above disclosures 

except for the repayment disclosures 

because the repayment disclosures only 

apply to credit card accounts. Samples 

G–18(F) and G–18(G) illustrate the front 

side of sample periodic statements and 

show the disclosures listed above. 

The Board proposes to revise Sample 

G–18(D), G–18(F) and G–18(G) to 

incorporate the new format 

requirements for the repayment 

disclosures, as shown in proposed 

Sample G–18(C)(1) and G–18(C)(2). See 

section-by-section analysis to proposed 

§ 226.7(b)(12) for a discussion of these 

new format requirements. In addition, 

the Board proposes to delete Sample G– 

18(E) (which applies to non-credit card 

accounts) as unnecessary. Under the 

proposal, the formatting requirements in 

proposed § 226.7(b)(13) generally are 

applicable only to credit card issuers 

because the due date, late payment fee, 

penalty APR, and repayment disclosures 

would apply only to a ‘‘credit card 

account under an open-end (not homesecured) consumer credit plan,’’ as that 

term is defined in proposed 

§ 226.2(a)(15)(ii). 

7(b)(14) Deferred Interest or Similar 

Transactions 

In the May 2009 Regulation Z 

Proposed Clarifications, the Board 

proposed revisions to comment 7(b)–1 

to require creditors to provide 

consumers with information regarding 

deferred interest or similar balances on 

which interest may be imposed under a 

deferred interest or similar program, as 

well as the interest charges accruing 

during the term of a deferred interest or 

similar program. 74 FR 20797–20798. 

The Board also proposed to add a new 

§ 226.7(b)(14) to require creditors to 

include on a consumer’s periodic 

statement, for two billing cycles 

immediately preceding the date on 

which deferred interest or similar 

transactions must be paid in full in 

order to avoid the imposition of interest 

charges, a disclosure that the consumer 

must pay such transactions in full by 

that date in order to avoid being 

obligated for the accrued interest. 74 FR 

20793. Furthermore, to provide 

additional guidance on compliance with 

the disclosure requirement set forth in 

proposed § 226.7(b)(14), the Board 

proposed several complementary 

changes to comment 7(b)–1. 

Moreover, proposed Sample G–18(H) 

provided model language for making the 

disclosure required by proposed 

§ 226.7(b)(14), and the Board proposed 

that the language used to make the 

disclosure under § 226.7(b)(14) would 

be required to be substantially similar to 

Sample G–18(H). 74 FR 20797. Finally, 

the Board proposed conforming 

technical changes to comment 

5(b)(2)(ii)–1, which cross-references 

comment 7(b)-1. 74 FR 20797. The 

Board is republishing these same 

revisions for additional comment in this 

Federal Register notice, with some 

technical changes to account for the fact 

that related provisions previously set 

forth in the January 2009 FTC Act Final 

Rule, and proposed in the May 2009 

FTC Act Rule Proposed Clarifications, 

have been modified and proposed in 

this Federal Register notice under 

Regulation Z. 

Section 226.9 Subsequent Disclosure 

Requirements 

9(c) Change in Terms 

Section 226.9(c) sets forth the advance 

notice requirements when a creditor 

changes the terms applicable to a 

consumer’s account. As discussed 

below, the Board is proposing several 

changes to § 226.9(c)(2) as adopted in 

the January 2009 Regulation Z Rule and 

the associated staff commentary in order 

to conform to the new requirements of 

the Credit Card Act. 

9(c)(1) Rules Affecting Home-Equity 

Plans 

In the January 2009 Regulation Z 

Rule, the Board preserved the existing 

rules for changes in terms for homeequity lines of credit in a new 

§ 226.9(c)(1), in order to clearly 

delineate the requirements for HELOCs 

from those applicable to other open-end 

credit. The Board noted that possible 

revisions to rules affecting HELOCs 

would be considered in the Board’s 

review of home-secured credit, which 

was underway at the time that the 

January 2009 Regulation Z rule was 

published. On August 26, 2009, the 

Board published proposed revisions to 

those portions of Regulation Z affecting 

HELOCs in the Federal Register. As 

discussed in I. Background and 

Implementation of the Credit Card Act, 

in order to clarify that this proposed 

rule is not intended to amend or 

otherwise affect the August 2009 

Regulation Z HELOC Proposal, the 

Board is not republishing § 226.9(c)(1) 

in this Federal Register notice. 

The Board anticipates, however, that 

a final rule will be issued with regard 

to this proposal prior to completion of 

final rules regarding HELOCs. 

Therefore, the Board anticipates that it 

will include § 226.9(c)(1), as adopted in 

the January 2009 Regulation Z Rule, in 

its final rulemaking based on this 

proposal, to give HELOC creditors 

guidance on how to comply with 

change-in-terms requirements between 

the effective date of this rule and the 

effective date of the forthcoming HELOC 

rules. 

9(c)(2) Rules Affecting Open-End (Not 

Home-Secured) Plans 

Credit Card Act 13

New TILA Section 127(i)(1) generally 

requires creditors to provide consumers 

with a written notice of an annual 

percentage rate increase at least 45 days 

prior to the effective date of the 

increase, for credit card accounts under 

an open-end consumer credit plan. 15 

U.S.C. 1637(i)(1). The statute establishes 

several exceptions to this general 

requirement. 15 U.S.C. 1637(i)(1) and 

(i)(2). The first exception applies when 

the change is an increase in an annual 

percentage rate upon expiration of a 

specified period of time, provided that 

prior to commencement of that period, 

the creditor clearly and conspicuously 

disclosed to the consumer the length of 

the period and the rate that would apply 

after expiration of the period. The 

second exception applies to increases in 

variable annual percentage rates that 

change according to operation of a 

publicly available index that is not 

under the control of the creditor. 

Finally, a third exception applies to rate 

increases due to the completion of, or 

failure of a consumer to comply with, 

the terms of a workout or temporary 

hardship arrangement, provided that 

prior to the commencement of such 

arrangement the creditor clearly and 

conspicuously disclosed to the 

consumer the terms of the arrangement, 

including any increases due to 

completion or failure. 

In addition to the rules in new TILA 

Section 127(i)(1) regarding rate 

increases, new TILA Section 127(i)(2) 

establishes a 45-day advance notice 


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14However, as discussed in I. Background and 

Implementation of the Credit Card Act, the Board 

intends to leave in place the mandatory compliance 

date for certain aspects of proposed § 226.9(c)(2) 

that are not directly required by the Credit Card 

Act. These provisions would have a mandatory 

compliance date of July 1, 2010, consistent with the 

effective date that the Board adopted in the January 

2009 Regulation Z Rule. For example, the Board is 

not proposing to require a tabular format for certain 

change-in-terms notice requirements before the July 

1, 2010 effective date. 

requirement for significant changes, as 

determined by rule of the Board, in the 

terms (including an increase in any fee 

or finance charge) of the cardholder 

agreement between the creditor and the 

consumer. 15 U.S.C. 1637(i)(2). 

New TILA Section 127(i)(3) also 

establishes an additional content 

requirement for notices of interest rate 

increases or significant changes in terms 

provided pursuant to new TILA Section 

127(i). 15 U.S.C. 1637(i)(3). Such notices 

are required to contain a brief statement 

of the consumer’s right to cancel the 

account, pursuant to rules established 

by the Board, before the effective date of 

the rate increase or other change 

disclosed in the notice. In addition, new 

TILA Section 127(i)(4) states that 

closure or cancellation of an account 

pursuant to the consumer’s right to 

cancel does not constitute a default 

under the existing cardholder 

agreement, and does not trigger an 

obligation to immediately repay the 

obligation in full or through a method 

less beneficial than those listed in 

revised TILA Section 171(c)(2). 15 

U.S.C. 1637(i)(4). The disclosure 

associated with the right to cancel is 

discussed in the section-by-section 

analysis to § 226.9(c) and (g), while the 

substantive rules regarding this new 

right are discussed in the section-bysection analysis to § 226.9(h). 

The Board implemented TILA Section 

127(i), which was effective August 20, 

2009, in the July 2009 Regulation Z 

Interim Final Rule. However, the Board 

is now proposing to implement 

additional provisions of the Credit Card 

Act that are effective on February 22, 

2010 that have an impact on the content 

of change-in-terms notices and the types 

of changes that are permissible upon 

provision of a change-in-terms notice 

pursuant to § 226.9(c) or (g). For 

example, revised TILA Section 171(a), 

which the Board proposes to implement 

in a new § 226.55, as discussed 

elsewhere in this Federal Register 

notice generally prohibits increases in 

annual percentage rates, fees, and 

finance charges applicable to 

outstanding balances, subject to several 

exceptions. In addition, revised TILA 

Section 171(b) requires, for certain types 

of penalty rate increases, that the 

advance notice state the reason for a rate 

increase. Finally, for penalty rate 

increases applied to outstanding 

balances when the consumer fails to 

make a minimum payment within 60 

days after the due date, as permitted by 

revised TILA Section 171(b)(4), a 

creditor will be required to disclose in 

the notice of the increase that the 

increase will be terminated if the 

consumer makes the subsequent six 

minimum payments on time. 

January 2009 Regulation Z Rule and July 

2009 Regulation Z Interim Final Rule 

As discussed in I. Background and 

Implementation of the Credit Card Act, 

the Board is proposing to implement the 

changes contained in the Credit Card 

Act in a manner consistent with the 

January 2009 Regulation Z Rule, to the 

extent permitted under the statute. 

Accordingly, the Board is proposing to 

retain those requirements of the January 

2009 Regulation Z Rule that are not 

directly affected by the Credit Card Act 

in this rulemaking, concurrently with 

the promulgation of regulations 

implementing the provisions of the 

Credit Card Act effective February 22, 

2010.14 Consistent with this approach, 

the Board is proposing to use 

§ 226.9(c)(2) of the January 2009 

Regulation Z Rule as the basis for its 

regulations to implement the change-interms requirements of the Credit Card 

Act. Proposed § 226.9(c)(2) also is 

intended, except where noted, to 

contain requirements that are 

substantively equivalent to the 

requirements of the July 2009 

Regulation Z Interim Final Rule. 

Accordingly, the Board is proposing to 

adopt a revised version of § 226.9(c)(2) 

of the January 2009 Regulation Z Rule, 

with several amendments necessary to 

conform to the new Credit Card Act. 

While the Board is republishing revised 

§ 226.9(c)(2) and the associated 

commentary in its entirety, this 

supplementary information will focus 

on highlighting those aspects in which 

proposed § 226.9(c)(2) differs from 

§ 226.9(c)(2) of the January 2009 

Regulation Z Rule. 

May 2009 Regulation Z Proposed 

Clarifications 

On May 5, 2009, the Board published 

for comment in the Federal Register 

proposed clarifications to the January 

2009 Regulation Z Rule. See 74 FR 

20784. Several of these proposed 

clarifications pertain to the advance 

notice requirements in § 226.9(c). The 

Board is republishing the May 2009 

Regulation Z Proposed Clarifications 

that affect proposed § 226.9(c)(2), with 

revisions to the extent appropriate, as 

discussed further in this supplementary 

information. 

9(c)(2)(i) Changes Where Written 

Advance Notice Is Required 

Section § 226.9(c)(2) sets forth the 

change-in-terms notice requirements for 

open-end consumer credit plans that are 

not home-secured. Proposed paragraph 

(c)(2)(i) states that a creditor must 

generally provide a written notice at 

least 45 days prior to the change, when 

any term required to be disclosed under 

§ 226.6(b)(3), (b)(4), or (b)(5) is changed 

or the required minimum periodic 

payment is increased, unless an 

exception applies. This rule is intended 

to be substantively equivalent to 

§ 226.9(c)(2) of the January 2009 

Regulation Z Rule. The exceptions, as 

discussed below, are set forth in 

proposed paragraph (c)(2)(v). In 

addition, paragraph (c)(2)(iii) provides 

that 45 days’ advance notice is not 

required for those changes that the 

Board is not designating as ‘‘significant 

changes’’ in terms using its authority 

under new TILA Section 127(i). 

Proposed § 226.9(c)(2)(iii), which is 

discussed in more detail in this 

supplementary information, also is 

intended to be equivalent in substance 

to the Board’s January 2009 Regulation 

Z Rule. 

Proposed § 226.9(c)(2)(i) sets forth two 

additional clarifications of the scope of 

the change-in-terms notice 

requirements, consistent with 

§ 226.9(c)(2) of the January 2009 

Regulation Z Rule and the July 2009 

Regulation Z Interim Final Rule. First, 

the 45-day advance notice requirement 

does not apply if the consumer has 

agreed to the particular change; in that 

case, the notice need only be given 

before the effective date of the change. 

Second, proposed § 226.9(c)(2) also 

notes that increases in the rate 

applicable to a consumer’s account due 

to delinquency, default, or as a penalty 

described in § 226.9(g) that are not made 

by means of a change in the contractual 

terms of a consumer’s account must be 

disclosed pursuant to that section. 

The Board notes that proposed 

§ 226.9(c)(2) would apply to all openend (not home-secured) credit, 

consistent with the January 2009 

Regulation Z Rule. TILA Section 127(i), 

as adopted by the Credit Card Act and 

as implemented in the July 2009 

Regulation Z Interim Final Rule for the 

period between August 20, 2009 and 

February 22, 2010, applies only to credit 

card accounts. However, the advance 

notice requirements adopted by the 

Board in January 2009 apply to all openend (not home-secured) credit. For 


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consistency with the January 2009 

Regulation Z Rule, the proposal 

accordingly would apply § 226.9(c)(2) to 

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

The Board notes that while the general 

notice requirements are consistent for 

credit card accounts and other open-end 

credit that is not home-secured, there 

are certain content and other 

requirements, such as a consumer’s 

right to reject certain changes in terms, 

that apply only to credit card accounts. 

As discussed in more detail in the 

supplementary information to 

§ 226.9(c)(2)(iv), the regulation would 

apply such requirements only to credit 

card accounts. 

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

Account Terms 

Pursuant to new TILA Section 127(i), 

the Board has the authority to determine 

by rule what are significant changes in 

the terms of the cardholder agreement 

between a creditor and a consumer. The 

Board is proposing § 226.9(c)(2)(ii) to 

identify which changes are significant 

changes in terms. Similar to the January 

2009 Regulation Z Rule, § 226.9(c)(2)(ii) 

would state that for the purposes of 

§ 226.9(c), a significant change in 

account terms means changes to terms 

required to be disclosed in the table 

provided at account opening pursuant 

to § 226.6(b)(1) and (b)(2). The terms 

included in the account-opening table 

are those that the Board determined, 

based on its consumer testing, to be the 

most important to consumers. In the 

July 2009 Regulation Z Interim Final 

Rule, the Board had expressly listed 

these terms in § 226.9(c)(2)(ii). Because 

§ 226.6(b) was not in effect as of August 

20, 2009, the Board could not identify 

these terms by a cross-reference to 

§ 226.6(b). However, proposed 

§ 226.9(c)(2)(ii) is intended to be 

substantively equivalent to the list of 

terms included in § 226.9(c)(2)(ii) of the 

July 2009 Regulation Z Interim Final 

Rule. However, for clarity, the Board is 

proposing to amend the text of 

§ 226.9(c)(2)(ii) to cross-reference the 

requirements of § 226.6(b)(1) and (b)(2). 

9(c)(2)(iii) Charges Not Covered by 

§ 226.6(b)(1) and (b)(2) 

Proposed § 226.9(c)(2)(iii) sets forth 

the disclosure requirements for changes 

in terms required to be disclosed under 

§ 226.6(b)(3) that are not significant 

changes in account terms as described 

in § 226.9(c)(2)(ii). Consistent with TILA 

Section 127(i), the Board is only 

proposing a 45-day notice period for 

changes in the terms that are required to 

be disclosed as a part of the accountopening table under proposed 

§ 226.6(b)(1) and (b)(2) or for increases 

in the required minimum periodic 

payment. A different disclosure 

requirement would apply when a 

creditor increases any component of a 

charge, or introduces a new charge, that 

is imposed as part of the plan under 

proposed § 226.6(b)(3) but is not 

required to be disclosed as part of the 

account-opening summary table under 

proposed § 226.6(b)(1) and (b)(2). Under 

those circumstances, the proposal 

would require the creditor to either, at 

its option (1) provide at least 45 days’ 

written advance notice before the 

change becomes effective, or (2) provide 

notice orally or in writing of the amount 

of the charge to an affected consumer at 

a relevant time before the consumer 

agrees to or becomes obligated to pay 

the charge. This is consistent with the 

requirements of both the January 2009 

Regulation Z Rule and the July 2009 

Regulation Z Interim Final Rule. 

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

Proposed § 226.9(c)(2)(iv) contains the 

content and formatting requirements for 

change-in-terms notices required to be 

given for significant changes in account 

terms pursuant to proposed 

§ 226.9(c)(2)(i). Proposed 

§ 226.9(c)(2)(iv)(A) sets forth the content 

that would be required in notices under 

§ 226.9(c)(2)(i) for all open-end (not 

home-secured) credit and mirrors the 

content required to be disclosed in 

change-in-terms notices pursuant to the 

Board’s January 2009 Regulation Z Rule. 

Notices provided pursuant to 

§ 226.9(c)(2)(i) would be required to 

include (1) a summary of the changes 

made to terms required by § 226.6(b)(1) 

and (b)(2) or of any increase in the 

required minimum periodic payment, 

(2) a statement that changes are being 

made to the account, (3) for accounts 

other than credit card accounts under an 

open-end consumer credit plan subject 

to § 226.9(c)(2)(iv)(B), a statement 

indicating that the consumer has the 

right to opt out of these changes, if 

applicable, and a reference to additional 

information describing the opt-out right 

provided in the notice, if applicable, (4) 

the date the changes will become 

effective, (5) if applicable, a statement 

that the consumer may find additional 

information about the summarized 

changes, and other changes to the 

account, in the notice, (6) if the creditor 

is changing a rate on the account other 

than a penalty rate, a statement that if 

a penalty rate currently applies to the 

consumer’s account, the new rate 

referenced in the notice does not apply 

to the consumer’s account until the 

consumer’s account balances are no 

longer subject to the penalty rate, and 

(7) if the change in terms being 

disclosed is an increase in an annual 

percentage rate, the balances to which 

the increased rate will be applied and, 

if applicable, a statement identifying the 

balances to which the current rate will 

continue to apply as of the effective date 

of the change in terms. 

The content required by proposed 

§ 226.9(c)(2)(iv)(A) generally mirrors the 

content required under § 226.9(c)(2)(iii) 

of the January 2009 Regulation Z Rule. 

Creditors would be required to disclose 

information regarding the balances to 

which the increased rate will apply as 

well as a statement, if applicable, 

identifying balances to which the 

current rate will continue to apply as of 

the effective date of the increase. This 

content was not included in the July 

2009 Regulation Z Interim Final Rule 

because at that time there were no 

substantive limitations regarding rate 

increases equivalent to those in 

proposed § 226.55. However, consistent 

with the January 2009 Regulation Z 

Rule, the Board believes that a statement 

identifying to which balances an 

increased rate will apply to is an 

important disclosure in light of § 226.55, 

in order to permit consumers to make 

informed decisions about their account 

usage. 

In addition, the Board is proposing to 

require a disclosure regarding any 

applicable right to opt out of changes 

under proposed § 226.9(c)(2)(iv)(A)(3) 

only if the change is being made to an 

open-end (not home-secured) credit 

plan that is not a credit card account 

subject to § 226.9(c)(2)(iv)(B). For credit 

card accounts, as discussed below and 

in the supplementary information to 

§§ 226.9(h) and 226.55, the Credit Card 

Act imposes independent substantive 

limitations on rate increases, and 

generally provides the consumer with a 

right to reject other significant changes 

being made to their accounts. A 

disclosure of this right to reject, when 

applicable, is required for credit card 

accounts under proposed 

§ 226.9(c)(2)(iv)(B). Therefore, the Board 

believes a separate reference to other 

applicable opt-out rights is unnecessary 

and may be confusing to consumers, 

when the notice is given in connection 

with a change in terms applicable to a 

credit card account. 

Proposed § 226.9(c)(2)(iv)(B) sets forth 

additional content requirements that are 

applicable only to credit card accounts 

under an open-end (not home-secured) 

consumer credit plan. In addition to the 

information required to be disclosed 

pursuant to § 226.9(c)(2)(iv)(A), credit 

card issuers making significant changes 

to terms must also disclose certain 

information regarding the consumer’s 

right to reject the change pursuant to 


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§ 226.9(h). The substantive rule 

regarding the right to reject is discussed 

in connection with proposed § 226.9(h); 

however, the associated disclosure 

requirements are set forth in 

§ 226.9(c)(2). In particular, a card issuer 

must generally include in the notice (1) 

a statement that the consumer has the 

right to reject the change or changes 

prior to the effective date, unless the 

consumer fails to make a required 

minimum periodic payment within 60 

days after the due date for that payment, 

(2) instructions for rejecting the change 

or changes, and a toll-free telephone 

number that the consumer may use to 

notify the creditor of the rejection, and 

(3) if applicable, a statement that if the 

consumer rejects the change or changes, 

the consumer’s ability to use the 

account for further advances will be 

terminated or suspended. Section 

226.9(c)(2)(iv)(B) mirrors requirements 

made applicable to credit card issuers in 

the July 2009 Regulation Z Interim Final 

Rule, with several amendments 

discussed below. 

As discussed in the supplementary 

information to § 226.9(h), the Board is 

proposing that a consumer’s right to 

reject would not extend to increases in 

the required minimum payment, an 

increase in an annual percentage rate 

applicable to a consumer’s account, a 

change in the balance computation 

method applicable to a consumer’s 

account necessary to comply with the 

new prohibition on use of ‘‘two-cycle’’ 

balance computation methods in 

proposed § 226.54, or changes due to the 

creditor not receiving the consumer’s 

required minimum periodic payment 

within 60 days after the due date for 

that payment. The July 2009 Regulation 

Z Interim Final Rule similarly excluded 

increases in a consumer’s minimum 

payment from being subject to the right 

to reject. The Board also is proposing 

that the right to reject not apply to rate 

increases, because consumers will 

automatically receive the protections 

against rate increases applicable to their 

balances under proposed § 226.55 

without being required to take any 

action to reject the change. The Board 

recognizes that it would be an 

anomalous result for consumers to be 

able to reject a change in balance 

computation that is expressly required 

under the Credit Card Act and 

implementing rules. Finally, the Board 

would clarify that, as stated in proposed 

§ 226.9(h)(3), the right to reject does not 

apply when the account is more than 60 

days delinquent. Accordingly, for these 

types of changes creditors would not be 

required to give the disclosures 

associated with the right to reject in 

§ 226.9(c)(2)(iv)(B). 

Proposed § 226.9(c)(2)(iv)(C) sets forth 

the formatting requirements that would 

apply to notices required to be given 

pursuant to § 226.9(c)(2)(i). The 

proposed formatting requirements are 

generally the same as those that the 

Board adopted in § 226.9(c)(2)(iii) of the 

January 2009 Regulation Z Rule, except 

that the reference to the content of the 

notice would include, when applicable, 

the information about the right to reject 

that credit card issuers must disclose 

pursuant to § 226.9(c)(2)(iv)(B). These 

formatting requirements are not affected 

by the Credit Card Act, and therefore the 

Board proposes to adopt them generally 

as adopted in January 2009. 

Accordingly, as discussed in I. 

Background and Implementation of the 

Credit Card Act, the Board is 

considering making these formatting 

requirements mandatory beginning on 

July 1, 2010, consistent with the 

effective date adopted for the January 

2009 Regulation Z Rule. In addition, the 

Board is proposing to publish revised 

model forms that would reflect the new 

disclosure of the right to reject, when 

applicable. 

The Board is proposing to amend 

Sample G–20 and to add a new sample 

G–21 to illustrate how a card issuer may 

comply with the requirements of 

proposed § 226.9(c)(2)(iv). The Board 

would amend references to these 

samples in § 226.9(c)(2)(iv) and 

comment 9(c)(2)(iv)–8 accordingly. 

Proposed Sample G–20 is a disclosure of 

a rate increase applicable to a 

consumer’s credit card account. The 

sample explains when the new rate will 

apply to new transactions and to which 

balances the current rate will continue 

to apply. Sample G–21 illustrates an 

increase in the consumer’s late payment 

and returned payment fees, and sets 

forth the content required in order to 

disclose the consumer’s right to reject 

those changes. 

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

The Board is proposing 

§ 226.9(c)(2)(v) to set forth the 

exceptions to the general change-interms notice requirements for open-end 

(not home-secured) credit. With several 

exceptions noted below, proposed 

§ 226.9(c)(2)(v) is intended to be 

substantively equivalent to 

§ 226.9(c)(2)(v) of the July 2009 

Regulation Z Interim Final Rule. 

Proposed § 226.9(c)(2)(v)(A) would 

retain several exceptions that are in 

current § 226.9(c), including charges for 

documentary evidence, reductions of 

finance charges, suspension of future 

credit privileges (except as provided in 

§ 226.9(c)(vi), discussed below), 

termination of an account or plan, or 

when the change results from an 

agreement involving a court proceeding. 

The Board is not including these 

changes in the set of ‘‘significant 

changes’’ giving rise to notice 

requirements pursuant to new TILA 

Section 127(i)(2). The Board believes 

that 45 days’ advance notice is not 

necessary for these changes, which are 

not of the type that generally result in 

the imposition of a fee or other charge 

on a consumer’s account that could 

come as a costly surprise. In addition, 

the Board believes that for safety and 

soundness reasons, issuers generally 

have a legitimate interest in suspending 

credit privileges or terminating an 

account or plan when a consumer’s 

creditworthiness deteriorates, and that 

45 days’ advance notice of these types 

of changes therefore would not be 

appropriate. 

Proposed § 226.9(c)(2)(v)(B) sets forth 

an exception contained in the Credit 

Card Act for increases in annual 

percentage rates upon the expiration of 

a specified period of time, provided that 

prior to the commencement of that 

period, the creditor disclosed to the 

consumer clearly and conspicuously in 

writing the length of the period and the 

annual percentage rate that would apply 

after that period. As discussed below, 

this disclosure would be required to be 

provided in close proximity and equal 

prominence to any disclosure of the rate 

that applies during that period, ensuring 

that it would be provided at the same 

time the consumer is informed of the 

temporary rate. In addition, in order to 

fall within this exception, the annual 

percentage rate that applies after the 

period ends may not exceed the rate 

previously disclosed. 

The exception generally mirrors the 

statutory language, except for two 

additional requirements. First, the 

Board’s proposal expressly provides, 

consistent with July 2009 Regulation Z 

Interim Final Rule and the standard for 

Regulation Z disclosures under Subpart 

B that the disclosure of the period and 

annual percentage rate that will apply 

after the period is generally required to 

be in writing. See § 226.5(a)(1). Second, 

pursuant to its authority under TILA 

Section 105(a) to prescribe regulations 

to effectuate the purposes of TILA, the 

Board is proposing to require that the 

disclosure of the length of the period 

and the annual percentage rate that 

would apply upon expiration of the 

period be set forth in close proximity 

and equal prominence to any disclosure 

of the rate that applies during the 

specified period of time. 15 U.S.C. 

1604(a). The Board believes that both of 


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these requirements are appropriate in 

order to ensure that consumers receive, 

comprehend, and are able to retain the 

disclosures regarding the rates that will 

apply to their transactions. 

Proposed comment 9(c)(2)(v)–5 

clarifies the timing of the disclosure 

requirements for telephone purchases 

financed by a merchant or private label 

credit card issuer. The Board is aware 

that the general requirement in the July 

2009 Regulation Z Interim Final Rule 

that written disclosures be provided 

prior to commencement of the period 

during which a temporary rate will be 

in effect has caused some confusion for 

merchants who offer a promotional rate 

on the telephone to finance the 

purchase of goods. In order to clarify the 

application of the rule to such 

merchants, proposed comment 

9(c)(2)(v)–5 would state that the timing 

requirements of § 226.9(c)(2)(v)(B) are 

deemed to have been met, and written 

disclosures required by 

§ 226.9(c)(2)(v)(B) may be provided as 

soon as reasonably practicable after the 

first transaction subject to a temporary 

rate if: (1) The first transaction subject 

to the temporary rate occurs when a 

consumer contacts a merchant by 

telephone to purchase goods and at the 

same time the consumer accepts an offer 

to finance the purchase at the temporary 

rate; (2) the merchant or third-party 

creditor permits consumers to return 

any goods financed subject to the 

temporary rate and return the goods free 

of cost after the merchant or third-party 

creditor has provided the written 

disclosures required by 

§ 226.9(c)(2)(v)(B); and (3) the 

disclosures required by 

§ 226.9(c)(2)(v)(B) and the consumer’s 

right to reject the temporary rate offer 

and return the goods are disclosed to the 

consumer as part of the offer to finance 

the purchase. This clarification mirrors 

a timing rule for account-opening 

disclosures provided by merchants 

financing the purchase of goods by 

telephone under § 226.5(b)(1)(iii) of the 

January 2009 Regulation Z Rule. 

The Board is also aware of operational 

issues arising from application of 

§ 226.9(c)(2)(v)(B) of the July 2009 

Regulation Z Interim Final Rule to 

deferred interest or other promotional 

rate offers made at the time that a 

consumer is financing a purchase made 

at point of sale. At the present time, the 

systems available to provide disclosures 

to consumers at point of sale may not 

have access to the rate currently 

applicable to purchases made on the 

consumer’s account. This could occur, 

for example, if the issuer offers a 

promotion to consumers with existing 

credit card accounts, and not all 

consumers in the portfolio have the 

same rate applicable to purchases. In 

addition, some consumers’ accounts 

may currently be at a penalty rate that 

differs from the standard rates on 

accounts in the portfolio. The Board is 

aware that such issuers are encountering 

difficulty, at the present time, providing 

the disclosure required by 

§ 226.9(c)(2)(v)(B), which requires that 

the rate that will apply after the 

expiration of the promotional period be 

disclosed. 

This proposal, consistent with section 

226.9(c)(2)(v)(B) of the July 2009 

Regulation Z Interim Final Rule, 

requires disclosure of the specific rate 

that will apply to a given consumer’s 

account after the expiration of a 

deferred interest or other promotional 

rate offer. The Board believes that, in 

general, the statutory requirement is 

best implemented by a rule stating that 

a single rate must be disclosed. 

However, the Board is supplementing 

its transition guidance to the July 2009 

Regulation Z Interim Final Rule to state, 

that for a brief period necessary to 

update their systems to disclose a single 

rate, issuers offering a deferred interest 

or other promotional rate program at 

point of sale may disclose a range of 

rates or an ‘‘up to’’ rate rather than a 

single rate. The Board notes that stating 

a range of rates or ‘‘up to’’ rate is only 

permissible for a brief transition period 

and expects that merchants and 

creditors will disclose a single rate that 

will apply when a deferred interest or 

other promotional rate expires in 

accordance with § 226.9(c)(2)(v)(B) as 

soon as possible. 

The Board is retaining in the proposal 

comment 9(c)(2)(v)–6 from the July 2009 

Regulation Z Interim Final Rule 

(redesignated as comment 9(c)(2)(v)–7) 

to clarify that an issuer offering a 

deferred interest or similar program may 

utilize the exception in 

§ 226.9(c)(2)(v)(B). The comment also 

provides examples of how the required 

disclosures can be made for deferred 

interest or similar programs. The Board 

continues to believe that the application 

of § 226.9(c)(2)(v)(B) to deferred interest 

arrangements is consistent with the 

Credit Card Act and that this 

clarification remains necessary in order 

to ensure that the proposed rule does 

not have unintended adverse 

consequences for deferred interest 

promotions. 

The Board is proposing to retain 

generally as adopted in the July 2009 

Regulation Z Interim Final Rule 

§ 226.9(c)(2)(v)(C), which also 

implements an exception contained in 

the Credit Card Act, for increases in 

variable annual percentage rates in 

accordance with a credit card or other 

account agreement that provides for a 

change in the rate according to 

operation of an index that is not under 

the control of the creditor and is 

available to the general public. The 

Board is proposing a minor amendment 

to the text of § 226.9(c)(2)(v)(C) to reflect 

the fact that this exception would apply 

to all open-end (not home-secured) 

credit. The Board believes that even 

absent this express exception, such a 

rate increase would not generally be a 

change in the terms of the cardholder or 

other account agreement that gives rise 

to the requirement to provide 45 days’ 

advance notice, because the index, 

margin, and frequency with which the 

annual percentage rate will vary will all 

be specified in the cardholder or other 

account agreement in advance. 

However, in order to clarify that 45 

days’ advance notice is not required for 

a rate increase that occurs due to 

adjustments in a variable rate tied to an 

index beyond the creditor’s control, the 

Board is proposing to retain 

§ 226.9(c)(2)(v)(C) of the July 2009 

Regulation Z Interim Final Rule. 

Finally, the proposal retains 

§ 226.9(c)(2)(v)(D) from the July 2009 

Regulation Z Interim Final Rule, with 

several changes. Section 

226.9(c)(2)(v)(D) implements a statutory 

exception for increases in rates or fees 

or charges due to the completion of, or 

a consumer’s failure to comply with the 

terms of, a workout or temporary 

hardship arrangement provided that the 

annual percentage rate or fee or charge 

applicable to a category of transactions 

following the increase does not exceed 

the rate that applied prior to the 

commencement of the workout or 

temporary hardship arrangement. 

The Board notes that the exception in 

proposed § 226.9(c)(2)(v)(D) applies 

both to completion of or failure to 

comply with a workout arrangement. In 

the July 2009 Regulation Z Interim Final 

Rule, the Board had implemented the 

exception that applies to completion of 

an arrangement is implemented in 

§ 226.9(c)(2)(v)(D), while the exception 

applicable to failure to comply with a 

workout or temporary hardship 

arrangement was implemented in 

§ 226.9(g). For clarity, the Board is 

proposing to implement both of these 

exceptions in a single 

§ 226.9(c)(2)(v)(D). The exception is 

conditioned on the creditor’s having 

clearly and conspicuously disclosed, 

prior to the commencement of the 

arrangement, the terms of the 

arrangement (including any such 

increases due to such completion). The 

Board notes that the statutory exception 

applies in the event of either completion 


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of, or failure to comply with, the terms 

of such a workout or temporary 

hardship arrangement. This exception 

also generally mirrors the statutory 

language, except that the Board has 

expressly provided that the disclosures 

regarding the workout or temporary 

hardship arrangement are required to be 

in writing. 

The Board proposes to retain 

comment 9(c)(2)(v)–5 from the July 2009 

Regulation Z Interim Final Rule 

(redesignated as comment 9(c)(2)(v)–6), 

which is applicable to the exceptions in 

both § 226.9(c)(2)(v)(B) and (c)(2)(v)(D), 

and provides additional clarification 

regarding the disclosure of variable 

annual percentage rates. The comment 

provides that if the creditor is disclosing 

a variable rate, the notice must also state 

that the rate may vary and how the rate 

is determined. The comment sets forth 

an example of how a creditor may make 

this disclosure. The Board believes that 

the fact that a rate is variable is an 

important piece of information of which 

consumers should be aware prior to 

commencement of a deferred interest 

promotion, a promotional rate, or a 

stepped rate program. 

Finally, the Board also proposes to 

retain comment 9(c)(2)(v)–7 of the July 

2009 Regulation Z Interim Final Rule 

(redesignated as comment 9(c)(2)(v)–8), 

which provides clarification as to what 

terms must be disclosed in connection 

with a workout or temporary hardship 

arrangement. The comment states that 

in order for the exception to apply, the 

creditor must disclose to the consumer 

the rate that will apply to balances 

subject to the workout or temporary 

hardship arrangement, as well as the 

rate that will apply if the consumer 

completes or fails to comply with the 

terms of, the workout or temporary 

hardship arrangement. For consistency 

with proposed § 226.55(b)(5)(i), the 

Board proposes to revise the comment 

to also state that the creditor must 

disclose the amount of any reduced fee 

or charge of a type required to be 

disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) that will apply to 

balances subject to the arrangement, as 

well as the fee or charge that will apply 

if the consumer completes or fails to 

comply with the terms of the 

arrangement. The notice also must state, 

if applicable, that the consumer must 

make timely minimum payments in 

order to remain eligible for the workout 

or temporary hardship arrangement. The 

Board believes that it is important for a 

consumer to be notified of his or her 

payment obligations pursuant to a 

workout or similar arrangement, and 

that the rate, fee or charge may be 

increased if he or she fails to make 

timely payments. 

9(c)(2)(vi) Reduction of the Credit Limit 

Consistent with the January 2009 

Regulation Z Rule and the July 2009 

Regulation Z Interim Final Rule, the 

Board is proposing to retain 

§ 226.9(c)(2)(vi) to address notices of 

changes in a consumer’s credit limit. 

Section 226.9(c)(2)(vi) requires an issuer 

to provide a consumer with 45 days’ 

advance notice that a credit limit is 

being decreased or will be decreased 

prior to the imposition of any over-thelimit fee or penalty rate imposed solely 

as the result of the balance exceeding 

the newly decreased credit limit. The 

Board is not including a decrease in a 

consumer’s credit limit itself as a 

significant change in a term that 

requires 45 days’ advance notice, for 

several reasons. First, the Board 

recognizes that creditors have a 

legitimate interest in mitigating the risk 

of a loss when a consumer’s 

creditworthiness deteriorates, and 

believes there would be safety and 

soundness concerns with requiring 

creditors to wait 45 days to reduce a 

credit limit. Second, the consumer’s 

credit limit is not a term generally 

required to be disclosed under 

Regulation Z or TILA. Finally, the Board 

believes that § 226.9(c)(2)(vi) adequately 

protects consumers against the two most 

costly surprises potentially associated 

with a reduction in the credit limit, 

namely, fees and rate increases, while 

giving a consumer adequate time to 

mitigate the effect of the credit line 

reduction. 

Furthermore, proposed § 226.55 

would prohibit a creditor from applying 

an increased rate, fee, or charge to an 

existing balance as a result of 

transactions that exceeded the credit 

limit. In addition, proposed § 226.56 

would allow a creditor to charge a fee 

for transactions that exceed the credit 

limit only when the consumer has 

consented to such transactions. 

Proposed Changes to Commentary to 

§ 226.9(c)(2) 

The commentary to § 226.9(c)(2) 

generally is consistent with the 

commentary to § 226.9(c)(2) of the 

January 2009 Regulation Z Rule, except 

for technical changes or changes 

discussed below. In addition, as 

discussed above, the Board is proposing 

to adopt new comment 9(c)(2)(v)–5 (and 

to renumber comments 9(c)(2)(v)–5 

through 9(c)(2)(v)–7 of the July 2009 

Regulation Z Interim Final Rule 

accordingly as comments 9(c)(2)(v)–6 

through 9(c)(2)(v)–8). 

The Board is proposing to amend 

comment 9(c)(2)(i)–6 to reference 

examples in § 226.55 that illustrate how 

the advance notice requirements in 

§ 226.9(c) relate to the substantive rule 

regarding rate increases in proposed 

§ 226.55. In the January 2009 Regulation 

Z Rule, comment 9(c)(2)(i)–6 referred to 

the commentary to § 226.9(g). Because, 

as discussed in the supplementary 

information to § 226.55, the Credit Card 

Act moved the substantive rule 

regarding rate increases into Regulation 

Z, the Board believes that it is not 

necessary to repeat the examples under 

§ 226.9. 

The Board also proposes to amend 

comment 9(c)(2)(v)–2 (adopted in the 

January 2009 Regulation Z Rule as 

comment 9(c)(2)(iv)–2) in order to 

conform with the new substantive and 

notice requirements of the Credit Card 

Act. This comment addresses the 

disclosures that must be given when a 

credit program allows consumers to skip 

or reduce one or more payments during 

the year or involves temporary 

reductions in finance charges. However, 

new § 226.9(c)(2)(v)(B) requires a 

creditor to provide a notice of the period 

for which a temporarily reduced rate 

will be in effect, as well as a disclosure 

of the rate that will apply after that 

period, in order for a creditor to be 

permitted to increase the rate at the end 

of the period without providing 45 days’ 

advance notice. Similarly, § 226.55, 

discussed elsewhere in this 

supplementary information, requires a 

creditor to provide advance notice of a 

temporarily reduced rate if a creditor 

wants to preserve the ability to raise the 

rate on balances subject to that 

temporarily reduced rate. Accordingly, 

the Board is proposing amendments to 

clarify that if a credit program involves 

temporary reductions in an interest rate, 

no notice of the change in terms is 

required either prior to the reduction or 

upon resumption of the higher rates if 

these features are disclosed in advance 

in accordance with the requirements of 

§ 226.9(c)(2)(v)(B). See proposed 

comment 55(b)–3. The proposed 

comment further clarifies that if a 

creditor does not provide advance 

notice in accordance with 

§ 226.9(c)(2)(v)(B), that it must provide 

a notice that complies with the timing 

requirements of § 226.9(c)(2)(i) and the 

content and format requirements of 

§ 226.9(c)(2)(iv)(A), (B) (if applicable), 

and (C). The proposed comment notes 

that creditors should refer to § 226.55 

for additional restrictions on resuming 

the original rate that is applicable to 

credit card accounts under an open-end 

(not home-secured) plan. 


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May 2009 Regulation Z Proposed 

Clarifications 

As discussed in I. Background and 

Implementation of the Credit Card Act, 

the Board is generally republishing the 

May 2009 Regulation Z Proposed 

Clarifications in connection with this 

proposed rule. Accordingly, the Board is 

republishing proposed amendments to 

§ 226.9(c)(2)(v) (proposed as 

§ 226.9(c)(2)(iv) of the May 2009 

Regulation Z Proposed Clarifications) 

and comments 9(c)(2)–4 and 9(c)(2)(i)– 

3. 

The Board is republishing revisions to 

§ 226.9(c)(2)(v) (proposed in May 2009 

as § 226.9(c)(2)(iv)) and proposed 

comment 9(c)(2)–4, which clarifies the 

relationship between the change-interms requirements of § 226.9(c) and the 

notice provisions of § 226.9(b) that 

apply when a creditor adds a credit 

feature or delivers a credit access device 

for an existing open-end plan. See 74 FR 

20787 for further discussion of these 

proposed amendments. 

Section 226.9(c)(2)(i), as proposed and 

under the January 2009 Regulation Z 

Rule, provides that the 45-day advance 

notice timing requirement does not 

apply if the consumer has agreed to a 

particular change. In this case, notice 

must be given before the effective date 

of the change. Comment 9(c)(2)(i)–3 

states that the provision is intended for 

use in ‘‘unusual instances,’’ such as 

when a consumer substitutes collateral 

or when the creditor may advance 

additional credit only if a change 

relatively unique to that consumer is 

made. In May 2009, the Board proposed 

to amend the comment to emphasize the 

limited scope of the exception and 

provide that the exception applies 

‘‘solely’’ to the unique circumstances 

specifically identified in the comment. 

See 74 FR 20788. The proposed 

comment would also add an example of 

an occurrence that would not be 

considered an ‘‘agreement’’ for purposes 

of relieving the creditor of its 

responsibility to provide an advance 

change-in-terms notice. This example 

would state that an ‘‘agreement’’ does 

not include a consumer’s request to 

reopen a closed account or to upgrade 

an existing account to another account 

offered by the creditor with different 

credit or other features. Thus, a creditor 

that treats an upgrade of a consumer’s 

account as a change in terms would be 

required to provide the consumer 45 

days’ advance notice before increasing 

the rate for new transactions or 

increasing the amount of any applicable 

fees to the account in those 

circumstances. 

The Board is aware that some 

creditors have raised concerns about the 

45-day notice requirement causing an 

undue delay when a consumer requests 

that his or her account be changed to a 

different product offered by the creditor, 

for example to take advantage of a 

rewards or other program. The Board 

has sought, in part, to address these 

concerns in proposed comment 

5(b)(1)(i)–6, discussed above. The Board 

also continues to believe that the 

proposed clarification to comment 

9(c)(2)(i)–3 is appropriate for those 

circumstances in which a creditor treats 

an upgrade of an account as a changein-terms in accordance with proposed 

comment 5(b)(1)(i)–6. In addition, it 

would be difficult to define by 

regulation the circumstances under 

which a consumer is deemed to have 

requested the account upgrade, versus 

circumstances in which the upgrade is 

suggested by the creditor. The Board 

seeks further comment on the 

operational and other burdens that 

would be associated with the proposed 

revision to comment 9(c)(2)(i)–3. 

9(e) Disclosures Upon Renewal of Credit 

or Charge Card 

The Credit Card Act amended TILA 

Section 127(d), which sets forth the 

disclosures that card issuers must 

provide in connection with renewal of 

a consumer’s credit or charge card 

account. 15 U.S.C. 1637(d). TILA 

Section 127(d) is implemented in 

§ 226.9(e), which currently requires card 

issuers that assess an annual or other fee 

based on inactivity or activity, on a 

credit card account of the type subject 

to § 226.5a, to provide a renewal notice 

before the fee is imposed. The creditor 

must provide disclosures required for 

credit card applications and 

solicitations (although not in a tabular 

format) and must inform the consumer 

that the renewal fee can be avoided by 

terminating the account by a certain 

date. The notice must generally be 

provided at least 30 days or one billing 

cycle, whichever is less, before the 

renewal fee is assessed on the account. 

Under current § 226.9(e), there is an 

alternative delayed notice procedure 

where the fee can be assessed provided 

the fee is reversed if the consumer is 

given notice and chooses to terminate 

the account. 

The Credit Card Act amended TILA 

Section 127(d) to eliminate the 

provision permitting creditors to 

provide an alternative delayed notice. 

Thus, all creditors will be required to 

provide the renewal notice described in 

§ 226.9(e)(1) prior to imposition of any 

annual or other periodic fee to renew a 

credit or charge card account of the type 

subject to § 226.5a, including any fee 

based on account activity or inactivity. 

Creditors may no longer assess the fee 

and provide a delayed notice offering 

the consumer the opportunity to 

terminate the account and have the fee 

reversed. Accordingly, the Board is 

proposing to delete § 226.9(e)(2) and to 

renumber § 226.9(e)(3) as § 226.9(e)(2). 

The Board also proposes technical 

conforming changes to comments 9(e)– 

7, 9(e)(2)–1 (currently comment 9(e)(3)– 

1), and 9(e)(2)–2 (currently comment 

9(e)(3)–2). 

In addition, amended TILA Section 

127(d) provides that a card issuer that 

has changed or amended any term of the 

account since the last renewal that has 

not been previously disclosed must 

provide the renewal disclosure, even if 

that card issuer does not charge a 

periodic or other fee for renewal of the 

credit or charge card account. The Board 

proposes to amend § 226.9(e)(1) to 

provide that the renewal notice must be 

provided in those circumstances. The 

amended language in proposed 

§ 226.9(e)(1) would state, in part, that 

any card issuer that has changed or 

amended any term of a cardholder’s 

account required to be disclosed under 

§ 226.6(b)(1) and (b)(2) that has not 

previously been disclosed to the 

consumer, shall mail or deliver written 

notice of the renewal to the cardholder. 

The Board proposes to use its authority 

pursuant to TILA Section 105(a) to 

clarify that the requirement to provide 

the renewal disclosures due to a change 

in account terms applies only if the 

change has not been previously 

disclosed and is a change of the type 

required to be disclosed in the table 

provided at account opening. 

The Board notes that in most cases, 

changes to terms required to be 

disclosed pursuant to § 226.6(b)(1) and 

(b)(2) will be required to be disclosed 45 

days in advance in accordance with 

§ 226.9(c)(2). However, there are several 

types of changes to terms required to be 

disclosed under § 226.6(b)(1) and (b)(2) 

for which advance notice is not required 

under § 226.9(c)(2)(v)(1), including 

reductions in finance and other charges 

and the extension of a grace period. The 

Board believes that such changes are 

generally beneficial to the consumer, 

and therefore a 45-day advance notice 

requirement is not appropriate for these 

changes. However, the Board believes 

that requiring creditors to send 

consumers subject to such changes a 

notice prior to renewal disclosing key 

terms of their accounts will promote the 

informed use of credit by consumers. 

The notice will remind consumers of 

the key terms of their accounts, 

including any reduced rates or extended 


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grace periods that apply, when 

consumers are making a decision as to 

whether to renew their account and how 

to use the account in the future. 

The Board considered an alternative 

interpretation of amended TILA Section 

127(d) that would have required that the 

renewal disclosures be provided for all 

changes in account terms that have not 

been previously disclosed, even changes 

that are not required to be disclosed 

pursuant to § 226.6(b)(1) and (b)(2). 

Such an interpretation of the statute 

would require that the renewal 

disclosures be given even when 

creditors have made relatively minor 

changes to the account terms, such as by 

increasing the amount of a fee to 

expedite delivery of a credit card. 

However, the Board believes that 

providing a renewal notice in these 

circumstances would not provide a 

meaningful benefit to consumers. 

Amended TILA Section 127(d) requires 

only that the renewal disclosure contain 

the information set forth in TILA 

Sections 127(c)(1)(A) and (c)(4)(A), 

which are implemented in § 226.5a(b)(1) 

through (b)(7). These sections require 

disclosure of key terms of a credit card 

account including the annual 

percentage rates applicable to the 

account, annual or other periodic 

membership fees, minimum finance 

charges, transaction charges on 

purchases, the grace period, balance 

computation method, and disclosure of 

similar terms for charge card accounts. 

The Board notes that the required 

disclosures all address terms required to 

be disclosed pursuant to § 226.6(b)(1) 

and (b)(2). Therefore, if the rule required 

that the renewal disclosures be provided 

for any change in terms, such as a 

change in a fee for expediting delivery 

of a credit card, the renewal disclosures 

would not disclose the amount of the 

changed fee. The Board also notes that 

charges imposed as part of an open-end 

(not home-secured) plan that are not 

required to be disclosed pursuant to 

§ 226.6(b)(1) and (b)(2) are required to 

be disclosed to consumers prior to their 

imposition pursuant to § 226.5(b)(1)(ii). 

Proposed § 226.9(e)(1) would further 

clarify the timing of the notice 

requirement when a card issuer has 

changed a term on the account but does 

not impose an annual or other periodic 

fee for renewal, by stating that if the 

card issuer has changed or amended any 

term required to be disclosed under 

§ 226.6(b)(1) and (b)(2) and such 

changed or amended term has not 

previously been disclosed to the 

consumer, the notice shall be provided 

at least 30 days prior to the scheduled 

renewal date of the consumer’s credit or 

charge card. Accordingly, card issuers 

that do not charge periodic or other fees 

for renewal of the credit or charge card 

account, and who have previously 

disclosed any changed terms pursuant 

to § 226.9(c)(2) are not required to 

provide renewal disclosures pursuant to 

proposed § 226.9(e). 

9(g) Increase in Rates Due to 

Delinquency or Default or as a Penalty 

9(g)(1) Increases Subject to This Section 

The Board is proposing to adopt 

§ 226.9(g) substantially as adopted in 

the January 2009 Regulation Z Rule, 

except as required to be amended for 

conformity with the Credit Card Act. 

Proposed § 226.9(g), in combination 

with amendments to § 226.9(c), 

implements the 45-day advance notice 

requirements for rate increases in new 

TILA Section 127(i). This approach is 

consistent with the Board’s January 

2009 Regulation Z Rule and the July 

2009 Regulation Z Interim Final Rule, 

each of which included change-in-terms 

notice requirements in § 226.9(c) and 

increases in rates due to the consumer’s 

default or delinquency or as a penalty 

for events specified in the account 

agreement in § 226.9(g). The general rule 

is set forth in proposed § 226.9(g)(1) and 

provides that for open-end plans other 

than home-equity plans subject to the 

requirements of § 226.5b, a creditor 

must provide a written notice to each 

consumer who may be affected when a 

rate is increased due to a delinquency 

or default or as a penalty for one or 

more events specified in the account 

agreement. 

9(g)(2) Timing of Written Notice 

Proposed paragraph (g)(2) sets forth 

the timing requirements for the notice 

described in paragraph (g)(1), and states 

that the notice must be provided at least 

45 days prior to the effective date of the 

increase. The notice must, however, be 

provided after the occurrence of the 

event that gave rise to the rate increase. 

That is, a creditor must provide the 

notice after the occurrence of the event 

or events that trigger a specific 

impending rate increase and may not 

send a general notice reminding the 

consumer of the conditions that may 

give rise to penalty pricing. For 

example, a creditor may send a 

consumer a notice pursuant to § 226.9(g) 

if the consumer makes a payment that 

is one day late disclosing a rate increase 

applicable to new transactions, in 

accordance with § 226.55. However, a 

more general notice reminding a 

consumer who makes timely payments 

that paying late may trigger imposition 

of a penalty rate would not be sufficient 

to meet the requirements of § 226.9(g) if 

the consumer subsequently makes a late 

payment. 

9(g)(3) Disclosure Requirements for Rate 

Increases 

Proposed paragraph (g)(3) sets forth 

the content and formatting requirements 

for notices provided pursuant to 

§ 226.9(g). Proposed § 226.9(g)(3)(i)(A) 

sets forth the content requirements 

applicable to all open-end (not homesecured) credit plans. Similar to the 

approach discussed above with regard 

to § 226.9(c)(2)(iv), the Board is 

proposing a separate § 226.9(g)(3)(i)(B) 

that would contain additional content 

requirements required under the Credit 

Card Act that are applicable only to 

credit card accounts under an open-end 

(not home-secured) consumer credit 

plan. 

Proposed § 226.9(g)(3)(i)(A) provides 

that the notice must state that the 

delinquency, default, or penalty rate has 

been triggered, and the date on which 

the increased rate will apply. The notice 

also must state the circumstances under 

which the increased rate will cease to 

apply to the consumer’s account or, if 

applicable, that the increased rate will 

remain in effect for a potentially 

indefinite time period. In addition, the 

notice must include a statement 

indicating to which balances the 

delinquency or default rate or penalty 

rate will be applied, and, if applicable, 

a description of any balances to which 

the current rate will continue to apply 

as of the effective date of the rate 

increase, unless a consumer fails to 

make a minimum periodic payment 

within 60 days from the due date for 

that payment. 

Proposed § 226.9(g)(3)(i)(B) sets forth 

additional content that credit card 

issuers must disclose if the rate increase 

is due to the consumer’s failure to make 

a minimum periodic payment within 60 

days from the due date for that payment. 

In those circumstances, the notice must 

state the reason for the increase and 

disclose that the increase will cease to 

apply if the creditor receives six 

consecutive required minimum periodic 

payments on or before the payment due 

date, beginning with the first payment 

due following the effective date of the 

increase. Proposed § 226.9(g)(3)(i)(B) 

implements notice requirements 

contained in amended TILA Section 

171(b)(4), as adopted by the Credit Card 

Act, and implemented in proposed 

§ 226.55(b)(4), as discussed below. 

Unlike § 226.9(g)(3) of the July 2009 

Regulation Z Interim Final Rule, the 

notice proposed under § 226.9(g)(3) 

need not disclose the consumer’s right 

to reject the application of the penalty 

rate. For the reasons discussed in the 


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supplementary information to 

§ 226.9(h), the Board believes that a 

right to reject penalty rate increases is 

unnecessary in light of the new 

substantive rule on rate increases in 

proposed § 226.55. Accordingly, for 

penalty rate increases no disclosure of a 

right to reject need be provided. 

Proposed paragraph (g)(3)(ii) sets forth 

the formatting requirements for a rate 

increase due to default, delinquency, or 

as a penalty. These requirements are 

substantively equivalent to the 

formatting rule adopted in 

§ 226.9(g)(3)(ii) of the January 2009 

Regulation Z Rule and would require 

the disclosures required under 

§ 226.9(g)(3)(i) to be set forth in the form 

of a table. As discussed elsewhere in 

this Federal Register, the formatting 

requirements are not directly compelled 

by the Credit Card Act, and 

consequently the Board is considering 

retaining the original July 1, 2010 

effective date of the January 2009 

Regulation Z Rule for the tabular 

formatting requirements. 

The Board is proposing to amend 

Sample G–21 from the January 2009 

Regulation Z Rule (redesignated as 

Sample G–22) and to add a new sample 

G–23 to illustrate how a card issuer may 

comply with the requirements of 

proposed § 226.9(g)(3)(i). The Board 

would amend references to these 

samples in comment 9(g)–8 accordingly. 

Proposed Sample G–22 is a disclosure of 

a rate increase applicable to a 

consumer’s credit card account based on 

a late payment that is fewer than 60 

days late. The sample explains when the 

new rate will apply to new transactions 

and to which balances the current rate 

will continue to apply. Sample G–23 

discloses a rate increase based on a 

delinquency of more than 60 days, and 

includes the required content regarding 

the consumer’s ability to cure the 

penalty pricing by making the next six 

consecutive minimum payments on 

time. 

9(g)(4) Exceptions 

Proposed § 226.9(g)(4) sets forth an 

exception to the advance notice 

requirements of § 226.9(g), which is 

consistent with an analogous exception 

contained in the January 2009 

Regulation Z Rule and July 2009 

Regulation Z Interim Final Rule. 

Proposed § 226.9(g)(4) clarifies the 

relationship between the notice 

requirements in § 226.9(c)(vi) and (g)(1) 

when the creditor decreases a 

consumer’s credit limit and under the 

terms of the credit agreement a penalty 

rate may be imposed for extensions of 

credit that exceed the newly decreased 

credit limit. This exception is 

substantively equivalent to 

§ 226.9(g)(4)(ii) of the January 2009 

Regulation Z Rule. In addition, it is 

generally equivalent to § 226.9(g)(4)(ii) 

of the July 2009 Regulation Z Interim 

Final Rule, except that the proposal 

implements content requirements 

analogous to those in proposed 

§ 226.9(g)(3)(i) that pertain to whether 

the rate applies to outstanding balances 

or only to new transactions. See 74 FR 

5355 for additional discussion of this 

exception. 

As discussed in the supplementary 

information to § 226.9(c)(2)(v), a second 

exception for an increase in an annual 

percentage rate due to the failure of a 

consumer to comply with a workout or 

temporary hardship arrangement 

contained in the July 2009 Regulation Z 

Interim Final Rule has been moved to 

§ 226.9(c)(2)(v)(D). 

The Board notes that one respect in 

which proposed § 226.9(g)(4) differs 

from the January 2009 Regulation Z 

Rule is that it does not contain an 

exception to the 45-day advance notice 

requirement for penalty rate increases if 

the consumer’s account becomes more 

than 60 days delinquent prior to the 

effective date of a rate increase 

applicable to new transactions, for 

which a notice pursuant to § 226.9(g) 

has already been provided. As discussed 

in the supplementary information to 

proposed § 226.9(g)(3)(i), amended TILA 

Section 171(b)(4)(A) requires that 

specific content be disclosed when a 

consumer’s rate is increased based on a 

failure to make a minimum payment 

within 60 days of the due date for that 

payment. Specifically, TILA Section 

171(b)(4)(A) requires the notice to state 

the reasons for the increase and that the 

increase will terminate no later than six 

months from the effective date of the 

change, provided that the consumer 

makes the minimum payments on time 

during that period. The Board believes 

that the intent of this provision is to 

create a right for consumers whose rate 

is increased based on a payment that is 

more than 60 days late to cure that 

penalty pricing in order to return to a 

lower interest rate. 

The Board believes that the 

disclosures associated with this ability 

to cure will be the most useful to 

consumers if they receive them after 

they have already triggered such penalty 

pricing based on a delinquency of more 

than 60 days. Under the Board’s 

proposed rule, creditors will be required 

to provide consumers with a notice 

specifically disclosing a rate increase 

based on a delinquency of more than 60 

days, at least 45 days prior to the 

effective date of that increase. The 

notice will state the effective date of the 

rate increase, which will give 

consumers certainty as to the applicable 

6-month period during which they must 

make timely payments in order to return 

to the lower rate. If creditors were 

permitted to raise the rate applicable to 

all of a consumer’s balances without 

providing an additional notice, 

consumers may be unsure exactly when 

their account became more than 60 days 

delinquent and therefore may not know 

the period in which they need to make 

timely payments in order to return to a 

lower rate. 

In addition, the Board notes that the 

Credit Card Act, as implemented in 

proposed § 226.55(b)(4), does not permit 

a creditor to raise the interest rate 

applicable to a consumer’s existing 

balances unless that consumer fails to 

make a minimum payment within 60 

days from the due date. This differs 

from the Board’s January 2009 FTC Act 

Rule, which permitted such a rate 

increase based on a failure to make a 

minimum payment within 30 days from 

the due date. The exception in 

§ 226.9(g)(4)(iii) of the January 2009 

Regulation Z Rule reflected the Board’s 

understanding that some creditors might 

impose penalty pricing on new 

transactions based on a payment that is 

one or several days late, and therefore 

it might be a relatively common 

occurrence for consumers’ accounts to 

become 30 days delinquent within the 

45-day notice period provided for a rate 

increase applicable to new transactions. 

The Board believes that, given the 60- 

day period imposed by the Credit Card 

Act and § 226.55(b)(4), it will be less 

common for consumers’ accounts to 

become delinquent within the original 

45-day notice period provided for new 

transactions. 

Proposed Changes to Commentary to 

§ 226.9(g) 

The commentary to § 226.9(g) 

generally is consistent with the 

commentary to § 226.9(g) of the January 

2009 Regulation Z Rule, except for 

technical changes. In addition, the 

Board is proposing to amend comment 

9(g)–1 to reference examples in § 226.55 

that illustrate how the advance notice 

requirements in § 226.9(g) relate to the 

substantive rule regarding rate increases 

applicable to existing balances. Because, 

as discussed in the supplementary 

information to § 226.55, the Credit Card 

Act placed the substantive rule 

regarding rate increases into TILA and 

Regulation Z, the Board believes that it 

is not necessary to repeat the examples 

under § 226.9. 


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15See 74 FR 36089–36090. 

9(h) Consumer Rejection of Certain 

Significant Changes in Terms 

In the July 2009 Regulation Z Interim 

Final Rule, the Board adopted 

§ 226.9(h), which provides that, in 

certain circumstances, a consumer may 

reject significant changes to account 

terms and increases in annual 

percentage rates. See 74 FR 36087– 

36091, 36096, 36099–36101. Section 

226.9(h) implemented new TILA 

Section 127(i)(3) and (4), which—like 

the other provisions of the Credit Card 

Act implemented in the July 2009 

Regulation Z Interim Final Rule—went 

into effect on August 20, 2009. See 

Credit Card Act § 101(a) (new TILA 

Section 127(i)(3)–(4)). However, several 

aspects of § 226.9(h) were based on 

revised TILA Section 171, which—like 

the other statutory provisions addressed 

in this proposed rule—goes into effect 

on February 22, 2010. Accordingly, 

because the Board is now implementing 

revised TILA Section 171 in proposed 

§ 226.55, the Board proposes to modify 

§ 226.9(h) for clarity and consistency. 

Application of Right To Reject to 

Increases in Annual Percentage Rate 

Because revised TILA Section 171 

renders the right to reject redundant in 

the context of rate increases, the Board 

proposes to amend § 226.9(h) to apply 

that right only to other significant 

changes to an account term. Currently, 

§ 226.9(h) provides that, if a consumer 

rejects an increase in an annual 

percentage rate prior to the effective 

date stated in the § 226.9(c) or (g) notice, 

the creditor cannot apply the increased 

rate to transactions that occurred within 

fourteen days after provision of the 

notice. See § 226.9(h)(2)(i), (h)(3)(ii). 

However, under revised TILA Section 

171 (as implemented in proposed 

§ 226.55), a creditor is generally 

prohibited from applying an increased 

rate to transactions that occurred within 

fourteen days after provision of a 

§ 226.9(c) or (g) notice regardless of 

whether the consumer rejects that 

increase. Similarly, although the 

exceptions in § 226.9(h)(3)(i) and 

revised TILA Section 171(b)(4) permit a 

creditor to apply an increased rate to an 

existing balance when an account 

becomes more than 60 days delinquent, 

revised TILA Section 171(b)(4)(B) (as 

implemented in proposed 

§ 226.55(b)(4)(ii)) provides that the 

creditor must terminate the increase if 

the consumer makes the next six 

payments on or before the payment due 

date. Thus, with respect to rate 

increases, the right to reject does not 

provide consumers with any meaningful 

protections beyond those provided by 

revised TILA Section 171. Accordingly, 

the Board believes that, on or after 

February 22, 2010, the right to reject 

will be unnecessary for rate increases. 

Indeed, once revised TILA Section 171 

becomes effective, notifying consumers 

that they have a right to reject a rate 

increase could be misleading insofar as 

it could imply that a consumer who 

does so will receive some additional 

degree of protection (such as protection 

against increases in the rate that applies 

to future transactions). 

Accordingly, the Board proposes to 

remove references to rate increases from 

§ 226.9(h) and its commentary. 

Similarly, because the exception in 

§ 226.9(h)(3)(ii) for transactions that 

occurred more than fourteen days after 

provision of the notice is based on 

revised TILA Section 171(d),15 the 

Board proposes to remove that 

exception from § 226.9(h) and 

incorporate it into proposed § 226.55. 

Finally, the Board proposes to 

redesignate comment 9(h)(3)–1 as 

comment 9(h)–1 and amend it to clarify 

that § 226.9(h) does not apply to 

increases in an annual percentage rate. 

Repayment Restrictions 

Because the repayment restrictions in 

§ 226.9(h)(2)(iii) are based on revised 

TILA Section 171(c), the Board believes 

that those restrictions should be 

implemented with the rest of revised 

Section 171 in proposed § 226.55. 

Section 226.9(h)(2)(iii) implemented 

new TILA Section 127(i)(4), which 

expressly incorporated the repayment 

methods in revised TILA Section 

171(c)(2). Because the rest of revised 

Section 171 would not be effective until 

February 22, 2010, the July 2009 

Regulation Z Interim Final Rule 

implemented new TILA Section 

127(i)(4) by incorporating the repayment 

restrictions in Section 171(c)(2) into 

§ 226.9(h)(2)(iii). See 74 FR 36089. 

However, the Board believes that—once 

revised TILA Section 171 becomes 

effective on February 22, 2010—these 

repayment restrictions should be moved 

to § 226.55(c). In addition to being 

duplicative, implementing revised TILA 

Section 171(c)’s repayment methods in 

both § 228.9(h) and § 226.55(c) would 

create the risk of inconsistency. 

Furthermore, because these restrictions 

will generally be of greater importance 

in the context of rate increases than 

other significant changes in terms, the 

Board believes they should be located in 

proposed § 226.55. Accordingly, the 

Board proposes to move the provisions 

and commentary regarding repayment to 

proposed § 226.55(c)(2) and to amend 

§ 226.9(h)(2)(iii) to include a crossreference to § 226.55(c)(2). 

The Board also proposes to amend 

comment 9(h)(2)(iii)–1 to clarify the 

application of the repayment methods 

listed in proposed § 226.55(c)(2) in the 

context of a rejection of a significant 

change in terms. As revised, this 

comment would clarify that, when 

applying the methods listed in 

§ 226.55(c)(2) pursuant to 

§ 226.9(h)(2)(iii), a creditor may utilize 

the date on which the creditor was 

notified of the rejection or a later date 

(such as the date on which the change 

would have gone into effect but for the 

rejection). For example, when a creditor 

increases an annual percentage rate 

pursuant to § 226.55(b)(3), 

§ 226.55(c)(2)(ii) permits the creditor to 

establish an amortization period for a 

protected balance of not less than five 

years, beginning no earlier than the 

effective date of the increase. 

Accordingly, when a consumer rejects a 

significant change in terms pursuant to 

§ 226.9(h)(1), § 226.9(h)(2)(iii) permits 

the creditor to establish an amortization 

period for the balance on the account of 

not less than five years, beginning no 

earlier than the date on which the 

creditor was notified of the rejection. 

The comment provides an illustrative 

example. 

In addition, comment 9(h)(2)(iii)–2 

would be revised to clarify the meaning 

of ‘‘the balance on the account’’ that is 

subject to the repayment restrictions in 

proposed § 226.55(c)(2). The revised 

comment would clarify that, when 

applying the methods listed in 

§ 226.55(c)(2) pursuant to 

§ 226.9(h)(2)(iii), the provisions in 

§ 226.55(c)(2) and the guidance in the 

commentary to § 226.55(c)(2) regarding 

protected balances also apply to a 

balance on the account subject to 

§ 226.9(h)(2)(iii). Furthermore, the 

revised comment would clarify that, if 

a creditor terminates or suspends credit 

availability based on a consumer’s 

rejection of a significant change in 

terms, the balance on the account for 

purposes of § 226.9(h)(2)(iii) is the 

balance at the end of the day on which 

credit availability was terminated or 

suspended. However, if a creditor does 

not terminate or suspend credit 

availability, the balance on the account 

for purposes of § 226.9(h)(2)(iii) is the 

balance on a date that is not earlier than 

the date on which the creditor was 

notified of the rejection. An example is 

provided. 

Additional Revisions to Commentary 

Consistent with the proposed 

revisions discussed above, the Board 

proposes to make non-substantive, 


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technical amendments to the 

commentary to § 226.9(h). In addition, 

for organizational reasons, the Board 

proposes to renumber comments 

9(h)(2)(ii)–1 and –2. Finally, the Board 

proposes to amend comment 9(h)(2)(ii)– 

2 to clarify the application of the 

prohibition in § 226.9(h)(2)(ii) on 

imposing a fee or charge solely as a 

result of the consumer’s rejection of a 

significant change in terms. In 

particular, the revised comment would 

clarify that, if credit availability is 

terminated or suspended as a result of 

the consumer’s rejection, a creditor is 

prohibited from imposing a periodic fee 

that was not charged before the 

consumer rejected the change (such as 

a closed account fee). 

Section 226.10 Payments 

Section 226.10, which implements 

TILA Section 164, currently contains 

rules regarding the prompt crediting of 

payments and is entitled ‘‘Prompt 

crediting of payments.’’ 15 U.S.C. 1666c. 

As is discussed further in the sectionby-section analysis, the Board is 

proposing to implement several new 

provisions of the Credit Card Act 

regarding payments in § 226.10, such as 

requirements regarding the 

permissibility of certain fees to make 

expedited payments. Several of these 

rules do not pertain directly to the 

prompt crediting of payments, but more 

generally to the conditions that may be 

imposed upon payments. Accordingly, 

the Board is proposing to amend the 

title of § 226.10 to ‘‘Payments’’ to more 

accurately reflect the content of 

amended § 226.10. 

226.10(b) Specific Requirements for 

Payments 

Cut-Off Times for Payments 

TILA Section 164 states that payments 

received by the creditor from a 

consumer for an open-end consumer 

credit plan shall be posted promptly to 

the account as specified in regulations 

of the Board. The Credit Card Act 

amended TILA Section 164 to state that 

the Board’s regulations shall prevent a 

finance charge from being imposed on 

any consumer if the creditor has 

received the consumer’s payment in 

readily identifiable form, by 5 p.m. on 

the date on which such payment is due, 

in the amount, manner, and location 

indicated by the creditor to avoid the 

imposition of such a finance charge. 

While amended TILA Section 164 

generally mirrors current TILA Section 

164, the Credit Card Act added the 

reference to a 5 p.m. cut-off time for 

payments received on the due date. 

TILA Section 164 is implemented in 

§ 226.10. The Board’s January 2009 

Regulation Z Rule addressed cut-off 

times by providing that a creditor may 

specify reasonable requirements for 

payments that enable most consumers to 

make conforming payments. Section 

226.10(b)(2)(ii) of the January 2009 

Regulation Z Rule stated that a creditor 

may set reasonable cut-off times for 

payments to be received by mail, by 

electronic means, by telephone, and in 

person. Amended § 226.10(b)(2)(ii) 

provided a safe harbor for the 

reasonable cut-off time requirement, 

stating that it would be reasonable for a 

creditor to set a cut-off time for 

payments by mail of 5 p.m. on the 

payment due date at the location 

specified by the creditor for the receipt 

of such payments. While this safe 

harbor referred only to payments 

received by mail, the Board noted in the 

supplementary information to the 

January 2009 Regulation Z Rule that it 

would continue to monitor other 

methods of payment in order to 

determine whether similar guidance 

was necessary. See 74 FR 5357. 

As amended by the Credit Card Act, 

TILA Section 164 differs from § 226.10 

of the January 2009 Regulation Z Rule 

in several respects. First, amended TILA 

Section 164 applies the requirement that 

a creditor treat a payment received by 

5 p.m. on the due date as timely to all 

forms of payment, not only payments 

received by mail. In contrast, the safe 

harbor regarding cut-off times that the 

Board provided in § 226.10(b)(2)(ii) of 

the January 2009 Regulation Z Rule 

directly addressed only mailed 

payments. Second, while the Board’s 

January 2009 Regulation Z Rule left 

open the possibility that in some 

circumstances, cut-off times earlier than 

5 p.m. might be considered reasonable, 

amended TILA Section 164 prohibits 

cut-off times earlier than 5 p.m. on the 

due date in all circumstances. 

The Board proposes to implement 

amended TILA Section 164 in a revised 

§ 226.10(b)(2)(ii). Proposed 

§ 226.10(b)(2)(ii) would state that a 

creditor may set reasonable cut-off times 

for payments to be received by mail, by 

electronic means, by telephone, and in 

person, provided that such cut-off times 

must be no earlier than 5 p.m. on the 

payment due date at the location 

specified by the creditor for the receipt 

of such payments. Creditors would be 

free to set later cut-off times; however, 

no cut-off time would be permitted to be 

earlier than 5 p.m. This paragraph, in 

accordance with amended TILA Section 

164, would apply to payments received 

by mail, electronic means, telephone, or 

in person, not only payments received 

by mail. 

Consistent with the January 2009 

Regulation Z Rule, proposed 

§ 226.10(b)(2)(ii) refers to the time zone 

of the location specified by the creditor 

for the receipt of payments. The Board 

believes that this clarification is 

necessary to provide creditors with 

certainty regarding how to comply with 

the proposed rule, given that consumers 

may reside in different time zones from 

the creditor. The Board believes that a 

rule requiring a creditor to process 

payments differently based on the time 

zone at each consumer’s billing address 

could impose significant operational 

burdens on creditors. The Board solicits 

comment on whether this clarification 

continues to be appropriate for 

payments made by methods other than 

mail. 

The Board notes that proposed 

§ 226.10(b)(2)(ii) would generally apply 

to payments made in person. However, 

as discussed below, the Credit Card Act 

amends TILA Section 127(b)(12) to 

establish a special rule for payments on 

credit card accounts made in person at 

branches of financial institutions, which 

the Board proposes to implement in 

new § 226.10(b)(3). Notwithstanding the 

general rule in proposed 

§ 226.10(b)(2)(ii), card issuers that are 

financial institutions that accept 

payments in person at a branch or office 

may not impose a cut-off time earlier 

than the close of business of that office 

or branch, even if the office or branch 

closes later than 5 p.m. Accordingly, a 

financial institution that accepts 

payments at a branch or office that 

closes at 6 p.m. would be required to 

treat all payments received in person at 

the branch or office prior to 6 p.m. on 

the due date as timely. The Board notes 

that this rule refers only to payments 

made in person at the branch or office. 

Payments made by other means such as 

by telephone, electronically, or by mail 

would be subject to the general rule 

prohibiting cut-off times prior to 5 p.m., 

regardless of when a financial 

institution’s branches or offices close. 

The Board notes that there may be 

creditors that are not financial 

institutions that accept payments in 

person, such as at a retail location, and 

believes that it is necessary for proposed 

§ 226.10(b)(2)(ii) to refer to payments 

made in person in order to address cutoff times for such creditors that are not 

also subject to proposed § 226.10(b)(3). 

The Board notes that the Credit Card 

Act applies the 5 p.m. cut-off time 

requirement to all open-end credit 

plans, including open-end (homesecured) credit. Accordingly, proposed 

§ 226.10(b)(2)(ii) would apply to all 


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open-end credit. This is consistent with 

current § 226.10, which applies to all 

open-end credit. 

Payments Made at Financial Institution 

Branches 

The Credit Card Act amends TILA 

Section 127(b)(12) to provide that, for 

creditors that are financial institutions 

which maintain branches or offices at 

which payments on credit card accounts 

are accepted in person, the date on 

which a consumer makes a payment on 

the account at the branch or office is the 

date on which the payment is 

considered to have been made for 

purposes of determining whether a late 

fee or charge may be imposed. 15 U.S.C. 

1637(b)(12). The Board is proposing to 

implement the requirements of 

amended TILA Section 127(b)(12) that 

pertain to payments made at branches or 

offices of a financial institution in new 

§ 226.10(b)(3). Section 226.10(b)(3), as 

adopted in the January 2009 Regulation 

Z Rule, would accordingly be 

renumbered as § 226.10(b)(4). 

Proposed § 226.10(b)(3)(i) states that a 

card issuer that is a financial institution 

shall not impose a cut-off time earlier 

than the close of business for payments 

made in person on a credit card account 

under an open-end (not home-secured) 

consumer credit plan at any branch or 

office of the card issuer at which such 

payments are accepted. The proposed 

regulation further states that payments 

made in person at a branch or office of 

the financial institution during the 

business hours of that branch or office 

shall be considered received on the date 

on which the consumer makes the 

payment. Proposed § 226.10(b)(3) 

interprets amended TILA Section 

127(b)(12) as requiring card issuers that 

are financial institutions to treat inperson payments they receive at 

branches or offices during business 

hours as conforming payments that 

must be credited as of the day the 

consumer makes the in-person payment. 

The Board believes that this is the 

appropriate reading of amended TILA 

Section 127(b)(12) because it is 

consistent with consumer expectations 

that in-person payments made at a 

branch of the financial institution will 

be credited on the same day that they 

are made. 

The Board notes that neither the 

Credit Card Act nor TILA defines 

‘‘financial institution.’’ In order to give 

clarity to card issuers, the Board 

proposes to adopt a definition of 

‘‘financial institution,’’ for purposes of 

§ 226.10(b)(3), in a new 

§ 226.10(b)(3)(ii). Proposed 

§ 226.10(b)(3)(ii) would state that 

‘‘financial institution’’ has the same 

meaning as ‘‘depository institution’’ as 

defined in the Federal Deposit 

Insurance Act (12 U.S.C. 1813(c)). The 

Board believes that this definition 

effectuates the purposes of amended 

TILA Section 127(b)(12) by including all 

banks and savings associations, while 

excluding entities such as retailers that 

should not be considered ‘‘financial 

institutions’’ for purposes of proposed 

§ 226.10(b)(3). The Board solicits 

comment on whether an alternative 

definition would be appropriate. In 

particular, the Board solicits comment 

on whether there are other credit card 

issuers that should be considered 

‘‘financial institutions’’ for purposes of 

the rule. 

The Board also is proposing a new 

comment 10(b)–5 to clarify the 

application of proposed § 226.10(b)(3) 

for payments made at point of sale. 

Proposed comment 10(b)–5 would state 

that if a creditor that is a financial 

institution issues a credit card that can 

be used only for transactions with a 

particular merchant or merchants, and a 

consumer is able to make a payment on 

that credit card account at a retail 

location maintained by such a 

merchant, that retail location is not 

considered to be a branch or office of 

the creditor for purposes of 

§ 226.10(b)(3). The Board believes that 

the intent of TILA Section 127(b)(12) is 

to apply only to payments made at a 

branch or office of the creditor, not to 

payments made at a location maintained 

by a third party that is not the creditor. 

This comment is intended to clarify that 

this rule does not apply when a retailer 

accepts payments at its stores for a cobranded or private label credit card that 

is issued by a separate financial 

institution. 

Finally, the Board also is proposing a 

new comment 10(b)–6 to clarify what 

constitutes a payment made ‘‘in person’’ 

at a branch or office of a financial 

institution. Proposed comment 10(b)–6 

would state that for purposes of 

§ 226.10(b)(3), payments made in person 

at a branch or office of a financial 

institution include payments made with 

the direct assistance of, or to, a branch 

or office employee, for example a teller 

at a bank branch. In contrast, the 

comment would provide that a payment 

made at the bank branch without the 

direct assistance of a branch or office 

employee, for example a payment 

placed in a branch or office mail slot, is 

not a payment made in person for 

purposes of § 226.10(b)(3). The Board 

believes that this is consistent with 

consumer expectations that payments 

made with the assistance of a financial 

institution employee will be credited 

immediately, while payments that are 

placed in a mail slot or other receptacle 

at the branch or office may require 

additional processing time. 

10(d) Crediting of Payments When 

Creditor Does Not Receive or Accept 

Payments on Due Date 

The Credit Card Act adopted a new 

TILA Section 127(o) that provides, in 

part, that if the payment due date for a 

credit card account under an open-end 

consumer credit plan is a day on which 

the creditor does not receive or accept 

payments by mail (including weekends 

and holidays), the creditor may not treat 

a payment received on the next business 

day as late for any purpose. 15 U.S.C. 

1637(o). New TILA Section 127(o) is 

similar to § 226.10(d) of the Board’s 

January 2009 Regulation Z Rule, with 

two notable differences. Amended 

§ 226.10(d) of the January 2009 

Regulation Z Rule stated that if the due 

date for payments is a day on which the 

creditor does not receive or accept 

payments by mail, the creditor may not 

treat a payment received by mail the 

next business day as late for any 

purpose. In contrast, new TILA Section 

127(o) provides that if the due date is a 

day on which the creditor does not 

receive or accept payments by mail, the 

creditor may not treat a payment 

received the next business day as late 

for any purpose. TILA Section 127(o) 

applies to payments made by any 

method on a due date which is a day on 

which the creditor does not receive or 

accept mailed payments, and is not 

limited to payments received the next 

business day by mail. Second, new 

TILA Section 127(o) applies only to 

credit card accounts under an open-end 

consumer plan, while § 226.10(d) of the 

January 2009 rule applies to all openend consumer credit. 

The Board is proposing to implement 

new TILA Section 127(o) in an amended 

§ 226.10(d). The general rule in 

proposed § 226.10(d) would track the 

statutory language of new TILA Section 

127(o) to state that if the due date for 

payments is a day on which the creditor 

does not receive or accept payments by 

mail, the creditor may generally not 

treat a payment received by any method 

the next business day as late for any 

purpose. The Board is proposing, 

however, to provide that if the creditor 

accepts or receives payments made by a 

method other than mail, such as 

electronic or telephone payments, a due 

date on which the creditor does not 

receive or accept payments by mail, it 

is not required to treat a payment made 

by that method on the next business day 

as timely. The Board is proposing this 

clarification using its authority under 

TILA Section 105(a) to make 


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16The Board notes that any cut-off time specified 

by the creditor must comply with proposed 

§ 226.10(b)(2)(ii), discussed earlier in the 

supplementary information. Furthermore, the Board 

notes that the creditor must also comply with 

§ 226.10(a), which generally requires a creditor to 

credit payments to the consumer’s account as of the 

date of receipt, except when a delay in crediting 

does not result in a finance or other charge. 

adjustments necessary to effectuate the 

purposes of TILA. 15 U.S.C. 1604(a). 

The Board believes that it is not the 

intent of new TILA Section 127(o) to 

permit consumers who can make timely 

payments by methods other than mail, 

such as payments by phone, to have an 

extra day after the due date to make 

payments using those methods without 

those payments being treated as late. 

Rather, the Board believes that new 

TILA Section 127(o) was intended to 

address those limited circumstances in 

which a consumer cannot make a timely 

payment on the due date, for example 

if it falls on a weekend or holiday and 

the creditor does not accept or receive 

payments on that date. In those 

circumstances, without the protections 

of new TILA Section 127(o), the 

consumer would have to make a 

payment one or more days in advance 

of the due date in order to have that 

payment treated as timely. The Credit 

Card Act provides other protections 

designed to ensure that consumers have 

adequate time to make payments, such 

as amended TILA Section 163, which 

was implemented in § 226.5(b) in the 

July 2009 Regulation Z Interim Final 

Rule, which generally requires that 

creditors mail or deliver periodic 

statements to consumers at least 21 days 

in advance of the due date. Therefore, 

proposed § 226.10(d) would provide 

that if a creditor receives or accepts 

payments by a method other than mail 

on the due date, the creditor need not 

treat payments made by that method on 

the next business day as timely, even if 

the creditor does not receive or accept 

mailed payments on the due date. For 

example, if a creditor receives or accepts 

electronic payments on a Sunday due 

date, that creditor need not treat as 

timely an electronic payment made on 

the following Monday, even if it does 

not receive or accept payments by mail 

on that Sunday due date. 

Finally, the Board is proposing to 

apply amended § 226.10(d) to all openend consumer credit plans, not just 

credit card accounts, even though new 

TILA Section 127(o) applies only to 

credit card accounts. The Board believes 

that it is appropriate to have one 

consistent rule regarding the treatment 

of payments when the due date falls on 

a date on which the creditor does not 

receive or accept payments by mail. The 

Board believes that that Regulation Z 

should treat payments on an open-end 

plan that is not a credit card account the 

same as payments on a credit card 

account. Regardless of the type of openend plan, if the payment due date is a 

day on which the creditor does not 

accept or receive payments by mail, a 

consumer should not be required to 

make payments prior to the due date in 

order for them to be treated as timely. 

This is consistent with § 226.10(d) of the 

January 2009 Regulation Z Rule, which 

set forth one consistent rule for all openend credit. 

10(e) Limitations on Fees Related to 

Method of Payment 

The Credit Card Act adopted new 

TILA Section 127(l) which generally 

prohibits creditors, in connection with a 

credit card account under an open-end 

consumer credit plan, from imposing a 

separate fee to allow a consumer to 

repay an extension of credit or pay a 

finance charge, unless the payment 

involves an expedited service by a 

customer service representative. 15 

U.S.C. 1637(l). The Board is proposing 

to implement TILA Section 127(l) in 

§ 226.10(e). Proposed § 226.10(e) would 

generally track the statutory language of 

new TILA Section 127(l) and would 

state that, for credit card accounts under 

an open-end (not home-secured) 

consumer credit plan, a creditor may 

not impose a separate fee to allow 

consumers to make a payment by any 

method, such as mail, electronic, or 

telephone payments, unless such 

payment method involves an expedited 

service by a customer service 

representative of the creditor. The text 

of proposed § 226.10(e) differs from the 

text of TILA Section 127(l), in order to 

clarify that a separate fee for any 

payment made to an account is 

prohibited, with the exception of a 

payment involving expedited service by 

a customer service representative. See 

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

The Board believes that the intent of 

new TILA Section 127(l) is to prohibit 

the imposition of a separate fee for 

making any payment, unless the 

payment transaction involves expedited 

service by a customer service 

representative. Accordingly, the Board 

notes that proposed § 226.10(e) would 

cover all methods of payment, such as 

mail, electronic, and telephone 

payments. Under proposed § 226.10(e), 

consistent with TILA Section 127(i), 

creditors would be permitted to charge 

a separate fee only for those payment 

transactions that involve expedited 

service by a customer service 

representative. A creditor, however, 

would not be permitted to charge a 

separate fee for payment transactions 

that do not involve a customer service 

representative, such as payments sent 

by mail. 

The Board is proposing several 

comments to provide guidance to 

creditors in complying with § 226.10(e). 

Proposed comment 10(e)–1 would 

clarify that the term ‘‘separate fee’’ 

means any fee imposed on a consumer 

for making a single payment to the 

consumer’s account. Proposed comment 

10(e)–1 would clarify, however, that a 

fees or charge imposed if payment is 

made after the due date, such as a late 

fee or finance charge, is not a ‘‘separate 

fee to allow consumers to make a 

payment’’ for purposes of § 226.10(e). 

The Board also proposes to adopt 

comment 10(e)–2, which clarifies that 

the term ‘‘expedited’’ means crediting a 

payment to the account the same day or, 

if the payment is received after the 

creditor’s cut-off time, the next business 

day.16 For example, if a creditor accepts 

a nonconforming payment (such as a 

payment mailed to a branch office when 

it had specified the payment be sent to 

a different location) and a customer 

service representative credits the 

payment to the consumer’s account the 

same day, the creditor may impose a 

separate fee. The Board believes that 

this standard for determining whether 

service is expedited will promote 

consistent practices among different 

creditors and will provide certainty as 

to how to comply with proposed 

§ 226.10(e). In contrast, it would be 

difficult to apply a standard defining 

expedited service in relation to the time 

required for a payment to post using 

standard mail service because the length 

of time for delivery by mail for a given 

consumer or creditor may vary. In 

addition, a standard for determining 

whether service is expedited based on 

proximity to the due date would not 

address those circumstances in which 

consumers may want to make an 

expedited payment to the account in 

advance of the due date, such as in 

order to increase the amount of 

available credit. 

Proposed comment 10(e)–3 would 

clarify that expedited service by a live 

customer service representative of the 

creditor would be required in order for 

a creditor to charge a separate fee to 

allow consumers to make a payment. 

Payments made on the account with the 

assistance of a live representative or 

agent may include payments made in 

person, on the telephone, or by 

electronic means. The Board 

understands that automated systems, 

such as a voice response unit or an 

interactive voice response system, are 

widely used to permit customers to 


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make a payment by telephone or other 

electronic means. The proposed 

comment clarifies that a customer 

service representative does not include 

automated payment systems because 

these transactions do not involve a live 

customer service representative. 

Section 226.10(f) Changes by Card 

Issuer 

The Credit Card Act adopted new 

TILA Section 164(c), which provides 

that a card issuer may not impose any 

late fee or finance charge for a late 

payment on a credit card account if a 

card issuer makes ‘‘a material change in 

the mailing address, office, or 

procedures for handling cardholder 

payments, and such change causes a 

material delay in the crediting of a 

cardholder payment made during the 

60-day period following the date on 

which the change took effect.’’ 15 U.S.C. 

1666c(c). The Board proposes to 

implement new TILA Section 164(c) in 

proposed § 226.10(f). 

The text of proposed § 226.10(f) 

generally follows the language provided 

in new TILA Section 164(c) with a 

modification to clarify the meaning of 

‘‘office.’’ With respect to a change in 

office, the Board believes the intent of 

Section 164(c) is to apply only to 

changes in the address of a branch or 

office at which payments on a credit 

card account are accepted. See 15 U.S.C. 

1604(a). Accordingly, proposed 

§ 226.10(f) would prohibit a credit card 

issuer from imposing any late fee or 

finance charge for a late payment on a 

credit card account if a card issuer 

makes a material change in the address 

for receiving cardholder payments or 

procedures for handling cardholder 

payments, and such change causes a 

material delay in the crediting of a 

payment made during the 60-day period 

following the date on which the change 

took effect. As an initial matter, the 

Board notes that proposed § 226.10(f) 

would apply only to credit card 

accounts under an open-end (not homesecured) consumer credit plan, 

consistent with the approach the Board 

has taken with regard to other 

provisions of the Credit Card Act 

applicable to credit card accounts. 

The Board proposes to adopt 

comment 10(f)–1 to clarify that ‘‘address 

for receiving payment’’ means a mailing 

address for receiving payment, such as 

a post office box, or the address of a 

branch or office at which payments on 

credit card accounts are accepted. 

The Board is also proposing comment 

10(f)–2 to provide guidance to creditors 

in determining whether a change or 

delay is material. Proposed comment 

10(f)–2 would clarify that ‘‘material 

change’’ means any change in address 

for receiving payment or procedures for 

handling cardholder payments which 

causes a material delay in the crediting 

of a payment. Proposed comment 10(f)– 

2 would further clarify that a ‘‘material 

delay’’ means any delay in crediting a 

payment to a consumer’s account which 

would result in a late payment and the 

imposition of a late fee or finance 

charge. The Board understands that it 

may be difficult for a card issuer to 

ascertain, for any given change in the 

address for receiving payment or 

procedures for handling payments, 

whether that change did in fact cause a 

material delay in the crediting of a 

consumer’s payment. 

Proposed comment 10(f)–3 would 

provide card issuers with a safe harbor, 

which the Board believes will give card 

issuers certainty in how to comply with 

the proposed rule. The Board requests 

comment on other reasonable methods 

that card issuers may use in complying 

with proposed § 226.10(f). In order to 

provide additional guidance to creditors 

in complying with this rule, proposed 

comment 10(f)–4 provides illustrative 

examples consistent with proposed 

§ 226.10(f). For example, assume that a 

card issuer changes the mailing address 

for receiving payments by mail from one 

post office box number to another post 

office box number. The card issuer 

continues to use both post office box 

numbers for the collection of payments 

received by mail. The change in mailing 

address would not cause a material 

delay in crediting a payment because 

payments would be received and 

credited at both addresses. Therefore, a 

card issuer may impose a late fee or 

finance charge for a late payment on the 

account. Furthermore, for example, 

assume the same facts as above except 

the prior post office box number is no 

longer valid and mail sent to that 

address would be returned to sender. 

The change in mailing address is 

material and the change could cause a 

material delay in the crediting of a 

payment because a payment sent to the 

old address could be delayed past the 

due date. If, as a result, a consumer 

makes a late payment on the account 

during the 60-day period following the 

date on which the change took effect, a 

card issuer may not impose any late fee 

or finance charge for the late payment. 

Proposed comment 10(f)–5 would 

clarify that when an account is not 

eligible for a grace period, imposing a 

finance charge due to a periodic interest 

rate does not constitute imposition of a 

finance charge for a late payment for the 

purposes of § 226.10(f). Notwithstanding 

the proposed rule, a card issuer may 

impose a finance charge due to a 

periodic interest rate in those 

circumstances. 

Section 226.11 Treatment of Credit 

Balances; Account Termination 

11(c) Timely Settlement of Estate Debts 

New TILA Section 140A requires that 

the Board, in consultation with the 

Federal Trade Commission and each 

other agency referred to in § 108(a) of 

TILA, prescribe regulations requiring 

creditors, with respect to credit card 

accounts under an open-end consumer 

credit plan, to establish procedures to 

ensure that any administrator of an 

estate can resolve the outstanding credit 

balance of a deceased accountholder in 

a timely manner. 15 U.S.C. 1651. The 

Board proposes to implement TILA 

Section 140A in new § 226.11(c). In 

developing this proposal, the Board 

consulted with the Federal Trade 

Commission and the agencies referred to 

in § 108(a) of TILA. Proposed 

§ 226.11(c)(1) requires creditors to adopt 

reasonable procedures designed to 

ensure that any administrator or 

executor of an estate of a deceased 

accountholder can determine the 

amount of and pay any balance on the 

decedent’s credit card account in a 

timely manner. Proposed § 226.11(c) 

would apply only to credit card 

accounts under an open-end (not homesecured) consumer credit plan, 

consistent with the approach the Board 

has taken with regard to other 

provisions of the Credit Card Act 

applicable to credit card accounts. 

Proposed § 226.11(c) generally follows 

the language in TILA Section 140A with 

some modification. For clarity, the 

Board proposes to interpret the term 

‘‘resolve’’ for purposes of § 226.11(c) to 

mean determine the amount of and pay 

any balance on a deceased consumer’s 

account. In addition, in order to ensure 

that the rule applies consistently to any 

personal representative of an estate who 

has the duty to settle any estate debt, the 

Board proposes to include ‘‘executor’’ in 

proposed § 226.11(c). The Board notes 

that the duties and responsibilities of 

administrators and executors are 

generally the same; however, it is the 

Board’s understanding that 

administrators are distinct from 

executors in the manner in which they 

are appointed. Specifically, an executor 

is designated by the decedent’s will 

while an administrator is typically 

appointed by a court in accordance with 

State law. The Board believes that TILA 

Section 140A is intended to apply to 

any deceased accountholder’s estate, 

regardless of whether an administrator 

or executor is responsible for the estate. 


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17For ease of reference, the supplementary 

information to proposed § 226.16(h) refers 

generically to these terms as ‘‘deferred interest 

triggering terms.’’ 

In addition, the Board is proposing to 

require creditors to adopt ‘‘reasonable 

procedures designed to ensure’’ that 

administrators or executors can 

determine the amount of and pay any 

balance in a timely manner. The Board 

recognizes that some creditors may 

already have established procedures for 

the resolution of a deceased 

accountholder’s balance. Thus, a 

‘‘reasonable procedures’’ standard 

would permit creditors to retain, to the 

extent appropriate, procedures which 

may already be in place, in complying 

with proposed § 226.11(c), as well as 

applicable State and Federal laws 

governing probate. Proposed comment 

11(c)–1 provides examples of reasonable 

procedures consistent with proposed 

§ 226.11(c). 

In addition to the general rule, the 

Board is proposing § 226.11(c)(2)(i), 

which would prohibit creditors from 

imposing fees and charges on a 

deceased consumer’s account upon 

receiving a request for the amount of 

any balance from an administrator or 

executor of an estate. The intent of new 

TILA Section 140A is to ensure the 

timely settlement of a deceased 

accountholder’s credit card balance. The 

Board understands that establishing and 

administering an estate may be a 

complex, time-consuming process, 

which is subject to various State law 

requirements and can involve a probate 

court. Furthermore, the Board 

understands that some administrators 

and executors currently may be unable 

to obtain the amount of a deceased 

accountholder’s balance in a timely 

manner, which in turn, delays the 

settlement of estate debts. If balances 

cannot be obtained and settled in a 

timely manner, fees and other charges, 

such as a late fee or finance charge, may 

continue to accrue on the account 

balance. Under these circumstances, the 

Board believes that the estate and its 

assets may be disadvantaged if fees and 

charges continue to accrue on the 

account. Accordingly, proposed 

§ 226.11(c)(2)(i) would prohibit a 

creditor from imposing fees and charges 

on the deceased consumer’s account 

upon receiving a request for the amount 

of the balance on the account from an 

administrator or executor of an estate. 

The Board believes that this prohibition 

is necessary to provide certainty for all 

parties as to the balance amount and to 

ensure the timely settlement of estate 

debts. Proposed comment 11(c)–2 

would clarify that a creditor may 

impose finance charges based on 

balances for days that precede the date 

on which the creditor receives a request 

pursuant to proposed § 226.11(c)(3). The 

Board solicits comment on whether a 

creditor should be permitted to resume 

the imposition of fees and charges if the 

administrator or executor of an estate 

has not paid the account balance within 

a specified period of time. 

Proposed § 226.11(c)(2)(ii) would 

provide that a creditor may impose fees 

and charges on a deceased consumer’s 

account if a joint accountholder remains 

on the account. For joint accounts, a 

joint accountholder remains liable for 

the account. In contrast, because an 

authorized user is not liable for the 

account, proposed § 226.11(c)(2)(ii) 

would not extend to such users. 

Accordingly, a creditor may not impose 

fees and charges on the account if only 

an authorized user remains on the 

account. Proposed comment 11(c)–3 

would clarify that a creditor may 

impose fees and charges on a deceased 

consumer’s account if a joint 

accountholder remains on the account. 

The proposed comment would further 

clarify that a creditor may not impose 

fees and charges on a deceased 

consumer’s account if an authorized 

user remains on the account. 

The Board is also proposing comment 

11(c)–4 to clarify that a creditor may 

receive a request for the amount of the 

balance on the account in writing or by 

telephone call from the administrator or 

executor of an estate. If a request is 

made in writing, such as by mail, the 

request is received when the creditor 

receives the correspondence. 

Under proposed § 226.11(c)(3)(i), a 

creditor would be required to disclose 

the amount of the balance on the 

account in a timely manner, upon 

request by the administrator or executor 

of the estate. The Board believes a 

timely statement reflecting the deceased 

accountholder’s balance is necessary to 

assist administrators and executors with 

the settlement of estate debts. Proposed 

comment 11(c)–5 provides guidance to 

creditors in complying with 

§ 226.11(c)(3). Creditors may provide 

the amount of the balance, if any, by a 

written statement or by telephone. 

Proposed comment 11(c)–5 also clarifies 

that proposed § 226.11(c)(3) would not 

preclude a creditor from providing the 

balance amount to appropriate persons, 

other than the administrator or executor 

of an estate. For example, the Board 

notes that the proposed rule would not 

preclude creditors, subject to applicable 

Federal and State laws, from providing 

a spouse or family members who 

indicate that they will pay the 

decedent’s debts from obtaining a 

balance amount for that purpose. 

Proposed § 226.11(c)(3)(ii) provides 

creditors with a safe harbor for 

disclosing the balance amount in a 

timely manner, stating that it would be 

reasonable for a creditor to provide the 

balance on the account within 30 days 

of receiving a request by the 

administrator or executor of an estate. 

The Board believes that 30 days is 

reasonable to ensure that transactions 

and charges have been accounted for 

and calculated and to provide a written 

statement or confirmation. The Board 

seeks comment as to whether 30 days 

provides creditors with sufficient time 

to provide a statement of the balance on 

the deceased consumer’s account. 

Section 226.16 Advertising 

16(f) Misleading Terms 

See the supplementary information to 

§ 226.5(a)(2)(iii) for a discussion of the 

Board’s proposals regarding use of the 

term ‘‘fixed’’ in advertisements for 

open-end plans set forth in proposed 

§ 226.16(f). 

16(h) Deferred Interest or Similar Offers 

In May 2009, the Board proposed to 

use its authority under TILA Section 

143(3) to implement new advertising 

requirements related to deferred interest 

or similar offers for open-end (not 

home-secured) credit plans. 15 U.S.C. 

1663(3). These requirements, which the 

Board proposed to implement in a new 

§ 226.16(h), were similar to those 

originally proposed by the Board in May 

2009. See 73 FR 28866, 28884–28886. 

The Board continues to believe that 

these requirements would better inform 

consumers of the terms of deferred 

interest or similar offers and that these 

advertising requirements will 

complement the proposed periodic 

statement disclosures for such programs 

that are discussed in the supplementary 

information to § 226.7(b). Therefore, the 

Board is republishing these same 

requirements for additional comment in 

this Federal Register notice. 

Specifically, these disclosure 

requirements would apply to 

advertisements that use terms such as 

‘‘no interest,’’ ‘‘no payments,’’ ‘‘deferred 

interest,’’ ‘‘same as cash,’’ or similar 

terms in describing these offers.17

Proposed § 226.16(h)(1) would limit 

these requirements to advertisements of 

open-end (not home-secured) credit, 

and proposed § 226.16(h)(2) would 

define terms applicable to the section. 

74 FR 20793–20794. Proposed 

§ 226.16(h)(3) would require that the 

deferred interest period be disclosed in 

immediate proximity to each deferred 

interest triggering term. Also, under 


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18While the May 2009 Regulation Z Proposed 

Clarifications referred to a ‘‘deferred or waived 

interest’’ offer, this proposal refers to such 

promotional programs more generally as deferred 

interest or similar offers. 

proposed § 226.16(h)(3), for 

advertisements stating ‘‘no interest’’ or a 

similar term, the fact that the balance 

must be paid in full by the end of the 

deferred interest period also would need 

to be disclosed in immediate proximity 

to that term. 74 FR 20794. Proposed 

§ 226.16(h)(4) also would require that 

certain additional information about the 

terms of the deferred interest or similar 

offer be disclosed in close proximity to 

the first statement of a deferred interest 

triggering term. 74 FR 20794. To 

facilitate compliance with this 

provision, the Board proposed model 

language in Sample G–22 in Appendix 

G. 74 FR 20797. Sample G–22 from the 

May 2009 Regulation Z Proposed 

Clarifications has been renumbered as 

Sample G–24 in this proposal. Proposed 

§ 226.16(h)(4) would require that 

advertisements of deferred interest or 

similar offers use language similar to 

Sample G–24. Finally, under proposed 

§ 226.16(h)(5), most of these 

requirements would not apply to 

envelopes or other enclosures in which 

an application or solicitation is mailed, 

or banner advertisements or pop-up 

advertisements linked to an electronic 

application or solicitation, bearing the 

triggering terms. 74 FR 20794. 

In addition, the Board proposed new 

commentary to provide further guidance 

on the requirements under proposed 

§ 226.16(h), and also proposed to amend 

comments 16–1 and 16–2 to clarify the 

clear and conspicuous requirements for 

these disclosures. 74 FR 20800. 

Proposed comment 16(h)–1 provided 

further clarification on what types of 

offers were included as deferred interest 

or similar offers, while proposed 

comment 16(h)–2 further clarified the 

meaning of ‘‘deferred or waived interest 

period.’’ 18 74 FR 20800. Similar to 

guidance adopted in the January 2009 

Regulation Z Rule for advertisements of 

promotional rates under § 226.16(g), the 

Board proposed comment 16(h)–3 to 

further clarify the meaning of 

‘‘immediate proximity,’’ comment 

16(h)–4 to further clarify the meaning of 

‘‘prominent location closely proximate,’’ 

and comment 16(h)–5 to further clarify 

the meaning of ‘‘first listing.’’ 74 FR 

20800. The Board also proposed 

comment 16(h)–6 to clarify that the 

information required under proposed 

§ 226.16(h)(4) need not be segregated 

from other information the 

advertisement discloses about the 

deferred interest or similar offer. 74 FR 

20800. Finally, proposed comment 

16(h)–7 provided examples of phrases 

that could be used to comply with 

proposed 226.16(h)(3). 74 FR 20801. 

Section 226.51 Ability To Pay 

51(a) General Ability To Pay 

Section 109 of the Credit Card Act 

adds new TILA Section 150 prohibiting 

a card issuer from opening a credit card 

account for a consumer, or increasing 

the credit limit applicable to a credit 

card account, unless the card issuer 

considers the consumer’s ability to 

make the required payments under the 

terms of such account. 15 U.S.C. 1665e. 

The Board proposes to implement TILA 

Section 150 in § 226.51(a). 

Proposed § 226.51(a)(1) generally 

follows the language provided in TILA 

Section 150 with two modifications. 

First, because the minimum payment is 

the amount that a consumer is required 

to pay each billing cycle under the 

terms of the contract with the card 

issuer, the Board proposes to interpret 

the term ‘‘required payments’’ to mean 

the required minimum periodic 

payment. 

Second, the Board believes an 

evaluation of a consumer’s current 

ability to pay must include a review of 

the consumer’s income or assets as well 

as the consumer’s current obligations. 

Therefore, proposed § 226.51(a)(1) 

would provide that the card issuer’s 

consideration of the ability of the 

consumer to make the required 

minimum periodic payments must be 

based on the consumer’s income or 

assets and the consumer’s current 

obligations. Proposed § 226.51(a)(1) 

would also require that card issuers 

have reasonable policies and procedures 

in place to consider this information. A 

card issuer has not complied with this 

provision if, for example, a card issuer 

does not review any information about 

a consumer’s income, assets, or current 

obligations, or issues a credit card to a 

consumer who does not have any 

income or assets. In addition, the Board 

believes that other factors may be useful 

for card issuers to evaluate a consumer’s 

ability to pay. Accordingly, proposed 

comment 51(a)–1 would clarify that 

card issuers may also consider credit 

reports or credit scores, and any other 

factors that are consistent with the 

Board’s Regulation B (12 CFR Part 202). 

Because the minimum payments a 

consumer is required to pay each billing 

cycle may vary depending on the 

amount of the balance as well as the 

finance and other charges a consumer 

incurs during the billing cycle, card 

issuers would be required to estimate 

the minimum payments a consumer 

might be obligated to pay before the 

account is opened or the credit line is 

increased. Proposed § 226.51(a)(2)(i) 

would require card issuers to use a 

reasonable method for estimating the 

required minimum periodic payments, 

and proposed § 226.51(a)(2)(ii) would 

provide a safe harbor that card issuers 

could use to comply with this 

requirement. Specifically, the safe 

harbor requires the card issuer to 

assume utilization of the full credit line 

that the issuer is considering offering to 

the consumer from the first day of the 

billing cycle. The safe harbor also 

requires the issuer to use a minimum 

payment formula employed by the 

issuer for the product the issuer is 

considering offering to the consumer or, 

in the case of an existing account, the 

minimum payment formula that 

currently applies to that account. For 

example, in evaluating an application to 

open a new account, if the minimum 

payment formula used by the card 

issuer for the product is 2% of the 

outstanding balance, the estimated 

required minimum periodic payment for 

a $10,000 credit line would be $200 

under the safe harbor. 

However, if the applicable minimum 

payment formula includes interest 

charges, the safe harbor requires the 

card issuer to estimate those charges 

using an interest rate that the issuer is 

considering offering to the consumer for 

purchases or, in the case of an existing 

account, the interest rate that currently 

applies to purchases. For example, if the 

minimum payment formula that applies 

to an existing consumer’s account is 3% 

plus interest and fees, the current 

purchase rate for the account is 10%, 

and the card issuer is considering 

increasing the consumer’s credit line to 

$10,000, the estimated required 

minimum periodic payment would be 

approximately $380 under the safe 

harbor. Finally, if the applicable 

minimum payment formula includes 

fees, the card issuer may assume that no 

fees have been charged to the account. 

In developing the proposed safe 

harbor, the Board considered a number 

of different approaches. The Board 

recognizes that consumers generally do 

not use the full credit line, and 

consequently, the Board’s proposed safe 

harbor approach could have the effect of 

overstating the consumer’s likely 

required payments. The Board, 

however, believes that since card issuers 

are qualifying consumers for a certain 

credit line, of which consumers 

presumably have full use, card issuers 

should be expected to underwrite based 

on required payments on the full 

amount under the safe harbor. 

Furthermore, although estimating a 


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consumer’s required minimum periodic 

payments may be more accurate with 

the addition of some estimated fees 

when using a minimum payment 

formula that includes the interest and 

fees, the Board believes that estimating 

the amount of fees that a typical 

consumer might incur could be 

speculative. As a result the Board’s 

proposed safe harbor does not require 

issuers to estimate fees. The Board seeks 

comment on other reasonable methods 

that card issuers may use in estimating 

minimum payments. 

Proposed comment 51(a)–2 would 

clarify that in considering a consumer’s 

ability to pay, a card issuer must base 

the consideration on facts and 

circumstances known to the card issuer 

at the time the consumer applies to 

open the credit card account or when 

the card issuer considers increasing the 

credit line on an existing account. This 

guidance is similar to comment 

34(a)(4)–5 addressing a creditor’s 

requirement to consider a consumer’s 

repayment ability for certain closed-end 

mortgage loans based on facts and 

circumstances known to the creditor at 

loan consummation. Furthermore, since 

credit line increases can occur at the 

request of a consumer or through a 

unilateral decision by the card issuer, 

proposed comment 51(a)–3 would 

clarify that § 226.51(a) applies in both 

situations. 

Proposed comment 51(a)–4 would 

provide examples of assets and income 

the card issuer may consider in 

evaluating a consumer’s ability to pay. 

The comment would provide similar 

guidance to comment 34(a)(4)–6 

regarding the requirement for creditors 

to consider a consumer’s repayment 

ability with respect to certain closedend mortgage loans. The Board also 

proposes comment 51(a)–5 to clarify 

that in considering a consumer’s current 

obligations, a card issuer may rely on 

information provided by the consumer 

or in a consumer’s credit report. 

Finally, for several reasons, the 

proposal does not require that card 

issuers verify information before the 

account is opened or the credit line is 

increased. First, TILA Section 150 does 

not require verification of a consumer’s 

ability to make required payments. 

Second, verification can be burdensome 

for both consumers and card issuers, 

especially when accounts are opened at 

point of sale or by telephone. For 

example, because consumers generally 

do not have documentation readily 

available to verify their income, assets, 

or obligations at point of sale, a 

verification requirement would restrict 

consumers’ ability to open a new credit 

card account at point of sale. As a result, 

the Board believes that card issuers 

need flexibility to determine instances 

when they need to verify information. 

Furthermore, since these accounts are 

generally unsecured, the Board believes 

that card issuers have reasons to verify 

the information when either the 

information supplied by the applicant is 

inconsistent with the data the card 

issuers already have or are able to gather 

on the consumer or when the risk in the 

amount of the credit line warrants such 

verification. While the Board has 

required creditors to verify information 

before credit is extended for certain 

mortgage loans, the Board’s decision 

with respect to such loans was based on 

evidence that borrower income was 

inflated for these types of mortgage 

loans and that lending decisions based 

on overstated incomes contributed to 

the recent substantial increase in 

mortgage delinquencies. In contrast, the 

Board does not have evidence that this 

is the case in the credit card market. As 

a result, the Board believes a 

verification requirement before a credit 

card account is opened or credit line 

increased would not be necessary and 

could burden consumers. The Board, 

however, seeks comment on whether 

there is evidence that warrants a 

requirement to verify information before 

a credit card account is opened or a 

credit line is increased. 

51(b) Rules Affecting Young Consumers 

Currently, card issuers may grant 

credit to young consumers on the 

assumption that a parent or guardian of 

the consumer will pay the debt, even if 

the issuer does not obtain the express 

agreement of such parent or guardian to 

assume liability. Sections 301 and 303 

of the Credit Card Act are meant to 

address this situation. Under new 

Section 127(c)(8)(A) of TILA, as adopted 

by Section 301 of the Credit Card Act, 

no credit card may be issued to, or 

open-end consumer credit plan 

established by, or on behalf of a 

consumer, who has not attained the age 

of 21 unless the consumer has 

submitted a written application to the 

card issuer that meets certain 

requirements. 15 U.S.C. 1637(c)(8)(A). 

New TILA Section 127(c)(8)(B) further 

provides that an application to open a 

credit card account by a consumer who 

has not attained the age of 21 as of the 

date of submission of the application 

shall require either: (1) The signature of 

a cosigner who has attained the age of 

21 having a means to repay debts 

incurred by the consumer in connection 

with the account, indicating joint 

liability for debts incurred by the 

consumer in connection with the 

account before the consumer has 

attained the age of 21; or (2) the 

submission by the consumer of financial 

information, including through an 

application, indicating an independent 

means of repaying any obligation arising 

from the proposed extension of credit in 

connection with the account. 15 U.S.C. 

1637(c)(8)(B). 

Section 303 of the Credit Card Act 

adds new TILA Section 127(p). 15 

U.S.C. 1637(p). TILA Section 127(p) 

states that no increase may be made in 

the amount of credit authorized to be 

extended under a credit card account for 

which an individual has assumed joint 

liability for debts incurred by the 

consumer in connection with the 

account before the consumer attains the 

age of 21, unless that individual 

approves in writing, and assumes joint 

liability for, such increase. 

The Board proposes to implement 

these provisions in proposed § 226.51(b) 

and associated commentary. Proposed 

§ 226.51(b)(1) would provide that a card 

issuer may not open a credit card 

account under an open-end (not homesecured) consumer credit plan for a 

consumer less than 21 years old, unless 

the consumer submits a written 

application and provides either a signed 

agreement of a cosigner, guarantor, or 

joint applicant pursuant to 

§ 226.51(b)(1)(i) or financial information 

consistent with § 226.51(b)(1)(ii), as 

further discussed below. The language 

in § 226.51(b)(1) has been modified from 

the statutory language in TILA Section 

127(c)(8)(A) for consistency with 

§ 226.51(a) and to clarify that the 

provision applies only to credit card 

accounts and only in connection with 

the opening of the account. 

Furthermore, the language has been 

modified to improve readability. 

Although the text of TILA Section 

127(c)(8)(A) references open-end 

consumer credit plans other than credit 

cards, the Board believes that the intent 

of the provision, read as a whole, is to 

apply only to credit card accounts. 

While the provision references other 

open-end consumer credit plans, the 

requirements under the provision apply 

only to ‘‘card issuers.’’ Based on the fact 

that the requirements of the provision 

are limited to card issuers as well as 

language in other related sections of the 

Credit Card Act and the location of the 

provision in TILA, the Board believes 

that the restrictions in TILA Section 

127(c)(8)(A) are meant to apply only to 

credit card accounts. 

First, TILA Section 127(c)(8)(B), 

which discusses the requirements for an 

application submitted by a consumer 

who has not attained the age of 21, 

refers solely to an application to open a 

credit card account. Second, TILA 


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Section 127(p), which restricts credit 

line increases for accounts in which an 

individual assumes joint liability for 

debts incurred by the consumer in 

connection with the account before the 

consumer attains the age of 21, refers 

only to a credit card account. Third, 

these provisions have been placed in 

TILA Section 127(c), a section that deals 

exclusively with credit card accounts. 

Therefore, the Board believes it is 

appropriate to apply proposed 

§ 226.51(b)(1) only to credit card 

accounts. 

Furthermore, proposed § 226.51(b)(1) 

refers to the opening of a credit card 

account, which differs from the statute’s 

reference to the issuance of a credit 

card. The ‘‘issuance’’ of a credit card 

can refer to a card sent to the consumer 

as a replacement card or upon renewal 

of the card. See § 226.12(a). As a result, 

the Board believes that limiting the 

scope of § 226.51(b) to the opening of a 

credit card account is appropriate. 

Otherwise, the provision could be 

construed to require card issuers to 

evaluate a cardholder’s ability or obtain 

the signature of a cosigner even when a 

card is being sent to an existing 

cardholder to replace an expired card. 

The Board notes that the renewal of an 

existing account or change in the terms 

of an existing account generally does 

not constitute the opening of an account 

for purposes of Regulation Z. 

The Board proposes to implement the 

specific application requirements 

detailed in TILA Section 127(c)(8)(B) in 

§ 226.51(b)(1)(i) and (ii). Proposed 

§ 226.51(b)(1)(i) and (ii) generally follow 

the language in TILA Section 

127(c)(8)(B) with some changes. While 

most of these modifications are minor 

and are meant to improve the 

readability of the regulation without any 

substantive change in meaning, the 

Board also proposes to clarify the 

meaning of cosigner and joint liability. 

The terms cosigner and joint liability 

can have several meanings. For 

example, a cosigner can refer to a 

guarantor who has no credit privileges 

on the account but is secondarily liable 

for a consumer’s debt if the consumer 

defaults. A cosigner can also mean a 

joint accountholder who shares credit 

privileges with the consumer on the 

account and is jointly liable on the debt 

incurred by either the consumer or the 

joint accountholder. The Board believes 

it is appropriate to modify the language 

used in the regulation from the statutory 

language to make clear that all types of 

cosigners and joint liability 

arrangements would be included. 

Accordingly, proposed § 226.51(b)(1)(i) 

states that a consumer who is less than 

21 years old can provide the signed 

agreement of a cosigner, guarantor, or 

joint applicant who is at least 21 years 

old to be either secondarily liable for 

any debt on the account incurred by the 

consumer before the consumer has 

attained the age of 21 in the event the 

consumer defaults on the account or 

jointly liable with the consumer for any 

debt on the account incurred by either 

party. 

Furthermore, to maintain consistency, 

the Board proposes to interpret the 

phrase ‘‘means to repay’’ or ‘‘means of 

repaying’’ as equivalent to evaluating a 

consumer’s ability to make the required 

payments under TILA Section 150, 

which the Board proposes to implement 

in § 226.51(a), as discussed above. 

Therefore, § 226.51(b)(1)(i) and (ii) both 

reference § 226.51(a) in discussing the 

ability of a cosigner, guarantor, or joint 

applicant to make the minimum 

payments on the consumer’s debts and 

the consumer’s independent ability to 

make the minimum payments on any 

obligations arising under the account. 

Proposed § 226.51(b)(2) generally 

follows the language in TILA Section 

127(p), though the Board has modified 

some of the wording used in the statute. 

These changes are meant to improve 

readability without any substantive 

change in meaning. For example, TILA 

Section 127(p) states that a parent, 

guardian, or spouse must approve the 

credit line increase in writing; however, 

the statute also concedes that an 

individual who is not a parent, 

guardian, or spouse may have assumed 

liability for debts incurred by the 

consumer. In those cases, that 

individual should be the one to approve 

the credit line increase, and assume 

liability for that increased amount. 

Therefore, proposed § 226.51(b)(2) 

eliminates the reference to parent, 

guardian, or spouse to apply the 

provision more generally to cosigners, 

guarantors, or joint accountholders. 

The Board also proposes several 

comments to provide guidance to card 

issuers in complying with § 226.51(b). 

Proposed comment 51(b)–1 would 

clarify that § 226.51(b)(1) and (b)(2) 

apply only to a consumer who has not 

attained the age of 21 as of the date of 

submission of the application under 

§ 226.51(b)(1) or the date the credit line 

increase is requested by the consumer 

under § 226.51(b)(2). If no request has 

been made (for example, for unilateral 

credit line increases by the card issuer), 

the provision would apply only to a 

consumer who has not attained the age 

of 21 as of the date the credit line 

increase is considered by the card 

issuer. 

Proposed comment 51(b)–2 would 

address the ability of a card issuer to 

require a cosigner, guarantor, or joint 

accountholder to assume liability for 

debts incurred after the consumer has 

attained the age of 21. While 

§ 226.51(b)(1)(i) and (b)(2) require, at a 

minimum, that a cosigner, guarantor, or 

joint accountholder assume liability for 

any debt on the account incurred by the 

consumer before the consumer has 

attained the age of 21, proposed 

comment 51(b)–2 would clarify that 

§ 226.51(b)(1)(i) and (b)(2) do not restrict 

a card issuer from extending this 

liability to debt incurred by the 

consumer after the consumer has 

attained the age of 21, at the card 

issuer’s option, consistent with any 

agreement made between the parties. 

The Board proposes comment 51(b)– 

3 to clarify that § 226.51(b)(1) and (b)(2) 

do not apply to a consumer under the 

age of 21 who is being added to another 

person’s account as an authorized user 

and has no liability for debts incurred 

on the account. The Board believes that 

the protections under TILA Sections 

127(c)(8) and 127(p) would not be 

necessary if the consumer under the age 

of 21 is not assuming any liability, and 

would therefore not be legally obligated 

to make any payments on the account. 

Proposed comment 51(b)–4 would 

provide card issuers with guidance 

concerning electronic applications and 

explain how the Electronic Signatures 

in Global and National Commerce Act 

(E-Sign Act) (15 U.S.C. 7001 et seq.) 

would govern the submission of such an 

application. TILA Section 127(c)(8) 

requires a consumer who has not 

attained the age of 21 to submit a 

written application. In addition, under 

TILA Section 127(p), a cosigner, 

guarantor, or joint accountholder must 

approve a credit line increase in writing. 

However, in accordance with the 

purposes of the E-Sign Act, contracts 

and other records cannot be denied legal 

effect, validity or enforceability solely 

because they are in electronic form. See 

15 U.S.C. 7001(a). Therefore, the Board 

believes that, consistent with the 

purposes of the E-Sign Act, applications 

submitted under TILA Section 127(c)(8) 

and approvals under TILA Section 

127(p), which must be provided in 

writing, may also be submitted 

electronically. Moreover, the E-Sign Act 

requires that before any disclosure that 

is required to be in writing is provided 

to a consumer electronically, the 

consumer must affirmatively consent to 

the provision of the information 

electronically, among other things. 

Since the submission of an application 

or approval by a consumer, cosigner, 

guarantor, or joint accountholder is not 

a disclosure to a consumer, the 

consumer consent and other 


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19 In a subsequent rulemaking, the Board intends 

to implement new TILA Section 149 in § 226.52(b). 

New TILA Section 149, which is effective August 

22, 2010, requires that credit card penalty fees and 

charges be reasonable and proportional to the 

consumer’s violation of the cardholder agreement. 

20Although the Board, OTS, and NCUA adopted 

substantively identical rules under the FTC Act, 

each agency placed its rules in its respective part 

of Title 12 of the Code of Federal Regulations. 

Specifically, the Board placed its rules in part 227, 

the OTS in part 535, and the NCUA in part 706. 

For simplicity, this supplementary information 

cites to the Board’s rules and official staff 

commentary. 

requirements necessary to provide 

consumer disclosures electronically 

pursuant to the E-Sign Act would not 

apply. Furthermore, § 226.5(a)(1)(iii), 

which was adopted in the January 2009 

Regulation Z Rule, provides that an 

application may be provided to a 

consumer in electronic form without 

regard to the consumer consent or other 

provisions of the E-Sign Act in the 

circumstances set forth in § 226.5a. 

Proposed comment 51(b)(1)–1 

explains that when evaluating an 

application to open a credit card 

account or credit line increase for a 

consumer under the age of 21, creditors 

must comply with applicable rules in 

Regulation B (12 CFR Part 202). Given 

that age is generally a prohibited basis 

for any creditor to take into account in 

any system evaluating the 

creditworthiness of applicants under 

Regulation B, the Board believes that 

Regulation B prohibits card issuers from 

refusing to consider the application of a 

consumer solely because the applicant 

has not attained the age of 21 (assuming 

the consumer has the legal ability to 

enter into a contract). Furthermore, 

because TILA Section 127(c)(8) permits 

card issuers to open a credit card 

account for a consumer who has not 

attained the age of 21 if either of the 

conditions under TILA Section 

127(c)(8)(B) are met, the Board believes 

that a card issuer may choose to 

evaluate an application of a consumer 

who is less than 21 years old solely on 

the basis of the information provided 

under § 226.51(b)(1)(ii). Therefore, the 

Board believes, a card issuer is not 

required to accept an application from 

a consumer less than 21 years old with 

the signature of a cosigner, guarantor, or 

joint applicant pursuant to 

§ 226.51(b)(1)(i), unless refusing such 

applications would violate Regulation 

B. For example, if the card issuer 

permits other applicants of nonbusiness credit card accounts who have 

attained the age of 21 to provide the 

signature of a cosigner, guarantor, or 

joint applicant, the card issuer must 

provide this option to applicants of nonbusiness credit card accounts who have 

not attained the age of 21 (assuming the 

consumer has the legal ability to enter 

into a contract). 

Proposed comment 51(b)(2)–1 would 

provide that the requirement under 

§ 226.51(b)(2) that a cosigner, guarantor, 

or joint accountholder for a credit card 

account opened pursuant to 

§ 226.51(b)(1)(ii) must agree in writing 

to assume liability for a credit line 

increase does not apply if the cosigner, 

guarantor or joint accountholder who is 

at least 21 years old requests the 

increase. Because the party that must 

approve the increase is the one that is 

requesting the increase in this situation, 

the Board believes that § 226.51(b)(2) 

would be redundant. 

Section 226.52 Limitations on Fees 

52(a) Limitations During First Year After 

Account Opening 

New TILA Section 127(n)(1) applies 

‘‘[i]f the terms of a credit card account 

under an open end consumer credit 

plan require the payment of any fees 

(other than any late fee, over-the-limit 

fee, or fee for a payment returned for 

insufficient funds) by the consumer in 

the first year during which the account 

is opened in an aggregate amount in 

excess of 25 percent of the total amount 

of credit authorized under the account 

when the account is opened.’’ 15 U.S.C. 

1637(n)(1). If the 25 percent threshold is 

met, then ‘‘no payment of any fees 

(other than any late fee, over-the-limit 

fee, or fee for a payment returned for 

insufficient funds) may be made from 

the credit made available under the 

terms of the account.’’ However, new 

TILA Section 127(n)(2) provides that 

Section 127(n) may not be construed as 

authorizing any imposition or payment 

of advance fees prohibited by any other 

provision of law. The Board is 

proposing to implement new TILA 

Section 127(n) in § 226.52(a).19

Subprime credit cards often charge 

substantial fees at account opening and 

during the first year after the account is 

opened. For example, these cards may 

impose multiple one-time fees when the 

consumer opens the account (such as an 

application fee, a program fee, and an 

annual fee) as well as a monthly 

maintenance fee, fees for using the 

account for certain types of transactions, 

and fees for increasing the credit limit. 

The account-opening fees are often 

billed to the consumer on the first 

periodic statement, substantially 

reducing from the outset the amount of 

credit that the consumer has available to 

make purchases or other transactions on 

the account. For example, some 

subprime credit card issuers assess $250 

in fees at account opening on accounts 

with credit limits of $300, leaving the 

consumer with only $50 of available 

credit with which to make purchases or 

other transactions. In addition, the 

consumer may pay interest on the fees 

until they are paid in full. 

Because of concerns that some 

consumers were not aware of how fees 

would affect their ability to use the card 

for its intended purpose of engaging in 

transactions, the Board’s January 2009 

Regulation Z Rule enhanced the 

disclosure requirements for these types 

of fees and clarified the circumstances 

under which a consumer who has been 

notified of the fees in the accountopening disclosures (but has not yet 

used the account or paid a fee) may 

reject the plan and not be obligated to 

pay the fees. See § 226.5(b)(1)(iv), 74 FR 

5402; § 226.5a(b)(14), 74 FR 5404; 

§ 226.6(b)(1)(xiii), 74 FR 5408. In 

addition, because the Board and the 

other Agencies were concerned that 

disclosure alone was insufficient to 

protect consumers from unfair practices 

regarding high-fee subprime credit 

cards, the January 2009 FTC Act Rule 

prohibited institutions from charging 

certain types of fees during the first year 

after account opening that, in the 

aggregate, constituted the majority of the 

credit limit. In addition, these fees were 

limited to 25 percent of the initial credit 

limit in the first billing cycle with any 

additional amount (up to 50 percent) 

spread equally over the next five billing 

cycles. Finally, institutions were 

prohibited from circumventing these 

restrictions by providing the consumer 

with a separate credit account for the 

payment of additional fees. See 12 CFR 

227.26, 74 FR 5561, 5566; see also 74 FR 

5538–5543.20

52(a)(1) General Rule 

As noted above, new TILA Section 

127(n)(1) applies when ‘‘the terms of a 

credit card account * * * require the 

payment of any fees (other than any late 

fee, over-the-limit fee, or fee for a 

payment returned for insufficient funds) 

by the consumer in the first year during 

which the account is opened in an 

aggregate amount in excess of 25 

percent of the total amount of credit 

authorized under the account when the 

account is opened.’’ Congress’s use of 

‘‘require’’ could be construed to mean 

that Section 127(n)(1) applies only to 

fees that are unconditional requirements 

of the account—in other words, fees that 

all consumers are required to pay 

regardless of how the account is used 

(such as account-opening fees, annual 

fees, and monthly maintenance fees). 

However, such a narrow reading would 

be inconsistent with the words ‘‘any 


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fees,’’ which indicate that Congress 

intended the provision to apply to a 

broader range of fees. Furthermore, 

categorically excluding fees that are 

conditional (in other words, fees that 

consumers are only required to pay in 

certain circumstances) would enable 

card issuers to circumvent the 25 

percent limit by, for example, requiring 

consumers to pay fees in order to 

receive a particular credit limit or to use 

the account for purchases or other 

transactions. Finally, new TILA Section 

127(n)(1) specifically excludes three 

fees that are conditional (late payment 

fees, over-the-limit fees, and fees for a 

payment returned for insufficient 

funds), which suggests that Congress 

otherwise intended Section 127(n)(1) to 

apply to fees that a consumer is required 

to pay only in certain circumstances 

(such as fees for other violations of the 

account terms or fees for using the 

account for transactions). 

New TILA Section 127(n)(1) further 

provides that, if the 25 percent 

threshold is met, ‘‘no payment of any 

fees (other than any late fee, over-thelimit fee, or fee for a payment returned 

for insufficient funds) may be made 

from the credit made available under 

the terms of the account.’’ Although this 

language could be read to require card 

issuers to determine at account opening 

the total amount of fees that will be 

charged during the first year, the Board 

does not believe this was Congress’s 

intent because the total amount of fees 

charged during the first year will 

depend on how the account is used. For 

example, most card issuers currently 

require consumers who use a credit card 

account for cash advances, balance 

transfers, or foreign transactions to pay 

a fee that is equal to a percentage of the 

transaction. Thus, the total amount of 

fees charged during the first year will 

depend on, among other things, the 

number and amount of cash advances, 

balance transfers, or foreign 

transactions. Although card issuers 

could address this uncertainty by 

ceasing to charge such fees, card issuers 

that did so would also likely reduce 

consumers’ ability to use their credit 

cards for these types of transactions, 

which could be detrimental for some 

consumers. Accordingly, the Board 

believes Section 127(n)(1) should be 

interpreted to limit the fees charged to 

a credit card account during the first 

year to 25 percent of the initial credit 

limit and to prevent card issuers from 

collecting additional fees by other 

means (such as directly from the 

consumer or by providing a separate 

credit account). In order to effectuate 

this purpose and to facilitate 

compliance, the Board proposes to use 

its authority under TILA Section 105(a) 

to implement new TILA Section 127(n) 

as set forth below. 

Proposed § 226.52(a)(1)(i) provides 

that, if a card issuer charges any fees to 

a credit card account under an open-end 

(not home-secured) consumer credit 

plan during the first year after account 

opening, those fees must not in total 

constitute more than 25 percent of the 

credit limit in effect when the account 

is opened. Proposed comment 

52(a)(1)(i)–1 provides an illustrative 

example of the application of the rule. 

Proposed comment 52(a)(1)(i)–2 

clarifies that a card issuer that charges 

a fee to a credit card account that 

exceeds the 25 percent limit complies 

with § 226.52(a)(1)(i) if the card issuer 

waives or removes the fee and any 

associated interest charges or credits the 

account for an amount equal to the fee 

and any associated interest charges at 

the end of the billing cycle during 

which the fee was charged. Thus, if a 

card issuer’s systems automatically 

assess a fee based on certain account 

activity (such as automatically assessing 

a cash advance fee when the account is 

used for a cash advance) and, as a result, 

the total amount of fees subject to 

§ 226.52(a) that have been charged to the 

account during the first year exceeds the 

25 percent limit, the card issuer can 

comply with § 226.52(a)(1)(i) by 

removing the fee and any interest 

charged on that fee at the end of the 

billing cycle. 

Proposed comment 52(a)(1)(i)–3 

clarifies that, because the limitation in 

§ 226.52(a)(1)(i) is based on the credit 

limit in effect when the account is 

opened, a subsequent increase in the 

credit limit during the first year does 

not permit the card issuer to charge to 

the account additional fees that would 

otherwise be prohibited (such as a fee 

for increasing the credit limit). An 

illustrative example is provided. 

Proposed § 226.52(a)(1)(ii) would 

prevent card issuers from circumventing 

proposed § 226.52(a)(1)(i) by providing 

that a card issuer that charges fees to the 

account during the first year after 

account opening must not require the 

consumer to pay any fees in excess of 

the 25 percent limit with respect to the 

account during the first year. Proposed 

comment 52(a)(1)(ii)–1 clarifies that 

§ 226.52(a)(1)(ii) prohibits a card issuer 

that charges to a credit card account fees 

during the first year that total 25 percent 

of the initial credit limit from requiring 

the consumer to pay any additional fees 

through other means during the first 

year (such as through a payment from 

the consumer to the card issuer or from 

another credit account provided by the 

card issuer). An illustrative example is 

provided. 

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

Proposed § 226.52(a)(2)(i) implements 

the exception in new TILA Section 

127(n)(1) for late payment fees, over-thelimit fees, and fees for payments 

returned for insufficient funds. 

However, pursuant to the Board’s 

authority under TILA Section 105(a), 

proposed § 226.52(a)(2)(i) applies to all 

fees for returned payments because a 

payment may be returned for reasons 

other than insufficient funds (such as 

because the account on which the 

payment is drawn has been closed or 

because the consumer has instructed the 

institution holding that account not to 

honor the payment). 

As discussed above, new TILA 

Section 127(n)(1) applies to fees that a 

consumer is required to pay with 

respect to a credit card account. 

Accordingly, proposed § 226.52(a)(2)(ii) 

would create an exception to § 226.52(a) 

for fees that a consumer is not required 

to pay with respect to the account. The 

proposed commentary to § 226.52(a) 

illustrates the distinction between fees 

the consumer is required to pay and 

those the consumer is not required to 

pay. Proposed comment 52(a)(2)–1 

clarifies that, except as provided in 

§ 226.52(a)(2), the limitations in 

§ 226.52(a)(1) apply to any fees that a 

card issuer will or may require the 

consumer to pay with respect to a credit 

card account during the first year after 

account opening. The comment lists 

several types of fees as examples of fees 

covered by § 226.52(a). First, fees that 

the consumer is required to pay for the 

issuance or availability of credit 

described in § 226.5a(b)(2), including 

any fee based on account activity or 

inactivity and any fee that a consumer 

is required to pay in order to receive a 

particular credit limit. Second, fees for 

insurance described in § 226.4(b)(7) or 

debt cancellation or debt suspension 

coverage described in § 226.4(b)(10) 

written in connection with a credit 

transaction, if the insurance or debt 

cancellation or debt suspension 

coverage is required by the terms of the 

account. Third, fees that the consumer 

is required to pay in order to engage in 

transactions using the account (such as 

cash advance fees, balance transfer fees, 

foreign transaction fees, and other fees 

for using the account for purchases). 

And fourth, fees that the consumer is 

required to pay for violating the terms 

of the account (except to the extent 

specifically excluded by 

§ 226.52(a)(2)(i)). 

Proposed comment 52(a)(2)–2 

provides as examples of fees that 


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21For example, assume that a credit card account 

charges annual percentage rates of 12% on 

purchases and 20% on cash advances. Assume also 

that, in the same billing cycle, the consumer uses 

the account for purchases totaling $3,000 and cash 

advances totaling $300. If the consumer makes an 

$800 payment, most card issuers would apply the 

entire excess payment to the purchase balance and 

the consumer would incur interest charges on the 

more costly cash advance balance. Under these 

circumstances, the consumer is effectively 

prevented from paying off the balance with the 

higher interest rate (cash advances) unless the 

consumer pays the total balance (purchases and 

cash advances) in full. 

generally fall within the exception in 

§ 226.52(a)(2)(ii) fees for making an 

expedited payment (to the extent 

permitted by § 226.10(e)), fees for 

optional services (such as travel 

insurance), fees for reissuing a lost or 

stolen card, and statement reproduction 

fees. 

Finally, proposed comment 52(a)(2)–3 

clarifies that a security deposit that is 

charged to a credit card account is a fee 

for purposes of § 226.52(a). However, 

the comment also clarifies that 

§ 226.52(a) would not prohibit a creditor 

from providing a secured credit card 

that requires a consumer to provide a 

cash collateral deposit that is equal to 

the credit line for the account. 

52(a)(3) Rule of Construction 

New TILA Section 127(n)(2) states 

that ‘‘[n]o provision of this subsection 

may be construed as authorizing any 

imposition or payment of advance fees 

otherwise prohibited by any provision 

of law.’’ 15 U.S.C. 1637(n)(2). The Board 

proposes to implement this provision in 

§ 226.52(a)(3). As an example of a 

provision of law limiting the payment of 

advance fees, proposed comment 

52(a)(3)–1 cites 16 CFR 310.4(a)(4), 

which prohibits any telemarketer or 

seller from ‘‘[r]equesting or receiving 

payment of any fee or consideration in 

advance of obtaining a loan or other 

extension of credit when the seller or 

telemarketer has guaranteed or 

represented a high likelihood of success 

in obtaining or arranging a loan or other 

extension of credit for a person.’’ 

Section 226.53 Allocation of Payments 

As amended by the Credit Card Act, 

TILA Section 164(b)(1) provides that, 

‘‘[u]pon receipt of a payment from a 

cardholder, the card issuer shall apply 

amounts in excess of the minimum 

payment amount first to the card 

balance bearing the highest rate of 

interest, and then to each successive 

balance bearing the next highest rate of 

interest, until the payment is 

exhausted.’’ 15 U.S.C. 1666c(b)(1). 

However, amended Section 164(b)(2) 

provides the following exception to this 

general rule: ‘‘A creditor shall allocate 

the entire amount paid by the consumer 

in excess of the minimum payment 

amount to a balance on which interest 

is deferred during the last 2 billing 

cycles immediately preceding 

expiration of the period during which 

interest is deferred.’’ As discussed in 

detail below, the Board proposes to 

implement amended TILA Section 

164(b) in a new § 226.53. 

As an initial matter, however, the 

Board proposes to interpret amended 

TILA Section 164(b) to apply to credit 

card accounts under an open-end (not 

home-secured) consumer credit plan 

rather than to all open-end consumer 

credit plans. Although the requirements 

in amended TILA Section 164(a) 

regarding the prompt crediting of 

payments apply to ‘‘[p]ayments received 

from [a consumer] under an open end 

consumer credit plan,’’ the general 

payment allocation rule in amended 

TILA Section 164(b)(1) applies ‘‘[u]pon 

receipt of a payment from a 

cardholder.’’ Furthermore, the 

exception for deferred interest plans in 

amended Section 164(b)(1) requires ‘‘the 

card issuer [to] apply amounts in excess 

of the minimum payment amount first 

to the card balance bearing the highest 

rate of interest. * * *’’ Based on this 

language, it appears that Congress 

intended to apply the payment 

allocation requirements in amended 

Section 164(b) only to credit card 

accounts. This is consistent with the 

approach taken by the Board and the 

other Agencies in the January 2009 FTC 

Act Rule. See 74 FR 5560. Furthermore, 

the Board is not aware of concerns 

regarding payment allocation with 

respect to other open-end credit 

products, likely because such products 

generally do not apply different annual 

percentage rates to different balances. 

53(a) General Rule 

The Board proposes to implement 

amended TILA Section 164(b)(1) in 

§ 226.53(a), which would state that, 

except as provided in § 226.53(b), when 

a consumer makes a payment in excess 

of the required minimum periodic 

payment for a credit card account under 

an open-end (not home-secured) 

consumer credit plan, the card issuer 

must allocate the excess amount first to 

the balance with the highest annual 

percentage rate and any remaining 

portion to the other balances in 

descending order based on the 

applicable annual percentage rate. The 

Board and the other Agencies adopted a 

similar provision in the January 2009 

FTC Act Rule in response to concerns 

that card issuers were applying 

consumers’ payments in a manner that 

inappropriately maximized interest 

charges on credit card accounts with 

balances at different annual percentage 

rates. See 12 CFR 227.23, 74 FR 5512– 

5520, 5560. Specifically, most card 

issuers currently allocate consumers’ 

payments first to the balance with the 

lowest annual percentage rate, resulting 

in the accrual of interest at higher rates 

on other balances (unless all balances 

are paid in full). Because many card 

issuers offer different rates for 

purchases, cash advances, and balance 

transfers, this practice can result in 

consumers who do not pay the balance 

in full each month incurring higher 

finance charges than they would under 

any other allocation method.21

The Board is also proposing comment 

53–1, which would clarify that 

proposed § 226.53 does not limit or 

otherwise address the card issuer’s 

ability to determine, consistent with 

applicable law and regulatory guidance, 

the amount of the required minimum 

periodic payment or how that payment 

is allocated. It would further clarify that 

a card issuer may, but is not required to, 

allocate the required minimum periodic 

payment consistent with the 

requirements in proposed § 226.53 to 

the extent consistent with other 

applicable law or regulatory guidance. 

Comment 53–2 would clarify that 

proposed § 226.53 permits a card issuer 

to allocate an excess payment based on 

the annual percentage rates and 

balances on the date the preceding 

billing cycle ends, on the date the 

payment is credited to the account, or 

on any day in between those two dates. 

Because the rates and balances on an 

account affect how excess payments 

will be applied, this comment is 

intended to provide flexibility regarding 

the point in time at which payment 

allocation determinations required by 

proposed § 226.53 can be made. For 

example, it is possible that, in certain 

circumstances, the annual percentage 

rates may have changed between the 

close of a billing cycle and the date on 

which payment for that billing cycle is 

received. 

Comment 53–3 addresses the 

relationship between the dispute rights 

in § 226.12(c) and the payment 

allocation requirements in proposed 

§ 226.53. This comment would clarify 

that, when a consumer has asserted a 

claim or defense against the card issuer 

pursuant to § 226.12(c), the card issuer 

must apply the consumer’s payment in 

a manner that avoids or minimizes any 

reduction in the amount of that claim or 

defense. See footnote 25 to current 

§ 226.12(c) (redesignated in January 

2009 Regulation Z Rule as comment 

12(c)–4, 74 FR 5488). 


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22An example of how excess payments could be 

applied in these circumstances is provided in 

proposed comment 53(a)–1.iv. 

23For example, if an account has a $1,000 

purchase balance and a $2,000 balance that is 

subject to a deferred interest program that expires 

on July 1 and a 15% annual percentage rate applies 

to both, the balances must be treated as balances 

with different rates for purposes of proposed 

§ 226.53 until July 1. In addition, for purposes of 

allocating pursuant to proposed § 226.53, any 

amount paid by the consumer in excess of the 

required minimum periodic payment must be 

applied first to the $1,000 purchase balance except 

during the last two billing cycles of the deferred 

interest period (when it must be applied first to any 

remaining portion of the $2,000 balance). See 

proposed comment 53(a)–1.v. 

24For example, assume that a credit card account 

has a $2,000 purchase balance with a 20% annual 

percentage rate and a $1,000 balance on which 

interest accrues at a 15% annual percentage rate, 

but the consumer will not be obligated to pay that 

interest if that balance is paid in full by a specified 

date. If the general rule in proposed § 226.53(a) 

applied, the consumer would be required to pay 

$3,000 in order to avoid interest charges on the 

$1,000 balance. 

Comment 53–4 addresses 

circumstances in which the same 

annual percentage rate applies to more 

than one balance on a credit card 

account but a different rate applies to at 

least one other balance on that account. 

For example, an account could have a 

$500 cash advance balance at 20%, a 

$1,000 purchase balance at 15%, and a 

$2,000 balance also at 15% that was 

previously at a 5% promotional rate. 

The comment would clarify that, in 

these circumstances, proposed § 226.53 

generally does not require that any 

particular method be used when 

allocating among the balances with the 

same rate and that the card issuer may 

treat the balances with the same rate as 

a single balance or separate balances.22

However, this comment would further 

clarify that, when a balance on a credit 

card account is subject to a deferred 

interest or similar program that provides 

that a consumer will not be obligated to 

pay interest that accrues on the balance 

if the balance is paid in full prior to the 

expiration of a specified period of time, 

that balance must be treated as a balance 

with an annual percentage rate of zero 

for purposes of proposed § 226.53 

during that period of time rather than a 

balance with the rate at which interest 

accrues (the accrual rate).23 As an initial 

matter, treating the rate as zero is 

consistent with the nature of deferred 

interest and similar programs insofar as 

the consumer will not be obligated to 

pay any accrued interest if the balance 

is paid in full prior to expiration. In 

addition, treating the rate on a balance 

subject to a deferred interest or similar 

program as zero until the program 

expires ensures that excess payments 

will generally be applied first to 

balances on which interest is being 

charged, which will generally result in 

lower interest charges if the consumer 

pays the balance in full prior to 

expiration. Although treating the rate on 

this type of balance as zero could 

prevent consumers who wish to pay off 

that balance in installments over the 

course of the program from doing so, the 

Board believes that this treatment 

produces the best overall outcome for 

consumers and is consistent with 

amended TILA Section 164(b)(2) (as 

discussed below). 

Finally, proposed comment 53(a)–1 

provides examples of allocating excess 

payments consistent with proposed 

§ 226.53. The proposed commentary 

discussed above is similar to 

commentary adopted by the Board and 

the other Agencies in the January 2009 

FTC Act Rule as well as to amendments 

to that commentary proposed in May 

2009. See 74 FR 5561–5562; 74 FR 

20815–20816. 

53(b) Special Rule for Balances Subject 

to Deferred Interest or Similar Programs 

The Board proposes to implement 

amended TILA Section 164(b)(2) in 

§ 226.53(b), which would provide that, 

when a balance on a credit card account 

under an open-end (not home-secured) 

consumer credit plan is subject to a 

deferred interest or similar program, the 

card issuer must allocate any amount 

paid by the consumer in excess of the 

required minimum periodic payment 

first to that balance during the two 

billing cycles immediately preceding 

expiration of the deferred interest 

period and any remaining portion to any 

other balances consistent with proposed 

§ 226.53(a). See 15 U.S.C. 1666c(b)(2). 

The Board and the other Agencies 

proposed a similar exception to the 

January 2009 FTC Act Rule’s payment 

allocation provision in the May 2009 

proposed clarifications and 

amendments. See proposed 12 CFR 

227.23(b), 74 FR 20814. This exception 

was based on the Agencies’ concern 

that, if the deferred interest balance was 

not the only balance on the account, the 

general payment allocation rule could 

prevent consumers from paying off the 

deferred interest balance prior to 

expiration of the deferred interest 

period unless they also paid off all other 

balances on the account.24 If the 

consumer is unaware of the need to pay 

off the entire balance, the consumer 

would be charged interest on the 

deferred interest balance and thus 

would not obtain the benefits of the 

deferred interest program. See 74 FR 

20807–20808. 

The Board is also proposing comment 

53(b)–1, which clarifies the application 

of proposed § 226.53(b) in 

circumstances where the deferred 

interest or similar program expires 

during a billing cycle (rather than at the 

end of a billing cycle). The comment 

would clarify that, for purposes of 

§ 226.53(b), a billing cycle does not 

constitute one of the two billing cycles 

immediately preceding expiration of a 

deferred interest or similar program if 

the expiration date for the program 

precedes the payment due date in that 

billing cycle. An example is provided. 

The Board believes that this 

interpretation is consistent with the 

purpose of amended TILA Section 

164(b)(2) insofar as it ensures that, at a 

minimum, the consumer will receive 

two complete billing cycles to avoid 

accrued interest charges by paying off a 

balance subject to a deferred interest or 

similar program. 

In addition, the Board is proposing 

comment 53(b)–2, which clarifies that a 

grace period during which any credit 

extended may be repaid without 

incurring a finance charge due to a 

periodic interest rate is not a deferred 

interest or similar program for purposes 

of § 226.53(b). The Board and the other 

Agencies proposed a similar comment 

in May 2009. See 12 CFR 227.23 

proposed comment 23(b)–1, 74 FR 

20816. 

Section 226.54 Limitations on the 

Imposition of Finance Charges 

The Credit Card Act creates a new 

TILA Section 127(j), which applies 

when a consumer loses any time period 

provided by the creditor with respect to 

a credit card account within which the 

consumer may repay any portion of the 

credit extended without incurring a 

finance charge (i.e., a grace period). 15 

U.S.C. 1637(j). In these circumstances, 

new TILA Section 127(j)(1)(A) prohibits 

the creditor from imposing a finance 

charge with respect to any balances for 

days in billing cycles that precede the 

most recent billing cycle (a practice that 

is sometimes referred to as ‘‘two-cycle’’ 

or ‘‘double-cycle’’ billing). Furthermore, 

in these circumstances, Section 

127(j)(1)(B) prohibits the creditor from 

imposing a finance charge with respect 

to any balances or portions thereof in 

the current billing cycle that were 

repaid within the grace period. 

However, Section 127(j)(2) provides that 

these prohibitions do not apply to any 

adjustment to a finance charge as a 

result of the resolution of a dispute or 

the return of a payment for insufficient 

funds. As discussed below, the Board 

proposes to implement new TILA 

Section 127(j) in § 226.54. 


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54(a) Limitations on Imposing Finance 

Charges as a Result of the Loss of a 

Grace Period 

54(a)(1) General Rule 

Prohibition on Two-Cycle Billing 

As noted above, new TILA Section 

127(j)(1)(A) prohibits the balance 

computation method sometimes referred 

to as ‘‘two-cycle billing’’ or ‘‘doublecycle billing.’’ The January 2009 FTC 

Act Rule contained a similar 

prohibition. See 12 CFR 227.25, 74 FR 

5560–5561; see also 74 FR 5535–5538. 

The two-cycle balance computation 

method has several permutations but, 

generally speaking, a card issuer using 

the two-cycle method assesses interest 

not only on the balance for the current 

billing cycle but also on balances on 

days in the preceding billing cycle. This 

method generally does not result in 

additional finance charges for a 

consumer who consistently carries a 

balance from month to month (and 

therefore does not receive a grace 

period) because interest is always 

accruing on the balance. Nor does the 

two-cycle method affect consumers who 

pay their balance in full within the 

grace period every month because 

interest is not imposed on their 

balances. The two-cycle method does, 

however, result in greater interest 

charges for consumers who pay their 

balance in full one month but not the 

next month (and therefore lose the grace 

period). 

The following example illustrates 

how the two-cycle method results in 

higher costs for these consumers than 

other balance computation methods: 

Assume that the billing cycle on a credit 

card account starts on the first day of 

the month and ends on the last day of 

the month. The payment due date for 

the account is the twenty-fifth day of the 

month. Under the terms of the account, 

the consumer will not be charged 

interest on purchases if the balance at 

the end of a billing cycle is paid in full 

by the following payment due date (in 

other words, if the consumer receives a 

grace period). The consumer uses the 

credit card to make a $500 purchase on 

March 15. The consumer pays the 

balance for the February billing cycle in 

full on March 25. At the end of the 

March billing cycle (March 31), the 

consumer’s balance consists only of the 

$500 purchase and the consumer will 

not be charged interest on that balance 

if it is paid in full by the following due 

date (April 25). The consumer pays 

$400 on April 25, leaving a $100 

balance. Because the consumer did not 

pay the balance for the March billing 

cycle in full on April 25, the consumer 

would lose the grace period and most 

card issuers would charge interest on 

the $500 purchase from the start of the 

April billing cycle (April 1) through 

April 24 and interest on the remaining 

$100 from April 25 through the end of 

the April billing cycle (April 30). Card 

issuers using the two-cycle method, 

however, would also charge interest on 

the $500 purchase from the date of 

purchase (March 15) to the end of the 

March billing cycle (March 31). 

The Board proposes to implement 

new TILA Section 127(j)(1)(A)’s 

prohibition on two-cycle billing in 

proposed § 226.54(a)(1)(i), which states 

that, except as provided in proposed 

§ 226.54(b), a card issuer must not 

impose finance charges as a result of the 

loss of a grace period on a credit card 

account if those finance charges are 

based on balances for days in billing 

cycles that precede the most recent 

billing cycle. The Board also proposes to 

adopt § 226.54(a)(2), which would 

define ‘‘grace period’’ for purposes of 

§ 226.54(a)(1) as having the same 

meaning as in § 226.5(b)(2)(ii). Section 

226.5(b)(2)(ii) was amended by the July 

2009 Regulation Z Interim Final Rule to 

define ‘‘grace period’’ as a period within 

which any credit extended may be 

repaid without incurring a finance 

charge due to a periodic interest rate. 74 

FR 36094. Finally, proposed comment 

54(a)(1)–4 explains that § 226.54(a)(1)(i) 

prohibits use of the two-cycle average 

daily balance computation method. 

Partial Grace Period Requirement 

As discussed above, many credit card 

issuers that provide a grace period 

currently require the consumer to pay 

off the entire balance on the account or 

the entire balance subject to the grace 

period before the period expires. 

However, new TILA Section 127(j)(1)(B) 

limits this practice. Specifically, Section 

127(j)(1)(B) provides that a creditor may 

not impose any finance charge on a 

credit card account as a result of the loss 

of any time period provided by the 

creditor within which the consumer 

may repay any portion of the credit 

extended without incurring a finance 

charge with respect to any balances or 

portions thereof in the current billing 

cycle that were repaid within such time 

period. The Board proposes to 

implement this prohibition in proposed 

§ 226.54(a)(1)(ii), which states that, 

except as provided in proposed 

§ 226.54(b), a card issuer must not 

impose finance charges as a result of the 

loss of a grace period on a credit card 

account if those finance charges are 

based on any portion of a balance 

subject to a grace period that was repaid 

prior to the expiration of the grace 

period. 

The Board also proposes to adopt 

comment 54(a)(1)–5, which would 

clarify that card issuers are not required 

to use a particular method to comply 

with § 226.54(a)(1)(ii) but provides an 

example of a method that is consistent 

with the requirements of 

§ 226.54(a)(1)(ii). Specifically, it states 

that a card issuer can comply with the 

requirements of § 226.54(a)(1)(ii) by 

applying the consumer’s payment to the 

balance subject to the grace period at the 

end of the prior billing cycle (in a 

manner consistent with the payment 

allocation requirements in § 226.53) and 

then calculating interest charges based 

on the amount of that balance that 

remains unpaid. An example of the 

application of this method is provided 

in proposed comment 54(a)(1)–6 along 

with other examples of the application 

of § 226.54(a)(1)(i) and (ii). 

In addition to the commentary 

clarifying the specific prohibitions in 

§ 226.54(a)(1)(i) and (ii), the Board is 

proposing to adopt three comments 

clarifying the general scope and 

applicability of § 226.54. First, proposed 

comment 54(a)(1)–1 would clarify that 

§ 226.54 does not require the card issuer 

to provide a grace period or prohibit a 

card issuer from placing limitations and 

conditions on a grace period to the 

extent consistent with § 226.54. 

Currently, neither TILA nor Regulation 

Z requires a card issuer to provide a 

grace period. Nevertheless, for 

competitive and other reasons, many 

credit card issuers choose to do so, 

subject to certain limitations and 

conditions. For example, credit card 

grace periods generally apply to 

purchases but not to other types of 

transactions (such as cash advances). In 

addition, as noted above, card issuers 

that provide a grace period generally 

require the consumer to pay off all 

balances on the account or the entire 

balance subject to the grace period 

before the period expires. 

Although new TILA Section 127(j) 

prohibits the imposition of finance 

charges as a result of the loss of a grace 

period in certain circumstances, the 

Board does not interpret this provision 

to mandate that card issuers provide 

such a period or to limit card issuers’ 

ability to place limitations and 

conditions on a grace period to the 

extent consistent with the statute. 

Instead, Section 127(j)(1) refers to ‘‘any 

time provided by the creditor within 

which the [consumer] may repay any 

portion of the credit extended without 

incurring a finance charge.’’ This 

language indicates that card issuers 

retain the ability to determine when and 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
54168 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

25As discussed in the July 2009 Regulation Z 

Interim Final Rule (at 74 FR 36090), the Board 

believes that this fourteen-day period is intended to 

balance the interests of consumers and creditors. 

On the one hand, the fourteen-day period ensures 

that the increased rate, fee, or charge will not apply 

to transactions that occur before the consumer has 

received the notice and had a reasonable amount of 

time to review it and decide whether to use the 

account for additional transactions. On the other 

hand, the fourteen-day period reduces the potential 

that a consumer—having been notified of an 

increase for new transactions—will use the 45-day 

notice period to engage in transactions to which the 

increased rate, fee, or charge cannot be applied. 

under what conditions to provide a 

grace period on a credit card account so 

long as card issuers that choose to 

provide a grace period do so consistent 

with the requirements of new TILA 

Section 127(j). 

The Board also proposes to adopt 

comment 54(a)(1)–2, which would 

clarify that proposed § 226.54 does not 

prohibit the card issuer from charging 

accrued interest at the expiration of a 

deferred interest or similar promotional 

program. Specifically, the comment 

would state that, when a card issuer 

offers a deferred interest or similar 

promotional program, § 226.54 does not 

prohibit the card issuer from charging 

that accrued interest to the account if 

the balance is not paid in full prior to 

expiration of the period (consistent with 

§ 226.55 and other applicable law and 

regulatory guidance). A contrary 

interpretation of proposed § 226.54 (and 

new TILA Section 127(j)) would 

effectively eliminate deferred interest 

and similar programs by prohibiting the 

card issuer from charging interest based 

on the deferred interest balance during 

the deferred interest period if that 

balance was not paid in full at 

expiration. However, as discussed above 

with respect to proposed § 226.53, the 

Credit Card Act’s revisions to TILA 

Section 164 specifically create an 

exception to the general rule governing 

payment allocation for deferred interest 

programs, which indicates that Congress 

did not intend to ban such programs. 

See Credit Card Act § 104(1) (revised 

TILA Section 164(b)(2)). 

Finally, proposed comment 54(a)(1)–3 

would clarify that card issuers must 

comply with the payment allocation 

requirements in § 226.53 even if doing 

so will result in the loss of a grace 

period. For example, as illustrated in 

proposed comment 54(a)(1)–6.ii, a card 

issuer must generally allocate a payment 

in excess of the required minimum 

periodic payment to a cash advance 

balance with a 25% rate before a 

purchase balance with a purchase 

balance with a 15% rate even if this will 

result in the loss of a grace period on the 

purchase balance. Although there could 

be a narrow set of circumstances in 

which—depending on the size of the 

balances and the amount of the 

difference between the rates—this 

allocation would result in higher 

interest charges than if the excess 

payment were applied in a way that 

preserved the grace period, Congress did 

not create an exception for these 

circumstances in the provisions of the 

Credit Card Act specifically addressing 

payment allocation. 

54(b) Exceptions 

New TILA Section 127(j)(2) provides 

that the prohibitions in Section 127(j)(1) 

do not apply to any adjustment to a 

finance charge as a result of resolution 

of a dispute or as a result of the return 

of a payment for insufficient funds. The 

Board proposes to implement these 

exceptions in proposed § 226.54(b). 

The Board interprets the exception for 

the ‘‘resolution of a dispute’’ in new 

TILA Section 127(j)(2)(A) to apply when 

the dispute is resolved pursuant to 

TILA’s dispute resolution procedures. 

Accordingly, proposed § 226.54(b)(1) 

would permit adjustments to finance 

charges when a dispute is resolved 

under § 226.12 (which governs the right 

of a cardholder to assert claims or 

defenses against the card issuer) or 

§ 226.13 (which governs resolution of 

billing errors). 

In addition, because a payment may 

be returned for reasons other than 

insufficient funds (such as because the 

account on which the payment is drawn 

has been closed or because the 

consumer has instructed the institution 

holding that account not to honor the 

payment), the Board proposes to use its 

authority under TILA Section 105(a) to 

apply the exception in new TILA 

Section 127(j)(2)(B) to all circumstances 

in which adjustments to finance charges 

are made as a result of the return of a 

payment. 

Section 226.55 Limitations on 

Increasing Annual Percentage Rates, 

Fees, and Charges 

As revised by the Credit Card Act, 

TILA Section 171(a) generally prohibits 

creditors from increasing any annual 

percentage rate, fee, or finance charge 

applicable to any outstanding balance 

on a credit card account under an openend consumer credit plan. See 15 U.S.C. 

1666i–1. Revised TILA Section 171(b), 

however, provides exceptions to this 

rule for temporary rates that expire after 

a specified period of time and rates that 

vary with an index. Revised TILA 

Section 171(b) also provides exceptions 

in circumstances where the creditor has 

not received the required minimum 

periodic payment within 60 days after 

the due date and where the consumer 

completes or fails to comply with the 

terms of a workout or temporary 

hardship arrangement. Revised TILA 

Section 171(c) limits a creditor’s ability 

to change the terms governing 

repayment of an outstanding balance. 

The Credit Card Act also creates a new 

TILA Section 172, which provides that 

a creditor generally cannot increase a 

rate, fee, or finance charge during the 

first year after account opening and that 

a promotional rate (as defined by the 

Board) generally cannot expire earlier 

than six months after it takes effect. As 

discussed in detail below, the Board 

proposes to implement both revised 

TILA Section 171 and new TILA Section 

172 in § 226.55. 

55(a) General Rule 

As noted above, revised TILA Section 

171(a) generally prohibits increases in 

annual percentage rates, fees, and 

finance charges on outstanding 

balances. Revised TILA Section 171(d) 

defines ‘‘outstanding balance’’ as the 

amount owed as of the end of the 

fourteenth day after the date on which 

the creditor provides notice of an 

increase in the annual percentage rate, 

fee, or finance charge in accordance 

with TILA Section 127(i).25 TILA 

Section 127(i)(1) and (2), which went 

into effect on August 20, 2009, generally 

require creditors to notify consumers 45 

days before an increase in an annual 

percentage rate or any other significant 

change in the terms of a credit card 

account (as determined by rule of the 

Board). 

In the July 2009 Regulation Z Interim 

Final Rule, the Board implemented new 

TILA Section 127(i)(1) and (2) in 

§ 226.9(c) and (g). In addition to 

increases in annual percentage rates, 

§ 226.9(c)(2)(ii) lists the fees and other 

charges for which an increase 

constitutes a significant change to the 

account terms necessitating 45 days’ 

advance notice, including annual or 

other periodic fees, fixed finance 

charges, minimum interest charges, 

transaction charges, cash advance fees, 

late payment fees, over-the-limit fees, 

balance transfer fees, returned-payment 

fees, and fees for required insurance, 

debt cancellation, or debt suspension 

coverage. As discussed above, however, 

the Board is proposing to amend 

§ 226.9(c)(2)(ii) to identify these 

significant account terms by a crossreference to the account-opening 

disclosure requirements in § 226.6(b). 

Because the definition of outstanding 

balance in revised TILA Section 171(d) 

is expressly conditioned on the 

provision of the 45-day advance notice, 


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26However, the Board notes that a consumer that 

does not want to accept an increase in these types 

of fees may reject the increase pursuant to 

§ 226.9(h). 

27As discussed below with respect to proposed 

§ 226.55(b)(3), a card issuer may still increase these 

types of fees and charges so long as the increased 

fee or charge is not applied to the outstanding 

balance. 

the Board believes that it is consistent 

with the purposes of the Credit Card Act 

to limit the general prohibition in 

revised TILA Section 171(a) on 

increasing fees and finance charges to 

increases in fees and charges for which 

a 45-day notice is required under 

§ 226.9. 

Furthermore, because revised TILA 

Section 171(a) prohibits the application 

of increased fees and charges to 

outstanding balances rather than to new 

transactions or to the account as a 

whole, the Board believes that it is 

appropriate to apply that prohibition 

only to fees and charges that could be 

applied to an outstanding balance. For 

example, increased cash advance or 

balance transfer fees would apply only 

to new cash advances or balance 

transfers, not to existing balances. 

Similarly, increased penalty fees such as 

late payment fees, over-the-limit fees, 

and returned-payment fees would apply 

to the account as a whole rather than 

any specific balance.26 Accordingly, the 

Board proposes to use its authority 

under TILA Section 105(a) to limit the 

general prohibition in revised TILA 

Section 171(a) to increases in annual 

percentage rates and in fees and charges 

required to be disclosed under 

§ 226.6(b)(2)(ii) (fees for the issuance or 

availability of credit), § 226.6(b)(2)(iii) 

(fixed finance charges and minimum 

interest charges), or § 226.6(b)(2)(xii) 

(fees for required insurance, debt 

cancellation, or debt suspension 

coverage).27

In addition, for clarity and 

organizational purposes, proposed 

§ 226.55(a) generally prohibits increases 

in annual percentage rates and fees and 

charges required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

with respect to all transactions, rather 

than just increases on existing balances. 

The Board does not intend to alter the 

substantive requirements in revised 

TILA Section 171. Instead, the Board 

believes that revised TILA Section 171 

can be more clearly and effectively 

implemented if increases in rates, fees, 

and charges that apply to transactions 

that occur more than fourteen days after 

provision of a § 226.9(c) or (g) notice are 

addressed in an exception to the general 

prohibition rather than placed outside 

that prohibition. The Board and the 

other Agencies adopted a similar 

approach in the January 2009 FTC Act 

Rule. See 12 CFR 227.24, 74 FR 5560. 

Accordingly, proposed § 226.55(a) states 

that, except as provided in § 226.55(b), 

a card issuer must not increase an 

annual percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii). 

Proposed comment 55(a)–1 provides 

examples of the general application of 

§ 226.55(a) and the exceptions in 

§ 226.55(b). Additional examples 

illustrating specific aspects of the 

exceptions in § 226.55(b) are provided 

in the commentary to those exceptions. 

Proposed comment 55(a)–2 clarifies 

that nothing in § 226.55 prohibits a card 

issuer from assessing interest due to the 

loss of a grace period to the extent 

consistent with § 226.54. In addition, 

the comment states that a card issuer 

has not reduced an annual percentage 

rate on a credit account for purposes of 

§ 226.55 if the card issuer does not 

charge interest on a balance or a portion 

thereof based on a payment received 

prior to the expiration of a grace period. 

For example, if the annual percentage 

rate for purchases on an account is 15% 

but the card issuer does not charge any 

interest on a $500 purchase balance 

because that balance was paid in full 

prior to the expiration of the grace 

period, the card issuer has not reduced 

the 15% purchase rate to 0% for 

purposes of § 226.55. 

55(b) Exceptions 

Revised TILA Section 171(b) lists the 

exceptions to the general prohibition in 

revised Section 171(a). Similarly, 

proposed § 226.55(b) lists the exceptions 

to the general prohibition in proposed 

§ 226.55(a). In addition, proposed 

§ 226.55(b) clarifies that the listed 

exceptions are not mutually exclusive. 

In other words, a card issuer may 

increase an annual percentage rate or a 

fee or charge required to be disclosed 

under § 226.6(b)(2)(ii), (b)(2)(iii), or 

(b)(2)(xii) pursuant to an exception set 

forth in § 226.55(b) even if that increase 

would not be permitted under a 

different exception. Proposed comment 

55(b)–1 clarifies that, for example, 

although a card issuer cannot increase 

an annual percentage rate pursuant to 

§ 226.55(b)(1) unless that rate is 

provided for a specified period of at 

least six months, the card issuer may 

increase an annual percentage rate 

during a specified period due to an 

increase in an index consistent with 

§ 226.55(b)(2). Similarly, although 

§ 226.55(b)(3) does not permit a card 

issuer to increase an annual percentage 

rate during the first year after account 

opening, the card issuer may increase 

the rate during the first year after 

account opening pursuant to 

§ 226.55(b)(4) if the required minimum 

periodic payment is not received within 

60 days after the due date. 

Proposed comment 55(b)–2 addresses 

circumstances where the date on which 

a rate, fee, or charge may be increased 

pursuant to an exception in § 226.55(b) 

does not fall on the first day of a billing 

cycle. Because the Board understands 

that it may be operationally difficult for 

some card issuers to apply an increased 

rate, fee, or charge in the middle of a 

billing cycle, the comment clarifies that, 

in these circumstances, the card issuer 

may delay application of the increased 

rate, fee, or charge until the first day of 

the following billing cycle without 

relinquishing the ability to apply that 

rate, fee, or charge. An illustrative 

example is provided. 

Proposed comment 55(b)–3 clarifies 

that, although nothing in § 226.55 

prohibits a card issuer from lowering an 

annual percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii), 

a card issuer that does so cannot 

subsequently increase the rate, fee, or 

charge unless permitted by one of the 

exceptions in § 226.55(b). The Board 

believes that this interpretation is 

consistent with the intent of revised 

TILA Section 171 insofar as it ensures 

that consumers are informed of the key 

terms and conditions associated with a 

lowered rate, fee, or charge before 

relying on that rate, fee, or charge. For 

example, revised Section 171(b)(1)(A) 

requires creditors to disclose how long 

a temporary rate will apply and the rate 

that will apply after the temporary rate 

expires before the consumer engages in 

transactions in reliance on the 

temporary rate. Similarly, revised 

Section 171(b)(3)(B) requires the 

creditor to disclose the terms of a 

workout or temporary hardship 

arrangement before the consumer agrees 

to the arrangement. The comment 

provides examples illustrating the 

application of § 226.55 when an annual 

percentage rate is lowered. 

As discussed below, several of the 

exceptions in proposed § 226.55 require 

the creditor to determine when a 

transaction occurred. For example, 

consistent with revised TILA Section 

171(d)’s definition of ‘‘outstanding 

balance,’’ proposed § 226.55(b)(3)(ii) 

provides that a card issuer that discloses 

an increased rate pursuant to § 226.9(c) 

or (g) may not apply that increased rate 

to transactions that occurred prior to or 

within fourteen days after provision of 

the notice. Accordingly, proposed 

comment 55(b)–4 clarifies that when a 

transaction occurred, for purposes of 

§ 226.55, is generally determined by the 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
54170 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

28Similarly, a type or group of transactions is a 

‘‘category of transactions’’ for purposes of § 226.55 

if a fee or charge required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) applies to 

those transactions that is different than the fee or 

charge that applies to other transactions. 

29The Board understands that, when the effective 

date for an increased rate falls in the middle of a 

billing cycle, some card issuers are unable to begin 

accruing interest at the increased rate on the 

effective date without applying that increased rate 

for the entire billing cycle (including to balances on 

days preceding the effective date). Although neither 

§ 226.9 nor § 226.55 permits a card issuer to accrue 

interest at the increased rate for days that precede 

the effective date, proposed comment 55(b)–2 

acknowledges this operational difficulty by 

clarifying that card issuers may delay application of 

the increased rate until the first day of the following 

billing cycle without relinquishing the ability to 

apply that rate. 

date of the transaction. The Board 

understands that, in certain 

circumstances, a short delay can occur 

between the date of the transaction and 

the date on which the merchant charges 

that transaction to the account. As a 

general matter, the Board believes that 

these delays should not affect the 

application of § 226.55. However, to 

address the operational difficulty for 

card issuers in the rare circumstance 

where a transaction that occurred 

within fourteen days after provision of 

a § 226.9(c) or (g) notice is not charged 

to the account prior to the effective date 

of the increase or change, this comment 

would clarify that the card issuer may 

treat the transaction as occurring more 

than fourteen days after provision of the 

notice for purposes of § 226.55. In 

addition, the comment would clarify 

that, when a merchant places a ‘‘hold’’ 

on the available credit on an account for 

an estimated transaction amount 

because the actual transaction amount 

will not be known until a later date, the 

date of the transaction for purposes of 

§ 226.55 is the date on which the card 

issuer receives the actual transaction 

amount from the merchant. Illustrative 

examples are provided in proposed 

comment 55(b)(3)–4.iii. This comment 

is based on comment 9(h)(3)(ii)–2, 

which was adopted in the July 2009 

Regulation Z Interim Final Rule. See 74 

FR 36101. 

Proposed comment 55(b)–5 clarifies 

the meaning of the term ‘‘category of 

transactions,’’ which is used in some of 

the exceptions in § 226.55(b). This 

comment states that, for purposes of 

§ 226.55, a ‘‘category of transactions’’ is 

a type or group of transactions to which 

an annual percentage rate applies that is 

different than the annual percentage rate 

that applies to other transactions.28 For 

example, purchase transactions, cash 

advance transactions, and balance 

transfer transactions are separate 

categories of transactions for purposes 

of § 226.55 if a card issuer applies 

different annual percentage rates to 

each. Furthermore, if, for example, the 

card issuer applies different annual 

percentage rates to different types of 

purchase transactions (such as one rate 

for purchases of gasoline or purchases 

over $100 and a different rate for all 

other purchases), each type constitutes 

a separate category of transactions for 

purposes of § 226.55. 

Proposed comment 55(b)–6 clarifies 

the relationship between the exceptions 

in § 226.55(b) and the 45-day advance 

notice requirements in § 226.9(c) and 

(g). Specifically, it states that nothing in 

§ 226.55 alters the requirements in 

§ 226.9(c) and (g) that creditors provide 

written notice at least 45 days prior to 

the effective date of certain increases in 

annual percentage rates, fees, and 

charges. For example, although 

proposed § 226.55(b)(3)(ii) permits a 

card issuer that discloses an increased 

rate pursuant to § 226.9(c) or (g) to apply 

that rate to transactions that occurred 

more than fourteen days after provision 

of the notice, the card issuer cannot 

begin to accrue interest at the increased 

rate until that increase goes into effect, 

consistent with § 226.9(c) or (g). 

Illustrative examples are provided in 

proposed comment 55(b)(3)–4. 

Similarly, the comment clarifies that, on 

or after the effective date, the card issuer 

cannot calculate interest charges for 

days before the effective date based on 

the increased rate.29

55(b)(1) Temporary Rate Exception 

Revised TILA Section 171(b)(1) 

provides that a creditor may increase an 

annual percentage rate upon the 

expiration of a specified period of time, 

subject to three conditions. First, prior 

to commencement of the period, the 

creditor must have disclosed to the 

consumer, in a clear and conspicuous 

manner, the length of the period and the 

increased annual percentage rate that 

will apply after expiration of the period. 

Second, at the end of the period, the 

creditor must not apply a rate that 

exceeds the increased rate that was 

disclosed prior to commencement of the 

period. Third, at the end of the period, 

the creditor must not apply the 

previously-disclosed increased rate to 

transactions that occurred prior to 

commencement of the period. Thus, 

under this exception, a creditor that, for 

example, discloses at account opening 

that a 5% rate will apply to purchases 

for six months and that a 15% rate will 

apply thereafter would be permitted to 

increase the rate on the purchase 

balance to 15% after six months. 

Proposed § 226.55(b)(1) implements 

the exception in revised TILA Section 

171(b)(1) regarding temporary rates as 

well as the requirements in new TILA 

Section 172(b) regarding promotional 

rates. New TILA Section 172(b) provides 

that ‘‘[n]o increase in any * * * 

promotional rate (as that term is defined 

by the Board) shall be effective before 

the end of the 6-month period beginning 

on the date on which the promotional 

rate takes effect, subject to such 

reasonable exceptions as the Board may 

establish by rule.’’ Pursuant to this 

authority, the Board believes that 

promotional rates should be subject to 

the same requirements and exceptions 

as other temporary rates that expire after 

a specified period of time. In particular, 

the Board believes that consumers who 

rely on promotional rates should receive 

the disclosures and protections set forth 

in revised TILA Section 171(b)(1) and 

proposed § 226.55(b)(1). This will 

ensure that a consumer will receive 

disclosure of the terms of the 

promotional rate before engaging in 

transactions in reliance on that rate and 

that, at the expiration of the promotion, 

the rate will only be increased 

consistent with those terms. 

Accordingly, the Board has incorporated 

the requirement that promotional rates 

last at least six months into proposed 

§ 226.55(b)(1), which would permit a 

card issuer to increase a temporary 

annual percentage rate upon the 

expiration of a specified period that is 

six months or longer. 

Furthermore, pursuant to its authority 

under new TILA Section 172(b) to 

establish reasonable exceptions to the 

six-month requirement for promotional 

rates, the Board believes that it is 

appropriate to apply the other 

exceptions in revised TILA Section 

171(b) and proposed § 226.55(b) to 

promotional rate offers. For example, 

the Board believes that a card issuer 

should be permitted to offer a consumer 

a promotional rate that varies with an 

index consistent with revised TILA 

Section 171(b)(2) and proposed 

§ 226.55(b)(2) (such as a rate that is one 

percentage point over a prime rate that 

is not under the card issuer’s control). 

Similarly, the Board believes that a card 

issuer should be permitted to increase a 

promotional rate if the account becomes 

more than 60 days delinquent during 

the promotional period consistent with 

revised TILA Section 171(b)(4) and 

proposed § 226.55(b)(4). Thus, the Board 

would apply to promotional rates the 

general proposition in proposed 

§ 226.55(b) that a rate may be increased 

pursuant to an exception in § 226.55(b) 

even if that increase would not be 

permitted under a different exception. 

The Board proposes to implement the 

requirement in revised TILA Section 


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171(b)(1)(A) that creditors disclose the 

length of the period and the annual 

percentage rate that will apply after the 

expiration of that period in proposed 

§ 226.55(b)(1)(i). This language tracks 

§ 226.9(c)(2)(v)(B)(1), which the Board 

adopted in the July 2009 Regulation Z 

Interim Final Rule as part of an 

exception to the general requirement 

that creditors provide 45 days notice 

before an increase in annual percentage 

rate. Because the disclosure 

requirements in § 226.9(c)(2)(v)(B)(1) 

and proposed § 226.55(b)(1)(i) 

implement the same statutory provision 

(revised TILA Section 171(b)(1)(A)), the 

Board believes a single set of disclosures 

should satisfy both requirements. 

Accordingly, proposed comment 

55(b)(1)–1 clarifies that a card issuer 

that has complied with the disclosure 

requirements in § 226.9(c)(2)(v)(B) has 

also complied with the disclosure 

requirements in § 226.55(b)(2)(i). In 

other words, the expiration of a 

temporary rate cannot be used as a 

reason to apply an increased rate to a 

balance that preceded application of the 

temporary rate. For example, assume 

that a credit card account has a $5,000 

purchase balance at a 15% rate and that 

the card issuer reduces the rate that 

applies to all purchases (including the 

$5,000 balance) to 10% for six months 

with a 22% rate applying thereafter. 

Under proposed § 226.55(b)(1)(ii)(A), 

the card issuer could not apply the 22% 

rate to the $5,000 balance upon 

expiration of the six-month period 

(although the card issuer could apply 

the original 15% rate to that balance). 

The Board proposes to implement in 

§ 226.55(b)(1)(ii) the limitations in 

revised TILA Section 171(b)(1)(B) and 

(C) on the application of increased rates 

following expiration of the specified 

period. First, proposed 

§ 226.55(b)(1)(ii)(A) states that, upon 

expiration of the specified period, a card 

issuer must not apply an annual 

percentage rate to transactions that 

occurred prior to the period that 

exceeds the rate that applied to those 

transactions prior to the period. 

Second, proposed § 226.55(b)(1)(ii)(B) 

states that, if the disclosures required by 

§ 226.55(b)(1)(i) are provided pursuant 

to § 226.9(c), the card issuer must not— 

upon expiration of the specified 

period—apply an annual percentage rate 

to transactions that occurred within 

fourteen days after provision of the 

notice that exceeds the rate that applied 

to that category of transactions prior to 

provision of the notice. The Board 

believes that this clarification is 

necessary to ensure that card issuers do 

not apply an increased rate to an 

outstanding balance (as defined in 

revised TILA Section 171(d)) upon 

expiration of the specified period. 

Accordingly, consistent with the 

purpose of revised TILA Section 171(d), 

proposed § 226.55(b)(1)(ii)(B) would 

ensure that a consumer will have 

fourteen days to receive the § 226.9(c) 

notice and review the terms of the 

temporary rate (including the increased 

rate that will apply upon expiration of 

the specified period) before engaging in 

transactions to which that increased rate 

may eventually apply. 

Third, proposed § 226.55(b)(1)(ii)(C) 

states that, upon expiration of the 

specified period, the card issuer must 

not apply an annual percentage rate to 

transactions that occurred during the 

specified period that exceeds the 

increased rate disclosed pursuant to 

§ 226.55(b)(1)(i). In other words, the 

card issuer can only increase the rate 

consistent with the previously-disclosed 

terms. Examples illustrating the 

application of proposed 

§ 226.55(b)(1)(ii)(A), (B), and (C) are 

provided in comments 55(a)–1 and 

55(b)–3. 

Proposed comment 55(b)(1)–2 

clarifies when the specified period 

begins for purposes of the six-month 

requirement in § 226.55(b)(1). As a 

general matter, proposed comment 

55(b)(1)–1 states that the specified 

period must expire no less than six 

months after the date on which the 

creditor discloses to the consumer the 

length of the period and rate that will 

apply thereafter (as required by 

§ 226.55(b)(1)(i)). However, if the card 

issuer provides these disclosures before 

the consumer can use the account for 

transactions to which the temporary rate 

will apply, the temporary rate must 

expire no less than six months from the 

date on which it becomes available. For 

example, assume that on January 1 a 

card issuer offers a 5% annual 

percentage rate for six months on 

purchases (with a 15% rate applying 

thereafter). If a consumer may begin 

making purchases at the 5% rate on 

January 1, § 226.55(b)(1) would permit 

the issuer to begin accruing interest at 

the 15% rate on July 1. However, if a 

consumer may not begin making 

purchases at the 5% rate until February 

1, § 226.55(b)(1) would not permit the 

issuer to begin accruing interest at the 

15% rate until August 1. 

The Board understands that card 

issuers often limit the application of a 

promotional rate to particular categories 

of transactions (such as balance 

transfers or purchases over $100). The 

Board does not believe that the sixmonth requirement in new TILA 

Section 172(b) was intended to prohibit 

this practice so long as the consumer 

receives the benefit of the promotional 

rate for at least six months. Accordingly, 

proposed comment 55(b)(1)–2 clarifies 

that § 226.55(b)(1) does not prohibit 

these types of limitations. However, the 

comment also clarifies that, in 

circumstances where the card issuer 

limits application of the temporary rate 

to a particular transaction, the 

temporary rate must expire no less than 

six months after the date on which that 

transaction occurred. For example, if on 

January 1 a creditor offers a 0% 

temporary rate on the purchase of an 

appliance and the consumer uses the 

account to purchase a $1,000 appliance 

on March 1, the creditor cannot increase 

the rate on that $1,000 purchase until 

September 1. 

The Board believes that this 

application of the six-month 

requirement is consistent with the 

intent of new TILA Section 172(b). 

Although the six-month requirement 

could be interpreted as requiring a 

separate six-month period for every 

transaction to which the temporary rate 

applies, the Board believes this 

interpretation would create a level of 

complexity that would be not only 

confusing for consumers but also 

operationally burdensome for card 

issuers, potentially leading to a 

reduction in promotional rate offers that 

provide significant consumer benefit. 

Proposed comment 55(b)(1)–3 

clarifies that the general prohibition in 

§ 226.55(a) applies to the imposition of 

accrued interest upon the expiration of 

a deferred interest or similar 

promotional program under which the 

consumer is not obligated to pay interest 

that accrues on a balance if that balance 

is paid in full prior to the expiration of 

a specified period of time. As discussed 

in the January 2009 FTC Act Rule, the 

assessment of deferred interest is 

effectively an increase in rate on an 

existing balance. See 74 FR 5527–5528. 

However, if properly disclosed, deferred 

interest programs can provide 

substantial benefits to consumers. See 

74 FR 20812–20813. Furthermore, as 

discussed above with respect to 

proposed comment 54(a)(1)–2, the 

Board does not believe that the Credit 

Card Act was intended to ban properlydisclosed deferred interest programs. 

Accordingly, proposed comment 

55(b)(1)–3 further clarifies that card 

issuers may continue to offer such 

programs consistent with the 

requirements of § 226.55(b)(1). In 

particular, prior to the commencement 

of the deferred interest period, 

§ 226.55(b)(1)(i) requires the card issuer 

to disclose the length of the period and 

the rate that will apply to the balance 

subject to the deferred interest program 


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if that balance is not paid in full prior 

to expiration of the period. The 

comment provides examples illustrating 

the application of § 226.55 to deferred 

interest and similar programs. 

Finally, proposed comment 55(b)(1)– 

4 clarifies that § 226.55(b)(1) does not 

permit a card issuer to apply an 

increased rate that is contingent on a 

particular event or occurrence or that 

may be applied at the card issuer’s 

discretion. The comment provides 

examples of rate increases that are not 

permitted by § 226.55. 

55(b)(2) Variable Rate Exception 

Revised TILA Section 171(b)(2) 

provides that a card issuer may increase 

‘‘a variable annual percentage rate in 

accordance with a credit card agreement 

that provides for changes in the rate 

according to operation of an index that 

is not under the card issuer’s control 

and is available to the general public.’’ 

The Board proposes to implement this 

exception in § 226.55(b)(2), which states 

that a creditor may increase an annual 

percentage rate that varies according to 

an index that is not under the creditor’s 

control and is available to the general 

public when the increase in rate is due 

to an increase in the index. 

The proposed commentary to 

§ 226.55(b)(2) is modeled on 

commentary adopted by the Board and 

the other Agencies in the January 2009 

FTC Act Rule as well as § 226.5b(f) and 

its commentary. See 12 CFR 227.24 

comments 24(b)(2)–1 through 6, 74 FR 

5531, 5564; § 226.5b(f)(1), (3)(ii); 

comment 5b(f)(1)–1 and –2; comment 

5b(f)(3)(ii)–1. Proposed comment 

55(b)(2)–1 clarifies that § 226.55(b)(2) 

does not permit a card issuer to increase 

a variable annual percentage rate by 

changing the method used to determine 

that rate (such as by increasing the 

margin), even if that change will not 

result in an immediate increase. 

However, consistent with existing 

comment 5b(f)(3)(v)–2, the comment 

also clarifies that a card issuer may 

change the day of the month on which 

index values are measured to determine 

changes to the rate. 

Proposed comment 55(b)(1)–2 further 

clarifies that a card issuer may not 

increase a variable rate based on its own 

prime rate or cost of funds. A card 

issuer is permitted, however, to use a 

published prime rate, such as that in the 

Wall Street Journal, even if the card 

issuer’s own prime rate is one of several 

rates used to establish the published 

rate. In addition, proposed comment 

55(b)(2)–3 clarifies that a publiclyavailable index need not be published 

in a newspaper, but it must be one the 

consumer can independently obtain (by 

telephone, for example) and use to 

verify the annual percentage rate 

applied to the credit card account. 

Because the conversion of a nonvariable rate to a variable rate could lead 

to future increases in the rate that 

applies to an existing balance, proposed 

comment 55(b)(2)–4 clarifies that a nonvariable rate may be converted to a 

variable rate only when specifically 

permitted by one of the exceptions in 

§ 226.55(b). For example, under 

§ 226.55(b)(1), a card issuer may convert 

a non-variable rate to a variable rate at 

the expiration of a specified period if 

this change was disclosed prior to 

commencement of the period. 

Because § 226.55 applies only to 

increases in annual percentage rates, 

proposed comment 55(b)(2)–5 clarifies 

that nothing in § 226.55 prohibits a card 

issuer from changing a variable rate to 

an equal or lower non-variable rate. 

Whether the non-variable rate is equal 

to or lower than the variable rate is 

determined at the time the card issuer 

provides the notice required by 

§ 226.9(c). An illustrative example is 

provided. 

Proposed comment 55(b)(2)–6 

clarifies that a card issuer may change 

the index and margin used to determine 

a variable rate if the original index 

becomes unavailable, so long as 

historical fluctuations in the original 

and replacement indices were 

substantially similar and the 

replacement index and margin will 

produce a rate similar to the rate that 

was in effect at the time the original 

index became unavailable. This 

comment further clarifies that, if the 

replacement index is newly established 

and therefore does not have any rate 

history, it may be used if it produces a 

rate substantially similar to the rate in 

effect when the original index became 

unavailable. 

55(b)(3) Advance Notice Exception 

Proposed § 226.55(a) prohibits 

increases in annual percentage rates and 

fees and charges required to be 

disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) with respect to 

both existing balances and new 

transactions. However, as discussed 

above, the prohibition on increases in 

rates, fees, and finance charges in 

revised TILA Section 171 applies only 

to ‘‘outstanding balances’’ as defined in 

Section 171(d). Accordingly, proposed 

§ 226.55(b)(3) provides that a card issuer 

may generally increase an annual 

percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

with respect to new transactions after 

complying with the notice requirements 

in § 226.9(b), (c), or (g). 

Because § 226.9 applies different 

notice requirements in different 

circumstances, proposed § 226.55(b)(3) 

clarifies that the transactions to which 

an increased rate, fee, or charge may be 

applied depend on the type of notice 

required. As a general matter, when an 

annual percentage rate, fee, or charge is 

increased pursuant to § 226.9(c) or (g), 

proposed § 226.55(b)(3)(ii) provides that 

the card issuer must not apply the 

increased rate, fee, or charge to 

transactions that occurred within 

fourteen days after provision of the 

notice. This is consistent with revised 

TILA Section 171(d), which defines the 

outstanding balance to which an 

increased rate, fee, or finance charge 

may not be applied as the amount due 

at the end of the fourteenth day after 

notice of the increase is provided. 

However, pursuant to its authority 

under TILA Section 105(a), the Board 

proposes to establish a different 

approach for increased rates, fees, and 

charges disclosed pursuant to § 226.9(b). 

As discussed in the July 2009 

Regulation Z Interim Final Rule, the 

Board believes that the fourteen-day 

period is intended, in part, to ensure 

that an increased rate, fee, or charge will 

not apply to transactions that occur 

before the consumer has received the 

notice of the increase and had a 

reasonable amount of time to review it 

and decide whether to engage in 

transactions to which the increased rate, 

fee, or charge will apply. See 74 FR 

36090. The Board does not believe that 

a fourteen-day period is necessary for 

increases disclosed pursuant to 

§ 226.9(b), which requires card issuers 

to disclose any new finance charge 

terms applicable to supplemental access 

devices (such as convenience checks) 

and additional features added to the 

account after account opening before the 

consumer uses the device or feature for 

the first time. For example, 

§ 226.9(b)(3)(i)(A) requires that card 

issuers providing checks that access a 

credit card account to which a 

temporary promotional rate applies 

disclose key terms on the front of the 

page containing the checks, including 

the promotional rate, the period during 

which the promotional rate will be in 

effect, and the rate that will apply after 

the promotional rate expires. Thus, 

unlike increased rates, fees, and charges 

disclosed pursuant to a § 226.9(c) and 

(g) notice, the fourteen-day period is not 

necessary for increases disclosed 

pursuant to § 226.9(b) because the 

device or feature will not be used before 

the consumer has received notice of the 

applicable terms. Accordingly, proposed 


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30This comment is based on commentary to the 

January 2009 FTC Act Rule proposed by the Board 

and the other Agencies in May 2009. See 12 CFR 

227.24, proposed comment 24–4, 74 FR 20816; see 

also 74 FR 20809. In that proposal, the Board 

recognized that the process of replacing one 

account with another generally is not 

instantaneous. If, for example, a consumer requests 

that a credit card account with a $1,000 balance be 

upgraded to a credit card account that offers 

rewards on purchases, the second account may be 

opened immediately or within a few days but, for 

operational reasons, there may be a delay before the 

$1,000 balance can be transferred and the first 

account can be closed. For this reason, the Board 

sought comment on whether 15 or 30 days was the 

appropriate amount of time to complete this 

process. In response, industry commenters 

generally stated that at least 30 days was required. 

Accordingly, the Board is proposing a 30-day 

period in comment 55(b)(3)–3. 

31For example, assume that, on January 1 of year 

one, a consumer opens a credit card account with 

a purchase rate of 15%. On July 1 of year one, the 

account is replaced with a credit card account 

issued by the same card issuer, which offers 

different features (such as rewards on purchases). 

Under these circumstances, the card issuer could 

not increase the annual percentage rate for 

purchases to a rate that is higher than 15% pursuant 

to § 226.55(b)(3) until January 1 of year two (which 

is one year after the first account was opened). 

§ 226.55(b)(3)(i) provides that, if a card 

issuer discloses an increased annual 

percentage rate, fee, or charge pursuant 

to § 226.9(b), the card issuer must not 

apply that rate, fee, or charge to 

transactions that occurred prior to 

provision of the notice. 

Proposed § 226.55(b)(3)(iii) provides 

that the exception in § 226.55(b)(3) does 

not permit a card issuer to increase an 

annual percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

during the first year after the credit card 

account is opened. This provision 

implements new TILA Section 172(a), 

which generally prohibits increases in 

annual percentage rates, fees, and 

finance charges during the one-year 

period beginning on the date the 

account is opened. 

Proposed comment 55(b)(3)–1 

clarifies that a card issuer may not 

increase a fee or charge required to be 

disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) pursuant to 

§ 226.55(b)(3) if the consumer has 

rejected the increased fee or charge 

pursuant to § 226.9(h). In addition, 

proposed comment 55(b)(3)–2 clarifies 

that, if an increased annual percentage 

rate, fee, or charge is disclosed pursuant 

to both § 226.9(b) and (c), the 

requirements in § 226.55(b)(3)(ii) control 

and the rate, fee, or charge may only be 

applied to transactions that occur more 

than fourteen days after provision of the 

§ 226.9(c) notice. 

Proposed comment 55(b)(3)–3 

clarifies whether certain changes to a 

credit card account constitute an 

‘‘account opening’’ for purposes of the 

prohibition in § 226.55(b)(3)(iii) on 

increasing annual percentage rates and 

fees and charges required to be 

disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) during the first 

year after account opening. In 

particular, the comment would 

distinguish between circumstances in 

which a card issuer opens multiple 

accounts for the same consumer and 

circumstances in which a card issuer 

substitutes, replaces, or consolidates 

one account with another. As an initial 

matter, this comment would clarify that, 

when a consumer has a credit card 

account with a card issuer and the 

consumer opens a new credit card 

account with the same card issuer (or its 

affiliate or subsidiary), the opening of 

the new account constitutes the opening 

of a credit card account for purposes of 

§ 226.55(b)(3)(iii) if, more than 30 days 

after the new account is opened, the 

consumer has the option to obtain 

additional extensions of credit on each 

account. Thus, for example, if a 

consumer opens a credit card account 

with a card issuer on January 1 of year 

one and opens a second credit card 

account with that card issuer on July 1 

of year one, the opening of the second 

account constitutes an account opening 

for purposes of § 226.55(b)(3)(iii) so long 

as, on August 1, the consumer has the 

option to engage in transactions using 

either account. This is the case even if 

the consumer transfers a balance from 

the first account to the second. Thus, 

because the card issuer has two separate 

account relationships with the 

consumer, the prohibition in 

§ 226.55(b)(3)(iii) on increasing annual 

percentage rates and fees and charges 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

during the first year after account 

opening would apply to the opening of 

the second account.30

In contrast, the comment would 

clarify that an account has not been 

opened for purposes of 

§ 226.55(b)(3)(iii) when a card issuer 

substitutes or replaces one credit card 

account with another credit card 

account (such as when a retail credit 

card is replaced with a cobranded 

general purpose card that can be used at 

a wider number of merchants) or when 

a card issuer consolidates or combines 

a credit card account with one or more 

other credit card accounts into a single 

credit card account. As discussed below 

with respect to proposed § 226.55(d)(2), 

the Board believes that these transfers 

should be treated as a continuation of 

the existing account relationship rather 

than the creation of a new account 

relationship. Similarly, the comment 

would also clarify that the substitution 

or replacement of an acquired credit 

card account does not constitute an 

‘‘account opening’’ for purposes of 

§ 226.55(b)(3)(iii). Thus, in these 

circumstances, the prohibition in 

§ 226.55(b)(3)(iii) would not apply. 

However, when a substitution, 

replacement or consolidation occurs 

during the first year after account 

opening, proposed comment 55(b)(3)– 

3.ii.B would clarify that the card issuer 

may not increase an annual percentage 

rate, fee, or charge in a manner 

otherwise prohibited by § 226.55.31

Proposed comment 55(b)(3)–4 

provides illustrative examples of the 

application of the exception in proposed 

§ 226.55(b)(3). Proposed comment 

55(b)(3)–5 contains a cross-reference to 

proposed comment 55(c)(1)–3, which 

clarifies the circumstances in which 

increased fees and charges required to 

be disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) may be imposed 

consistent with § 226.55. 

55(b)(4) Delinquency Exception 

Revised TILA Section 171(b)(4) 

permits a creditor to increase an annual 

percentage rate, fee, or finance charge 

‘‘due solely to the fact that a minimum 

payment by the [consumer] has not been 

received by the creditor within 60 days 

after the due date for such payment.’’ 

However, this exception is subject to 

two conditions. First, revised Section 

171(b)(4)(A) provides that the notice of 

the increase must include ‘‘a clear and 

conspicuous written statement of the 

reason for the increase and that the 

increase will terminate not later than 6 

months after the date on which it is 

imposed, if the creditor receives the 

required minimum payments on time 

from the [consumer] during that 

period.’’ Second, revised Section 

171(b)(4)(B) provides that the creditor 

must ‘‘terminate [the] increase not later 

than 6 months after the date on which 

it is imposed, if the creditor receives the 

required minimum payments on time 

during that period.’’ 

The Board proposes to implement this 

exception in § 226.55(b)(4). The 

additional notice requirements in 

revised TILA Section 171(b)(4)(A) are 

set forth in proposed § 226.55(b)(4)(i). 

The requirement in revised Section 

171(b)(4)(B) that the increase be 

terminated if the card issuer receives 

timely payments during the six months 

following the increase is implemented 

in proposed § 226.55(b)(4)(ii), although 

the Board proposes three adjustments to 

the statutory requirement pursuant to its 

authority under TILA Section 105(a). 

First, proposed § 226.55(b)(4)(ii) 

interprets the requirement that the 


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creditor ‘‘terminate’’ the increase as a 

requirement that the card issuer reduce 

the annual percentage rate, fee, or 

charge to the rate, fee, or charge that 

applied prior to the increase. The Board 

believes that this interpretation is 

consistent with the intent of revised 

TILA Section 171(b)(4)(B) insofar as the 

effect of the increase will be undone. 

The Board does not interpret revised 

TILA Section 171(b)(4)(B) to require the 

card issuer to refund or credit the 

account for amounts charged as a result 

of the increase prior to the termination. 

Second, for clarity, proposed 

§ 226.55(b)(4)(ii) provides that the card 

issuer must reduce the annual 

percentage rate, fee, or charge after 

receiving six consecutive required 

minimum periodic payments on or 

before the payment due date beginning 

with the first payment due following the 

effective date of the increase. The Board 

believes that shifting the focus from 

months to minimum payments provides 

more specificity and clarity for both 

consumers and card issuers as to what 

is required to obtain the reduction. 

Furthermore, the Board believes that 

limiting this requirement to the period 

immediately following the increase is 

consistent with revised TILA Section 

171(b)(4)(B), which requires a creditor 

to terminate an increase ‘‘6 months after 

the date on which it is imposed, if the 

creditor receives the required minimum 

payments on time during that period.’’ 

Thus, as clarified in proposed comment 

55(b)(4)–3 (which is discussed below), 

proposed § 226.55(b)(4)(ii) would not 

require a card issuer to terminate an 

increase if, at some later point in time, 

the card issuer receives six consecutive 

required minimum periodic payments 

on or before the payment due date. 

Third, proposed § 226.55(b)(4)(ii) 

provides that the card issuer must also 

reduce the annual percentage rate, fee, 

or charge with respect to transactions 

that occurred within fourteen days after 

provision of the § 226.9(c) or (g) notice. 

This requirement is consistent with the 

definition of ‘‘outstanding balance’’ in 

revised TILA Section 171(d), as applied 

in proposed § 226.55(b)(1)(ii)(B) and 

proposed § 226.55(b)(3)(ii). 

Proposed comment 55(b)(4)–1 

clarifies that, in order to satisfy the 

condition in § 226.55(b)(4) that the card 

issuer has not received the consumer’s 

required minimum periodic payment 

within 60 days after the payment due 

date, a card issuer that requires monthly 

minimum payments generally must not 

have received two consecutive 

minimum payments. The comment 

further clarifies that whether a required 

minimum periodic payment has been 

received for purposes of § 226.55(b)(4) 

depends on whether the amount 

received is equal to or more than the 

first outstanding required minimum 

periodic payment. The comment 

provides the following example: 

Assume that the required minimum 

periodic payments for a credit card 

account are due on the fifteenth day of 

the month. On May 13, the card issuer 

has not received the $50 required 

minimum periodic payment due on 

March 15 or the $150 required 

minimum periodic payment due on 

April 15. If the card issuer receives a 

$50 payment on May 14, § 226.55(b)(4) 

does not apply because the payment is 

equal to the required minimum periodic 

payment due on March 15 and therefore 

the account is not more than 60 days 

delinquent. However, if the card issuer 

instead received a $40 payment on May 

14, § 226.55(b)(4) would apply because 

the payment is less than the required 

minimum periodic payment due on 

March 15. Furthermore, if the card 

issuer received the $50 payment on May 

15, § 226.55(b)(4) would apply because 

the card issuer did not receive the 

required minimum periodic payment 

due on March 15 within 60 days after 

the due date for that payment. 

As discussed above, proposed 

§ 226.9(g)(3)(i)(B) would require that the 

written notice provided to consumers 45 

days before an increase in rate due to 

delinquency or default or as a penalty 

include the information required by 

revised Section 171(b)(4)(A). 

Accordingly, proposed comment 

55(b)(4)–2 clarifies that a card issuer 

that has complied with the disclosure 

requirements in § 226.9(g)(3)(i)(B) has 

also complied with the disclosure 

requirements in § 226.55(b)(4)(i). 

Proposed comment 55(b)(4)–3 

clarifies the requirements in 

§ 226.55(b)(4)(ii) regarding the reduction 

of annual percentage rates, fees, or 

charges that have been increased 

pursuant to § 226.55(b)(4). First, as 

discussed above, the comment clarifies 

that § 226.55(b)(4)(ii) does not apply if 

the card issuer does not receive six 

consecutive required minimum periodic 

payments on or before the payment due 

date beginning with the payment due 

immediately following the effective date 

of the increase, even if, at some later 

point in time, the card issuer receives 

six consecutive required minimum 

periodic payments on or before the 

payment due date. 

Second, the comment states that, 

although § 226.55(b)(4)(ii) requires the 

card issuer to reduce an annual 

percentage rate, fee, or charge increased 

pursuant to § 226.55(b)(4) to the annual 

percentage rate, fee, or charge that 

applied prior to the increase, this 

provision does not prohibit the card 

issuer from applying an increased 

annual percentage rate, fee, or charge 

consistent with any of the other 

exceptions in § 226.55(b). For example, 

if a temporary rate applied prior to the 

§ 226.55(b)(4) increase and the 

temporary rate expired before a 

reduction in rate pursuant to 

§ 226.55(b)(4), the card issuer may apply 

an increased rate to the extent 

consistent with § 226.55(b)(1). Similarly, 

if a variable rate applied prior to the 

§ 226.55(b)(4) increase, the card issuer 

may apply any increase in that variable 

rate to the extent consistent with 

§ 226.55(b)(2). This is consistent with 

proposed § 226.55(b), which provides 

that a card issuer may increase an 

annual percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

pursuant to one of the exceptions in 

§ 226.55(b) even if that increase would 

not be permitted under a different 

exception. 

Third, the comment states that, if 

§ 226.55(b)(4)(ii) requires a card issuer 

to reduce an annual percentage rate, fee, 

or charge on a date that is not the first 

day of a billing cycle, the card issuer 

may delay application of the reduced 

rate, fee, or charge until the first day of 

the following billing cycle. This is 

consistent with proposed comment 

55(b)–2, which clarifies that a card 

issuer may delay application of an 

increase in a rate, fee, or charge until the 

start of the next billing cycle without 

relinquishing its ability to apply that 

rate, fee, or charge. Finally, the 

comment provides examples illustrating 

the application of § 226.55(b)(4)(ii). 

55(b)(5) Workout and Temporary 

Hardship Arrangement Exception 

Revised TILA Section 171(b)(3) 

permits a creditor to increase an annual 

percentage rate, fee, or finance charge 

‘‘due to the completion of a workout or 

temporary hardship arrangement by the 

[consumer] or the failure of a 

[consumer] to comply with the terms of 

a workout or temporary hardship 

arrangement.’’ However, like the 

exception for delinquencies of more 

than 60 days in revised TILA Section 

171(b)(4), this exception is subject to 

two conditions. First, revised Section 

171(b)(3)(A) provides that ‘‘the annual 

percentage rate, fee, or finance charge 

applicable to a category of transactions 

following any such increase does not 

exceed the rate, fee, or finance charge 

that applied to that category of 

transactions prior to commencement of 

the arrangement.’’ Second, revised 

Section 171(b)(3)(B) provides that the 

creditor must have ‘‘provided the 


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32The definition of ‘‘protected balance’’ and the 

permissible repayment methods for such a balance 

are discussed in detail below with respect to 

proposed § 226.55(c). 

33 50 U.S.C. app. 527(a)(1)(B) applies to 

obligations or liabilities that do not consist of a 

mortgage, trust deed, or other security in the nature 

of a mortgage. 

[consumer], prior to the commencement 

of such arrangement, with clear and 

conspicuous disclosure of the terms of 

the arrangement (including any 

increases due to such completion or 

failure).’’ 

The Board proposes to implement this 

exception in § 226.55(b)(5). The notice 

requirements in revised Section 

171(b)(3)(B) are set forth in proposed 

§ 226.55(b)(5)(i). The limitation on 

increases following completion or 

failure of a workout or temporary 

hardship arrangement is set forth in 

proposed § 226.55(b)(5)(ii). 

Proposed comment 55(b)(5)–1 

clarifies that nothing in § 226.55(b)(5) 

permits a card issuer to alter the 

requirements of § 226.55 pursuant to a 

workout or temporary hardship 

arrangement. For example, a card issuer 

cannot increase an annual percentage 

rate or a fee or charge required to be 

disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) pursuant to a 

workout or temporary hardship 

arrangement unless otherwise permitted 

by § 226.55. In addition, a card issuer 

cannot require the consumer to make 

payments with respect to a protected 

balance that exceed the payments 

permitted under § 226.55(c).32

Proposed comment 55(b)(5)–2 

clarifies that a card issuer that has 

complied with the disclosure 

requirements in § 226.9(c)(2)(v)(D) has 

also complied with the disclosure 

requirements in § 226.55(b)(5)(i). The 

comment also contains a cross-reference 

to proposed comment 9(c)(2)(v)–8, 

which the Board adopted in the July 

2009 Regulation Z Interim Final Rule to 

clarify the terms a creditor is required 

to disclose prior to commencement of a 

workout or temporary hardship 

arrangement for purposes of 

§ 226.9(c)(2)(v)(D), which is an 

exception to the general requirement 

that a creditor provide 45 days advance 

notice of an increase in annual 

percentage rate. See 74 FR 36099. 

Because the disclosure requirements in 

§ 226.9(c)(2)(v)(D) and proposed 

§ 226.55(b)(5)(i) implement the same 

statutory provision (revised TILA 

Section 171(b)(3)(B)), the Board believes 

a single set of disclosures should satisfy 

the requirements of all three provisions. 

Similar to the commentary to 

proposed § 226.55(b)(4), proposed 

comment 55(b)(5)–3 states that, 

although the card issuer may not apply 

an annual percentage rate, fee, or charge 

to transactions that occurred prior to 

commencement of the arrangement that 

exceeds the rate, fee, or charge that 

applied to those transactions prior to 

commencement of the arrangement, 

§ 226.55(b)(5)(ii) does not prohibit the 

card issuer from applying an increased 

rate, fee, or charge upon completion or 

failure of the arrangement to the extent 

consistent with any of the other 

exceptions in § 226.55(b) (such as an 

increase in a variable rate consistent 

with proposed § 226.55(b)(2)). Finally, 

proposed comment 55(b)(5)–4 provides 

illustrative examples of the application 

of this exception. 

55(b)(6) Servicemembers Civil Relief 

Act Exception 

The Board proposes to use its 

authority under TILA Section 105(a) to 

clarify the relationship between the 

general prohibition on increasing 

annual percentage rates in revised TILA 

Section 171 and certain provisions of 

the Servicemembers Civil Relief Act 

(SCRA), 50 U.S.C. app. 501 et seq. 

Specifically, 50 U.S.C. app. 527(a)(1) 

provides that ‘‘[a]n obligation or liability 

bearing interest at a rate in excess of 6 

percent per year that is incurred by a 

servicemember, or the servicemember 

and the servicemember’s spouse jointly, 

before the servicemember enters 

military service shall not bear interest at 

a rate in excess of 6 percent. * * *’’ 

With respect to credit card accounts, 

this restriction applies during the period 

of military service. See 50 U.S.C. app. 

527(a)(1)(B).33

Under revised TILA Section 171, a 

creditor that complies with the SCRA by 

lowering the annual percentage rate that 

applies to an existing balance on a 

credit card account when the consumer 

enters military service arguably would 

not be permitted to increase the rate for 

that balance once the period of military 

service ends and the protections of the 

SCRA no longer apply. In May 2009, the 

Board and the other Agencies proposed 

to create an exception to the general 

prohibition in the January 2009 FTC Act 

Rule on applying increased rates to 

existing balances for these 

circumstances, provided that the 

increased rate does not exceed the rate 

that applied prior to the period of 

military service. See 12 CFR 

227.24(b)(6), 74 FR 20814; see also 74 

FR 20812. Revised TILA Section 171 

does not contain a similar exception. 

However, the Board does not believe 

that Congress intended to prohibit 

creditors from returning an annual 

percentage rate that has been reduced by 

operation of the SCRA to its pre-military 

service level once the SCRA no longer 

applies. Accordingly, the Board 

proposes to create § 226.55(b)(6), which 

states that, if an annual percentage rate 

has been decreased pursuant to the 

SCRA, a card issuer may increase that 

annual percentage rate once the SCRA 

no longer applies. However, the card 

issuer would not be permitted to apply 

an annual percentage rate to any 

transactions that occurred prior to the 

decrease that exceeds the rate that 

applied to those transactions prior to the 

decrease. Furthermore, because the 

Board believes that a consumer leaving 

military service should receive 45 days 

advance notice of this increase in rate, 

the Board has not proposed a 

corresponding exception to § 226.9. 

Proposed comment 55(b)(6)–1 

clarifies that, although § 226.55(b)(6) 

requires the card issuer to apply to any 

transactions that occurred prior to a 

decrease in annual percentage rate 

pursuant to 50 U.S.C. app. 527 a rate 

that does not exceed the rate that 

applied to those transactions prior to the 

decrease, the card issuer may apply an 

increased rate once 50 U.S.C. app 527 

no longer applies, to the extent 

consistent with any of the other 

exceptions in § 226.55(b). For example, 

if the rate that applied prior to the 

decrease was a variable rate, the card 

issuer may apply any increase in that 

variable rate to the extent consistent 

with § 226.55(b)(2). This comment 

mirrors similar commentary to proposed 

§ 226.55(b)(4) and (b)(5). An illustrative 

example is provided in proposed 

comment 26(b)(6)–2. 

55(c) Treatment of Protected Balances 

Revised TILA Section 171(c)(1) states 

that ‘‘[t]he creditor shall not change the 

terms governing the repayment of any 

outstanding balance, except that the 

creditor may provide the [consumer] 

with one of the methods described in 

[revised Section 171(c)(2)] * * * or a 

method that is no less beneficial to the 

[consumer] than one of those methods.’’ 

Revised TILA Section 171(c)(2) lists two 

methods of repaying an outstanding 

balance: First, an amortization period of 

not less than five years, beginning on 

the effective date of the increase set 

forth in the Section 127(i) notice; and, 

second, a required minimum periodic 

payment that includes a percentage of 

the outstanding balance that is equal to 

not more than twice the percentage 

required before the effective date of the 

increase set forth in the Section 127(i) 

notice. 

For clarity, proposed § 226.55(c)(1) 

defines the balances subject to the 


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34Thus, as discussed in the proposed 

commentary to § 226.55(b)(2), a card issuer that 

acquires a credit card account with a balance to 

which a variable rate applies would not be 

permitted to substitute a new index for the index 

used to determine the variable rate if the change 

could result in an increase in the annual percentage 

protections in revised TILA Section 

171(c) as ‘‘protected balances.’’ Under 

this definition, a ‘‘protected balance’’ is 

the amount owed for a category of 

transactions to which an increased 

annual percentage rate or an increased 

fee or charge required to be disclosed 

under § 226.6(b)(2)(ii), (b)(2)(iii), or 

(b)(2)(xii) cannot be applied after the 

annual percentage rate, fee, or charge for 

that category of transactions has been 

increased pursuant to § 226.55(b)(3). For 

example, when a card issuer notifies a 

consumer of an increase in the annual 

percentage rate that applies to new 

purchases pursuant to § 226.9(c), the 

protected balance is the purchase 

balance at the end of the fourteenth day 

after provision of the notice. See 

§ 226.55(b)(3)(ii). The Board and the 

other Agencies adopted a similar 

definition in the January 2009 FTC Act 

Rule. See 12 CFR 227.24(c), 74 FR 5560; 

see also 74 FR 5532. 

Proposed comment 55(c)(1)–1 would 

provide an illustrative example of a 

protected balance. Proposed comment 

55(c)(1)–2 would clarify that, because 

§ 226.55(b)(3)(iii) does not permit a card 

issuer to increase an annual percentage 

rate or a fee or charge required to be 

disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) during the first 

year after account opening, § 226.55(c) 

does not apply to balances during the 

first year after account opening. 

Proposed comment 55(c)(1)–3 clarifies 

that, although § 226.55(b)(3) does not 

permit a card issuer to apply an 

increased fee or charge required to be 

disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) to a protected 

balance, a card issuer is not prohibited 

from increasing a fee or charge that 

applies to the account as a whole or to 

balances other than the protected 

balance. For example, a card issuer may 

add a new annual or a monthly 

maintenance fee to an account or 

increase such a fee so long as the fee is 

not based solely on the protected 

balance. However, if the consumer 

rejects an increase in a fee or charge 

pursuant to § 226.9(h), the card issuer is 

prohibited from applying the increased 

fee or charge to the account and from 

imposing any other fee or charge solely 

as a result of the rejection. See 

§ 226.9(h)(2)(i) and (ii); comment 

9(h)(2)(ii)–2. 

Proposed § 226.55(c)(2) implements 

the restrictions on accelerating the 

repayment of protected balances in 

revised TILA Section 171(c). As 

discussed above with respect to 

§ 226.9(h), the Board previously 

implemented these restrictions in the 

July 2009 Regulation Z Interim Final 

Rule as § 226.9(h)(2)(iii). However, for 

clarity and consistency, the Board 

proposes to move these restrictions to 

proposed § 226.55(c)(2). Proposed 

§ 226.55(c)(2) is consistent with current 

§ 226.9(h)(2)(iii), except that the 

repayment methods in § 226.55(c)(2) 

focus on the effective date of the 

increase (rather than the date on which 

the card issuer is notified of the 

rejection pursuant to § 226.9(h)). 

Similarly, for the reasons discussed 

above with respect to § 226.9(h), the 

Board proposes to move the 

commentary clarifying the application 

of these repayment methods from 

current § 226.9(h)(2)(iii) to § 226.55(c) 

and to adjust that commentary for 

consistency with § 226.55(c). In 

addition, proposed comment 

55(c)(2)(iii)–1 would clarify that, 

although § 226.55(c)(2)(iii) limits the 

extent to which the portion of the 

required minimum periodic payment 

based on the protected balance may be 

increased, it does not limit or otherwise 

address the creditor’s ability to 

determine the amount of the required 

minimum periodic payment based on 

other balances on the account or to 

apply that portion of the minimum 

payment to the balances on the account. 

Proposed comment 55(c)(2)(iii)–2 would 

provide an illustrative example. 

55(d) Continuing Application of 

§ 226.55 

Pursuant to its authority under TILA 

Section 105(a), the Board proposes to 

adopt § 226.55(d), which provides that 

the limitations in § 226.55 continue to 

apply to a balance on a credit card 

account after the account is closed or 

acquired by another card issuer or the 

balance is transferred from a credit card 

account issued by a card issuer to 

another credit account issued by the 

same card issuer or its affiliate or 

subsidiary (unless the account to which 

the balance is transferred is subject to 

§ 226.5b). This provision is based on 

commentary to the January 2009 FTC 

Act Rule proposed by the Board and the 

other Agencies in May 2009, primarily 

in response to concerns that permitting 

card issuers to apply an increased rate 

to an existing balance in these 

circumstances could lead to 

circumvention of the general 

prohibition on such increases. See 12 

CFR 227.21 comments 21(c)–1 through 

–3, 74 FR 20814–20815; see also 74 FR 

20805–20807. 

Because the protections in revised 

TILA Section 171 and new TILA Section 

172 cannot be waived or forfeited, 

proposed § 226.55(d) does not 

distinguish between closures or 

transfers initiated by the card issuer and 

closures or transfers initiated by the 

consumer. Although there may be 

circumstances in which individual 

consumers could make informed 

choices about the benefits and costs of 

waiving the protections in revised 

Section 171 and new Section 172, an 

exception for those circumstances 

would create a significant loophole that 

could be used to deny the protections to 

other consumers. For example, if a card 

issuer offered to transfer its cardholder’s 

existing balance to a credit product that 

would reduce the rate on the balance for 

a period of time in exchange for the 

cardholder accepting a higher rate after 

that period, the cardholder would have 

to determine whether the savings 

created by the temporary reduction 

would offset the cost of the subsequent 

increase, which would depend on the 

amount of the balance, the amount and 

length of the reduction, the amount of 

the increase, and the length of time it 

would take the consumer to pay off the 

balance at the increased rate. Based on 

extensive consumer testing conducted 

during the preparation of the January 

2009 Regulation Z Rule and the January 

2009 FTC Act Rule, the Board believes 

that it would be very difficult to ensure 

that card issuers disclosed this 

information in a manner that will enable 

most consumers to make informed 

decisions about whether to accept the 

increase in rate. Although some 

approaches to disclosure may be 

effective, others may not and it would 

be impossible to distinguish among 

such approaches in a way that would 

provide clear guidance for card issuers. 

Furthermore, consumers might be 

presented with choices that are not 

meaningful (such as a choice between 

accepting a higher rate on an existing 

balance or losing credit privileges on the 

account). 

Proposed 226.55(d)(1) provides that 

§ 226.55 continues to apply to a balance 

on a credit card account after the 

account is closed or acquired by another 

card issuer. In some cases, the acquiring 

institution may elect to close the 

acquired account and replace it with its 

own credit card account. See comment 

12(a)(2)–3. The acquisition of an 

account does not involve any choice on 

the part of the consumer, and the Board 

believes that consumers whose accounts 

are acquired should receive the same 

level of protection against increases in 

annual percentage rates after acquisition 

as they did beforehand.34 Proposed 


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rate. However, the proposed commentary to 

§ 226.55(b)(2) does clarify that a card issuer that 

does not utilize the index used to determine the 

variable rate for an acquired balance may convert 

that rate to an equal or lower non-variable rate, 

subject to the notice requirements of § 226.9(c). 

35According to the GAO, the average over-thelimit fee assessed by issuers in 2005 was $30.81, an 

increase of 138 percent since 1995. See Credit 

Cards: Increased Complexity in Rates and Fees 

Heightens Need for More Effective Disclosures to 

Consumers, GAO Report 06–929, at 20 (September 

2006) (citing data reported by CardWeb.com). The 

GAO also reported that among cards issued by the 

six largest issuers in 2005, most charged an overthe-limit fee amount between $35 and $39. Id. at 21. 

36See id. at 25. 

comment 55(d)–1 clarifies that § 226.55 

continues to apply regardless of whether 

the account is closed by the consumer 

or the card issuer and provides 

illustrative examples of the application 

of § 226.55(d)(1). Proposed comment 

55(d)–2 clarifies the application of 

§ 226.55(d)(1) to circumstances in which 

a card issuer acquires a credit card 

account with a balance by, for example, 

merging with or acquiring another 

institution or by purchasing another 

institution’s credit card portfolio. 

Proposed 226.55(d)(2) provides that 

§ 226.55 continues to apply to a balance 

on a credit card account after the 

balance is transferred from a credit card 

account issued by a card issuer to 

another credit account issued by the 

same card issuer or its affiliate or 

subsidiary (unless the account to which 

the balance is transferred is subject to 

§ 226.5b). Proposed comment 55(d)–3.i 

provides examples of circumstances in 

which balances may be transferred from 

one credit card account issued by a card 

issuer to another credit card account 

issued by the same card issuer (or its 

affiliate or subsidiary), such as when the 

consumer’s account is converted from a 

retail credit card that may only be used 

at a single retailer or an affiliated group 

of retailers to a co-branded general 

purpose credit card which may be used 

at a wider number of merchants. 

Because of the concerns discussed 

above regarding circumvention and 

informed consumer choice and for 

consistency with the issuance rules 

regarding card renewals or substitutions 

for accepted credit cards under 

§ 226.12(a)(2), the Board believes—and 

proposed § 226.55(d)(2) provides—that 

these transfers should be treated as a 

continuation of the existing account 

relationship rather than the creation of 

a new account relationship. See 

comment 12(a)(2)–2. 

Proposed § 226.55(d)(2) does not 

apply to balances transferred from a 

credit card account issued by a card 

issuer to a credit account issued by the 

same card issuer (or its affiliate or 

subsidiary) that is subject to § 226.5b 

(which applies to open-end credit plans 

secured by the consumer’s dwelling). 

The Board believes that excluding 

transfers to such accounts is appropriate 

because § 226.5b provides protections 

that are similar to—and, in some cases, 

more stringent than—the protections in 

§ 226.55. For example, a card issuer may 

not change the annual percentage rate 

on a home-equity plan unless the 

change is based on an index that is not 

under the card issuer’s control and is 

available to the general public. See 12 

CFR 226.5b(f)(1). 

Proposed comment 55(d)–3.ii clarifies 

that, when a consumer chooses to 

transfer a balance to a credit card 

account issued by a different card 

issuer, § 226.55 does not prohibit the 

card issuer to which the balance is 

transferred from applying its account 

terms to that balance, provided those 

terms comply with 12 CFR part 226. For 

example, if a credit card account issued 

by card issuer A has a $1,000 purchase 

balance at an annual percentage rate of 

15% and the consumer transfers that 

balance to a credit card account with a 

purchase rate of 17% issued by card 

issuer B, card issuer B may apply the 

17% rate to the $1,000 balance. 

However, card issuer B may not 

subsequently increase the rate that 

applies to that balance unless permitted 

by one of the exceptions in § 226.55(b). 

Although balance transfers from one 

card issuer to another raise some of the 

same concerns as balance transfers 

involving the same card issuer, the 

Board believes that transfers between 

card issuers are not contrary to the 

intent of revised TILA Section 171 and 

proposed § 226.55 because the card 

issuer to which the balance is 

transferred is not increasing the cost of 

credit it previously extended to the 

consumer. For example, assume that 

card issuer A has extended a consumer 

$1,000 of credit at a rate of 15%. 

Because proposed § 226.55 generally 

prohibits card issuer A from increasing 

the rate that applies to that balance, it 

would be inconsistent with § 226.55 to 

allow card issuer A to reprice that 

balance simply by transferring it to 

another of its accounts. In contrast, in 

order for the $1,000 balance to be 

transferred to card issuer B, card issuer 

B must provide the consumer with a 

new $1,000 extension of credit in an 

arms–length transaction and should be 

permitted to price that new extension 

consistent with its evaluation of 

prevailing market rates, the risk 

presented by the consumer, and other 

factors. Thus, the transfer from card 

issuer A to card issuer B does not 

appear to raise concerns about 

circumvention of proposed § 226.55 

because card issuer B is not increasing 

the cost of credit it previously extended. 

The Board understands from 

comments on the May 2009 proposal 

that drawing this distinction between 

balance transfers involving the same 

card issuer and balance transfers 

involving different card issuers may 

limit a card issuer’s ability to offer its 

existing cardholders the same terms that 

it would offer another issuer’s 

cardholders. As noted in that proposal, 

however, the Board understands that 

currently card issuers generally do not 

make promotional balance transfer 

offers available to their existing 

cardholders for balances held by the 

issuer because it is not cost-effective to 

do so. Furthermore, although many card 

issuers do offer existing cardholders the 

opportunity to upgrade to accounts 

offering different terms or features (such 

as upgrading to an account that offers a 

particular type of rewards), the Board 

understands that these offers generally 

are not conditioned on a balance 

transfer, which indicates that it may be 

cost-effective for card issuers to make 

these offers without repricing an 

existing balance. Nevertheless, the 

Board again solicits comment on the 

extent to which proposed § 226.55(d)(2) 

would affect card issuers’ ability to 

make offers to their own cardholders. 

Section 226.56 Requirements for Overthe-Limit Transactions 

When a consumer seeks to engage in 

a credit card transaction that may cause 

his or her credit limit to be exceeded, 

the creditor may, at its discretion, 

authorize the over-the-limit transaction. 

If the creditor pays an over-the-limit 

transaction, the consumer is typically 

assessed a fee or charge for the service.35

In addition, the over-the-limit 

transaction may also be considered a 

default under the terms of the credit 

card agreement and trigger a rate 

increase, in some cases up to the 

default, or penalty, rate on the 

account.36

The Credit Card Act adds new TILA 

Section 127(k) and requires a creditor to 

obtain a consumer’s express election, or 

opt-in, before the creditor may impose 

any fees on a consumer’s credit card 

account for making an extension of 

credit that exceeds the consumer’s 

credit limit. 15 U.S.C. 1637(k). TILA 

Section 127(k)(2) further provides that 

no election shall take effect unless the 

consumer, before making such election, 

has received a notice from the creditor 

of any fees that may be assessed for an 

over-the-limit transaction. If the 

consumer opts in to the service, the 

creditor is also required to provide 


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notice of the consumer’s right to revoke 

that election on any periodic statement 

that reflects the imposition of an overthe-limit fee during the relevant billing 

cycle. The Board is proposing to 

implement the over-the-limit consumer 

consent requirements in § 226.56. 

The Credit Card Act directs the Board 

to issue rules governing the disclosures 

required by TILA Section 127(k), 

including rules regarding (i) the form, 

manner and timing of the initial opt-in 

notice and (ii) the form of the 

subsequent notice describing how an 

opt-in may be revoked. See TILA 

Section 127(k)(2). In addition, the Board 

must prescribe rules to prevent unfair or 

deceptive acts or practices in 

connection with the manipulation of 

credit limits designed to increase overthe-limit fees or other penalty fees. See 

TILA Section 127(k)(5)(B). 

56(a) Definition 

Proposed § 226.56(a) defines ‘‘overthe-limit transaction’’ to mean any 

extension of credit by a creditor to 

complete a transaction that causes a 

consumer’s credit card account balance 

to exceed the consumer’s credit limit. 

The proposed term is limited to 

extensions of credit required to 

complete a transaction that has been 

requested by a consumer (for example, 

to make a purchase at a point of sale or 

on-line, or to transfer a balance from 

another account). The term is not 

intended to cover the assessment of fees 

or interest charges by the creditor that 

may cause the consumer to exceed the 

credit limit. See, however, proposed 

§ 226.56(j)(4), discussed below. 

56(b) Opt-In Requirement 

General rule. Proposed § 226.56(b)(1) 

sets forth the general rule prohibiting a 

creditor from assessing a fee or charge 

on a consumer’s account for paying an 

over-the-limit transaction unless the 

consumer is given notice and a 

reasonable opportunity to affirmatively 

consent, or opt in, to the creditor’s 

payment of over-the-limit transactions 

and the consumer has opted in. If the 

consumer affirmatively consents, or 

‘‘opts in,’’ to the service, the creditor 

must provide the consumer notice of the 

right to revoke that consent after 

assessing an over-the-limit fee or charge 

on the consumer’s account. 

Under the proposed rule, the creditor 

may provide the opt-in notice orally, 

electronically, or in writing. Compliance 

with the consumer consent provisions 

or other requirements necessary to 

provide consumer disclosures 

electronically pursuant to the E-Sign 

Act would not be required if the creditor 

elects to provide the opt-in notice 

electronically. See also proposed 

§ 226.5(a)(1)(ii)(A). However, as 

discussed below under proposed 

§ 226.56(d)(1)(ii), before the consumer 

may consent orally or electronically, the 

creditor must also have provided the 

opt-in notice immediately prior to and 

contemporaneously with obtaining that 

consent. In addition, while the opt-in 

notice may be provided orally, 

electronically, or in writing, the 

revocation notice must be provided to 

the consumer in writing, consistent with 

the statutory requirement that such 

notice appear on the periodic statement 

reflecting the assessment of an over-thelimit fee or charge on the consumer’s 

account. See TILA Section 127(k)(2), 

and proposed § 226.56(d)(2), discussed 

below. 

The proposed notice and opt-in 

requirements would apply only to credit 

card accounts under an open-end (not 

home-secured) consumer credit plan, 

and would therefore not apply to credit 

cards that access a home equity line of 

credit or to debit cards linked to an 

overdraft line of credit. See proposed 

§ 226.2(a)(15)(ii). Although creditors 

must obtain consumer consent before 

any over-the-limit fees or charges are 

assessed on a consumer’s account, the 

rule would not require that the creditor 

obtain the consumer’s separate consent 

for each extension of credit that causes 

the consumer to exceed his or her credit 

limit. Such an approach is not 

compelled by the Credit Card Act. 

Proposed comment 56(b)–1 also 

explains, however, that even if a 

consumer has affirmatively consented or 

opted in to a creditor’s over-the-limit 

service, the creditor is not required or 

obligated to pay or authorize any overthe-limit transactions. 

Proposed comment 56(b)–2 clarifies 

that a creditor that has a policy and 

practice of declining to pay or authorize 

any transactions that the creditor 

reasonably believes would cause the 

consumer to exceed the credit limit is 

not subject to the requirements of this 

section and would therefore not be 

required to provide the consumer notice 

or an opt-in right. This ‘‘reasonable 

belief’’ standard recognizes that 

creditors generally do not have real-time 

information regarding a consumer’s 

prior transactions or credits that may 

have posted to the consumer’s credit 

card account. As discussed below in 

proposed § 226.56(b)(2), however, that if 

an over-the-limit transaction is paid 

without the consumer providing 

affirmative consent, the institution 

would not be permitted to charge a fee 

for paying the transaction. 

Proposed comment 56(b)–3 provides 

that the opt-in requirement applies 

whether a creditor assesses over-thelimit fees or charges on a per transaction 

basis or as a periodic account or 

maintenance fee that is imposed each 

cycle for the creditor’s payment of overthe-limit transactions regardless of 

whether the consumer has exceeded the 

credit limit during a particular cycle (for 

example, a monthly ‘‘over-the-limit 

protection’’ fee). 

As further discussed below, the 

proposal would require creditors to 

obtain consumer consent for all credit 

card accounts, including those opened 

prior to the effective date of the rule, 

before the creditor could assess any fees 

or charges on a consumer’s account for 

paying over-the-limit transactions. 

Reasonable opportunity to opt in. 

Proposed § 226.56(b)(1)(ii) requires a 

creditor to provide a reasonable 

opportunity for the consumer to 

affirmatively consent to the creditor’s 

payment of over-the-limit transactions. 

TILA Section 127(k)(3) provides that the 

consumer’s affirmative consent (and 

revocation) may be completed orally, 

electronically, or in writing, pursuant to 

regulations prescribed by the Board. See 

also proposed § 226.56(e), discussed 

below. Proposed comment 56(b)–4 

contains examples to illustrate what 

would constitute providing a consumer 

a reasonable opportunity to 

affirmatively consent using the specified 

methods. 

The first example provides that a 

creditor may include the notice on an 

application form that a consumer may 

fill out to request the service as part of 

the application process. See proposed 

comment 56(b)–4.i. Alternatively, after 

the consumer has been approved for the 

card, the creditor could provide a form 

with the account-opening disclosures 

that can be filled out separately and 

mailed to affirmatively request the 

service. See proposed comment 56(b)– 

4.ii and proposed Model Form G–25(A) 

in Appendix G, discussed below. 

Proposed comment 56(b)–4.iii 

illustrates that a creditor may obtain 

consumer consent through a readily 

available telephone line. Proposed 

comment 56(b)–4.iv illustrates that a 

creditor may provide an electronic 

means for the consumer to affirmatively 

consent. For example, a creditor could 

provide a form on its Web site that 

enables the consumer to check a box to 

indicate his or her agreement to the 

over-the-limit service and confirm that 

opt-in choice by clicking on a consent 

box. See also proposed § 226.56(d)(1)(ii) 

(requiring the opt-in notice to be 

provided immediately prior to and 

contemporaneous with the consumer’s 

consent). 


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37The proposed rule does not prohibit a creditor 

from increasing the consumer’s interest rate as a 

result of an over-the-limit transaction, subject to the 

creditor’s compliance with the 45-day advance 

notice requirement in § 226.9(g), the limitations on 

applying an increased rate to an existing balance in 

§ 226.55, and other provisions of the Credit Card 

Act. 

Comment is requested regarding 

whether creditors should be required to 

segregate the opt-in notice from other 

account disclosures. Such a requirement 

may ensure that the information is not 

obscured within other account 

documents and overlooked by the 

consumer, for example, in preprinted 

language in the account-opening 

disclosures, leading the consumer to 

inadvertently consent to having overthe-limit transactions paid or authorized 

by the creditor. 

Notwithstanding the manner in which 

notice of the opt-in right may be 

provided, proposed comment 56(b)–5 

would clarify that the consumer’s 

consent must be obtained separately 

from other consents or 

acknowledgments provided by the 

consumer. For example, a consumer’s 

signature on an application for a credit 

card alone would not sufficiently 

evidence the consumer’s consent to the 

creditor’s payment of over-the-limit 

transactions. Under the proposal, the 

consumer must initial, sign, or 

otherwise make a separate request for 

the over-the-limit service. However, the 

proposed comment would not preclude 

a creditor from including a separate 

check box or signature line for 

requesting the over-the-limit service in 

the signature block on a credit 

application, provided that the check box 

or signature is used solely to indicate 

the consumer’s opt-in decision and not 

for any other purpose, such as to also 

obtain consumer consents for other 

account services or features. Under 

Regulation Z’s record retention rules, 

creditors would be required to retain 

evidence of the consumer’s consent or 

opt-in for a period of at least two years, 

regardless of the means by which 

consent is obtained. See § 226.25. 

The Board also solicits comment on 

whether creditors should be required to 

provide the consumer with written 

confirmation once the consumer has 

opted in under proposed 

§ 226.56(b)(1)(iii) to verify that the 

consumer intended to make the 

election. In the case of telephone or in 

person requests in particular, written 

confirmation may be appropriate to 

evidence the consumer’s intent to opt in 

to the service. A creditor could comply 

with such a requirement, for example, 

by sending a letter to the consumer 

acknowledging that the consumer has 

elected to opt in to the creditor’s 

service, or, in the case of a mailed 

request, the creditor could provide a 

copy of the consumer’s completed optin form. 

Payment of over-the-limit transactions 

where consumer has not opted in. 

Proposed § 226.56(b)(2) provides that a 

creditor may pay an over-the-limit 

transaction even if the consumer has not 

provided affirmative consent, so long as 

the creditor does not impose a fee or 

charge for paying the transaction. 

Proposed comment 56(b)(2)–1 contains 

further guidance stating that the 

prohibition on imposing fees for paying 

an over-the-limit transaction where the 

consumer has not opted in applies even 

in circumstances where the creditor is 

unable to avoid paying a transaction 

that exceeds the consumer’s credit limit. 

Nothing in the statute suggests that 

Congress intended to permit an 

exception to allow any over-the-limit 

fees to be charged in these 

circumstances absent consumer consent. 

Proposed comment 56(b)(2)–1 contains 

illustrative examples of this provision. 

For example, in some cases, a 

merchant may not submit a credit card 

transaction to the creditor for 

authorization. Such an event may occur, 

for instance, because the transaction is 

below the floor limits established by the 

card network rules requiring 

authorization or because the small 

dollar amount of the transaction does 

not pose significant payment risk to the 

merchant. If the transaction exceeds the 

consumer’s credit limit, the creditor 

would not be permitted to assess an 

over-the-limit fee if the consumer has 

not consented to the creditor’s payment 

of over-the-limit transactions. 

Similarly, the proposed rule does not 

permit the creditor to assess a fee for an 

over-the-limit transaction that occurs 

because the final transaction amount 

exceeds the amount submitted for 

authorization. For example, a consumer 

may use his or her credit card at a payat-the-pump fuel dispenser to purchase 

$50 of fuel. At the time of authorization, 

the gas station may request an 

authorization hold of $1 to verify the 

validity of the card. Even if the 

subsequent $50 transaction amount 

exceeds the consumer’s credit limit, 

§ 226.56(b)(2) would prohibit the 

creditor from assessing an over-the-limit 

fee if the consumer has not opted in to 

the creditor’s over-the-limit service. 

Proposed comment 56(b)(2)–2 

clarifies that a creditor is not precluded 

from assessing other fees and charges 

unrelated to the payment of the overthe-limit transaction itself even where 

the consumer has not provided consent 

to the creditor’s over-the-limit service, 

to the extent permitted under applicable 

law. For example, if a consumer has not 

opted in, a creditor could permissibly 

assess a balance transfer fee for a 

balance transfer, provided that such a 

fee is assessed whether or not the 

transfer exceeds the credit limit. The 

creditor could also continue to assess 

interest charges for the over-the-limit 

transaction.37

56(c) Method of Election 

TILA Section 127(k)(2) provides that 

a consumer may make or revoke consent 

to permit over-the-limit transactions 

orally, electronically, or in writing, and 

directs the Board to prescribe rules to 

ensure that the same options are 

available for both making and revoking 

such election. Proposed § 226.56(c) 

implements this requirement. Proposed 

comment 56(c)–1 clarifies that the 

creditor may determine the means by 

which consumers may provide 

affirmative consent. The creditor could 

decide, for example, whether to obtain 

consumer consents in writing, 

electronically, by telephone, or to offer 

some or all of these options. The 

proposed rule recognizes that creditors 

have a strong interest in facilitating a 

consumer’s ability to opt in, and thus 

would permit them to determine the 

most effective means in obtaining such 

consent. 

Notwithstanding the creditor’s 

choice(s), however, proposed § 226.56(c) 

requires that whatever method a 

creditor provides for obtaining consent, 

such method must be equally available 

to the consumer to revoke the prior 

consent. See TILA Section 127(k)(3). 

Proposed comment 56(c)–2 provides 

guidance that because consumer 

consent or revocation requests are not 

consumer disclosures for purposes of 

the E-Sign Act, creditors would not be 

required to comply with the consumer 

consent or other requirements for 

providing disclosures electronically 

pursuant to the E-Sign Act for consumer 

requests submitted electronically. 

Comment is requested whether the 

Board should require creditors to allow 

consumers to opt in and to revoke that 

consent using each of the three methods 

(that is, orally, electronically, and in 

writing). 

56(d) Timing 

Proposed § 226.56(d)(1)(i) establishes 

a general requirement that a creditor 

provide an opt-in notice before the 

creditor assesses any fee or charge on 

the consumer’s account for paying an 

over-the-limit transaction. For example, 

a creditor could include the notice as 

part of the credit card application. See 

proposed comment 56(b)–4.i. 


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Alternatively, the creditor could include 

the notice with other account-opening 

documents, either within the accountopening disclosures under § 226.6 or in 

a stand-alone document. See proposed 

comment 56(b)–4.ii. 

The proposed rule would require that 

all consumers, including existing 

account holders, receive notice 

regarding the opt-in right if the creditor 

imposes a fee or charge for paying an 

over-the-limit transaction. The Board 

believes that had Congress intended to 

permit existing customers to continue to 

have over-the-limit transactions paid or 

authorized without their prior consent, 

it would have so specified. Nothing in 

the statute or the legislative history 

suggests that Congress intended that 

existing account holders should not 

have the same rights regarding 

consumer choice for over-the-limit 

transactions as those afforded to new 

customers. As a result, the proposal 

would apply the over-the-limit 

consumer consent requirements to 

credit card accounts opened prior to 

February 22, 2010. 

For credit card accounts opened prior 

to the effective date of the final rule, a 

creditor may elect to provide an opt-in 

notice to all of its account holders on or 

with the first periodic statement sent 

after the effective date of the final rule. 

Creditors that choose to do so would be 

prohibited from assessing any over-thelimit fees or charges after the effective 

date of the rule and prior to providing 

the opt-in notice, and subsequently 

could not assess any such fees or 

charges unless and until the consumer 

opts in. 

Comment is requested regarding 

whether a creditor should be permitted 

to obtain consumer consent for the 

payment of over-the-limit transactions 

prior to the effective date of the final 

rule and, if so, under what 

circumstances. Such an approach could 

allow creditors to phase in their 

processing of consumer opt-ins and 

alleviate the compliance burden that 

may otherwise occur if notices could 

not be sent, and opt-ins obtained until 

February 22, 2010. 

In addition to the general requirement 

that the creditor provide an opt-in 

notice prior to imposing any fee or 

charge for an over-the-limit transaction, 

proposed § 226.56(d)(1)(ii) states that if 

the consumer decides to consent orally 

or electronically, the opt-in notice must 

be given by the creditor immediately 

before and contemporaneously with a 

consumer’s election. For example, if a 

consumer calls the creditor to consent to 

the creditor’s payment of over-the-limit 

transactions, the creditor must provide 

the opt-in notice immediately prior to 

obtaining the consumer’s consent. This 

proposed requirement is intended to 

ensure that a consumer has full 

information regarding the opt-in right at 

a time that is most likely to be 

meaningful to the consumer, that is, 

when the opt-in decision is made. 

Proposed § 226.56(d)(2) provides that 

notice of the consumer’s right to revoke 

a prior election for the creditor’s overthe-limit service must appear on each 

periodic statement that reflects the 

assessment of an over-the-limit fee or 

charge on a consumer’s account. See 

TILA Section 127(k)(2). A revocation 

notice would be required regardless of 

whether the fee was imposed due to an 

over-the-limit transaction initiated by 

the consumer in the prior cycle or 

because the consumer failed to reduce 

the account balance below the credit 

limit in the next cycle. To ensure that 

the revocation notice is clear and 

conspicuous to the consumer, the 

proposed rule requires that the notice 

appear on the front of any page of the 

periodic statement. Proposed comment 

56(d)–1 clarifies that creditors have 

flexibility regarding how often a 

revocation notice must be provided. At 

the creditor’s option, it may, but is not 

required to, include the revocation 

notice on every periodic statement sent 

to the consumer, even if the consumer 

has not incurred an over-the-limit fee or 

charge during a particular billing cycle. 

56(e) Content and Format 

TILA Section 127(k)(2) provides that 

a consumer’s election to permit a 

creditor to extend credit that would 

exceed the credit limit may not take 

effect unless the consumer receives 

notice from the creditor of any over-thelimit fee ‘‘in the form and manner, and 

at the time, determined by the Board.’’ 

TILA Section 127(k)(2) also requires that 

the creditor provide notice to the 

consumer of the right to revoke the 

election, ‘‘in the form prescribed by the 

Board,’’ in any periodic statement 

reflecting the imposition of an over-thelimit fee. Proposed § 226.56(e) sets forth 

the content requirements for both 

notices. See also proposed Model Forms 

G–25(A) and G–25(B) in Appendix G. 

Initial notice content. Proposed 

§ 226.56(e)(1) sets forth the information 

that must be included in the opt-in 

notice provided to consumers before a 

creditor may assess any fees or charges 

for paying an over-the-limit transaction. 

To ensure that consumers can make an 

informed decision regarding whether 

and how to affirmatively consent to a 

creditor’s payment of over-the-limit 

transactions, creditors would be 

required to provide in the opt-in notice 

certain information in addition to the 

amount of the over-the-limit fee. The 

additional information would be 

prescribed 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). 

Proposed § 226.56(e)(1)(i) would 

require the opt-in notice to include 

information about the dollar amount of 

any fees or charges assessed on a 

consumer’s credit card account for an 

over-the-limit transaction. The proposed 

requirement to state the fee amount on 

the opt-in notice itself is separate from 

other required disclosures regarding the 

amount of the over-the-limit fee. See, 

e.g., § 226.5a(b)(10). Because a creditor 

could comply with the opt-in notice 

requirement in several forms, such as 

providing the notice in the application 

or solicitation, in the account-opening 

disclosures, or as a stand-alone 

document, the Board believes that 

including the fee disclosure in the optin notice itself is necessary to ensure 

that consumers can easily determine the 

amounts they could be charged for an 

over-the-limit transaction. 

Some creditors may wish to vary the 

fee amount that may be imposed based 

upon the number of times the consumer 

has gone over the limit, the amount the 

consumer has exceeded the credit limit, 

or due to other factors. Under these 

circumstances, the creditor may disclose 

the maximum fee that may be imposed 

or a range of fees. Proposed comment 

56(e)–1 provides that the creditor may 

indicate that the consumer may be 

assessed a fee ‘‘up to’’ the maximum fee 

or provide the range of fees. Comment 

is requested whether additional 

guidance is necessary if an over-thelimit fee is determined by other means, 

such as a percentage of the over-thelimit transaction. 

In addition to disclosing the amount 

of the fee or charge that may be imposed 

for an over-the-limit transaction, 

proposed § 226.56(e)(1)(ii) would 

require creditors to disclose any 

increased rate that may apply if 

consumers exceed their credit limit. The 

Board believes the additional 

requirement is necessary to ensure 

consumers fully understand the 

potential consequences of exceeding 

their credit limit, particularly as a rate 

increase can be more costly than the 

imposition of a fee. This requirement is 

consistent with the content required to 

be disclosed regarding the consequences 

of a late payment. See TILA Section 

127(b)(12); § 226.7(b)(11) of the January 

2009 Regulation Z Rule. Accordingly, if, 

under the terms of the account 

agreement, an over-the-limit transaction 

could result in the loss of a promotional 


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rate, the imposition of a penalty rate, or 

both, this fact must be included in the 

opt-in notice. 

Proposed § 226.56(e)(1)(iii) requires 

creditors to explain the consumer’s right 

to affirmatively consent to the creditor’s 

payment of over-the-limit transactions, 

including the methods that the 

consumer may use to exercise the right 

to opt in. 

In addition to providing the required 

content, some creditors may wish to 

include more information about the 

effects of opting in, including potential 

benefits. Proposed comment 56(e)–2 

provides that creditors may briefly 

describe these benefits. For example, the 

creditor may state that if the consumer 

consents, or opts in, to the payment of 

over-the-limit transactions, the 

consumer may avoid having 

transactions declined if a transaction 

may exceed the credit limit. Creditors 

may also wish to disclose that over-thelimit transactions may be paid at the 

creditor’s discretion or that the payment 

of over-the-limit transactions is not 

guaranteed. Comment is requested 

regarding whether the rule should 

permit or require any other information 

to be included in the opt-in notice. 

The Board notes that permitting 

creditors to include additional content 

in the opt-in notice could lead to the 

potential consequence that the 

additional information may overwhelm 

the required content in the notice. Thus, 

comment is also requested regarding 

whether creditors should be permitted 

to include any information in the optin notice beyond the content specified 

in the rule. 

Revocation notice. Proposed 

§ 226.56(e)(2) would implement the 

requirement in TILA Section 127(k)(2) 

that a creditor must provide notice of 

the right to revoke consent that was 

previously granted for paying over-thelimit transactions. The proposed rule 

states that the notice must describe the 

consumer’s right to revoke any consent 

previously granted, including the 

methods by which the consumer may 

revoke the service. As discussed above, 

creditors may include this notice on 

every periodic statement after the 

consumer has opted in to the creditor’s 

payment of over-the-limit transactions 

or only on statements that reflect the 

imposition of an over-the-limit fee. See 

proposed comment 56(d)–1. 

Model forms. Proposed Model Forms 

G–25(A) and (B) include sample 

language that creditors may use to 

comply with the proposed notice 

content requirement. Use of the model 

forms, or substantially similar notices, 

would provide creditors a safe harbor 

for compliance under proposed 

§ 226.56(e)(3). 

56(f)–(i) Additional Provisions 

Addressing Consumer Opt-in Right 

Joint accounts. Proposed § 226.56(f) 

requires a creditor to treat affirmative 

consent provided by any joint consumer 

of a credit card account as affirmative 

consent for the account from all of the 

joint consumers. This provision 

recognizes the operational difficulties 

that would otherwise arise if a creditor 

had to determine which account holder 

was responsible for a particular 

transaction and then decide whether to 

authorize or pay an over-the-limit 

transaction based on that accountholder’s opt-in choice. Moreover, 

because the same credit limit 

presumably applies to a joint account, 

one joint account holder’s decision to 

opt in to the payment of over-the-limit 

transactions would also necessarily 

impact the other account holder. 

Accordingly, if one joint consumer opts 

in to the creditor’s payment of over-thelimit transactions, the creditor must 

treat the consent as applying to all overthe-limit transactions for that account. 

The proposed rule also provides that a 

creditor shall treat a revocation of 

consent by any of the joint consumers 

as revocation of consent for the joint 

account. Proposed § 226.56(f) applies 

only to consumer consent and 

revocation requests from consumers that 

are jointly liable on a credit card 

account. Accordingly, creditors would 

not be required or permitted to honor a 

request by an authorized user on an 

account to opt in or revoke a prior 

consent with respect to the creditor’s 

over-the-limit transaction. Proposed 

comment 56(f)–1 provides this 

guidance. 

Continuing right to opt in or revoke 

opt-in. Proposed § 226.56(g) provides 

that a consumer may affirmatively 

consent to a creditor’s payment of overthe-limit transactions at any time in the 

manner described in the opt-in notice. 

Similarly, a consumer may revoke a 

prior consent at any time in the manner 

described in the revocation notice 

provided under § 226.56(b)(1)(iv). See 

TILA Section 127(k)(4). 

Proposed comment 56(g)–1 clarifies 

that a consumer’s decision to revoke a 

prior consent would not require the 

creditor to waiver or reverse any overthe-limit fee or charges assessed to the 

consumer’s account prior to the 

creditor’s implementation of the 

consumer’s revocation request. In 

addition, the proposed rule does not 

prevent the creditor from assessing overthe-limit fees in a subsequent cycle if 

the consumer’s account balance 

continues to exceed the credit limit as 

a result of an over-the-limit transaction 

that was completed prior to the 

consumer’s revocation of consent. 

Duration of opt-in. Proposed 

§ 226.56(h) provides that a consumer’s 

affirmative consent is generally effective 

until revoked by the consumer. 

Proposed comment 56(h)–1 clarifies, 

however, that a creditor may cease 

paying over-the-limit transactions at any 

time and for any reason even if the 

consumer has consented to the service. 

For example, a creditor may wish to 

stop providing the service in response to 

changes in the credit risk presented by 

the consumer. 

Time to implement consumer 

revocation. Proposed § 226.56(i) 

requires that a creditor must implement 

a consumer’s revocation request as soon 

as reasonably practicable after the 

creditor receives the request. The 

proposed requirement recognizes that 

while creditors will presumably want to 

implement a consumer’s consent 

request as soon as possible, the same 

incentives may not apply if the 

consumer subsequently decides to 

revoke that request. The Board is not 

proposing to prescribe a specific period 

of time within which the creditor must 

honor the consumer’s revocation 

request, however, because the 

appropriate time period may depend on 

a number of variables, including the 

method used by the consumer to 

communicate the revocation request (for 

example, in writing or orally) and the 

channel in which the request is received 

(for example, if a consumer sends a 

written request to the creditor’s general 

address for receiving correspondence or 

to an address specifically designated to 

receive consumer opt-in and revocation 

requests). Comment is requested 

whether a safe harbor for implementing 

revocation requests, such as five 

business days from the date of the 

request, may be helpful to facilitate 

compliance with the proposed rule. 

The Board also solicits comment on 

the merits of an alternative approach 

which would require creditors to 

implement revocation requests within 

the same time period that a creditor 

generally takes to implement opt-in 

requests. Such a timing rule could be 

dependent upon the method of the 

consumer’s request. For example under 

the alternative approach, if the creditor 

typically takes three business days to 

implement a consumer’s written opt-in 

request, it should take no more than 

three business days to implement the 

consumer’s later written request to 

revoke that consent. However, if a 

creditor typically implements written 

consent requests within three business 


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38See 15 U.S.C. 45(n); Letter from FTC to the 

Hon. Wendell H. Ford and the Hon. John C. 

Danforth, S. Comm. On Commerce, Science & 

Transp. (Dec. 17, 1980) (FTC Policy Statement on 

Unfairness) (available at http://www.ftc.gov/bcp/ 

policystmt/ad-unfair.htm). 

days and telephone requests within one 

business day, the alternative approach 

would provide that the creditor could 

implement a written revocation request 

within three business days, even if the 

consumer had previously opted into the 

service by telephone. 

56(j) Prohibited Practices 

Proposed § 226.56(j) prohibits certain 

creditor practices in connection with 

the assessment of over-the-limit fees or 

charges. These prohibitions implement 

separate requirements set forth in TILA 

Sections 127(k)(5) and 127(k)(7), and 

apply even if the consumer has 

affirmatively consented to the creditor’s 

payment of over-the-limit transactions. 

56(j)(1) Fees Imposed per Billing Cycle 

New TILA Section 127(k)(7) provides 

that a creditor may not impose more 

than one over-the-limit fee during a 

billing cycle. In addition, Section 

127(k)(7) generally provides that an 

over-the-limit fee may be imposed ‘‘only 

once in each of the 2 subsequent billing 

cycles’’ for the same over-the-limit 

transaction. Proposed § 226.56(j)(1) 

implements these restrictions. 

Proposed § 226.56(j)(1)(i) would 

prohibit a creditor from imposing more 

than one over-the-limit fee or charge on 

a consumer’s credit card account in any 

billing cycle. In addition, a creditor 

must not impose an over-the-limit fee or 

charge on the account for the same overthe-limit transaction or transactions in 

more than three billing cycles. As a 

further limitation, however, fees may 

not be imposed for the second or third 

cycle unless the consumer has failed to 

reduce the account balance below the 

credit limit by the payment due date of 

either cycle. The Board believes that 

this interpretation of TILA Section 

127(k)(7) is consistent with Congress’s 

general intent to limit a creditor’s ability 

to impose multiple over-the-limit fees 

for the same transaction as well as the 

requirement in TILA Section 106(b) that 

consumers be given a sufficient amount 

of time to make payments. Moreover, as 

discussed below, a creditor’s failure to 

provide a consumer sufficient time to 

reduce his or her balance below the 

credit limit would appear to be an 

unfair or deceptive act or practice. See 

TILA Section 127(k)(5) and discussion 

below. 

As discussed above, the proposed rule 

would give a consumer until the 

payment due date to reduce the account 

balance below the credit limit to avoid 

over-the-limit fees during the second 

and third billing cycles. Although new 

TILA Section 127(k)(7) could be 

construed as providing until the end of 

the billing cycle to make a payment that 

reduces the account balance below the 

credit limit, the Board believes that 

using the payment due date as the 

relevant date will facilitate compliance. 

Under current billing practices, the 

end of the billing cycle serves as the 

statement cut-off date and occurs a 

certain number of days after the due 

date for payment on the prior cycle’s 

activity. The time period between the 

payment due date and the end of the 

billing cycle allows the creditor 

sufficient time to reflect timely 

payments on the subsequent periodic 

statement and to determine the fees and 

interest charges for the statement 

period. If the rule were to give 

consumers until the end of the billing 

cycle to reduce the account balance 

below the credit limit, creditors would 

have difficulty determining whether or 

not they could impose another over-thelimit fee for the statement cycle, which 

could delay the generation and mailing 

of the periodic statement and impede 

their ability to comply with the 21-day 

requirement for mailing statements in 

advance of the payment due date. 

Moreover, tying the time in which a 

consumer could make payment to 

reduce the account balance below the 

credit limit to the payment due date 

would cause minimal if any adverse 

harm to consumers. Because a consumer 

is likely to make payment by the due 

date to avoid other adverse financial 

consequences (such as a late payment 

fee or increased APRs for new 

transactions), the additional time to 

make payment to avoid successive overthe-limit fees would appear to be 

unnecessary from a consumer protection 

perspective. Such a date also could 

confuse consumers by providing two 

distinct dates, each with different 

consequences (that is, penalties for late 

payment or the assessment of over-thelimit fees). For these reasons, the Board 

is proposing to exercise its TILA Section 

105(a) authority to provide that a 

creditor may not impose an over-thelimit fee or charge on the account for a 

consumer’s failure to reduce the account 

balance below the credit limit during 

the second or third billing cycle unless 

the consumer has not done so by the 

payment due date. 

To illustrate the proposed limitation, 

assume that a consumer has exceeded 

the credit limit and is assessed an overthe-limit fee on the January billing 

statement for a transaction in the 

December billing cycle. Under this 

circumstance, the creditor must not 

assess additional over-the-limit fees on 

the consumer’s credit card account for 

the February or March billing 

statements for the same over-the-limit 

transaction unless the consumer has not 

made sufficient payment by the January 

or February payment due dates to 

reduce the account balance below the 

credit limit. 

Proposed § 226.56(j)(1)(ii) provides 

that the limitation on imposing overthe-limit fees for more than three billing 

cycles does not apply if a consumer 

engages in an additional over-the-limit 

transaction in either of the two billing 

cycles following the cycle in which the 

consumer is first assessed a fee for 

exceeding the credit limit. The 

assessment of fees or interest charges by 

the creditor would not constitute an 

additional over-the-limit transaction for 

purposes of this exception, consistent 

with the definition of ‘‘over-the-limit 

transaction’’ under proposed 

§ 226.56(a). In addition, the proposed 

exception would not permit a creditor to 

impose fees for both the initial over-thelimit transaction as well as the 

additional over-the-limit transaction(s), 

as the general restriction on assessing 

more than one over-the-limit fee in the 

same billing cycle would continue to 

apply. Proposed comment 56(j)–1 

contains examples illustrating the 

general rule and the exception. 

Proposed Prohibitions on Unfair or 

Deceptive Over-the-Limit Acts or 

Practices 

Proposed § 226.56(j) includes 

additional substantive limitations and 

restrictions on certain creditor acts or 

practices regarding the imposition of 

over-the-limit fees. These proposed 

limitations and restrictions are based on 

the Board’s authority under TILA 

Section 127(k)(5)(B) which directs the 

Board to prescribe regulations that 

prevent unfair or deceptive acts or 

practices in connection with the 

manipulation of credit limits designed 

to increase over-the-limit fees or other 

penalty fees. 

Legal Authority 

The Credit Card Act does not set forth 

a standard for what is an ‘‘unfair or 

deceptive act or practice’’ and the 

legislative history for the Credit Card 

Act is similarly silent. Congress has 

elsewhere codified standards developed 

by the Federal Trade Commission for 

determining whether acts or practices 

are unfair under Section 5(a) of the 

Federal Trade Commission Act, 15 

U.S.C. 45(a).38 Specifically, the FTC Act 

provides that an act or practice is unfair 

when it causes or is likely to cause 


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39Statement of Basis and Purpose and Regulatory 

Analysis for Federal Trade Commission Credit 

Practices Rule (Statement for FTC Credit Practices 

Rule), 49 FR 7740, 7744 (Mar. 1, 1984). 

40 Id. at 7743. 

41Letter from the FTC to the Hon. John H. 

Dingell, H. Comm. on Energy & Commerce (Oct. 14, 

1983) (FTC Policy Statement on Deception) 

(available at http://www.ftc.gov/bcp/policystmt/addecept.html). 

42 Id. at 1–2. The FTC views deception as a subset 

of unfairness but does not apply the full unfairness 

analysis because deception is very unlikely to 

benefit consumers or competition and consumers 

cannot reasonably avoid being harmed by 

deception. 

43For example, a number of states follow an 

unfairness standard formerly used by the FTC. 

Under this standard, an act or practice is unfair 

where it offends public policy; or is immoral, 

unethical, oppressive, or unscrupulous; and causes 

substantial injury to consumers. See, e.g., Kenai 

Chrysler Ctr., Inc. v. Denison, 167 P.3d 1240, 1255 

(Alaska 2007) (quoting FTC v. Sperry & Hutchinson 

Co., 405 U.S. 233, 244–45 n.5 (1972)); State v. 

Moran, 151 N.H. 450, 452, 861 A.2d 763, 755–56 

(N.H. 2004); Robinson v. Toyota Motor Credit Corp., 

201 Ill. 2d 403, 417–418, 775, N.E.2d 951, 961–62 

(2002). 

44See U.S. Gov’t Accountability Office, Credit 

Cards: Increased Complexity in Rates and Fees 

Heightens Need for More Effective Disclosures to 

Consumers at 20–21 (Sept. 2006) (GAO Credit Card 

Report) (available at http://www.gao.gov/new.items/ 

d06929.pdf). 

45See id. at 25. 

46See Household Credit Servs. v. Pfennig, 541 

U.S. 232, 244 (2004) (recognizing that a creditor’s 

‘‘authorization’’ of a point of sale transaction ‘‘does 

not represent a final determination that a particular 

transaction is within a consumer’s credit limit 

because the authorization system is not suited to 

identify instantaneously and accurately over-limit 

transactions’’). 

substantial injury to consumers which is 

not reasonably avoidable by consumers 

themselves and not outweighed by 

countervailing benefits to consumers or 

to competition. In addition, in 

determining whether an act or practice 

is unfair, the FTC may consider 

established public policy, but public 

policy considerations may not serve as 

the primary basis for its determination 

that an act or practice is unfair. 15 

U.S.C. 45(a). 

According to the FTC, an unfair act or 

practice will almost always represent a 

market failure or market imperfection 

that prevents the forces of supply and 

demand from maximizing benefits and 

minimizing costs.39 Not all market 

failures or imperfections constitute 

unfair acts or practices, however. 

Instead, the central focus of the FTC’s 

unfairness analysis is whether the act or 

practice causes substantial consumer 

injury.40

The FTC has also adopted standards 

for determining whether an act or 

practice is deceptive, although these 

standards, unlike unfairness standards, 

have not been incorporated in to the 

FTC Act.41 Under the FTC’s standards, 

an act or practice is deceptive where: (1) 

There is a representation or omission of 

information that is likely to mislead 

consumers acting reasonably under the 

circumstances; and (2) that information 

is material to consumers.42

Many states also have adopted 

statutes prohibiting unfair or deceptive 

acts or practices, and these statutes may 

employ standards that are different from 

the standards currently applied to the 

FTC Act.43 In proposing rules under 

TILA Section 127(k)(5), the Board has 

considered the standards currently 

applied to the FTC Act’s prohibition 

against unfair or deceptive acts or 

practices, as well as the standards 

applied to similar state statutes. These 

proposals should not, however, be 

construed as a definitive conclusion by 

the Board that a particular practice is 

unfair or deceptive. 

Insufficient Time To Reduce Excess 

Credit 

As discussed above, proposed 

§ 226.56(j)(1) would generally prohibit a 

creditor from assessing an over-the-limit 

fee on a consumer’s credit card account 

in a subsequent billing cycle unless the 

consumer has not reduced the account 

balance below the credit limit by the 

payment due date. This provision, 

which implements a statutory 

restriction set forth in TILA Section 

127(k)(7), is intended to ensure that a 

consumer who has been assessed an 

over-the-limit fee or charge in one 

billing cycle does not incur a second 

over-the-limit fee or charge in the next 

billing cycle solely because the 

consumer has not made payment on or 

before the due date. For example, a 

creditor would be prohibited from 

assessing a second over-the-limit fee or 

charge on the first day of the next billing 

cycle before the consumer has had an 

opportunity to reduce the account 

balance. Assessing an over-the-limit fee 

in a subsequent billing cycle without 

providing the consumer sufficient time 

to reduce the account balance would 

also appear to be an unfair or deceptive 

act or practice. 

Legal Analysis 

Potential injury that is not reasonably 

avoidable. Consumers may incur 

substantial monetary injury due to the 

fees assessed in connection with the 

payment of over-the-limit transactions. 

In addition to costly per transaction 

fees, consumers may also trigger rate 

increases if the over-the-limit 

transaction is deemed to be a violation 

of the credit card contract. A 2006 

Government Accountability Office 

(GAO) report on credit cards indicates 

that the average cost to consumers 

resulting from over-the-limit 

transactions exceeded $30 in 2005.44

The GAO also reported that in the 

majority of credit card agreements that 

it surveyed, default rates could apply if 

a consumer exceeded the credit limit on 

the card.45

Although consumers can reduce the 

risk of exceeding their credit limit by 

carefully tracking their credit card 

transactions and payments made, 

consumers often lack sufficient 

information about key aspects of their 

credit card accounts. For example, a 

consumer cannot know with any degree 

of certainty when a payment will be 

credited to his or her account and the 

credit limit replenished or when a credit 

for a returned purchase will be made 

available. Equally, given the lack of realtime information available to the 

authorization system, even the creditor’s 

decision to authorize a transaction does 

not necessarily indicate at the time of 

the authorization that the creditor has 

knowingly authorized an over-the-limit 

transaction.46

Potential costs and benefits. There 

appears to be little if any direct benefit 

to consumers from receiving insufficient 

time to bring their account balances 

below their credit limit. While requiring 

creditors to wait an additional period of 

time before assessing over-the-limit fees 

or charges may reduce revenue for some 

institutions and those institutions may 

replace that revenue by charging 

consumers higher annual percentage 

rates or fees, it appears that consumers 

will benefit overall from having a 

reasonable period of time in which to 

reduce their account balances below the 

credit limit and avoiding additional 

penalties such as the assessment of an 

over-the-limit fee or application of a rate 

increase. 

56(j)(2) Failure to Promptly Replenish 

Section 226.10 generally requires 

creditors to credit consumer payments 

as of the date of receipt, except when a 

delay in crediting does not result in a 

finance or other charge. This provision 

does not address, however, when a 

creditor must replenish the consumer’s 

credit limit after receiving payment. 

Thus, a consumer may submit payment 

sufficient to reduce his or her account 

balance below the credit limit and make 

additional purchases during the next 

cycle on the assumption that the credit 

line will be replenished once the 

payment is credited. If the creditor does 

not promptly replenish the credit line, 

the additional transactions may cause 

the consumer to exceed the credit limit 

and incur fees. Proposed § 226.56(j)(2) 

would prohibit a creditor from assessing 


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an over-the-limit fee or charge that is 

caused by the creditor’s failure to 

promptly replenish the consumer’s 

available credit. 

Legal Analysis 

Potential injury that is not reasonably 

avoidable. In most cases, creditors 

replenish the available credit on a credit 

card account shortly after the payment 

has been credited to the account to 

enable the cardholder to make new 

transactions on the account. As a result, 

a consumer that has used all or most of 

the available credit during one billing 

cycle would again be able to make 

transactions using the credit card once 

the consumer has made payments on 

the account balance and the available 

credit is restored to the account. If, 

however, the creditor delays 

replenishment on the account after 

crediting the payment to the consumer’s 

account, the consumer could 

inadvertently exceed the credit limit if 

the cardholder uses the credit card 

account for new transactions and such 

transactions are authorized by the 

creditor. In addition to the potential 

assessment of over-the-limit fees, the 

resulting over-the-limit transaction may 

also cause the consumer to trigger 

increased rates due to default on the 

credit agreement. In those 

circumstances, it appears that 

consumers cannot reasonably avoid the 

injury caused by the over-the-limit fee 

and rate increase because they will be 

unaware of the creditor’s delay in 

restoring the consumer’s credit line 

particularly if the payment has been 

credited to the consumer’s account. 

Potential costs and benefits. The 

prohibited practice would not appear to 

create benefits for consumers and 

competition that outweigh the injury. 

While a creditor may reasonably decide 

to delay replenishing a consumer’s 

available credit, for example, in the case 

of potential fraud on the account, there 

does not appear to be any benefit to the 

consumer from permitting the creditor 

to assess over-the-limit fees that may be 

incurred as a result of the delay in 

replenishment. 

Proposal 

Proposed § 226.56(j)(2) prohibits a 

creditor from imposing any over-thelimit fee or charge solely because of the 

creditor’s failure to promptly replenish 

the consumer’s available credit after the 

creditor has credited the consumer’s 

payment under § 226.10. Proposed 

comment 56(j)(2)–1 clarifies that the 

proposed prohibition is not intended to 

require creditors to immediately 

replenish the available credit upon 

crediting a consumer’s payment, or to 

prevent creditors from delaying 

replenishment where appropriate, for 

example, in cases of suspected fraud. 

Nor does the proposed prohibition 

require creditors to decline all 

transactions for consumers who have 

opted in to the creditor’s payment of 

over-the-limit transactions until the 

available credit has been restored. 

Rather, the creditor would only be 

prohibited from assessing any over-thelimit fees or charges caused by the 

creditor’s decision not to replenish the 

available credit after posting the 

consumer’s payment to the account. 

Comment is requested regarding 

whether the rule should provide a safe 

harbor specifying the number of days 

following crediting of a consumer’s 

payment by which a creditor must 

replenish a consumer’s available credit. 

56(j)(3) Conditioning 

Proposed § 226.56(j)(3) would 

prohibit a creditor from conditioning 

the amount of available credit provided 

on the consumer’s affirmative consent to 

the creditor’s payment of over-the-limit 

transactions. The proposed provision 

addresses concerns that a creditor may 

seek to tie the amount of credit provided 

to the consumer affirmatively 

consenting to the creditor’s payment of 

over-the-limit transactions. 

Legal Analysis 

Potential injury that is not reasonably 

avoidable. As the Board has previously 

stated elsewhere, consumers receive 

considerable benefits from receiving 

credit cards that provide a meaningful 

amount of available credit. For example, 

credit cards enable consumers to engage 

in certain types of transactions, such as 

making purchases by telephone or online, or renting a car or hotel room. 

Given these benefits, some consumers 

might be compelled to opt in to a 

creditor’s payment of over-the-limit 

transactions if not doing so may result 

in the consumer otherwise obtaining a 

minimal amount of credit or failing to 

qualify for credit altogether. Thus, it 

would appear that such consumers 

would be prevented from exercising a 

meaningful choice regarding the 

creditor’s payment of over-the-limit 

transactions. Moreover, the practice of 

conditioning the amount of credit 

provided based on whether the 

consumer opts in to the creditor’s 

payment of over-the-limit transactions 

would also appear to raise significant 

concerns under the Equal Credit 

Opportunity Act. See 15 U.S.C. 

1691(a)(3). 

Potential costs and benefits. There do 

not appear to be any significant benefits 

to consumers or competition from 

conditioning or linking the amount of 

credit available to the consumer based 

on the consumer consenting to the 

creditor’s payment of over-the-limit 

transactions. While some creditors may 

seek to replace the revenue from overthe-limit fees by charging consumers 

higher annual percentage rates or fees, 

overall, consumers will benefit from 

having a meaningful choice regarding 

whether to have over-the-limit 

transactions approved by the creditor. 

Proposal 

Proposed § 226.56(j)(3) is intended to 

prevent creditors from effectively 

circumventing the consumer choice 

requirement by prohibiting a creditor 

from conditioning or otherwise linking 

the amount of credit granted on the 

consumer opting in to the creditor’s 

payment of over-the-limit transactions. 

Under the proposed rule, a creditor 

could not, for example, require a 

consumer to opt in to the creditor’s feebased over-the-limit service in order to 

receive a higher credit limit for the 

account. Similarly, a creditor would be 

prohibited from denying a consumer’s 

credit card application solely because 

the consumer did not opt in to the 

creditor’s over-the-limit service. The 

proposed rule is illustrated by way of 

example in proposed comment 56(j)–1. 

56(j)(4) Over-the-Limit Fees Attributed 

to Fees or Interest 

Proposed § 226.56(j)(4) would 

prohibit the imposition of any over-thelimit fees or charges if the credit limit 

is exceeded solely because of the 

creditor’s assessment of accrued interest 

charges or fees on the consumer’s credit 

card account. 

Legal Analysis 

Potential injury that is not reasonably 

avoidable. As discussed above, 

consumers may incur substantial 

monetary injury due to the fees assessed 

in connection with the payment of overthe-limit transactions. In addition to per 

transaction fees, consumers may also 

trigger rate increases if the over-thelimit transaction is deemed to be a 

violation of the credit card contract. 

The injury from over-the-limit fees 

and potential rate increases would not 

appear to be reasonably avoidable in 

these circumstances because consumers 

are, as a general matter, unlikely to be 

aware of the amount of interest charges 

or fees that may be added to their 

account balance when deciding whether 

or not to engage in a credit card 

transaction. With respect to accrued 

interest charges, these additional 

amounts are typically added to a 

consumer’s account balance at the end 


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47A substantively similar provision was adopted 

in the January 2009 Regulation Z Rule. See 

§ 226.9(c)(2)(v). 

of the billing cycle after the consumer 

has completed his or her transactions 

for the cycle and thus are unlikely to 

have been taken into account when the 

consumer engages in the transactions. 

Potential costs and benefits. Although 

prohibition of the assessment of overthe-limit fees caused by accrued finance 

charges and fees may reduce creditor 

revenues and lead creditors to replace 

lost revenue by charging consumers 

higher rates or fees, it appears that the 

proposal will result in a net benefit to 

consumers because some consumers are 

likely to benefit substantially while the 

adverse effects on others are likely to be 

small. Because permitting fees and 

interest charges to trigger over-the-limit 

fees may have the effect of retroactively 

reducing a consumer’s available credit 

for prior transactions, prohibiting such 

a practice would protect consumers 

against unexpected over-the-limit fees 

and rate increases which could 

substantially add to their cost of credit. 

Moreover, consumers will be able to 

more accurately manage their credit 

lines without having to factor additional 

costs that cannot be easily determined. 

While some consumers may pay higher 

fees and initial rates, consumers are 

likely to benefit overall through more 

transparent pricing. 

Proposal 

Proposed § 226.56(j)(4) would 

prohibit creditors from imposing an 

over-the-limit fee or charge if a 

consumer exceeds a credit limit solely 

because of fees or interest charged by 

the creditor to the consumer’s account 

during the billing cycle. The proposed 

prohibition is generally intended to 

prohibit creditors from assessing overthe-limit fees or charges on consumer 

credit card accounts unless the credit 

limit was exceeded solely by 

transactions or charges that were not 

initiated by the consumer during the 

billing cycle. 

For purposes of this prohibition, the 

fees or interest charges that may not 

trigger the imposition of an over-thelimit fee would be considered charges 

imposed as part of the plan under 

§ 226.6(b)(3)(i). Thus, the proposed rule 

would also prohibit the assessment of 

an over-the-limit fee or charge even if 

the credit limit was exceeded due to 

fees for services requested by the 

consumer if such fees would constitute 

charges imposed as part of the plan (for 

example, fees for voluntary debt 

cancellation or suspension coverage). 

The proposed prohibition would not 

restrict creditors from assessing overthe-limit fees due to accrued finance 

charges or fees from prior cycles that 

have subsequently been added to the 

account balance. Comment is requested 

regarding the operational issues that 

may arise from the proposed 

prohibition. 

Notice of Reduction of the Credit Limit 

In the July 2009 Regulation Z Interim 

Final Rule, the Board adopted a 

provision applicable to credit card 

accounts under an open-end (not homesecured) plan that addresses notices of 

changes in a consumer’s credit limit. As 

set forth in the interim final rule, 

§ 226.9(c)(2)(vi) requires a creditor to 

provide a consumer with 45 days’ 

advance notice that a credit limit is 

being decreased or will be decreased 

prior to the imposition of any over-thelimit fee or penalty rate imposed solely 

as the result of the balance exceeding 

the newly decreased credit limit.47 The 

new provision is intended to protect 

consumers against costly surprises 

potentially associated with a reduction 

in the credit limit, specifically, fees and 

rate increases, while giving a consumer 

adequate time to mitigate the effect of 

the credit line reduction. See 74 FR 

36077. 

Neither § 226.9(c)(2)(vi) nor the 

restrictions proposed pursuant to the 

Board’s authority under TILA Section 

127(k)(5) would limit a creditor’s ability 

to use line reductions to address safety 

and soundness concerns when a 

borrower’s risk increases. As stated in 

the July 2009 Regulation Z Interim Final 

Rule, the Board recognizes that creditors 

have a legitimate interest in mitigating 

the risk of a loss when a consumer’s 

creditworthiness deteriorates and that it 

may be appropriate in some cases for 

creditors to reduce the credit limit as a 

risk mitigation tool. 

Section 226.57 Special Rules for 

Marketing Open-End Credit to College 

Students 

Section 304 of the Credit Card Act 

adds new TILA Section 140(f) to require 

the public disclosure of contracts or 

other agreements between card issuers 

and institutions of higher education for 

the purpose of marketing a credit card 

and to impose new restrictions related 

to marketing open-end credit to college 

students. 15 U.S.C. 1650(f). The Board 

proposes to implement these provisions 

in new § 226.57. 

The Board also proposes to 

implement provisions related to new 

TILA Section 127(r) in § 226.57. 15 

U.S.C. 1637(r). TILA Section 127(r), 

which was added by Section 305 of the 

Credit Card Act, requires card issuers to 

submit an annual report to the Board 

containing the terms and conditions of 

business, marketing, promotional 

agreements, and college affinity card 

agreements with an institution of higher 

education, or other related entities, with 

respect to any college student credit 

card issued to a college student at such 

institution. 

57(a) Definitions 

New TILA Section 140(f) does not 

provide any definitions while new TILA 

Section 127(r) provides definitions for 

terms that are also used in new TILA 

Section 140(f). See 15 U.S.C. 1650(f). To 

ensure the use of these terms is 

consistent throughout these sections, 

the Board proposes to incorporate the 

definitions set forth in TILA Section 

127(r) in § 226.57(a). 

Proposed § 226.57(a)(1) would define 

‘‘college student credit card’’ as a credit 

card issued under a credit card account 

under an open-end (not home-secured) 

consumer credit plan to any college 

student. This definition is similar to 

TILA Section 127(r)(1)(B), which 

defines ‘‘college student credit card 

account’’ as a credit card account under 

an open-end consumer credit plan 

established or maintained for or on 

behalf of any college student. Proposed 

§ 226.57(a)(1) defines ‘‘college student 

credit card’’ rather than ‘‘college student 

credit card account’’ because the statute 

and regulation use the former term but 

not the latter. Also, the proposed 

definition uses the proposed defined 

term ‘‘credit card account under an 

open-end (not home-secured) consumer 

credit plan’’ (in proposed § 226.2(a)(15)) 

for consistency with other sections of 

the proposed regulations implementing 

the Credit Card Act. The term would 

exclude home-equity lines of credit 

accessed by credit cards and overdraft 

lines of credit accessed by debit cards, 

which the Board believes are not typical 

types of college student credit cards. 

TILA Section 127(r)(1)(A) defines 

‘‘college affinity card’’ as a credit card 

issued under an open end consumer 

credit plan in conjunction with an 

agreement between the issuer and an 

institution of higher education or an 

alumni organization or a foundation 

affiliated with or related to an 

institution of higher education under 

which cards are issued to college 

students having an affinity with the 

institution, organization or foundation 

where at least one of three criteria also 

is met. These three criteria are: (1) The 

creditor has agreed to donate a portion 

of the proceeds of the credit card to the 

institution, organization, or foundation 

(including a lump-sum or one-time 

payment of money for access); (2) the 


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48 74 FR 41194 (Aug. 14, 2009). 

creditor has agreed to offer discounted 

terms to the consumer; or (3) the credit 

card bears the name, emblem, mascot, or 

logo of such institution, organization, or 

foundation, or other words, pictures or 

symbols readily identified with such 

institution or affiliated organization. 

The Board is not proposing a regulatory 

definition comparable to this definition 

in the statute; it appears that the 

definition of ‘‘college student credit 

card,’’ discussed above, is broad enough 

to encompass any ‘‘college affinity card’’ 

as defined in TILA Section 127(r)(1)(A), 

and therefore the definition of ‘‘college 

affinity card’’ is unnecessary. However, 

the Board solicits comment on whether 

the regulations should contain a 

definition of ‘‘college affinity card’’ as 

well as a definition of ‘‘college student 

credit card.’’ 

Proposed comment 57(a)(1)–1 would 

clarify that a college student credit card 

includes a college affinity card, as 

discussed above, and that, in addition, 

a card may fall within the scope of the 

definition regardless of the fact that it is 

not intentionally targeted at or marketed 

to college students. 

Proposed § 226.57(a)(2) would define 

‘‘college student’’ as an individual who 

is a full-time or a part-time student 

attending an institution of higher 

education. This definition is consistent 

with the definition of ‘‘college student’’ 

in TILA Section 127(r)(1)(C). The 

definition is intended to be broad and 

would apply to students of any age 

attending an institution of higher 

education. Furthermore, the term 

‘‘college student’’ is not limited to 

students attending an undergraduate 

program at an institution of higher 

education. The term applies to all 

students, including those enrolled in 

graduate programs or joint degree 

programs. 

TILA Section 127(r)(1)(D) states that 

the term ‘‘institution of higher 

education’’ has the same meaning as in 

section 101 and 102 of the Higher 

Education Act of 1965. 20 U.S.C. 1001 

and 1002. Meanwhile, TILA Section 

140(a)(3), as added by the Higher 

Education Opportunity Act of 2008, 

contains a definition for ‘‘institution of 

higher education’’ that differs slightly 

from the definition in TILA Section 

127(r)(1)(D). Specifically, TILA Section 

140(a)(3) states that ‘‘institution of 

higher education’’ has the same 

meaning as in section 102 of the Higher 

Education Act of 1965 (20 U.S.C. 1002), 

without reference to section 101 of the 

Higher Education Act of 1965 (20 U.S.C. 

1001). However, as discussed in the 

Board’s recently adopted amendments 

regarding private education loans, the 

Board understands that institutions 

covered under section 101 of the Higher 

Education Act of 1965 would also be 

covered under section 102 of the Higher 

Education Act of 1965. As a result, the 

definition of ‘‘institution of higher 

education’’ adopted in § 226.46(b)(2) to 

implement TILA Section 140(a)(3), as it 

applies to private education loans 

references both sections 101 and 102 of 

the Higher Education Act of 1965.48

In order to have a consistent 

definition of the term for all sections 

added by the Credit Card Act and to 

facilitate compliance, the Board 

proposes to use its authority under TILA 

Section 105(a) to apply the definition in 

TILA Section 127(r)(1)(D) to TILA 

Section 140(f). 15 U.S.C. 1604(a). As a 

result proposed § 226.57(a)(3) would 

adopt the definition of ‘‘institution of 

higher education’’ in TILA Section 

127(r)(1)(D) and would be applicable 

not only to the provisions in TILA 

Section 127(r), but also TILA Section 

140(f). This definition would also be 

consistent with the definition of 

‘‘institution of higher education’’ in 

§ 226.46(b)(2) for private education 

loans. 

Proposed § 226.57(a)(4) would define 

‘‘affiliated organization’’ as an alumni 

organization or foundation affiliated 

with or related to an institution of 

higher education, to provide a 

conveniently shorter term to be used to 

refer to such organizations and 

foundations in various provisions of the 

proposed regulations. 

Proposed § 226.57(a)(5) would 

delineate the types of agreements for 

which creditors must provide annual 

reports to the Board, under the defined 

term ‘‘college credit card agreement.’’ 

The term would be defined to include 

any business, marketing or promotional 

agreement between a card issuer and an 

institution of higher education or an 

affiliated organization in connection 

with which college student credit cards 

are issued to college students currently 

enrolled at that institution. The 

definition would not incorporate the 

concept of a college affinity card 

agreement, which is used in TILA 

Section 127(r)(1)(A), as discussed above. 

The Board believes that the definition of 

‘‘college credit card agreement’’ as 

proposed would be broad enough to 

include agreements concerning college 

affinity cards; however, the Board 

requests comment on whether language 

referring to college affinity card 

agreements should also be included in 

the regulations. 

As proposed comment 57(a)(5)–1 

would clarify, business, marketing and 

promotional agreements may include a 

broad range of arrangements between a 

creditor and an institution of higher 

education or affiliated organization, 

including arrangements that do not fall 

within the concept of a college affinity 

card agreement as discussed in TILA 

Section 127(r)(1)(A). For example, TILA 

Section 127(r)(1)(A) specifies that under 

a college affinity card agreement, the 

card issuer has agreed to make a 

donation to the institution or affiliated 

organization, the card issuer has agreed 

to offer discounted terms to the 

consumer, or the credit card will 

display pictures, symbols, or words 

identified with the institution or 

affiliated organization; even if these 

conditions are not met, an agreement 

may qualify as a college credit card 

agreement, if the agreement is a 

business, marketing or promotional 

agreement that contemplates the 

issuance of college student credit cards 

to college students currently enrolled at 

the institution. An agreement may 

qualify as a college credit card 

agreement even if marketing of cards 

under the agreement is targeted at 

alumni, faculty, staff, and other nonstudent consumers, as long as cards may 

also be issued to students in connection 

with the agreement. 

57(b) Public Disclosure of Agreements 

The Board proposes to implement 

new TILA Section 140(f)(1) in 

§ 226.57(b). Consistent with the statute, 

proposed § 226.57(b) would state that an 

institution of higher education shall 

publicly disclose any credit card 

marketing contract or other agreement 

made with a card issuer or creditor. The 

Board also proposes commentary to 

provide examples of how an institution 

of higher education may publicly 

disclose such contracts or agreements, 

and to clarify that the entire agreement 

must be disclosed. Proposed comment 

57(b)–1 would specify that an 

institution of higher education may 

fulfill its duty to publicly disclose any 

contract or other agreement made with 

a card issuer or creditor for the purposes 

of marketing a credit card by posting 

such contract or agreement on its Web 

site. Alternatively, the institution of 

higher education may make such 

contract or agreement available upon 

request, provided the procedures for 

requesting the documents are reasonable 

and free of cost to the requestor, and the 

contract or agreement is provided 

within a reasonable time frame. The list 

in proposed comment 57(b)–1 is not 

exhaustive, so an institution of higher 

education may publicly disclose these 

contracts or agreements in other ways. 

In addition, proposed comment 57(b)– 

2 would bar institutions of higher 


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49See, e.g., 18 U.S.C. 922(q)(2) (making it 

unlawful for an individual to possess an unlicensed 

firearm in a school zone, defined in 18 U.S.C. 

921(a)(25) as within 1,000 feet of the school); the 

Family Smoking Prevention and Tobacco Control 

Act (Pub. L. 111–31, June 22, 2009) (requiring 

regulations to ban outdoor tobacco advertisements 

within 1,000 feet of a school or playground); and 

Mass. Gen. Laws ch. 94C, § 32J (requiring 

mandatory minimum term of imprisonment for 

drug violations committed within 1,000 feet of a 

school). 

education from redacting any contracts 

or agreements they are required to 

publicly disclose under proposed 

§ 226.57(b). As a result, any clauses in 

existing contract or agreements 

addressing the confidentiality of such 

contracts or agreements would be 

invalid to the extent they prevent 

institutions of higher education from 

publicly disclosing such contracts or 

agreements in accordance with 

proposed § 226.57(b). The Board 

believes that it is important that all 

provisions of these contracts or 

agreements be available to college 

students and other interested parties. If 

institutions were permitted to redact 

portions of these contracts or 

agreements, interested parties may be 

deprived of a full understanding of 

these arrangements. 

57(c) Prohibited Inducements 

Under TILA Section 140(f)(2), no card 

issuer or creditor may offer to a student 

at an institution of higher education any 

tangible item to induce such student to 

apply for or participate in an open-end 

consumer credit plan offered by such 

card issuer or creditor, if such offer is 

made on the campus of an institution of 

higher education, near the campus of an 

institution of higher education, or at an 

event sponsored by or related to an 

institution of higher education. The 

Board proposes to implement this 

provision in § 226.57(c), which 

generally would track the statutory 

language. The Board notes that unlike 

other statutory provisions the Board 

proposes to implement in § 226.57, 

TILA Section 140(f)(2) applies not only 

to credit card accounts, but also other 

open-end consumer credit plans, such 

as lines of credit. 

To provide further guidance on the 

prohibition in § 226.57(c), the Board 

also proposes several new comments. 

Proposed comment 57(c)–1 would 

clarify that a tangible item under 

§ 226.57(c) includes any physical item, 

such as a gift card, a t-shirt, or a 

magazine subscription, that a card 

issuer or creditor offers to induce a 

college student to apply for or open an 

open-end consumer credit plan offered 

by such card issuer or creditor. The 

proposed comment would also provide 

some examples of non-physical 

inducements that would not be 

considered tangible items, such as 

discounts, rewards points, or 

promotional credit terms. 

Because offering tangible items to 

college students is prohibited only if the 

items are offered to induce the student 

to apply for or open an open-end 

consumer credit plan, proposed 

comment 57(c)–2 would clarify that if a 

tangible item is offered to a person 

whether or not that person applies for 

or opens an open-end consumer credit 

plan, the item is not an inducement. As 

an example, proposed comment 57(c)–2 

states that refreshments offered to a 

college student on campus that are not 

conditioned on whether the student has 

applied for or agreed to open an openend consumer credit plan would not be 

considered inducements that would 

cause a creditor to violate § 226.57(c). 

The prohibition in § 226.57(c) extends 

to an offer that is made, among other 

places, near the campus of an institution 

of higher education. The Board is not 

aware of any standard for determining a 

location near a school that is analogous 

to the prohibition in TILA Section 

140(f)(2), but is aware of existing 

standards for other types of 

prohibitions. TILA Section 140(f)(2)(B) 

requires the Board to determine what is 

considered near the campus of an 

institution of higher education. Based 

on the distances used in State and 

Federal laws for other restricted 

activities near a school,49 the Board 

proposes comment 57(c)–3 to provide 

that a location that is within 1,000 feet 

of the border of the campus of an 

institution of higher education, as 

defined by the institution of higher 

education, be considered near the 

campus of an institution of higher 

education. The Board solicits comment 

on other appropriate ways to determine 

a location that is considered near the 

campus of an institution of higher 

education. 

Proposed comment 57(c)–4 would 

clarify that offers of tangible items 

mailed to a college student at an address 

on or near the campus of an institution 

of higher education would be subject to 

the restrictions in § 226.57(c). The 

statutory language does not distinguish 

between different methods of making 

offers of tangible items, and proposed 

comment 57(c)–4 would make clear that 

offers of tangible items made on or near 

the campus of an institution of higher 

education for purposes of § 226.57(c) 

include offers of tangible items that are 

sent to those locations through the mail. 

Furthermore, under proposed 

§ 226.57(c), an offer of a tangible item to 

induce a college student to apply for or 

open an open-end consumer credit plan 

may not be made at an event sponsored 

by or related to an institution of higher 

education. In order to give card issuers 

and creditors guidance on determining 

whether an event is related to an 

institution, the Board proposes 

comment 57(c)–5. Proposed comment 

57(c)–5 would provide that an event is 

related to an institution of higher 

education if the marketing of such event 

uses the name, emblem, mascot, or logo 

of an institution of higher education, or 

other words, pictures, or symbols 

identified with an institution of higher 

education in a way that implies that the 

institution of higher education endorses 

or otherwise sponsors the event. The 

proposed comment was adapted from 

guidance the Board recently adopted in 

§ 226.48 regarding co-branding 

restrictions for certain private education 

loans. 

Since the prohibition in § 226.57(c) 

applies solely to offering a tangible item 

to a college student at specified 

locations, a card issuer or creditor 

would be permitted to offer any person 

who is not a college student a tangible 

item to induce such person to apply for 

or open an open-end consumer credit 

plan offered by such card issuer or 

creditor at such locations. The Board 

believes a card issuer or creditor who 

opts to have a marketing program on or 

near the campus of an institution of 

higher education, or at an event 

sponsored by or related to an institution 

of higher education where a tangible 

item will be offered to induce people to 

apply for or open an open-end 

consumer credit plan should have 

reasonable procedures for determining 

whether an applicant or participant is a 

college student before giving the 

applicant or participant the tangible 

item. 

Proposed comment 57(c)–6 illustrates 

one way in which a card issuer or 

creditor might meet this standard. 

Specifically, the Board provides that a 

card issuer or creditor may ask whether 

the applicant is a college student as part 

of the application process. Proposed 

comment 57(c)–6 would also provide 

that the card issuer or creditor may rely 

on the representations made by the 

applicant Therefore, if an applicant 

misrepresents his or her status as a 

student, the card issuer or creditor 

would not violate § 226.57(c) by relying 

on that representation. 

57(d) Annual Report to the Board 

The Board proposes to implement 

new TILA Section 127(r)(2) in proposed 

§ 226.57(d). Consistent with the statute, 

proposed § 226.57(d) would require 

creditors that are a party to one or more 


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college credit card agreements to 

register with the Board and to submit 

annual reports to the Board regarding 

those agreements. Creditors that were a 

party to one or more college credit card 

agreements at any time during the 2009 

calendar year would be required to 

register with the Board by February 1, 

2010. The initial report from creditors 

would be due by February 22, 2010, as 

required by TILA Section 127(r)(2)(D). 

Creditors would be required to submit 

subsequent annual reports by the first 

business day on or after March 31 of the 

following year. 

Proposed § 226.57(d) would require 

that annual report include a copy of 

each college credit card agreement to 

which the creditor was a party that was 

in effect during the period covered by 

the report, as well as certain related 

information including the total dollar 

amount of payments pursuant to the 

agreement from the creditor to the 

institution (or affiliated organization) 

during the period covered by the report, 

and how such amount is determined; 

the number of credit card accounts 

opened pursuant to the agreement 

during the period; and the total number 

of such credit card accounts that were 

open at the end of the period. 

The annual report would also be 

required to include a copy of any 

memorandum of understanding that 

‘‘directly or indirectly relates to the 

college credit card agreement or that 

controls or directs any obligations or 

distribution of benefits between any 

such entities.’’ Proposed comment 

57(d)(3)–1 would clarify what types of 

documents would be considered 

memoranda of understanding for 

purposes of this requirement, by 

providing that a memorandum of 

understanding includes any document 

that amends the college credit card 

agreement, or that constitutes a further 

agreement between the parties as to the 

interpretation or administration of the 

agreement, and by providing of 

examples of documents that would or 

would not be included. 

The Board solicits comment on 

whether additional items of information 

should be required to be included in the 

annual report. New TILA Section 

127(r)(2)(A) specifies that the required 

annual report contain ‘‘the terms and 

conditions’’ of college credit card 

agreements between the card issuer and 

institutions of higher education or 

affiliated organizations. For example, 

information that may be part of the 

terms and conditions of a college credit 

card agreement and that, if so, could be 

required to be included in the report, 

could include any terms that 

differentiate between student and nonstudent accounts (for example, that 

provide for difference in payments 

based on whether an account is a 

student or non-student account), or that 

relate to advertising or marketing (such 

as provisions on mailing lists, online 

advertising, or on-campus marketing). 

The report could also be required to 

specify the terms and conditions of 

credit card accounts (for example, rates 

and fees) that may be opened in 

connection with the college credit card 

agreement. Inclusion of such 

information in issuers’ annual reports 

could facilitate the Board’s review of the 

reports and preparation of the Board’s 

report to Congress concerning college 

credit card agreements, but could also 

impose additional costs on card issuers 

in preparing their reports to the Board. 

The Board requests comment on the 

costs and benefits of requiring these (or 

any other) items of information to be 

included in the annual report. 

Section 226.58 Internet Posting of Credit 

Card Agreements 

Section 204 of the Credit Card Act 

adds new TILA Section 122(d) to 

require creditors to post agreements for 

open-end consumer credit card plans on 

the creditors’ Web sites and to submit 

those agreements to the Board for 

posting on a publicly-available Web site 

established and maintained by the 

Board. 15 U.S.C. 1632(d). The Board 

proposes to implement these provisions 

in new § 226.58. 

58(a) Applicability 

Proposed § 226.58(a) would make 

proposed § 226.58 applicable to any 

card issuer that issues a credit card 

under a credit card account under an 

open-end (not home-secured) consumer 

credit plan, as defined in proposed 

revised § 226.2(a)(15). Thus, consistent 

with the approach the Board is 

proposing in implementing other 

sections of the Credit Card Act, homeequity lines of credit accessible by 

credit cards and overdraft lines of credit 

accessed by debit cards would not be 

covered by proposed § 226.58. 

58(b) Definitions 

Proposed § 226.58(b)(1) defines 

‘‘agreement’’ or ‘‘credit card agreement’’ 

as a written document or documents 

evidencing the terms of the legal 

obligation or the prospective legal 

obligation between a card issuer and a 

consumer for a credit card account 

under an open-end (not home-secured) 

consumer credit plan. As proposed, 

§ 226.58(b)(1) states and proposed 

comment 58(b)(1)–1 further clarifies that 

the agreement is deemed to include 

certain information, such as annual 

percentage rates and fees, even if the 

issuer does not otherwise technically 

include this information in the 

document evidencing the terms of the 

legal obligation. This information is 

listed under the defined term ‘‘pricing 

information’’ in § 226.58(b)(4). The 

Board believes that, to enable 

consumers to shop for credit cards and 

compare information about various 

credit card plans in an effective manner, 

it is necessary that the credit card 

agreements posted on the Board’s Web 

site include information such as rates 

and fees, in addition to other terms and 

conditions of the agreements. However, 

the Board solicits comment on the 

definition of agreement and on whether 

more or less information should be 

included. As proposed comment 

58(b)(1)–2 would clarify, the agreement 

would not include documents that may 

be sent to the consumer along with the 

credit card or credit card agreement, 

such as a cover letter, a validation 

sticker on the card, other information 

about card security, offers for credit 

insurance or other optional products, 

advertisements, and disclosures 

required under Federal or State law that 

are not incorporated into the agreement 

itself. 

Proposed § 226.58(b)(2) defines 

‘‘business day’’ as a day on which the 

creditor’s offices are open to the public 

for carrying on substantially all of its 

business functions. This is consistent 

with the definition of business day used 

in most other sections of Regulation Z. 

Proposed § 226.58(b)(3) states that an 

issuer ‘‘offers’’ or ‘‘offers to the public’’ 

an agreement if the issuer is soliciting 

or accepting applications for new 

accounts that would be subject to that 

agreement. As proposed comment 

58(b)(3)–1 would clarify, a card issuer is 

deemed to offer a credit card agreement 

to the public even if the issuer solicits, 

or accepts applications from, only a 

limited group of persons. For example, 

an issuer may market affinity cards to 

students and alumni of a particular 

educational institution or solicit only 

high-net-worth individuals for a 

particular card, but the corresponding 

card agreements would be considered to 

be offered to the public. Proposed 

comment 58(b)(3)–2 would clarify that a 

card issuer is deemed to offer a credit 

card agreement to the public even if the 

terms of the agreement are changed 

immediately upon opening of an 

account to terms not offered to the 

public. 

Proposed § 226.58(b)(4) defines the 

term ‘‘pricing information’’ to include: 

(1) The information under 

§ 226.6(b)(2)(i) through (b)(2)(xii), (b)(3) 

and (b)(4) that is required to be 


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disclosed in writing pursuant to 

§ 226.5(a)(1)(ii); (2) the credit limit; and 

(3) the method used to calculate 

required minimum payments. This 

definition makes reference to the 

provisions of § 226.6(b) as revised by the 

January 2009 Regulation Z Rule. While 

the effective date of proposed § 226.58 

would be February 22, 2010, the Board 

is soliciting comment regarding whether 

the July 1, 2010 mandatory compliance 

date of revised § 226.6 should be 

retained, as discussed elsewhere in this 

proposal. If the July 1, 2010 mandatory 

compliance date for revised § 226.6(b) is 

retained, the Board may make technical 

and conforming changes to proposed 

§ 226.58(b)(4) to account for the 

difference in mandatory compliance 

dates. However, the definition of pricing 

information for purposes of proposed 

§ 226.58 would conform to the 

requirements of revised § 226.6(b)(2)(i) 

through (b)(2)(xii), (b)(3) and (b)(4) 

beginning on February 22, 2010, even if 

compliance with portions of revised 

§ 226.6(b) is not mandatory until July 1, 

2010. 

58(c) Registration With Board 

Proposed § 226.58(c) would require 

any card issuer that offered one or more 

credit card agreements as of December 

31, 2009 to register with the Board, in 

the form and manner prescribed by the 

Board, no later than February 1, 2010. 

However, a card issuer that would have 

qualified for the de minimis exception 

under proposed § 226.58(e) as of 

December 31, 2009, if proposed § 226.58 

had been in effect on that date, would 

not be required to register. 

The Board expects to provide 

additional details regarding the 

registration process in a document 

setting forth technical specifications for 

the credit card agreement posting 

requirements, to be posted on the 

Board’s public Web site. The Board 

anticipates that issuers will register 

online through the Board’s Web site and 

that registration will capture basic 

identifying information about each 

issuer, such as the issuer’s name, 

address, and identifying number (e.g., 

RSSD ID number or tax identification 

number), and the name, phone number 

and e-mail address of a contact person 

at the issuer. The Board will contact the 

issuer to confirm that the issuer in fact 

authorized the registration. 

Proposed § 226.58(c)(2) would 

provide that any issuer that is required 

to make a submission to the Board 

under § 226.58(d) that has not 

previously registered with the Board 

must register with the Board at least 21 

days before the quarterly submission 

deadline specified in § 226.58(d)(1) on 

which the card issuer’s first submission 

is due. As proposed comment 58(c)–1 

would clarify, this provision would 

apply, for example, if a new credit card 

issuer is organized or if an existing 

issuer that previously qualified for the 

de minimis exception under § 226.58(e) 

ceased to qualify. For example, a card 

issuer that previously qualified for the 

de minimis exception ceases to qualify 

as of September 30. That issuers first 

submission to the Board is due on 

October 31, the next quarterly 

submission deadline. The issuer must 

register with the Board at least 21 days 

before October 31. 

Proposed § 226.58(c)(3) would require 

card issuers that have registered with 

the Board under § 226.58(c)(1) or (c)(2) 

to provide updated registration 

information to the Board no later than 

the first quarterly submission deadline 

specified in § 226.58(d)(1) after the 

information changes. For example, as 

described in proposed comment 58(c)– 

2, a card issuer that has already 

registered with the Board changes its 

address on October 15. The issuer must 

submit revised registration information 

advising the Board of the address 

change no later than October 31, the 

next quarterly submission deadline 

specified in § 226.58(d)(1) after the 

change. 

58(d) Submission of Agreements to 

Board 

Proposed § 226.58(d) would require 

that each card issuer electronically 

submit the credit card agreements, as 

defined in proposed § 226.58(b)(1), that 

the issuer offers, as defined in proposed 

§ 226.58(b)(2), to the Board on a 

quarterly basis. Consistent with new 

TILA Section 122(d)(3), the Board will 

post the credit card agreements it 

receives on its Web site. 

New TILA Section 122(d)(5) provides 

that the Board may establish exceptions 

to the requirements that credit card 

agreements be posted on creditors’ Web 

sites and submitted to the Board for 

posting on its Web site in any case 

where the administrative burden 

outweighs the benefit of increased 

transparency. In addition, TILA Section 

105(a) gives the Board authority to 

prescribe regulations containing 

provisions necessary or proper to 

effectuate the purposes of and to 

facilitate compliance with TILA. The 

Board believes that, with respect to 

credit card agreements that are not 

currently offered to the public, the 

administrative burden associated with 

submission for posting on the Board’s 

Web site would outweigh the benefit of 

increased transparency. The Board also 

believes that providing an exception for 

agreements not currently offered to the 

public is appropriate both to effectuate 

the purposes of TILA and to facilitate 

compliance with TILA. 

The Board is aware that the number 

of credit card agreements currently in 

effect but no longer offered to the public 

is extremely large, and the Board 

believes that requiring issuers to prepare 

and submit these agreements would 

impose a significant burden on issuers. 

The Board also believes that the primary 

benefit of making credit card agreements 

available on the Board’s Web site is to 

assist consumers in comparing credit 

card agreements offered by various 

issuers when shopping for a new credit 

card. Including agreements that are no 

longer offered to the public would not 

facilitate comparison shopping by 

consumers because consumers could 

not apply for cards subject to these 

agreements. In addition, including 

agreements no longer offered to the 

public would significantly increase the 

number of agreements included on the 

Board’s Web site, possibly to include 

hundreds of thousands of agreements 

(or more). This volume of data would 

render the amount of data provided 

through the Web site too large to be 

helpful to most consumers. Thus, the 

Board is proposing that an issuer only 

submit to the Board under § 226.58(d) 

those agreements that the issuer 

currently offers to the public. 

58(d)(1) Quarterly Submissions 

Proposed § 226.58(d)(1) would require 

issuers to make quarterly submissions to 

the Board, in the form and manner 

specified by the Board, that would 

contain: (1) The credit card agreements, 

as described in Appendix N, that the 

card issuer offered to the public as of 

the last business day of the preceding 

calendar quarter that the card issuer has 

not previously submitted to the Board; 

(2) any credit card agreement previously 

submitted to the Board that was 

modified or amended during the 

preceding calendar quarter, as described 

in proposed § 226.58(d)(3); and (3) 

notification regarding any credit card 

agreement previously submitted to the 

Board that the issuer is withdrawing, as 

described in proposed § 226.58(d)(4) 

and (e). Quarterly submissions to the 

Board would be due no later than the 

first business day on or after January 31, 

April 30, July 31, and October 31 of 

each year. 

Proposed comment 58(d)–1 would 

give the following example: a card 

issuer has already submitted three credit 

card agreements to the Board. On 

October 15, the issuer stops offering 

agreement A. On November 20, the 

issuer makes changes to the terms of 


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agreement B. On December 1, the issuer 

starts offering a new agreement D. The 

issuer must submit to the Board no later 

than the first business day on or after 

January 31: (1) Notification that the 

issuer is withdrawing agreement A, 

because it is no longer offered to the 

public; (2) the revised version of 

agreement B; and (3) agreement D. 

As proposed comment 58(d)–2 would 

clarify, under proposed § 226.58(d)(1), 

an issuer is not required to make any 

submission to the Board at a particular 

quarterly submission deadline if, during 

the previous calendar quarter, the issuer 

did not take any of the following 

actions: (1) Offering a new credit card 

agreement that was not submitted to the 

Board previously; (2) revising or 

amending an agreement previously 

submitted to the Board; and (3) ceasing 

to offer an agreement previously 

submitted to the Board. For example, a 

card issuer offers five agreements to the 

public as of September 30 and submits 

these to the Board by October 31, as 

required by proposed § 226.58(d)(1). 

Between September 30 and December 

31, the issuer continues to offer all five 

of these agreements to the public 

without amending or revising them and 

does not begin offering any new 

agreements. The issuer is not required to 

make any submission to the Board by 

the following January 31. 

The Board expects to provide 

additional details regarding the 

electronic submission process in the 

technical specifications document to be 

posted on the Board’s public Web site. 

58(d)(2) Timing of First Two 

Submissions 

Proposed § 226.58(d)(2) would specify 

timing requirements for the first two 

submissions to the Board following the 

effective date. As described above, 

quarterly submissions to the Board 

generally are due no later than the first 

business day on or after January 31, 

April 30, July 31, and October 31 of 

each year. However, Section 3 of the 

Credit Card Act provides that new TILA 

Section 122(d) becomes effective on 

February 22, 2010, nine months after the 

date of enactment of the Credit Card 

Act. Thus, consistent with Section 3 of 

the Credit Card Act, proposed 

§ 226.58(d)(2) would require issuers to 

send their initial submissions, 

containing credit card agreements 

offered to the public as of December 31, 

2009, to the Board no later than 

February 22, 2010. Proposed 

§ 226.58(d)(2) would provide that the 

next submission must be sent to the 

Board no later than August 2, 2010 (the 

first business day on or after July 31, 

2010), and must contain: (1) Any credit 

card agreements that the card issuer 

offered to the public as of June 30, 2010, 

that the card issuer has not previously 

submitted to the Board; (2) any credit 

card agreement previously submitted to 

the Board that was modified or 

amended after December 31, 2009, and 

on or before June 30, 2010, as described 

in proposed § 226.58(d)(3); and (3) 

notification regarding any credit card 

agreement previously submitted to the 

Board that the issuer is withdrawing as 

of June 30, 2010, as described in 

proposed § 226.58(d)(4) and (e). 

For example, as of December 31, 2009, 

a card issuer offers three agreements. 

The issuer is required to submit these 

agreements to the Board no later than 

February 22, 2010. On March 10, 2010, 

the issuer begins offering a new 

agreement. In general, an issuer that 

begins offering a new agreement on 

March 10 of a given year would be 

required to submit that agreement to the 

Board no later than April 30 of that year. 

However, under proposed 

§ 226.58(d)(2), no submission to the 

Board would be due on April 30, 2010, 

and the issuer instead would be 

required to submit the new agreement 

no later than August 2, 2010. 

58(d)(3) Changes To Agreements 

Under proposed § 226.58(d)(3), if a 

credit card agreement has been 

submitted to the Board, no changes have 

been made to the agreement, and the 

card issuer continues to offer the 

agreement to the public, no additional 

submission of that agreement is 

required. For example, as described in 

proposed comment 58(d)–3, a credit 

card issuer begins offering an agreement 

in October and submits the agreement to 

the Board the following January 31, as 

required by proposed § 226.58(d)(1). As 

of March 31, the issuer has not revised 

or amended the agreement and is still 

offering the agreement to the public. 

The issuer is not required to submit 

anything to the Board regarding that 

agreement by April 30. 

If an issuer makes changes to a credit 

card agreement previously submitted to 

the Board (including changes to the 

provisions of the agreement, the pricing 

information, or both), proposed 

§ 226.58(d)(3) would require the card 

issuer to submit the entire revised 

agreement to the Board by the first 

quarterly submission deadline after the 

last day of the calendar quarter in which 

the change becomes effective. Proposed 

comment 58(d)–4 would give the 

following example: an issuer submits an 

agreement to the Board on October 31. 

On November 15, the issuer changes the 

method used to calculate required 

minimum payments under the 

agreement. Because an element of the 

pricing information has changed, the 

issuer must submit the entire revised 

agreement to the Board no later than 

January 31 of the following year. 

As proposed, § 226.58(d)(3) would 

require credit card issuers to resubmit 

agreements following any change, 

regardless of whether that change affects 

the substance of the agreement. The 

Board recognizes that requiring issuers 

to resubmit agreements following 

nonsubstantive changes could impose a 

substantial burden on issuers with no 

corresponding benefit to consumers. 

The Board solicits comment on whether 

issuers are likely to make technical 

changes to agreements without 

simultaneously making substantive 

changes, whether requiring issuers to 

resubmit agreements following any 

change (however minor) would impose 

a significant burden, and what standard 

the Board should use to determine what 

changes merit resubmission of an 

agreement. 

As proposed comment 58(d)–5 would 

explain, an issuer may not fulfill the 

requirement to submit the entire revised 

agreement to the Board by submitting a 

change-in-terms or similar notice 

covering only the terms that have 

changed. Amendments and revisions 

would be required to be integrated into 

the text of the agreement (or the single 

addendum described in proposed 

Appendix N, if applicable), not 

provided as separate riders. For 

example, an issuer changes the purchase 

APR associated with an agreement the 

issuer has previously submitted to the 

Board. The purchase APR for that 

agreement was included in an 

addendum of pricing information as 

described in proposed Appendix N. The 

issuer may not submit a change-in-terms 

or similar notice reflecting the change in 

APR, either alone or accompanied by 

the original text of the agreement and 

original addendum of pricing 

information. Instead, the issuer must 

revise the addendum of pricing 

information to reflect the change in APR 

and submit to the Board the entire text 

of the agreement and the entire revised 

addendum, even though no changes 

have been made to the provisions of the 

agreement and only one item on the 

addendum has changed. 

The Board believes that permitting 

issuers to submit change-in-terms 

notices or riders containing 

amendments and revisions would make 

it difficult for consumers to determine 

what provisions and pricing information 

are currently offered by issuers. 

Consumers would be required to sift 

through change-in-terms notices and 

riders in an attempt to assemble a 


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coherent picture of the terms currently 

offered. The Board believes that issuers 

are better placed than consumers to 

assemble this information. While the 

Board understands that this may 

somewhat increase the burden on 

issuers, the Board believes that the 

corresponding benefit of increased 

transparency for consumers outweighs 

this burden. 

58(d)(4) Withdrawal of Agreements 

Proposed § 226.58(d)(4) would require 

an issuer to notify the Board if any 

agreement previously submitted to the 

Board by that issuer is no longer offered 

to the public by the first quarterly 

submission deadline after the last day of 

the calendar quarter in which the issuer 

ceased to offer the agreement. For 

example, as described in proposed 

comment 58(d)–6, on January 5 an 

issuer stops offering to the public an 

agreement it previously submitted to the 

Board. The issuer must notify the Board 

that the agreement is being withdrawn 

by April 30, the first quarterly 

submission deadline after March 31, the 

last day of the calendar quarter in which 

the issuer stopped offering the 

agreement. 

58(e) De Minimis Exception 

New TILA Section 122(d)(5) provides 

that the Board may establish exceptions 

to the requirements that credit card 

agreements be posted on creditors’ Web 

sites and submitted to the Board for 

posting on the Board’s Web site in any 

case where the administrative burden 

outweighs the benefit of increased 

transparency, such as where a credit 

card plan has a de minimis number of 

consumer account holders. The Board 

believes that a de minimis exception to 

these requirements is appropriate, but 

believes that it may not be feasible to 

base such an exception on the number 

of accounts under a credit card plan. In 

particular, the Board is not aware of a 

way to define ‘‘credit card plan’’ that 

would not divide issuer’s portfolios into 

such small units that large numbers of 

credit card agreements could fall under 

the de minimis exception. 

The Board therefore proposes to 

establish a de minimis exception in 

proposed § 226.58(e) based on an 

issuer’s total number of open accounts. 

Under proposed § 226.58(e)(1), an issuer 

would not be required to submit any 

credit card agreements to the Board 

under proposed § 226.58(d) if the card 

issuer has fewer than 10,000 open credit 

card accounts under open-end (not 

home-secured) consumer credit plans, 

as of the last business day of the 

calendar quarter. For example, as 

described in proposed comment 58(e)– 

1, an issuer offers five credit card 

agreements to the public as of 

September 30. However, the issuer has 

only 2,000 open credit card accounts 

under open-end (not home-secured) 

consumer credit plans as of September 

30. The issuer is not required to submit 

any agreements to the Board by October 

31 because the issuer qualifies for the de 

minimis exception. 

Proposed comment 58(e)–2 would 

clarify that, for purposes of the de 

minimis exception, a credit card 

account is considered to be open even 

if the account is inactive, as long as the 

account has not been closed by the 

cardholder or the card issuer and the 

cardholder can obtain extensions of 

credit on the account. If an account has 

been closed for new activity (for 

example, due to default by the 

cardholder), but the cardholder is still 

making payments to pay off the 

outstanding balance, the account need 

not be considered open. If an account 

has only temporarily been suspended 

(for example, due to a report of 

unauthorized use), the account is 

considered open. 

As proposed comment 58(e)–3 would 

clarify, whether an issuer qualifies for 

the de minimis exception would be 

determined as of the last business day 

of each calendar quarter. For example, 

as of December 31, an issuer offers three 

agreements to the public and has 9,500 

open credit card accounts under open 

end (not home secured) consumer credit 

plans. As of January 30, the issuer still 

offers three agreements, but has 10,100 

open accounts. As of March 31, the 

issuer still offers three agreements, but 

has only 9,700 open accounts. Even 

though the issuer had 10,100 open 

accounts at one time during the 

calendar quarter, the issuer qualifies for 

the de minimis exception because the 

number of open accounts was less than 

10,000 as of March 31. The issuer 

therefore is not required to submit any 

agreements to the Board under 

§ 226.58(d) by April 30. 

The Board believes that the 

administrative burden on issuers of 

preparing and submitting such 

agreements would outweigh the benefit 

of increased transparency from 

including those agreements on the 

Board’s Web site, but the Board solicits 

comment on the 10,000 open accounts 

threshold for the de minimis exception. 

In addition, the Board recognizes that 

the proposed de minimis exception 

would not alleviate the administrative 

burden on large issuers of submitting 

agreements for credit card plans with a 

very small number of open accounts. 

The Board solicits comments on 

whether the Board should create a de 

minimis exception applicable to a small 

credit card plan offered by an issuer of 

any size, and if so how the Board should 

define ‘‘credit card plan’’ for purposes 

of such an exception. 

Proposed § 226.58(e)(2) would specify 

that if an issuer that previously 

qualified for the de minimis exception 

ceases to qualify, the card issuer must 

begin making quarterly submissions to 

the Board under § 226.58(d) no later 

than the first quarterly submission 

deadline after the date as of which the 

issuer ceased to qualify. As proposed 

comment 58(e)–4 would clarify, 

whether an issuer has ceased to qualify 

for the de minimis exception under 

proposed § 226.58(e)(2) would be 

determined as of the last business day 

of the calendar quarter, as indicated in 

proposed § 226.58(e)(1). For example, as 

of June 30, an issuer offers three 

agreements to the public and has 9,500 

credit card accounts under open-end 

(not home-secured) consumer credit 

plans. The issuer is not required to 

submit any agreements to the Board 

under § 226.58(d) because the issuer 

qualifies for the de minimis exception. 

As of July 15, the issuer still offers the 

same three agreements, but now has 

10,000 open accounts. The issuer is not 

required to take any action at this time, 

because whether an issuer qualifies for 

the de minimis exception under 

proposed § 226.58(e)(1) is determined as 

of the last business day of the calendar 

quarter. As of September 30, the issuer 

still offers the same three agreements 

and still has 10,000 open accounts. 

Because the issuer had 10,000 open 

accounts as of September 30, the issuer 

ceased to qualify for the de minimis 

exception and must submit the three 

agreements it offers to the Board by 

October 31, the next quarterly 

submission deadline. 

Proposed § 226.58(e)(3) would 

provide that if a card issuer that did not 

previously qualify comes within the de 

minimis exception, the card issuer may, 

but is not required to, notify the Board 

that the card issuer is withdrawing each 

agreement the card issuer previously 

submitted to the Board. Until the issuer 

notifies the Board that each agreement 

it previously submitted is being 

withdrawn, the issuer must continue to 

make quarterly submissions to the 

Board under § 226.58(d) and to provide 

updated registration information under 

§ 226.58(c)(3). Proposed comment 58(e)– 

5 would give the following example: an 

issuer has 10,001 open accounts and 

offers three agreements to the public as 

of December 31. The issuer has 

registered with the Board and submitted 

each of the three agreements to the 

Board as required under § 226.58(c) and 


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(d). As of March 31, the issuer has only 

9,999 open accounts. The issuer has two 

options. First, the issuer may notify the 

Board that the issuer is withdrawing 

each of the three agreements it 

previously submitted. Once the issuer 

has notified the Board, the issuer is no 

longer required to make quarterly 

submissions to the Board under 

§ 226.58(d) or to provide updated 

registration information to the Board 

under § 226.58(c)(3). Alternatively, the 

issuer may choose not to notify the 

Board that it is withdrawing its 

agreements. In this case, the issuer must 

continue making quarterly submissions 

to the Board under § 226.58(d) and 

providing updated registration 

information to the Board under 

§ 226.58(c)(3). The issuer might choose 

not to withdraw its agreements if, for 

example, the issuer believes that it will 

likely cease to qualify for the de 

minimis exception again in the near 

future. 

58(f) Agreements Posted on Card 

Issuer’s Web Site 

In addition to requiring that card 

issuers submit credit card agreements to 

the Board for posting on the Board’s 

Web site, new TILA Section 122(d) 

requires that each issuer post the credit 

card agreements to which it is a party 

on its own Web site. The Board 

proposes to implement this requirement 

in proposed § 226.58(f). 

Proposed § 226.58(f) would set out 

two requirements. First, under proposed 

§ 226.58(f)(1), each issuer would be 

required to post on its publicly available 

Web site the same agreements it is 

required to submit to the Board under 

proposed § 226.58(d) (i.e., the 

agreements the issuer offers to the 

public). An issuer that is not required to 

submit agreements to the Board under 

proposed § 226.58(d) because it qualifies 

for the de minimis exception under 

proposed § 226.58(e) would not be 

subject to this requirement. 

Second, under proposed 

§ 226.58(f)(2), each issuer would be 

required to provide each individual 

cardholder with access to his or her 

specific credit card agreement, by either: 

(1) Posting and maintaining the 

individual cardholder’s agreement on 

the issuer’s Web site; or (2) making a 

copy of each cardholder’s agreement 

available to the cardholder upon that 

cardholder’s request. If a card issuer 

chooses to make agreements available 

upon request, the issuer would be 

required to provide the cardholder with 

the ability to request a copy of the 

agreement both: (1) By using the issuer’s 

Web site (such as by clicking on a 

clearly identified box to make the 

request); and (2) by calling a toll free 

telephone number displayed on the Web 

site and clearly identified as to purpose. 

Proposed comment 58(f)(2)–1 would 

clarify that agreements provided upon 

request may be provided in either 

electronic or paper form, regardless of 

the form of the cardholder’s request. 

Whether provided electronically or in 

paper form, agreements must be 

provided in a typeface that is clear and 

legible. 

As proposed comment 58(f)–2 would 

clarify, the requirement to provide 

access to credit card agreements under 

proposed § 226.58(f)(2) would apply to 

all open credit card accounts under 

open-end (not home-secured) consumer 

credit plans, regardless of whether such 

agreements are required to be submitted 

to the Board pursuant to proposed 

§ 226.58(d). For example, an issuer that 

is not required to submit agreements to 

the Board because it qualifies for the de 

minimis exception under § 226.58(e) 

would still be required to provide 

cardholders with access to their specific 

agreements under § 226.58(f)(2). 

Similarly, an agreement that is no longer 

offered to the public would not be 

required to be submitted to the Board 

under § 226.58(d), but would still need 

to be provided to the cardholder to 

whom it applies under § 226.58(f)(2). 

As described above, the Board 

proposes to exercise its authority to 

create exceptions from the requirements 

of new TILA Section 122(d) with respect 

to the submission of certain agreements 

to the Board for posting on the Board’s 

Web site. However, the Board believes 

that it would not be appropriate to 

apply these exceptions to the 

requirement that issuers provide 

cardholders with access to their specific 

credit card agreement through the 

issuer’s Web site. In particular, the 

Board believes that, for the reasons 

discussed above, posting credit card 

agreements that are not currently offered 

to the public on the Board’s Web site 

would not be beneficial to consumers. 

However, the Board believes that the 

benefit of increased transparency of 

providing an individual cardholder 

access to his or her specific credit card 

agreement is substantial regardless of 

whether the cardholder’s agreement 

continues to be offered by the issuer. 

The Board believes that this benefit 

outweighs the administrative burden on 

issuers of providing such access, and 

the Board therefore is not proposing to 

exempt agreements that are not offered 

to the public from the requirements of 

proposed § 226.58(f)(2). Similarly, the 

proposal provides that card issuers with 

fewer than 10,000 open credit card 

accounts under open-end (not homesecured) consumer credit plans would 

not be required to submit agreements to 

the Board. However, the Board believes 

that the benefit of increased 

transparency associated with providing 

an individual cardholder with access to 

his or her specific credit card agreement 

is substantial regardless of the number 

of the card issuer’s open accounts. The 

Board believes that this benefit of 

increased transparency for consumers 

outweighs the administrative burden on 

issuers of providing such access, and 

the Board therefore is not proposing to 

apply the de minimis exception to the 

requirements of proposed § 226.58(f)(2). 

The Board is providing issuers with 

the option to make copies of cardholder 

agreements available on request because 

the Board believes that the benefit of 

increased transparency associated with 

immediate access to cardholder 

agreements, as compared to access after 

a brief waiting period, would not 

outweigh the administrative burden on 

issuers of providing immediate access. 

The Board believes that the 

administrative burden associated with 

posting each cardholder’s credit card 

agreement on the issuer’s Web site may 

be substantial for some issuers. In 

particular, the Board notes that some 

smaller institutions with limited 

information technology resources could 

find a requirement to post all 

cardholder’s agreements to be a 

significant burden. The Board 

understands that it is important that all 

cardholders be able to obtain copies of 

their credit card agreements promptly, 

and proposed § 226.58(f)(2) would 

ensure that this occurs. 

If a card issuer chooses to make 

agreements available upon request 

under proposed § 226.58(f)(2)(ii), the 

card issuer would be required to send to 

the cardholder or otherwise make 

available to the cardholder a copy of the 

cardholder’s agreement no later than 10 

business days after the issuer receives 

the cardholder’s request. As proposed 

comment 58(f)(2)–3 would clarify, if, for 

example, an issuer chooses to respond 

to a cardholder’s request by mailing a 

paper copy of the cardholder’s 

agreement, the issuer would be required 

to mail the agreement no later than 10 

business days after receipt of the 

cardholder’s request. Alternatively, if an 

issuer chooses to respond to a 

cardholder’s request by posting the 

cardholder’s agreement on the issuer’s 

Web site, the issuer must post the 

agreement on its Web site no later than 

10 business days after receipt of the 

cardholder’s request. The Board believes 

that requiring issuers to provide 

cardholder’s agreements within 10 

business days gives card issuers 


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adequate time to respond to requests 

while providing cardholders with 

prompt access to their credit card 

agreements. The Board solicits 

comments regarding whether issuers 

should have a shorter or longer period 

in which to respond to cardholder 

requests. 

Proposed § 226.58(f)(3) would state 

that credit card issuers may provide 

credit card agreements in electronic 

form under § 226.58(f)(1) and (f)(2) 

without regard to the consumer notice 

and consent requirements of Section 

101(c) of the E-Sign Act. Because new 

TILA Section 122(d) specifies that credit 

card issuers must provide access to 

cardholder agreements on the issuer’s 

Web site, the Board believes that the 

requirements of the E-Sign Act do not 

apply. 

Appendix M1—Repayment Disclosures 

As discussed in the section-by-section 

analysis to proposed § 226.7(b)(12), 

TILA Section 127(b)(11), as added by 

Section 1301(a) of the Bankruptcy Act, 

required creditors, the FTC and the 

Board to establish and maintain toll-free 

telephone numbers in certain instances 

in order to provide consumers with an 

estimate of the time it will take to repay 

the consumer’s outstanding balance, 

assuming the consumer makes only 

minimum payments on the account and 

the consumer does not make any more 

draws on the account. 15 U.S.C. 

1637(b)(11)(F). The Act required 

creditors, the FTC and the Board to 

provide estimates that are based on 

tables created by the Board that estimate 

repayment periods for different 

minimum monthly payment amounts, 

interest rates, and outstanding balances. 

In the January 2009 Regulation Z Rule, 

instead of issuing a table, the Board 

issued guidance in Appendix M1 to part 

226 to card issuers and the FTC for how 

to calculate this generic repayment 

estimate. The Board would use the same 

guidance to calculate the generic 

repayment estimates given through its 

toll-free telephone number. 

TILA Section 127(b)(11), as added by 

Section 1301(a) of the Bankruptcy Act, 

provided that a creditor may use a tollfree telephone number to provide the 

actual number of months that it will 

take consumers to repay their 

outstanding balance instead of 

providing an estimate based on the 

Board-created table (‘‘actual repayment 

disclosure’’). 15 U.S.C. 1637(b)(11)(I)– 

(K). In the January 2009 Regulation Z 

Rule, the Board implemented that 

statutory provision and also provided 

card issuers with the option to provide 

the actual repayment disclosure on the 

periodic statement instead of through a 

toll-free telephone number. In the 

January 2009 Regulation Z Rule, the 

Board adopted new Appendix M2 to 

part 226 to provide guidance to issuers 

on how to calculate the actual 

repayment disclosure. 

As discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.7(b)(12), the Credit Card Act 

substantially revised Section 127(b)(11) 

of TILA. Specifically, Section 201 of the 

Credit Card Act amends TILA Section 

127(b)(11) to provide that creditors that 

extend open-end credit must provide 

the following disclosures on each 

periodic statement: (1) A ‘‘warning’’ 

statement indicating that making only 

the minimum payment will increase the 

interest the consumer pays and the time 

it takes to repay the consumer’s balance; 

(2) the number of months that it would 

take to repay the outstanding balance if 

the consumer pays only the required 

minimum monthly payments and if no 

further advances are made; (3) the total 

cost to the consumer, including interest 

and principal payments, of paying that 

balance in full, if the consumer pays 

only the required minimum monthly 

payments and if no further advances are 

made; (4) the monthly payment amount 

that would be required for the consumer 

to pay off the outstanding balance in 36 

months, if no further advances are 

made, and the total cost to the 

consumer, including interest and 

principal payments, of paying that 

balance in full if the consumer pays the 

balance over 36 months; and (5) a tollfree telephone number at which the 

consumer may receive information 

about credit counseling and debt 

management services. For ease of 

reference, this supplementary 

information will refer to the above 

disclosures in the Credit Card Act as 

‘‘the repayment disclosures.’’ 

As discussed in more detail in the 

section-by-section analysis to proposed 

§ 226.7(b)(12), the Board proposes to 

limit the repayment disclosure 

requirements to credit card accounts 

under open-end (not home-secured) 

consumer credit plans, as that term is 

defined in proposed § 226.2(a)(15)(ii). 

The Board proposes to adopt in 

proposed Appendix M1 to part 226 

guidance for calculating the repayment 

disclosures. 

Calculating the minimum payment 

repayment estimate. The minimum 

payment repayment estimate would be 

an estimate of the number of months 

that it would take to pay the outstanding 

balance shown on the periodic 

statement, if the consumer pays only the 

required minimum monthly payments 

and if no further advances are made. 

The guidance in proposed Appendix M1 

to part 226 for calculating the minimum 

payment repayment estimate would be 

similar to the guidance that the Board 

adopted in Appendix M2 to part 226 in 

the January 2009 Regulation Z Rule for 

calculating the actual repayment 

disclosure. The Board proposes that 

credit card issuers generally calculate 

the minimum payment repayment 

estimate for a consumer based on the 

minimum payment formula(s), the APRs 

and the outstanding balance currently 

applicable to a consumer’s account. For 

other terms that may impact the 

calculation of the minimum payment 

repayment estimate, the Board proposes 

to allow issuers to make certain 

assumption about these terms. 

1. Minimum payment formulas. When 

calculating the minimum payment 

repayment estimate, the Board proposes 

that credit card issuers generally must 

use the minimum payment formula(s) 

that apply to a cardholder’s account. 

Proposed Appendix M1 to part 226 

provides that in calculating the 

minimum payment repayment estimate, 

if more than one minimum payment 

formula applies to an account, the issuer 

must apply each minimum payment 

formula to the portion of the balance to 

which the formula applies. In providing 

the minimum payment repayment 

estimate, an issuer must disclose the 

longest repayment period calculated. 

For example, assume that an issuer uses 

one minimum payment formula to 

calculate the minimum payment 

amount for a general revolving feature, 

and another minimum payment formula 

to calculate the minimum payment 

amount for special purchases, such as a 

‘‘club plan purchase.’’ Also, assume that 

based on a consumer’s balances in these 

features, the repayment period 

calculated pursuant to proposed 

Appendix M1 to part 226 for the general 

revolving feature is 5 years, while the 

repayment period calculated for the 

special purchase feature is 3 years. This 

issuer must disclose 5 years as the 

repayment period for the entire balance 

to the consumer. This proposal differs 

from the approach adopted in the 

January 2009 Regulation Z Rule, which 

permitted card issuers the option to 

disclose either the longest repayment 

period calculated or the repayment 

period calculated for each minimum 

payment formula, when disclosing the 

actual repayment disclosures through a 

toll-free telephone number. The Board 

believes that allowing card issuers to 

disclose on the periodic statement the 

repayment period calculated for each 

minimum payment formula might create 

‘‘information overload’’ for consumers 

and might distract the consumer from 


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54194 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

other important information that is 

contained on the periodic statement. 

Under proposed Appendix M1 to part 

226, card issuers would be allowed to 

disregard promotional terms related to 

payments, such as deferred billing 

promotional plans and skip payment 

features. The Board notes that allowing 

issuers to disregard promotional 

payment terms on accounts where the 

promotional payment terms apply only 

for a limited amount of time eases 

compliance burden on issuers, without 

a significant impact on the accuracy of 

the repayment estimates for consumers. 

2. Annual percentage rates. Generally, 

when calculating the minimum 

payment repayment estimate, the 

proposal would require credit card 

issuers to use each of the APRs that 

currently apply to a consumer’s 

account, based on the portion of the 

balance to which that rate applies. 

TILA Section 127(b)(11), as revised by 

the Credit Card Act, specifically 

requires that in calculating the 

minimum payment repayment estimate, 

if the interest rate in effect on the date 

on which the disclosure is made is a 

temporary rate that will change under a 

contractual provision applying an index 

or formula for subsequent interest rate 

adjustments, the creditor must apply the 

interest rate in effect on the date on 

which the disclosure is made for as long 

as that interest rate will apply under 

that contractual provision, and then 

apply an interest rate based on the index 

or formula in effect on the applicable 

billing date. 

Consistent with TILA Section 

127(b)(11), as revised by the Credit Card 

Act, under proposed Appendix M1 to 

part 226, the term ‘‘promotional terms’’ 

would be defined as ‘‘terms of a 

cardholder’s account that will expire in 

a fixed period of time, as set forth by the 

card issuer.’’ The term ‘‘deferred interest 

or similar plan’’ would mean a plan 

where a consumer will not be obligated 

to pay interest that accrues on balances 

or transactions if those balances or 

transactions are paid in full prior to the 

expiration of a specified period of time. 

If any promotional APRs apply to a 

cardholder’s account, other than 

deferred interest or similar plans, a 

credit card issuer in calculating the 

minimum payment repayment estimate 

would be required to apply the 

promotional APR(s) until it expires and 

then must apply the rate that applies 

after the promotional rate(s) expires. If 

the rate that applies after the 

promotional rate(s) expires is a variable 

rate, a card issuer would be required to 

calculate that rate based on the 

applicable index or formula. This 

variable rate would be considered 

accurate if it was in effect within the last 

30 days before the minimum payment 

repayment estimate is provided. 

For deferred interest or similar plans, 

if minimum payments under the plan 

will repay the balances or transactions 

prior to the expiration of the specified 

period of time, a card issuer must 

assume that the consumer will not be 

obligated to pay the accrued interest. 

This means, in calculating the minimum 

payment repayment estimate, the card 

issuer must apply a zero percent APR to 

the balance subject to the deferred 

interest or similar plan. If, however, 

minimum payments under the deferred 

interest or similar plan may not repay 

the balances or transactions in full prior 

to the expiration of the specified period 

of time, a credit card issuer must 

assume that a consumer will not repay 

the balances or transactions in full prior 

to the expiration of the specified period 

and thus the consumer will be obligated 

to pay the accrued interest. This means, 

in calculating the minimum payment 

repayment estimate, the card issuer 

must apply the APR at which interest is 

accruing to the balance subject to the 

deferred interest or similar plan. 

For example, assume under a deferred 

interest plan, a card issuer will not 

charge interest on a certain purchase if 

the consumer repays that purchase 

amount within 12 months. Also, assume 

that under the account agreement, the 

minimum payments for the deferred 

interest plan are calculated as 1⁄12 of the 

purchase amount, such that if the 

consumer makes timely minimum 

payments each month for 12 months, 

the purchase amount will be paid off by 

the end of the deferred interest period. 

In this case, the card issuer must assume 

that the consumer will not be obligated 

to pay the deferred interest. This means, 

in calculating the minimum payment 

repayment estimate, the card issuer 

must apply a zero percent APR to the 

balance subject to the deferred interest 

plan. On the other hand, if under the 

account agreement, the minimum 

payments for the deferred interest plan 

may not necessarily repay the purchase 

balance within the deferred interest 

period (such as where the minimum 

payments are calculated as 3 percent of 

the outstanding balance), a credit card 

issuer must assume that a consumer will 

not repay the balances or transactions in 

full by the specified date and thus the 

consumer will be obligated to pay the 

deferred interest. This means, in 

calculating the minimum payment 

repayment estimate, the card issuer 

must apply the APR at which deferred 

interest is accruing to the balance 

subject to the deferred interest plan. 

This proposed approach with respect 

to deferred interest or similar plans is 

consistent with the assumption that 

only minimum payments are made in 

repaying the balance on the account. 

3. Outstanding balance. When 

calculating the minimum payment 

repayment estimate, the Board proposes 

that credit card issuers must use the 

outstanding balance on a consumer’s 

account as of the closing date of the last 

billing cycle. Issuers would not be 

required to take into account any 

transactions consumers may have made 

since the last billing cycle. The Board 

believes that this proposed approach 

would make it easier for consumers to 

understand the minimum payment 

repayment estimate, because the 

outstanding balance used to calculate 

the minimum payment repayment 

estimate would be the same as the 

outstanding balance shown on the 

periodic statement. Under the proposal, 

issuers would be allowed to round the 

outstanding balance to the nearest 

whole dollar to calculate the minimum 

payment repayment estimate. 

4. Other terms. As discussed above, 

the Board proposes in Appendix M1 to 

part 226 that issuers must calculate the 

minimum payment repayment estimate 

for a consumer based on the minimum 

payment formulas(s), the APRs and the 

outstanding balance currently 

applicable to a consumer’s account. For 

other terms that may impact the 

calculation of the minimum payment 

repayment estimate, the Board proposes 

to allow issuers to make certain 

assumptions about these terms. 

a. Balance computation method. The 

Board proposes to allow issuers to use 

the average daily balance method for 

purposes of calculating the minimum 

payment repayment estimate. The 

average daily balance method is 

commonly used by issuers to compute 

the balance on credit card accounts. 

Nonetheless, requiring use of the 

average daily balance method makes 

other assumptions necessary, including 

the length of the billing cycle, and when 

payments are made. The Board proposes 

to allow an issuer to assume a monthly 

or daily periodic rate applies to the 

account. If a daily periodic rate is used, 

the issuer would be allowed to assume 

either (1) a year is 365 days long, and 

all months are 30.41667 days long, or (2) 

a year is 360 days long, and all months 

are 30 days long. Both sets of 

assumptions about the length of the year 

and months would yield the same 

repayment estimates. The Board also 

proposes to allow issuers to assume that 

payments are credited on the last day of 

the month. 


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b. Grace period. In proposed 

Appendix M1 to part 226, the Board 

proposes to allow issuers to assume that 

no grace period exists. The required 

disclosures about the effect of making 

minimum payments are based on the 

assumption that the consumer will be 

‘‘revolving’’ or carrying a balance. Thus, 

it seems reasonable to assume that the 

account is already in a revolving 

condition at the time the minimum 

payment repayment estimate is 

disclosed on the periodic statement, and 

that no grace period applies. This 

proposed assumption about the grace 

period is also consistent with the 

proposed rule to exempt issuers from 

providing the minimum payment 

repayment estimate to consumers that 

have paid their balances in full for two 

consecutive months. 

c. Residual interest. When the 

consumer’s account balance at the end 

of a billing cycle is less than the 

required minimum payment, the Board 

proposes to allow an issuer to assume 

that no additional transactions occurred 

after the end of the billing cycle, that the 

account balance will be paid in full, and 

that no additional finance charges will 

be applied to the account between the 

date the statement was issued and the 

date of the final payment. These 

assumptions are necessary to have a 

finite solution to the repayment period 

calculation. Without these assumptions, 

the repayment period could be infinite. 

d. Minimum payments are made each 

month. In proposed Appendix M1 to 

part 226, issuers would be allowed to 

assume that minimum payments are 

made each month and any debt 

cancellation or suspension agreements 

or skip payment features do not apply 

to a consumer’s account. The Board 

believes that this assumption will ease 

compliance burden on issuers, without 

a significant impact on the accuracy of 

the repayment estimates for consumers. 

e. APR will not change. TILA Section 

127(b)(11), as revised by the Credit Card 

Act, provides that in calculating the 

minimum payment repayment estimate, 

a creditor must apply the interest rate or 

rates in effect on the date on which the 

disclosure is made until the date on 

which the balance would be paid in full. 

Nonetheless, if the interest rate in effect 

on the date on which the disclosure is 

made is a temporary rate that will 

change under a contractual provision 

applying an index or formula for 

subsequent interest rate adjustment, the 

creditor must apply the interest rate in 

effect on the date on which the 

disclosure is made for as long as that 

interest rate will apply under that 

contractual provision, and then apply 

an interest rate based on the index or 

formula in effect on the applicable 

billing date. As discussed above, if any 

promotional APRs apply to a 

cardholder’s account, other than 

deferred interest or similar plans, a 

credit card issuer in calculating the 

minimum payment repayment estimate 

would be required to apply the 

promotional APR(s) until it expires and 

then must apply the rate that applies 

after the promotional rate(s) expires. If 

the rate that applies after the 

promotional rate(s) expires is a variable 

rate, a card issuer would be required to 

calculate that rate based on the 

applicable index or formula. This 

variable rate would be considered 

accurate if it was in effect within the last 

30 days before the minimum payment 

repayment estimate is provided. For 

deferred interest or similar plans, if 

minimum payments under the plan will 

repay the balances or transactions in full 

prior to the expiration of the specified 

period of time, a card issuer must 

assume that the consumer will not be 

obligated to pay the accrued interest. 

This means, in calculating the minimum 

payment repayment estimate, the card 

issuer must apply a zero percent APR to 

the balance subject to the deferred 

interest or similar plan. If, however, 

minimum payments under the deferred 

interest or similar plan may not repay 

the balances or transactions in full by 

the expiration of the specified period of 

time, a credit card issuer must assume 

that a consumer will not repay the 

balances or transactions in full prior to 

the expiration of the specified period of 

time and thus the consumer will be 

obligated to pay the accrued interest. 

This means, in calculating the minimum 

payment repayment estimate, the card 

issuer must apply the APR at which 

interest is accruing (or deferred interest 

is accruing) to the balance subject to the 

deferred interest or interest waiver plan. 

Consistent with TILA Section 

127(b)(11), as revised by the Credit Card 

Act, the Board proposes to allow issuers 

to assume that the APR on the account 

will not change either through the 

operation of a variable rate or the 

change to a rate, except with respect to 

promotional APRs as discussed above. 

For example, if a penalty APR currently 

applies to a consumer’s account, an 

issuer would be allowed to assume that 

the penalty APR will apply to the 

consumer’s account indefinitely, even if 

the consumer may potentially return to 

a non-penalty APR in the future under 

the account agreement. 

f. Payment allocation. In proposed 

Appendix M1 to part 226, the Board 

proposes to allow issuers to assume that 

payments are allocated to lower APR 

balances before higher APR balances 

when multiple APRs apply to an 

account. As discussed in the section-bysection analysis to proposed § 226.53, 

the proposed rule would permit issuers 

to allocated minimum payment amounts 

as they choose; however, issuers would 

be restricted in how they may allocate 

payments above the minimum payment 

amount. The Board assumes that issuers 

are likely to allocate the minimum 

payment amount to lower APR balances 

before higher APR balances, and issuers 

may assume that is the case in 

calculating the minimum payment 

repayment estimate. 

g. Account not past due and the 

account balance does not exceed the 

credit limit. The proposed rule would 

allow issuers to assume that the 

consumer’s account is not past due and 

the account balance is not over the 

credit limit. The Board believes that this 

assumption will ease compliance 

burden on issuers, without a significant 

impact on the accuracy of the 

repayment estimates for consumers. 

h. Rounding assumed payments, 

current balance and interest charges to 

the nearest cent. Under proposed 

Appendix M1 to part 226, when 

calculating the minimum payment 

repayment estimate, an issuer would be 

permitted to round to the nearest cent 

the assumed payments, current balance 

and interest charges for each month, as 

shown in proposed Appendix M2 to 

part 226. 

5. Tolerances. The Board proposes to 

provide that the minimum payment 

repayment estimate calculated by an 

issuer will be considered accurate if it 

is not more than 2 months above or 

below the minimum payment 

repayment estimate determined in 

accordance with the guidance in 

proposed Appendix M1 to part 226, 

prior to rounding. This proposed 

tolerance would prevent small 

variations in the calculation of the 

minimum payment repayment estimate 

from causing a disclosure to be 

inaccurate. Take, for example, a 

minimum payment formula of the 

greater of 2 percent or $20 and two 

separate amortization calculations that, 

at the end of 28 months, arrived at 

remaining balances of $20 and $20.01 

respectively. The $20 remaining balance 

would be paid off in the 29th month, 

resulting in the disclosure of a 2-year 

repayment period due to the Board’s 

proposed rounding rule set forth in 

proposed § 226.7(b)(12)(i)(B). The 

$20.01 remaining balance would be paid 

off in the 30th month, resulting in the 

disclosure of a 3-year repayment period 

due to the Board’s proposed rounding 

rule. Thus, in the example above, an 

issuer would be in compliance with the 


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54196 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

guidance in proposed Appendix M1 to 

part 226 by disclosing 3 years, instead 

of 2 years, because the issuer’s estimate 

is within the 2 months’ tolerance, prior 

to rounding. In addition, the proposed 

rule also provides that even if an 

issuer’s estimate is more than 2 months 

above or below the minimum payment 

repayment estimate calculated using the 

guidance in proposed Appendix M1 to 

part 226, so long as the issuer discloses 

the correct number of years to the 

consumer based on the rounding rule 

set forth in proposed § 226.7(b)(12)(i)(B), 

the issuer would be in compliance with 

the guidance in proposed Appendix M1 

to part 226. For example, assume the 

minimum payment repayment estimate 

calculated using the guidance in 

proposed Appendix M1 to part 226 is 32 

months (2 years, 8 months), and the 

minimum payment repayment estimate 

calculated by the issuer is 38 months (3 

years, 2 months). Under the proposed 

rounding rule set forth in proposed 

§ 226.7(b)(12)(i)(B), both of these 

estimates would be rounded and 

disclosed to the consumer as 3 years. 

Thus, if the issuer disclosed 3 years to 

the consumer, the issuer would be in 

compliance with the guidance in 

proposed Appendix M1 to part 226 even 

through the minimum payment 

repayment estimate calculated by the 

issuer is outside the 2 months’ tolerance 

amount. 

The Board recognizes that the 

minimum payment repayment 

estimates, the minimum payment total 

cost estimates, the estimated monthly 

payments for repayment in 36 months, 

and the total cost estimates for 

repayment in 36 months, as calculated 

in proposed Appendix M1 to part 226, 

are estimates. The Board would expect 

that issuers would not be liable under 

Federal or State unfair or deceptive 

practices laws for providing inaccurate 

or misleading information, when issuers 

provide to consumers these disclosures 

calculated according to guidance 

provided in proposed Appendix M1 to 

part 226, as required by TILA. 

Calculating the minimum payment 

total cost estimate. Under proposed 

Appendix M1 to part 226, when 

calculating the minimum payment total 

cost estimate, a credit card issuer would 

be required to total the dollar amount of 

the interest and principal that the 

consumer would pay if he or she made 

minimum payments for the length of 

time calculated as the minimum 

payment repayment estimate using the 

guidance in proposed Appendix M1 to 

part 226. Under the proposal, the 

minimum payment total cost estimate 

would be deemed to be accurate if it is 

based on a minimum payment 

repayment estimate that is within the 

tolerance guidance set forth in proposed 

Appendix M1 to part 226, as discussed 

above. For example, assume the 

minimum payment repayment estimate 

calculated using the guidance in 

proposed Appendix M1 to part 226 is 28 

months (2 years, 4 months), and the 

minimum payment repayment estimate 

calculated by the issuer is 30 months (2 

years, 6 months). The minimum 

payment total cost estimate will be 

deemed accurate even if it is based on 

the 30 month estimate for length of 

repayment, because the issuer’s 

minimum payment repayment estimate 

is within the 2 months’ tolerance, prior 

to rounding. In addition, assume the 

minimum payment repayment estimate 

calculated using the guidance in 

proposed Appendix M1 to part 226 is 32 

months (2 years, 8 months), and the 

minimum payment repayment estimate 

calculated by the issuer is 38 months (3 

years, 2 months). Under the proposed 

rounding rule set forth in proposed 

§ 226.7(b)(12)(i)(B), both of these 

estimates would be rounded and 

disclosed to the consumer as 3 years. If 

the issuer based the minimum payment 

total cost estimate on 38 months (or any 

other minimum payment repayment 

estimate that would be rounded to 3 

years), the minimum payment total cost 

estimate would be deemed to be 

accurate. 

Calculating the estimated monthly 

payment for repayment in 36 months. 

Under proposed Appendix M1 to part 

226, when calculating the estimated 

monthly payment for repayment in 36 

months, a credit card issuer would be 

required to calculate the estimated 

monthly payment amount that would be 

required to pay off the outstanding 

balance shown on the statement within 

36 months, assuming the consumer paid 

the same amount each month for 36 

months. 

In calculating the estimated monthly 

payment for repayment in 36 months, 

the Board proposes to require an issuer 

to use a weighted APR that is based on 

the APRs that apply to a cardholder’s 

account and the portion of the balance 

to which the rate applies, as shown in 

proposed Appendix M2 to part 226. The 

Board believes that requiring use of a 

weighted APR to calculate the estimated 

monthly payment for repayment in 36 

month when multiple APRs apply to an 

account will ease compliance burden on 

issuers by significantly simplifying the 

calculation of the estimated monthly 

payment, without a significant impact 

on the accuracy of the estimated 

monthly payments for consumers. 

Proposed Appendix M1 to part 226 

would provide guidance on how to 

calculate the weighted APR if 

promotional APRs apply. If any 

promotional terms related to APRs 

apply to a cardholder’s account, other 

than deferred interest or similar plans, 

in calculating the weighted APR, the 

issuer must calculate a weighted average 

of the promotional rate and the rate that 

will apply after the promotional rate 

expires based on the percentage of 36 

months each rate will apply, as shown 

in proposed Appendix M2 to part 226. 

Under proposed Appendix M1 to part 

226, for deferred interest or similar 

plans, if minimum payments under the 

plan will repay the balances or 

transactions in full prior to the 

expiration of the specified period of 

time, a card issuer must assume that the 

consumer will not be obligated to pay 

the accrued interest. This means, in 

calculating the weighted APR, the card 

issuer must apply a zero percent APR to 

the balance subject to the deferred 

interest or similar plan. If, however, 

minimum payments under the deferred 

interest or similar plan may not repay 

the balances or transactions in full prior 

to the expiration of the specified period 

of time, a credit card issuer in 

calculating the weighted APR must 

assume that a consumer will not repay 

the balances or transactions in full prior 

to the expiration of the specified period 

and thus the consumer will be obligated 

to pay the accrued interest. This means, 

in calculating the weighted APR, the 

card issuer must apply the APR at 

which interest is accruing to the balance 

subject to the deferred interest or similar 

plan. To simplify the calculation of the 

repayment estimates, this proposed 

approach focuses on whether minimum 

payments will repay the balances or 

transactions in full prior to the 

expiration of the specified period of 

time instead of whether the estimated 

monthly payment for repayment in 36 

months will repay the balances or 

transaction prior to the expiration of the 

specified period. The Board believes 

that if minimum payments under the 

deferred interest or similar plan will not 

repay the balances or transactions in full 

prior to the expiration of the specified 

period of time, it is not likely that the 

estimated monthly payment for 

repayment in 36 months will repay the 

balances or transactions in full prior to 

the expiration of the specified period, 

given that (1) under proposed § 226.53, 

card issuers generally may not allocate 

payments in excess of the minimum 

payment to deferred interest or similar 

balances before other balances on which 

interest is being charged except in the 

last two months before a deferred 

interest or similar period is set to expire, 


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and (2) deferred interest or similar 

periods typically are shorter than 3 

years. 

The Board requests comment on 

whether the Board should adopt specific 

tolerances for calculation and disclosure 

of the estimated monthly payment for 

repayment in 36 months, and if so, what 

those tolerances should be. 

Calculating the total cost estimate for 

repayment in 36 months. Under 

proposed Appendix M1 to part 226, 

when calculating the total cost estimate 

for repayment in 36 months, a credit 

card issuer would be required to total 

the dollar amount of the interest and 

principal that the consumer would pay 

if he or she made the estimated monthly 

payment for repayment in 36 months 

calculated under proposed Appendix 

M1 to part 226 each month for 36 

months. The Board requests comment 

on whether the Board should adopt 

specific tolerances for calculation and 

disclosure of the total cost estimate for 

repayment in 36 months, and if so, what 

those tolerances should be. 

Calculating savings estimate for 

repayment in 36 months. Under 

proposed Appendix M1 to part 226, 

when calculating the savings estimate 

for repayment in 36 months, a credit 

card issuer would be required to 

subtract the total cost estimate for 

repayment in 36 months calculated 

under paragraph (e) of Appendix M1 

(rounded to the nearest whole dollar as 

set forth in proposed 

§ 226.7(b)(12)(i)(F)(3)) from the 

minimum payment total cost estimate 

calculated under paragraph (c) of 

Appendix M1 (rounded to the nearest 

whole dollar as set forth in proposed 

§ 226.7(b)(12)(i)(C)). The Board requests 

comment on whether the Board should 

adopt specific tolerances for calculation 

and disclosure of the savings estimate 

for repayment in 36 months, and if so, 

what those tolerances should be. 

Appendix M2—Sample Calculations of 

Repayment Disclosures 

In proposed Appendix M2, the Board 

proposes to provide sample calculations 

for the minimum payment repayment 

estimate, the total cost repayment 

estimate, the estimated monthly 

payment for repayment in 36 months, 

the total cost estimate for repayment in 

36 months, and the savings estimate for 

repayment in 36 months discussed in 

proposed Appendix M1 to part 226. 

Appendix N—Specifications for Internet 

Posting of Credit Card Agreements 

Proposed Appendix N would provide 

additional details regarding the content 

of agreements submitted to the Board 

under proposed § 226.58(d) and posting 

of agreements offered to the public on 

the card issuer’s Web site and 

availability of agreements for all open 

accounts under § 226.58(f). 

Agreements Submitted to the Board 

Under § 226.58(d) 

Under proposed Appendix N, each 

agreement submitted to the Board must 

contain the provisions of the agreement 

and the pricing information in effect as 

of the last business day of the preceding 

calendar quarter. 

Proposed Appendix N also would 

specify that information that is not 

uniform for all cardholders under an 

agreement, but that instead may vary 

from one cardholder to another 

depending upon a cardholder’s 

creditworthiness, State of residence, or 

other factors, such as the pricing 

information, must be set forth in an 

addendum to the agreement. The 

addendum would be required to provide 

the information either by setting forth 

all the possible variations (such as 

purchase APRs of 6.9 percent, 8.9 

percent, 10.9 percent, or 12.9 percent), 

or by providing a range (such as 

purchase APR ranging from 6.9 percent 

to 12.9 percent). 

Proposed Appendix N also would 

clarify that an issuer would not be 

required to submit with an agreement 

any disclosures required by State or 

Federal law such as affiliate marketing 

notices, privacy policies, or disclosures 

under the E-Sign Act, except to the 

extent that those disclosures are 

included in the provisions of the 

agreement or the pricing information. 

Similarly, issuers would not be required 

to submit solicitation materials or 

periodic statements. 

As described in proposed Appendix 

N, agreements submitted to the Board 

would not contain any personally 

identifiable information (such as name, 

address, telephone number, or account 

number) relating to any cardholder. 

Finally, proposed Appendix N would 

clarify that issuers may not provide 

provisions of the agreement or pricing 

information in the form of change-interms notices or riders (other than the 

single addendum described above, if 

applicable). Changes in provisions or 

pricing information must be integrated 

into the body of the agreement (or into 

the single addendum described above, if 

applicable). For example, it would be 

impermissible for an issuer to submit to 

the Board an agreement in the form of 

a terms and conditions document dated 

January 1, 2005, four subsequent change 

in terms notices, and 2 addenda 

showing variations in pricing 

information. Instead, the issuer must 

submit a document that integrates the 

changes made by each of the change in 

terms notices into the body of the 

original terms and conditions document 

and a single addendum displaying 

variations in pricing information as 

described above. 

The Board believes that permitting 

issuers to submit agreements that 

include change-in-terms notices or 

riders containing amendments and 

revisions would be confusing for 

consumers and would greatly lessen the 

usefulness of agreements posted on the 

Board’s Web site. Consumers would be 

required to sift through change-in-terms 

notices and riders in an attempt to 

assemble a coherent picture of the terms 

currently offered. The Board believes 

that issuers are better placed than 

consumers to assemble this information. 

While the Board understands that this 

may somewhat increase the burden on 

issuers, the Board believes that the 

corresponding benefit of increased 

transparency for consumers outweighs 

this burden. 

Posting of Agreements Offered to the 

Public on Card Issuer’s Web Site Under 

§ 226.58(f)(1) 

Proposed Appendix N would clarify 

that, with respect to posting on the 

issuer’s Web site the agreements the 

issuer is required to submit to the Board 

under proposed § 226.58(f)(1), the 

agreements need not conform to the 

electronic format required for 

submission to the Board under proposed 

§ 226.58(d). For example, assume the 

Board requires that agreements 

submitted to the Board under proposed 

§ 226.58(d) be submitted in plain text 

format. When posting the agreements on 

its own Web site under § 226.58(f)(1), an 

issuer may post the agreements in plain 

text format, in PDF format, in HTML 

format or in some other electronic 

format, provided the format is readily 

usable by the general public. 

Proposed Appendix N specifies that, 

under proposed § 226.58(f)(1), the 

content of the agreements posted on the 

issuer’s Web site must be the same as 

the content of the agreements submitted 

to the Board, as described in the first 

part of proposed Appendix N. Under 

proposed Appendix N, an issuer would 

be required to update the agreements 

posted on its Web site under 

§ 226.58(f)(1) at least as frequently as the 

quarterly schedule required for 

submission of agreements to the Board 

under § 226.58(d). If the issuer chooses 

to update the agreements on its Web site 

more frequently, the agreements posted 

on the issuer’s Web site would be 

permitted to contain the provisions of 

the agreement and the pricing 

information in effect as of a date other 


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than the last business day of the 

preceding calendar quarter. 

Proposed Appendix N also would 

specify that the agreements must be 

posted on the issuer’s Web site in a 

location that is prominent and easily 

accessible by the public and must be 

presented in a clear and legible 

typeface. 

Availability of Agreements for All Open 

Accounts Under § 226.58(f)(2) 

With respect to cardholder 

agreements posted on the issuer’s Web 

site under proposed § 226.58(f)(2), 

proposed Appendix N would specify 

that such agreements may be posted in 

any electronic format that is readily 

usable by the general public and must 

be placed in a location that is prominent 

and easily accessible to the cardholder. 

With respect to any agreement 

provided under § 226.58(f)(2), whether 

posted on the card issuer’s Web site 

under § 226.58(f)(2)(i) or made available 

upon the cardholder’s request under 

§ 226.58(f)(2)(ii), proposed Appendix N 

would provide that the agreement 

generally must conform to the content 

requirements for agreements submitted 

to the Board. However, the agreement 

would be required to set forth the 

specific provisions and pricing 

information applicable to the particular 

cardholder. The agreement also would 

be permitted to contain personally 

identifiable information relating to the 

cardholder, such as name address, 

telephone number, or account number, 

provided that the issuer takes 

appropriate measures to make the 

agreement accessible only to the 

cardholder or other authorized person. 

Issuers would be permitted to provide 

pricing information in the text of the 

agreement or in a single attached 

addendum. All agreements would be 

required to be presented in a clear and 

legible typeface. 

Agreements provided under 

§ 226.58(f)(2) would be required under 

proposed Appendix N to include 

provisions and pricing information that 

is complete and accurate as of a date no 

more than 60 days prior to the date on 

which the agreement is posted on the 

card issuer’s Web site under 

§ 226.58(f)(2)(i) or the date the 

cardholder’s request is received under 

§ 226.58(f)(2)(ii). For example, an issuer 

posts cardholder agreements on its Web 

site under § 226.58(f)(2)(i). The 

agreement posted on the Web site for a 

particular cardholder on May 1 must 

contain the provisions and pricing 

information applicable to that 

cardholder as of March 2 or later. The 

Board believes that 60 days gives issuers 

a reasonable amount of time to update 

provisions and pricing information, 

while providing cardholders with card 

agreements that are current and 

accurate. However, the Board solicits 

comments on whether this period 

should be shorter or longer. 

Finally, proposed Appendix N would 

clarify that issuers may not provide 

provisions of the agreement or pricing 

information in the form of change-interms notices or riders (other than the 

single addendum described above, if 

applicable). Changes in provisions or 

pricing information must be integrated 

into the text of the agreement (or into 

the single addendum described above, if 

applicable). For example, it would be 

not be permissible for an issuer to send 

to a cardholder under § 226.58(f)(2)(ii) 

an agreement consisting of a terms and 

conditions document dated January 1, 

2005, and four subsequent change-interms notices. Instead, the issuer would 

be required to send to the cardholder a 

single document that integrates the 

changes made by each of the change-interms notices into the body of the terms 

and conditions document. 

As described above, the Board 

believes that requiring consumers to sift 

through change in-terms notices and 

riders in an attempt to assemble the 

agreement to which they are currently 

subject would be burdensome for 

consumers. The Board believes that 

issuers are better placed than consumers 

to assemble this information. While the 

Board understands that this may 

somewhat increase the burden on 

issuers, the Board believes that the 

corresponding benefit of increased 

transparency for consumers would 

outweigh this burden. 

VI. Regulatory Flexibility Analysis 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) requires an 

agency to perform an initial and final 

regulatory flexibility analysis on the 

impact a rule is expected to have on 

small entities. 

Prior to proposing this rule, the Board 

conducted initial and final regulatory 

flexibility analyses and ultimately 

concluded that the rules in the Board’s 

January 2009 Regulation Z Rule and July 

2009 Regulation Z Interim Final Rule 

would have a significant economic 

impact on a substantial number of small 

entities. See 72 FR 33033–33034 (June 

14, 2007); 74 FR 5390–5392; 74 FR 

36092–36093. As discussed in I. 

Background and Implementation of the 

Credit Card Act and V. Section-bySection Analysis, several of the 

provisions of the Credit Card Act are 

similar to provisions in the Board’s 

January 2009 Regulation Z Rule and July 

2009 Regulation Z Interim Final Rule. 

To the extent that the provisions in the 

proposed rule are substantially similar 

to provisions in those rules, the Board 

continues to rely on the regulatory 

flexibility analyses conducted for the 

Board’s January 2009 Regulation Z Rule 

and July 2009 Regulation Z Interim 

Final Rule. The Credit Card Act, 

however, also addresses practices or 

mandates disclosures that were not 

addressed in the Board’s January 2009 

Regulation Z Rules and July 2009 

Regulation Z Interim Final Rule. The 

Board anticipates that these proposed 

provisions would impose additional 

requirements and burden on small 

entities. Therefore, based on its prior 

analyses and for the reasons stated 

below, the Board believes that this 

proposed rule would have a significant 

economic impact on a substantial 

number of small entities. Accordingly, 

the Board has prepared the following 

initial regulatory flexibility analysis 

pursuant to section 604 of the RFA. A 

final regulatory flexibility analysis will 

be conducted after consideration of 

comments received during the public 

comment period. 

1. Statement of the need for, and 

objectives of, the proposed rule. The 

proposed rule implements a number of 

new substantive and disclosure 

provisions required by the Credit Card 

Act, which establishes fair and 

transparent practices relating to the 

extension of open-end consumer credit 

plans. The supplementary information 

above describes in detail the reasons, 

objectives, and legal basis for each 

component of the proposed rule. 

2. Small entities affected by the 

proposed rule. All creditors that offer 

open-end credit plans are subject to the 

proposed rule, although several 

provisions apply only to credit card 

accounts under an open-end (not homesecured) plan. In addition, institutions 

of higher education are subject to 

proposed § 226.57(b), regarding public 

disclosure of agreements for purposes of 

marketing a credit card. The Board is 

relying on its analysis in the January 

2009 Regulation Z Rule, in which the 

Board provided data on the number of 

entities which may be affected because 

they offer open-end credit plans. The 

Board acknowledges, however, that the 

total number of small entities likely to 

be affected by the proposed rule is 

unknown, because the open-end credit 

provisions of the Credit Card Act and 

Regulation Z have broad applicability to 

individuals and businesses that extend 

even small amounts of consumer credit. 

In addition, the total number of 

institutions of higher education likely to 

be affected by the proposed rule is 

unknown because the number of 


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institutions of higher education that are 

small entities and have a credit card 

marketing contract or agreement with a 

card issuer or creditor cannot be 

determined. (For a detailed description 

of the Board’s analysis of small entities 

subject to the January 2009 Regulation 

Z Rule, see 74 FR 5391.) The Board 

invites comment on the effect of the 

proposed rule on small entities. 

3. Recordkeeping, reporting, and 

compliance requirements. The proposed 

rule does not impose any new 

recordkeeping requirements. The 

proposed rule would, however, impose 

new reporting and compliance 

requirements. The reporting and 

compliance requirements of this 

proposed rule are described above in V. 

Section-by-Section Analysis. The Board 

notes that the precise costs to small 

entities to conform their open-end credit 

disclosures to the proposed rule and the 

costs of updating their systems to 

comply with the rule are difficult to 

predict. These costs will depend on a 

number of factors that are unknown to 

the Board, including, among other 

things, the specifications of the current 

systems used by such entities to prepare 

and provide disclosures and administer 

open-end accounts, the complexity of 

the terms of the open-end credit 

products that they offer, and the range 

of such product offerings. The Board 

seeks information and comment on any 

costs, compliance requirements, or 

changes in operating procedures arising 

from the application of the proposed 

rule to small entities. 

Proposals Regarding Consumer Credit 

Card Accounts 

This subsection summarizes several of 

the proposed amendments to Regulation 

Z and their likely impact on small 

entities that are card issuers. More 

information regarding these and other 

proposed changes can be found in V. 

Section-by-Section Analysis. 

Proposed § 226.7(b)(11) would 

generally require the payment due date 

for credit card accounts under an openend (not home-secured) consumer credit 

plan be the same day of the month for 

each billing cycle. Small entities that are 

card issuers may be required to update 

their systems to comply with this 

provision. 

Proposed § 226.7(b)(12) would 

generally require card issuers that are 

small entities to include on each 

periodic statement certain disclosures 

regarding repayment, such as a 

minimum payment warning statement, a 

minimum payment repayment estimate, 

and the monthly payment based on 

repayment in 36 months. Compliance 

with this provision would require card 

issuers that are small entities to 

calculate certain minimum payment 

estimates for each account. The Board, 

however, seeks to reduce the burden on 

small entities by proposing model forms 

which can be used to ease compliance 

with the proposed rule. 

Proposed § 226.9(g)(3) would require 

card issuers that are small entities to 

provide notice regarding an increase in 

rate based on a consumer’s failure to 

make a minimum periodic payment 

within 60 days from the due date and 

disclose that the increase will cease to 

apply if the small entity is a card issuer 

and receives six consecutive required 

minimum period payments on or before 

the payment due date. The Board 

anticipates that small entities subject to 

§ 226.9(g), with little additional burden, 

will incorporate the proposed disclosure 

requirement with the disclosure already 

required under § 226.9(g). 

Proposed § 226.10(e) would limit fees 

related to certain methods of payment 

for credit card accounts under an openend (not home-secured) consumer credit 

plan, with the exception of payments 

involving expedited service by a 

customer service representative. 

Proposed § 226.10(e) may reduce 

revenue that some small entities derive 

from fees associated with certain 

payment methods. 

Proposed § 226.52 would generally 

limit the imposition of fees by card 

issuers during the first year after 

account opening. This provision may 

reduce revenue that some entities derive 

from fees. 

Proposed § 226.54 would prohibit a 

card issuer from imposing certain 

finance charges as a result of the loss of 

a grace period on a credit card account, 

except in certain circumstances. This 

provision may reduce revenue that some 

small entities derive from finance 

charges. 

Proposed § 226.55(a) would generally 

prohibit small entities that are card 

issuers from increasing an annual 

percentage rate or any fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

on a credit card account unless 

specifically permitted by one of the 

exceptions in § 226.55(b). This 

provision may reduce interest revenue 

and other revenue that certain small 

entities derive from fees and charges. 

Proposed § 226.55(b)(3) would require 

small entities that are card issuers to 

disclose, prior to the commencement of 

a specified period of time, an increased 

annual percentage rate that would apply 

after the period as a condition for an 

exception to § 226.55(a). However, 

§ 226.9(c)(2)(v)(B) as adopted in the July 

2009 Regulation Z Interim Final Rule 

already requires card issuers to disclose 

this information so the Board does not 

anticipate any significant additional 

burden on small entities. 

Proposed § 226.55(b)(5) would require 

small entities that are card issuers to 

disclose, prior to commencement of the 

arrangement, the terms of a workout and 

temporary hardship arrangement as a 

condition for an exception to 

§ 226.55(a). However, § 226.9(c)(2)(v)(D) 

and (g)(4)(i) as adopted in the July 2009 

Regulation Z Interim Final Rule already 

require card issuers to disclose this 

information so the Board does not 

anticipate any significant additional 

burden on small entities. 

Proposed § 226.56 would prohibit 

small entities that are card issuers from 

imposing fees or charges for an over-thelimit transaction unless the card issuer 

provides the consumer with notice and 

obtains the consumer’s affirmative 

consent, or opt-in. Compliance with this 

provision may impose additional costs 

on small entities in order to provide 

notice and obtain consent, if the small 

entity elects to impose fees or charges 

for over-the-limit transactions. Proposed 

§ 226.56 may reduce revenue that 

certain small entities derive from fees 

and charges related to over-the-limit 

transaction. In addition, proposed 

§ 226.56 may require some small entities 

to alter their systems in order to comply 

with the provision. The cost of such 

change will depend on the size of the 

institution and the composition of its 

portfolio. 

Proposed § 226.58 would require 

small entities that are card issuers to 

post agreements for open-end consumer 

credit card plans on the card issuer’s 

Web site and to submit those 

agreements to the Board for posting in 

a publicly-available on-line repository 

established and maintained by the 

Board. The cost of compliance will 

depend on the size of the institution and 

the composition of its portfolio. 

Proposed § 226.58(e), however, provides 

a de minimis exception, which would 

reduce the economic impact and 

compliance burden on small entities. 

Under proposed § 226.58(e), a card 

issuer would not be required to submit 

an agreement to the Board if the card 

issuer has fewer than 10,000 open 

accounts under open-end consumer 

credit card plans subject to § 226.5a as 

of the last business day of the calendar 

quarter. 

Accordingly, the Board believes that, 

in the aggregate, the provisions of its 

proposed rule would have a significant 

economic impact on a substantial 

number of small entities. 

4. Other Federal rules. Other than the 

January 2009 FTC Act Rule and similar 


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50The information collection will be re-titled— 

Reporting, Recordkeeping and Disclosure 

Requirements associated with Regulation Z (Truth 

in Lending) and Regulation AA (Unfair or Deceptive 

Acts or Practices). 

rules adopted by other Agencies, the 

Board has not identified any Federal 

rules that duplicate, overlap, or conflict 

with the proposed revisions to TILA. As 

discussed in the supplementary 

information to this proposed rule, the 

Board intends to withdraw its January 

2009 FTC Act Rule when finalizing this 

proposal. 

5. Significant alternatives to the 

proposed revisions. The provisions of 

the proposed rule would implement the 

statutory requirements of the Credit 

Card Act that go into effect on February 

22, 2010. The Board has sought to avoid 

imposing additional burden, while 

effectuating the statute in a manner that 

is beneficial to consumers. The Board 

welcomes comment on any significant 

alternatives, consistent with the Credit 

Card Act, which would minimize 

impact of the proposed rule on small 

entities. 

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 Federal Reserve may not 

conduct or sponsor, and an organization 

is not required to respond to, this 

information collection unless the 

information collection displays a 

currently valid OMB control number. 

The OMB control number is 7100– 

0199.50

This information collection is 

required to provide benefits for 

consumers and is mandatory (15 U.S.C. 

1601 et seq.). The respondents/ 

recordkeepers are creditors and other 

entities subject to Regulation Z, 

including for-profit financial 

institutions, small businesses, and 

institutions of higher education. TILA 

and Regulation Z are intended to ensure 

effective disclosure of the costs and 

terms of credit to consumers. For openend credit, creditors are required to, 

among other things, disclose 

information about the initial costs and 

terms and to provide periodic 

statements of account activity, notices of 

changes in terms, and statements of 

rights concerning billing error 

procedures. Regulation Z requires 

specific types of disclosures for credit 

and charge card accounts and homeequity 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), but Regulation Z does not 

specify the types of records that must be 

retained. 

Under the PRA, the Federal Reserve 

accounts for the paperwork burden 

associated with Regulation Z for the 

State member banks and other creditors 

supervised by the Federal Reserve that 

engage in lending covered by Regulation 

Z and, therefore, are respondents under 

the PRA. Appendix I of Regulation Z 

defines the Federal Reserve-regulated 

institutions as: State member banks, 

branches and agencies of foreign banks 

(other than Federal branches, Federal 

agencies, and insured State branches of 

foreign banks), commercial lending 

companies owned or controlled by 

foreign banks, and organizations 

operating under section 25 or 25A of the 

Federal Reserve Act. Other Federal 

agencies account for the paperwork 

burden on other entities subject to 

Regulation Z. To ease the burden and 

cost of complying with Regulation Z 

(particularly for small entities), the 

Federal Reserve provides model forms, 

which are appended to the regulation. 

As discussed in I. Background and 

Implementation of the Credit Card Act 

and V. Section-by-Section Analysis, 

several of the provisions of the Credit 

Card Act are similar to provisions in the 

Board’s January 2009 Regulation Z 

Rules. To the extent that the provisions 

in the proposed rule are substantially 

similar to provisions in the January 

2009 Regulation Z Rule, the Board 

continues to rely on the substance of its 

PRA analysis in the January 2009 

Regulation Z Rule. See 74 FR 5392– 

5393. The Credit Card Act, however, 

also addresses practices or mandates 

disclosures that were not addressed in 

the Board’s January 2009 Regulation Z 

Rules. The Board anticipates increased 

burden caused by additional disclosure 

requirements in the proposed rule and 

therefore, revises its prior PRA analysis 

accordingly. 

Under proposed § 226.7(b)(12), 

creditors are generally required to 

include on each periodic statement 

certain disclosures regarding repayment, 

such as a minimum payment warning 

statement, a minimum payment 

repayment estimate, and the monthly 

payment based on repayment in 36 

months. As mentioned in the preamble, 

in an effort to reduce burden the Board 

is proposing guidance in Appendix M1 

on how to calculate repayment 

estimates. Appendix M2 to part 226 

provides sample calculations of 

repayment estimates using guidance in 

Appendix M1. The Board estimates that 

1,138 respondents would take, on 

average, 80 hours (two business weeks) 

to update their systems to comply with 

the proposed disclosure requirements in 

§ 226.7(b)(12). This one-time revision 

would increase the burden by 91,040 

hours. The Board does not anticipate 

any additional burden on a continuing 

basis. 

Under proposed § 226.9(g)(3), if a rate 

is increased based on a consumer’s 

failure to make a minimum periodic 

payment within 60 days from the due 

date, a creditor is required to provide 

notice containing a statement of the 

reason for the increase and that the 

increase will cease to apply if the 

creditor receives six consecutive 

required minimum period payments on 

or before the payment due date. The 

Board anticipates that creditors, with 

little additional burden, will incorporate 

the proposed disclosure requirement 

with the disclosure already required 

under § 226.9(g). The Board estimates 

that 1,138 respondents would take, on 

average, 8 hours to update their systems 

to comply with the proposed disclosure 

requirements in § 226.9(g)(3) and 

estimates the one-time burden to be 

9,104 hours. 

Under proposed § 226.55(b)(3), a card 

issuer must disclose, prior to the 

commencement of a specified period of 

time, an increased annual percentage 

rate that would apply after the period as 

a condition for an exception to 

§ 226.55(a). However, § 226.9(c)(2)(v)(B) 

as adopted in the July 2009 Regulation 

Z Interim Final Rule already requires 

card issuers to disclose this information 

so the Board does not anticipate any 

additional burden. 

Under proposed § 226.55(b)(5), a card 

issuer must disclose, prior to 

commencement of the arrangement, the 

terms of a workout and temporary 

hardship arrangement as a condition for 

an exception to § 226.55(a). However, 

§ 226.9(c)(2)(v)(D) and (g)(4)(i) as 

adopted in the July 2009 Regulation Z 

Interim Final Rule already require card 

issuers to disclose this information so 

the Board does not anticipate any 

additional burden. 

Under proposed § 226.57(b), an 

institution of higher education is 

required to publicly disclose any 

contract or other agreement made with 


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51The number of institutions of higher learning 

that granted college degrees in 2005. See Upcoming 

Statistical Abstract of the United States: 2008. 

(available at http://www.census.gov/Press-Release/ 

www/2007/cb07ff-11.pdf). 

52The number of creditors that are a party to one 

or more college credit card agreements is unknown. 

53Creditors with credit card activity. Under 

proposed § 226.58, the Board will assume burden 

for creditors regulated by the: Office of the 

Comptroller of the Currency (OCC), Office of Thrift 

Supervision (OTS), Federal Deposit Insurance 

Corporation (FDIC), National Credit Union 

Administration (NCUA), and Federal Trade 

Commission. 

54The burden estimate for this rulemaking does 

not include the burden addressing changes to 

implement provisions of Closed-End Mortgages 

(Docket No. R–1366) or the Home-Equity Lines of 

Credit (Docket No. R–1367), as announced in 

separate proposed rulemakings. See 74 FR 43232 

and 74 FR 43428. 

a card issuer or creditor for the purpose 

of marketing a credit card. Since the 

regulation does not specify a required 

method for public disclosure the Board 

estimates that 4,276 respondents 51

would take, on average, 8 hours to 

comply with the proposed disclosure 

requirements and estimates the annual 

burden to be 34,208 hours. 

Under proposed § 226.57(d), creditors 

that are a party to one or more college 

credit card agreements would be 

required to register with the Board and 

to submit annual reports to the Board 

regarding those agreements. Creditor 

registration requirements would 

comprise primarily of contact 

information. In addition, creditors 

would be required to provide specific 

information related to the agreements. 

The Board estimates that 2,200 

creditors 52 would take, on average, 160 

hours (one month) to comply with the 

proposed disclosure requirements in 

§ 226.57(d) and estimates the one-time 

annual burden to be 352,000 hours. To 

avoid double counting the burden 

estimate for creditor registration and 

updates to all agreements is accounted 

for under proposed § 226.58. 

Under proposed § 226.58, a creditor is 

required to post agreements for openend consumer credit card plans on the 

creditor’s Web site and to submit those 

agreements to the Board for posting in 

a publicly-available on-line repository 

established and maintained by the 

Board. Creditors would be required to 

register with the Board and submit to 

the Board all agreements for open-end 

consumer credit card plans. The Board 

estimates that 2,200 creditors 53 would 

take, on average, 30 minutes to register 

their contact information and estimates 

the one-time annual burden to be 1,100 

hours. In addition, the Board estimates 

that 2,200 creditors would take, on 

average, 40 hours (one business week) to 

comply with the proposed disclosure 

requirements in § 226.58 and estimates 

the annual burden to be 88,000 hours. 

On a continuing basis, the Board 

estimates creditors would take, on 

average, 8 hours (quarterly) to update 

agreements and estimates the annual 

burden to be 70,400 hours. 

Based on these adjustments to the 

Board’s prior estimates and the Board’s 

PRA analysis in the January 2009 

Regulation Z Rule, 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 575,452 hours, from 

1,008,962 to 1,584,414 hours. The total 

one-time burden increase represents 

averages for all respondents regulated 

by the Federal Reserve. The Federal 

Reserve expects that the amount of time 

required to implement each of the 

proposed changes for a given financial 

institution or entity may vary based on 

the size and complexity of the 

respondent. In addition, the Federal 

Reserve estimates that, on a continuing 

basis, the proposed revisions to the 

rules would increase the total annual 

burden on a continuing basis from 

1,008,962 to 1,079,362 hours. The total 

annual burden for the Regulation Z 

information collection is estimated to 

increase from 1,008,962 to 1,654,814 

hours.54

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 are permitted, 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 

4,274,200 hours to 17,842,925 hours. On 

a continuing basis the proposed rule 

would impose an increase in the 

estimated annual burden by 137,600 to 

13,706,325 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 Board’s functions; including 

whether the information has practical 

utility; (2) the accuracy of the Board’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 Michelle Shore, Federal Reserve 

Board Clearance Officer, Division of 

Research and Statistics, Mail Stop 95–A, 

Board of Governors of the Federal 

Reserve System, Washington, DC 20551, 

with copies of such comments sent to 

the Office of Management and Budget, 

Paperwork Reduction Project (7100– 

0199), Washington, DC 20503. 

List of Subjects in 12 CFR Part 226 

Advertising, Consumer protection, 

Federal Reserve System, Reporting and 

recordkeeping requirements, Truth in 

Lending. 

Text of Interim Final Revisions 

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, 

1637(c)(5), and 1639(l); Public Law 111–24 

§ 2, 123 Stat. 1734. 

Subpart A—General 

2. Section 226.1 is revised to read as 

follows: 

§ 226.1 Authority, purpose, coverage, 

organization, enforcement, and liability. 

(a) Authority. This regulation, known 

as Regulation Z, is issued by the Board 

of Governors of the Federal Reserve 

System to implement the Federal Truth 

in Lending Act, which is contained in 

title I of the Consumer Credit Protection 

Act, as amended (15 U.S.C. 1601 et 

seq.). This regulation also implements 

title XII, section 1204 of the Competitive 


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Equality Banking Act of 1987 (Pub. L. 

100–86, 101 Stat. 552). Informationcollection requirements contained in 

this regulation have been approved by 

the Office of Management and Budget 

under the provisions of 44 U.S.C. 3501 

et seq. and have been assigned OMB No. 

7100–0199. 

(b) Purpose. The purpose of this 

regulation is to promote the informed 

use of consumer credit by requiring 

disclosures about its terms and cost. The 

regulation also gives consumers the 

right to cancel certain credit 

transactions that involve a lien on a 

consumer’s principal dwelling, 

regulates certain credit card practices, 

and provides a means for fair and timely 

resolution of credit billing disputes. The 

regulation does not govern charges for 

consumer credit. The regulation 

requires a maximum interest rate to be 

stated in variable-rate contracts secured 

by the consumer’s dwelling. It also 

imposes limitations on home-equity 

plans that are subject to the 

requirements of § 226.5b and mortgages 

that are subject to the requirements of 

§ 226.32. The regulation prohibits 

certain acts or practices in connection 

with credit secured by a consumer’s 

principal dwelling. The regulation also 

regulates certain practices of creditors 

who extend private education loans as 

defined in § 226.46(b)(5). 

(c) Coverage. (1) In general, this 

regulation applies to each individual or 

business that offers or extends credit 

when four conditions are met: 

(i) The credit is offered or extended to 

consumers; 

(ii) The offering or extension of credit 

is done regularly; 1

(iii) The credit is subject to a finance 

charge or is payable by a written 

agreement in more than four 

installments; and 

(iv) The credit is primarily for 

personal, family, or household 

purposes. 

(2) If a credit card is involved, 

however, certain provisions apply even 

if the credit is not subject to a finance 

charge, or is not payable by a written 

agreement in more than four 

installments, or if the credit card is to 

be used for business purposes. 

(3) In addition, certain requirements 

of § 226.5b apply to persons who are not 

creditors but who provide applications 

for home-equity plans to consumers. 

(4) Furthermore, certain requirements 

of § 226.57 apply to institutions of 

higher education. 

(d) Organization. The regulation is 

divided into subparts and appendices as 

follows: 

(1) Subpart A contains general 

information. It sets forth: 

(i) The authority, purpose, coverage, 

and organization of the regulation; 

(ii) The definitions of basic terms; 

(iii) The transactions that are exempt 

from coverage; and (iv) the method of 

determining the finance charge. 

(2) Subpart B contains the rules for 

open-end credit. It requires that 

account-opening disclosures and 

periodic statements be provided, as well 

as additional disclosures for credit and 

charge card applications and 

solicitations and for home-equity plans 

subject to the requirements of § 226.5a 

and § 226.5b, respectively. It also 

describes special rules that apply to 

credit card transactions, treatment of 

payments and credit balances, 

procedures for resolving credit billing 

errors, annual percentage rate 

calculations, rescission requirements, 

and advertising. 

(3) Subpart C relates to closed-end 

credit. It contains rules on disclosures, 

treatment of credit balances, annual 

percentages rate calculations, rescission 

requirements, and advertising. 

(4) Subpart D contains rules on oral 

disclosures, disclosures in languages 

other than English, record retention, 

effect on State laws, State exemptions, 

and rate limitations. 

(5) Subpart E contains special rules 

for certain mortgage transactions. 

Section 226.32 requires certain 

disclosures and provides limitations for 

loans that have rates and fees above 

specified amounts. Section 226.33 

requires disclosures, including the total 

annual loan cost rate, for reverse 

mortgage transactions. Section 226.34 

prohibits specific acts and practices in 

connection with mortgage transactions 

that are subject to § 226.32. Section 

226.35 prohibits specific acts and 

practices in connection with higherpriced mortgage loans, as defined in 

§ 226.35(a). Section 226.36 prohibits 

specific acts and practices in connection 

with credit secured by a consumer’s 

principal dwelling. 

(6) Subpart F relates to private 

education loans. It contains rules on 

disclosures, limitations on changes in 

terms after approval, the right to cancel 

the loan, and limitations on co-branding 

in the marketing of private education 

loans. 

(7) Subpart G relates to credit card 

accounts under an open-end (not homesecured) consumer credit plan (except 

for § 226.57(c), which applies to all 

open-end credit plans). Section 226.51 

contains rules on evaluation of a 

consumer’s ability to make the required 

payments under the terms of an 

account. Section 226.52 limits the fees 

that can be charged to an open-end (not 

home-secured) consumer credit plan 

during the first year after account 

opening. Section 226.53 contains rules 

on allocation of payments in excess of 

the minimum payment. Section 226.54 

sets forth certain limitations on the 

imposition of finance charges as the 

result of a loss of a grace period. Section 

226.55 contains limitations on increases 

in annual percentage rates, fees, and 

charges for credit card accounts. Section 

226.56 prohibits the assessment of fees 

or charges for over-the-limit transactions 

unless the consumer affirmatively 

consents to the creditor’s paying of overthe-limit transactions. Section 226.57 

sets forth rules for marketing of openend credit to college students. Section 

226.58 sets for requirements for the 

Internet posting of credit card accounts 

under an open-end (not home-secured) 

consumer credit plan. 

(8) Several appendices contain 

information such as the procedures for 

determinations about State laws, State 

exemptions and issuance of staff 

interpretations, special rules for certain 

kinds of credit plans, a list of 

enforcement agencies, and the rules for 

computing annual percentage rates in 

closed-end credit transactions and totalannual-loan-cost rates for reverse 

mortgage transactions. 

(e) Enforcement and liability. Section 

108 of the act contains the 

administrative enforcement provisions. 

Sections 112, 113, 130, 131, and 134 

contain provisions relating to liability 

for failure to comply with the 

requirements of the act and the 

regulation. Section 1204(c) of title XII of 

the Competitive Equality Banking Act of 

1987, Public Law 100–86, 101 Stat. 552, 

incorporates by reference administrative 

enforcement and civil liability 

provisions of sections 108 and 130 of 

the act. 

3. Section 226.2 is revised to read as 

follows: 

§ 226.2 Definitions and rules of 

construction. 

(a) Definitions. For purposes of this 

regulation, the following definitions 

apply: 

(1) Act means the Truth in Lending 

Act (15 U.S.C. 1601 et seq.). 

(2) Advertisement means a 

commercial message in any medium 

that promotes, directly or indirectly, a 

credit transaction. 

(3) [Reserved] 2

(4) Billing cycle or cycle means the 

interval between the days or dates of 

regular periodic statements. These 

intervals shall be equal and no longer 


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than a quarter of a year. An interval will 

be considered equal if the number of 

days in the cycle does not vary more 

than four days from the regular day or 

date of the periodic statement. 

(5) Board means the Board of 

Governors of the Federal Reserve 

System. 

(6) Business day means a day on 

which the creditor’s offices are open to 

the public for carrying on substantially 

all of its business functions. However, 

for purposes of rescission under 

§§ 226.15 and 226.23, and for purposes 

of §§ 226.19(a)(1)(ii), 226.19(a)(2), 

226.31, and 226.46(d)(4), the term 

means all calendar days except Sundays 

and the legal public holidays specified 

in 5 U.S.C. 6103(a), such as New Year’s 

Day, the Birthday of Martin Luther King, 

Jr., Washington’s Birthday, Memorial 

Day, Independence Day, Labor Day, 

Columbus Day, Veterans Day, 

Thanksgiving Day, and Christmas Day. 

(7) Card issuer means a person that 

issues a credit card or that person’s 

agent with respect to the card. 

(8) Cardholder means a natural person 

to whom a credit card is issued for 

consumer credit purposes, or a natural 

person who has agreed with the card 

issuer to pay consumer credit 

obligations arising from the issuance of 

credit card to another natural person. 

For purposes of § 226.12(a) and (b), the 

term includes any person to whom a 

credit card is issued for any purpose, 

including business, commercial or 

agricultural use, or a person who has 

agreed with the card issuer to pay 

obligations arising from the issuance of 

such a credit card to another person. 

(9) Cash price means the price at 

which a creditor, in the ordinary course 

of business, offers to sell for cash 

property or service that is the subject of 

the transaction. At the creditor’s option, 

the term may include the price of 

accessories, services related to the sale, 

service contracts and taxes and fees for 

license, title, and registration. The term 

does not include any finance charge. 

(10) Closed-end credit means 

consumer credit other than ‘‘open-end 

credit’’ as defined in this section. 

(11) Consumer means a cardholder or 

natural person to whom consumer 

credit is offered or extended. However, 

for purposes of rescission under 

§§ 226.15 and 226.23, the term also 

includes a natural person in whose 

principal dwelling a security interest is 

or will be retained or acquired, if that 

person’s ownership interest in the 

dwelling is or will be subject to the 

security interest. 

(12) Consumer credit means credit 

offered or extended to a consumer 

primarily for personal, family, or 

household purposes. 

(13) Consummation means the time 

that a consumer becomes contractually 

obligated on a credit transaction. 

(14) Credit means the right to defer 

payment of debt or to incur debt and 

defer its payment. 

(15)(i) Credit card means any card, 

plate, or other single credit device that 

may be used from time to time to obtain 

credit. 

(ii) Credit card account under an 

open-end (not home-secured) consumer 

credit plan means any credit account 

accessed by a credit card, except: 

(A) A credit card that accesses a 

home-equity plan subject to the 

requirements of § 226.5b; or 

(B) An overdraft line of credit 

accessed by a debit card. 

(iii) Charge card means a credit card 

on an account for which no periodic 

rate is used to compute a finance charge. 

(16) Credit sale means a sale in which 

the seller is a creditor. The term 

includes a bailment or lease (unless 

terminable without penalty at any time 

by the consumer) under which the 

consumer— 

(i) Agrees to pay as compensation for 

use a sum substantially equivalent to, or 

in excess of, the total value of the 

property and service involved; and 

(ii) Will become (or has the option to 

become), for no additional consideration 

or for nominal consideration, the owner 

of the property upon compliance with 

the agreement. 

(17) Creditor means: 

(i) A person who regularly extends 

consumer credit 3 that is subject to a 

finance charge or is payable by written 

agreement in more than four 

installments (not including a down 

payment), and to whom the obligation is 

initially payable, either on the face of 

the note or contract, or by agreement 

when there is no note or contract. 

(ii) For purposes of §§ 226.4(c)(8) 

(Discounts), 226.9(d) (Finance charge 

imposed at time of transaction), and 

226.12(e) (Prompt notification of returns 

and crediting of refunds), a person that 

honors a credit card. 

(iii) For purposes of subpart B, any 

card issuer that extends either open-end 

credit or credit that is not subject to a 

finance charge and is not payable by 

written agreement in more than four 

installments. 

(iv) For purposes of subpart B (except 

for the credit and charge card 

disclosures contained in §§ 226.5a and 

226.9(e) and (f), the finance charge 

disclosures contained in § 226.6(a)(1) 

and (b)(3)(i) and § 226.7(a)(4) through 

(7) and (b)(4) through (6) and the right 

of rescission set forth in § 226.15) and 

subpart C, any card issuer that extends 

closed-end credit that is subject to a 

finance charge or is payable by written 

agreement in more than four 

installments. 

(v) A person regularly extends 

consumer credit only if it extended 

credit (other than credit subject to the 

requirements of § 226.32) more than 25 

times (or more than 5 times for 

transactions secured by a dwelling) in 

the preceding calendar year. If a person 

did not meet these numerical standards 

in the preceding calendar year, the 

numerical standards shall be applied to 

the current calendar year. A person 

regularly extends consumer credit if, in 

any 12-month period, the person 

originates more than one credit 

extension that is subject to the 

requirements of § 226.32 or one or more 

such credit extensions through a 

mortgage broker. 

(18) Downpayment means an amount, 

including the value of property used as 

a trade-in, paid to a seller to reduce the 

cash price of goods or services 

purchased in a credit sale transaction. A 

deferred portion of a downpayment may 

be treated as part of the downpayment 

if it is payable not later than the due 

date of the second otherwise regularly 

scheduled payment and is not subject to 

a finance charge. 

(19) Dwelling means a residential 

structure that contains one to four units, 

whether or not that structure is attached 

to real property. The term includes an 

individual condominium unit, 

cooperative unit, mobile home, and 

trailer, if it is used as a residence. 

(20) Open-end credit means consumer 

credit extended by a creditor under a 

plan in which: 

(i) The creditor reasonably 

contemplates repeated transactions; 

(ii) The creditor may impose a finance 

charge from time to time on an 

outstanding unpaid balance; and 

(iii) The amount of credit that may be 

extended to the consumer during the 

term of the plan (up to any limit set by 

the creditor) is generally made available 

to the extent that any outstanding 

balance is repaid. 

(21) Periodic rate means a rate of 

finance charge that is or may be 

imposed by a creditor on a balance for 

a day, week, month, or other 

subdivision of a year. 

(22) Person means a natural person or 

an organization, including a 

corporation, partnership, 

proprietorship, association, cooperative, 

estate, trust, or government unit. 

(23) Prepaid finance charge means 

any finance charge paid separately in 


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cash or by check before or at 

consummation of a transaction, or 

withheld from the proceeds of the credit 

at any time. 

(24) Residential mortgage transaction 

means a transaction in which a 

mortgage, deed of trust, purchase money 

security interest arising under an 

installment sales contract, or equivalent 

consensual security interest is created or 

retained in the consumer’s principal 

dwelling to finance the acquisition or 

initial construction of that dwelling. 

(25) Security interest means an 

interest in property that secures 

performance of a consumer credit 

obligation and that is recognized by 

State or Federal law. It does not include 

incidental interests such as interests in 

proceeds, accessions, additions, 

fixtures, insurance proceeds (whether or 

not the creditor is a loss payee or 

beneficiary), premium rebates, or 

interests in after-acquired property. For 

purposes of disclosures under §§ 226.6 

and 226.18, the term does not include 

an interest that arises solely by 

operation of law. However, for purposes 

of the right of rescission under §§ 226.15 

and 226.23, the term does include 

interests that arise solely by operation of 

law. 

(26) State means any State, the 

District of Columbia, the 

Commonwealth of Puerto Rico, and any 

territory or possession of the United 

States. 

(b) Rules of construction. For 

purposes of this regulation, the 

following rules of construction apply: 

(1) Where appropriate, the singular 

form of a word includes the plural form 

and plural includes singular. 

(2) Where the words obligation and 

transaction are used in the regulation, 

they refer to a consumer credit 

obligation or transaction, depending 

upon the context. Where the work credit 

is used in the regulation, it means 

consumer credit unless the context 

clearly indicates otherwise. 

(3) Unless defined in this regulation, 

the words used have the meanings given 

to them by State law or contract. 

(4) Footnotes have the same legal 

effect as the text of the regulation. 

(5) Where the word amount is used in 

this regulation to describe disclosure 

requirements, it refers to a numerical 

amount. 

4. Section 226.3 is revised to read as 

follows: 

§ 226.3 Exempt transactions. 

This regulation does not apply to the 

following: 4

(a) Business, commercial, agricultural, 

or organizational credit. 

(1) An extension of credit primarily 

for a business, commercial or 

agricultural purpose. 

(2) An extension of credit to other 

than a natural person, including credit 

to government agencies or 

instrumentalities. 

(b) Credit over $25,000 not secured by 

real property or a dwelling. An 

extension of credit in which the amount 

financed exceeds $25,000 or in which 

there is an express written commitment 

to extend credit in excess of $25,000, 

unless the extension of credit is: 

(1) Secured by real property, or by 

personal property used or expected to 

be used as the principal dwelling of the 

consumer; or 

(2) A private education loan as 

defined in § 226.46(b)(5). 

(c) Public utility credit. An extension 

of credit that involves public utility 

services provided through pipe, wire, 

other connected facilities, or radio or 

similar transmission (including 

extensions of such facilities), if the 

charges for service, delayed payment, or 

any discounts for prompt payment are 

filed with or regulated by any 

government unit. The financing of 

durable goods or home improvements 

by a public utility is not exempt. 

(d) Securities or commodities 

accounts. Transactions in securities or 

commodities accounts in which credit is 

extended by a broker-dealer registered 

with the Securities and Exchange 

Commission or the Commodity Futures 

Trading Commission. 

(e) Home fuel budget plans. An 

installment agreement for the purchase 

of home fuels in which no finance 

charge is imposed. 

(f) Student loan programs. Loans 

made, insured, or guaranteed pursuant 

to a program authorized by title IV of 

the Higher Education Act of 1965 (20 

U.S.C. 1070 et seq.). 

(g) Employer-sponsored retirement 

plans. An extension of credit to a 

participant in an employer-sponsored 

retirement plan qualified under Section 

401(a) of the Internal Revenue Code, a 

tax-sheltered annuity under Section 

403(b) of the Internal Revenue Code, or 

an eligible governmental deferred 

compensation plan under Section 457(b) 

of the Internal Revenue Code (26 U.S.C. 

401(a); 26 U.S.C. 403(b); 26 U.S.C. 

457(b)), provided that the extension of 

credit is comprised of fully vested funds 

from such participant’s account and is 

made in compliance with the Internal 

Revenue Code (26 U.S.C. 1 et seq.). 

5. Section 226.4 is revised to read as 

follows: 

§ 226.4 Finance charge. 

(a) Definition. The finance charge is 

the cost of consumer credit as a dollar 

amount. It includes any charge payable 

directly or indirectly by the consumer 

and imposed directly or indirectly by 

the creditor as an incident to or a 

condition of the extension of credit. It 

does not include any charge of a type 

payable in a comparable cash 

transaction. 

(1) Charges by third parties. The 

finance charge includes fees and 

amounts charged by someone other than 

the creditor, unless otherwise excluded 

under this section, if the creditor: 

(i) Requires the use of a third party as 

a condition of or an incident to the 

extension of credit, even if the 

consumer can choose the third party; or 

(ii) Retains a portion of the third-party 

charge, to the extent of the portion 

retained. 

(2) Special rule; closing agent charges. 

Fees charged by a third party that 

conducts the loan closing (such as a 

settlement agent, attorney, or escrow or 

title company) are finance charges only 

if the creditor— 

(i) Requires the particular services for 

which the consumer is charged; 

(ii) Requires the imposition of the 

charge; or 

(iii) Retains a portion of the thirdparty charge, to the extent of the portion 

retained. 

(3) Special rule; mortgage broker fees. 

Fees charged by a mortgage broker 

(including fees paid by the consumer 

directly to the broker or to the creditor 

for delivery to the broker) are finance 

charges even if the creditor does not 

require the consumer to use a mortgage 

broker and even if the creditor does not 

retain any portion of the charge. 

(b) Examples of finance charges. The 

finance charge includes the following 

types of charges, except for charges 

specifically excluded by paragraphs (c) 

through (e) of this section: 

(1) Interest, time price differential, 

and any amount payable under an addon or discount system of additional 

charges. 

(2) Service, transaction, activity, and 

carrying charges, including any charge 

imposed on a checking or other 

transaction account to the extent that 

the charge exceeds the charge for a 

similar account without a credit feature. 

(3) Points, loan fees, assumption fees, 

finder’s fees, and similar charges. 

(4) Appraisal, investigation, and 

credit report fees. 

(5) Premiums or other charges for any 

guarantee or insurance protecting the 

creditor against the consumer’s default 

or other credit loss. 


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(6) Charges imposed on a creditor by 

another person for purchasing or 

accepting a consumer’s obligation, if the 

consumer is required to pay the charges 

in cash, as an addition to the obligation, 

or as a deduction from the proceeds of 

the obligation. 

(7) Premiums or other charges for 

credit life, accident, health, or loss-ofincome insurance, written in connection 

with a credit transaction. 

(8) Premiums or other charges for 

insurance against loss of or damage to 

property, or against liability arising out 

of the ownership or use of property, 

written in connection with a credit 

transaction. 

(9) Discounts for the purpose of 

inducing payment by a means other 

than the use of credit. 

(10) Charges or premiums paid for 

debt cancellation or debt suspension 

coverage written in connection with a 

credit transaction, whether or not the 

coverage is insurance under applicable 

law. 

(c) Charges excluded from the finance 

charge. The following charges are not 

finance charges: 

(1) Application fees charged to all 

applicants for credit, whether or not 

credit is actually extended. 

(2) Charges for actual unanticipated 

late payment, for exceeding a credit 

limit, or for delinquency, default, or a 

similar occurrence. 

(3) Charges imposed by a financial 

institution for paying items that 

overdraw an account, unless the 

payment of such items and the 

imposition of the charge were 

previously agreed upon in writing. 

(4) Fees charged for participation in a 

credit plan, whether assessed on an 

annual or other periodic basis. 

(5) Seller’s points. 

(6) Interest forfeited as a result of an 

interest reduction required by law on a 

time deposit used as security for an 

extension of credit. 

(7) Real-estate related fees. The 

following fees in a transaction secured 

by real property or in a residential 

mortgage transaction, if the fees are 

bona fide and reasonable in amount: 

(i) Fees for title examination, abstract 

of title, title insurance, property survey, 

and similar purposes. 

(ii) Fees for preparing loan-related 

documents, such as deeds, mortgages, 

and reconveyance or settlement 

documents. 

(iii) Notary and credit-report fees. 

(iv) Property appraisal fees or fees for 

inspections to assess the value or 

condition of the property if the service 

is performed prior to closing, including 

fees related to pest-infestation or floodhazard determinations. 

(v) Amounts required to be paid into 

escrow or trustee accounts if the 

amounts would not otherwise be 

included in the finance charge. 

(8) Discounts offered to induce 

payment for a purchase by cash, check, 

or other means, as provided in section 

167(b) of the Act. 

(d) Insurance and debt cancellation 

and debt suspension coverage. 

(1) Voluntary credit insurance 

premiums. Premiums for credit life, 

accident, health, or loss-of-income 

insurance may be excluded from the 

finance charge if the following 

conditions are met: 

(i) The insurance coverage is not 

required by the creditor, and this fact is 

disclosed in writing. 

(ii) The premium for the initial term 

of insurance coverage is disclosed in 

writing. If the term of insurance is less 

than the term of the transaction, the 

term of insurance also shall be 

disclosed. The premium may be 

disclosed on a unit-cost basis only in 

open-end credit transactions, closed-end 

credit transactions by mail or telephone 

under § 226.17(g), and certain closedend credit transactions involving an 

insurance plan that limits the total 

amount of indebtedness subject to 

coverage. 

(iii) The consumer signs or initials an 

affirmative written request for the 

insurance after receiving the disclosures 

specified in this paragraph, except as 

provided in paragraph (d)(4) of this 

section. Any consumer in the 

transaction may sign or initial the 

request. 

(2) Property insurance premiums. 

Premiums for insurance against loss of 

or damage to property, or against 

liability arising out of the ownership or 

use of property, including single interest 

insurance if the insurer waives all right 

of subrogation against the consumer,5

may be excluded from the finance 

charge if the following conditions are 

met: 

(i) The insurance coverage may be 

obtained from a person of the 

consumer’s choice,6 and this fact is 

disclosed. (A creditor may reserve the 

right to refuse to accept, for reasonable 

cause, an insurer offered by the 

consumer.) 

(ii) If the coverage is obtained from or 

through the creditor, the premium for 

the initial term of insurance coverage 

shall be disclosed. If the term of 

insurance is less than the term of the 

transaction, the term of insurance shall 

also be disclosed. The premium may be 

disclosed on a unit-cost basis only in 

open-end credit transactions, closed-end 

credit transactions by mail or telephone 

under § 226.17(g), and certain closedend credit transactions involving an 

insurance plan that limits the total 

amount of indebtedness subject to 

coverage. 

(3) Voluntary debt cancellation or 

debt suspension fees. Charges or 

premiums paid for debt cancellation 

coverage for amounts exceeding the 

value of the collateral securing the 

obligation or for debt cancellation or 

debt suspension coverage in the event of 

the loss of life, health, or income or in 

case of accident may be excluded from 

the finance charge, whether or not the 

coverage is insurance, if the following 

conditions are met: 

(i) The debt cancellation or debt 

suspension agreement or coverage is not 

required by the creditor, and this fact is 

disclosed in writing; 

(ii) The fee or premium for the initial 

term of coverage is disclosed in writing. 

If the term of coverage is less than the 

term of the credit transaction, the term 

of coverage also shall be disclosed. The 

fee or premium may be disclosed on a 

unit-cost basis only in open-end credit 

transactions, closed-end credit 

transactions by mail or telephone under 

§ 226.17(g), and certain closed-end 

credit transactions involving a debt 

cancellation agreement that limits the 

total amount of indebtedness subject to 

coverage; 

(iii) The following are disclosed, as 

applicable, for debt suspension 

coverage: That the obligation to pay loan 

principal and interest is only 

suspended, and that interest will 

continue to accrue during the period of 

suspension. 

(iv) The consumer signs or initials an 

affirmative written request for coverage 

after receiving the disclosures specified 

in this paragraph, except as provided in 

paragraph (d)(4) of this section. Any 

consumer in the transaction may sign or 

initial the request. 

(4) Telephone purchases. If a 

consumer purchases credit insurance or 

debt cancellation or debt suspension 

coverage for an open-end (not homesecured) plan by telephone, the creditor 

must make the disclosures under 

paragraphs (d)(1)(i) and (ii) or (d)(3)(i) 

through (iii) of this section, as 

applicable, orally. In such a case, the 

creditor shall: 

(i) Maintain evidence that the 

consumer, after being provided the 

disclosures orally, affirmatively elected 

to purchase the insurance or coverage; 

and 

(ii) Mail the disclosures under 

paragraphs (d)(1)(i) and (ii) or (d)(3)(i) 

through (iii) of this section, as 


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applicable, within three business days 

after the telephone purchase. 

(e) Certain security interest charges. If 

itemized and disclosed, the following 

charges may be excluded from the 

finance charge: 

(1) Taxes and fees prescribed by law 

that actually are or will be paid to 

public officials for determining the 

existence of or for perfecting, releasing, 

or satisfying a security interest. 

(2) The premium for insurance in lieu 

of perfecting a security interest to the 

extent that the premium does not 

exceed the fees described in paragraph 

(e)(1) of this section that otherwise 

would be payable. 

(3) Taxes on security instruments. 

Any tax levied on security instruments 

or on documents evidencing 

indebtedness if the payment of such 

taxes is a requirement for recording the 

instrument securing the evidence of 

indebtedness. 

(f) Prohibited offsets. Interest, 

dividends, or other income received or 

to be received by the consumer on 

deposits or investments shall not be 

deducted in computing the finance 

charge. 

Subpart B—Open-End Credit 

6. Section 226.5 is revised 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: Disclosures under 

§ 226.6(b)(3) of charges that are imposed 

as part of an open-end (not homesecured) plan that are not required to be 

disclosed under § 226.6(b)(2) and 

related disclosures under 

§ 226.9(c)(2)(iii)(B) of charges; 

disclosures under § 226.9(c)(2)(vi); 

disclosures under § 226.9(d) when a 

finance charge is imposed at the time of 

the transaction; and disclosures under 

§ 226.56(b)(1)(i). 

(B) The following disclosures need 

not be in a retainable form: Disclosures 

that need not be written under 

paragraph (a)(1)(ii)(A) of this section; 

disclosures for credit and charge card 

applications and solicitations under 

§ 226.5a; home-equity disclosures under 

§ 226.5b(d); the alternative summary 

billing-rights statement under 

§ 226.9(a)(2); the credit and charge card 

renewal disclosures required under 

§ 226.9(e); and 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, 226.5b, and 

226.16 may be provided to the 

consumer in electronic form without 

regard to the consumer consent or other 

provisions of the E-Sign Act in the 

circumstances set forth in those 

sections. 

(2) Terminology. (i) Terminology used 

in providing the disclosures required by 

this subpart shall be consistent. 

(ii) For home-equity plans subject to 

§ 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) of this section, the 

term penalty APR shall be used, as 

applicable. The term penalty APR need 

not be used in reference to the annual 

percentage rate that applies with the 

loss of a promotional rate, assuming the 

annual percentage rate that applies is 

not greater than the annual percentage 

rate that would have applied at the end 

of the promotional period; or if the 

annual percentage rate that applies with 

the loss of a promotional rate is a 

variable rate, the annual percentage rate 

is calculated using the same index and 

margin as would have been used to 

calculate the annual percentage rate that 

would have applied at the end of the 

promotional period. If credit insurance 

or debt cancellation or debt suspension 

coverage is required as part of the plan, 

the term required shall be used and the 

program shall be identified by its name. 

If an annual percentage rate is required 

to be presented in a tabular format 

pursuant to paragraph (a)(3)(i) or 

(a)(3)(iii) of this section, the term fixed, 

or a similar term, may not be used to 

describe such rate unless the creditor 

also specifies a time period that the rate 

will be fixed and the rate will not 

increase during that period, or if no 

such time period is provided, the rate 

will not increase while the plan is open. 

(3) Specific formats. (i) Certain 

disclosures for credit and charge card 

applications and solicitations must be 

provided in a tabular format in 

accordance with the requirements of 

§ 226.5a(a)(2). 

(ii) Certain disclosures for homeequity plans must precede other 

disclosures and must be given in 

accordance with the requirements of 

§ 226.5b(a). 

(iii) Certain account-opening 

disclosures must be provided in a 

tabular format in accordance with the 

requirements of § 226.6(b)(1). 

(iv) Certain disclosures provided on 

periodic statements must be grouped 

together in accordance with the 

requirements of § 226.7(b)(6) and 

(b)(13). 

(v) Certain disclosures provided on 

periodic statements must be given in 

accordance with the requirements of 

§ 226.7(b)(12). 

(vi) 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). 

(vii) 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)(2)(iv)(C). 

(viii) Certain disclosures provided 

when a rate is increased due to 

delinquency, default or as a penalty 

must be provided in a tabular format in 

accordance with the requirements of 

§ 226.9(g)(3)(ii). 

(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 

§ 226.6(b)(2) may be disclosed after 

account opening but before the 

consumer agrees to pay or becomes 

obligated to pay for the charge, provided 

they are disclosed at a time and in a 

manner that a consumer would be likely 

to notice them. This provision does not 

apply to charges imposed as part of a 

home-equity plan subject to the 

requirements of § 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 


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10 [Reserved] 

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. 

(v) Application fees. A creditor may 

collect an application fee excludable 

from the finance charge under 

§ 226.4(c)(1) before providing accountopening 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). 

(2) Periodic statements. (i) The 

creditor shall mail or deliver a periodic 

statement as required by § 226.7 for each 

billing cycle at the end of which an 

account has a debit or credit balance of 

more than $1 or on which a finance 

charge has been imposed. A periodic 

statement need not be sent for an 

account if the creditor deems it 

uncollectible, if delinquency collection 

proceedings have been instituted, if the 

creditor has charged off the account in 

accordance with loan-loss provisions 

and will not charge any additional fees 

or interest on the account, or if 

furnishing the statement would violate 

Federal law. 

(ii) Creditors must adopt reasonable 

procedures designed to ensure that 

periodic statements are mailed or 

delivered at least 21 days prior to the 

payment due date and the date on 

which any grace period expires.10 A 

creditor that fails to meet this 

requirement shall not treat a payment as 

late for any purpose or collect any 

finance or other charge imposed as a 

result of such failure. For purposes of 

this paragraph, ‘‘grace period’’ means a 

period within which any credit 

extended may be repaid without 

incurring a finance charge due to a 

periodic interest rate. 

(iii) The timing requirement under 

this paragraph (b)(2) does not apply if 

the creditor is unable to meet the 

requirement because of an act of God, 

war, civil disorder, natural disaster, or 

strike. 

(3) Credit and charge card application 

and solicitation disclosures. The card 

issuer shall furnish the disclosures for 

credit and charge card applications and 

solicitations in accordance with the 

timing requirements of § 226.5a. 

(4) Home-equity plans. Disclosures for 

home-equity plans shall be made in 

accordance with the timing 

requirements of § 226.5b(b). 

(c) Basis of disclosures and use of 

estimates. Disclosures shall reflect the 

terms of the legal obligation between the 

parties. If any information necessary for 

accurate disclosure is unknown to the 

creditor, it shall make the disclosure 

based on the best information 

reasonably available and shall state 

clearly that the disclosure is an 

estimate. 

(d) Multiple creditors; multiple 

consumers. If the credit plan involves 

more than one creditor, only one set of 

disclosures shall be given, and the 

creditors shall agree among themselves 

which creditor must comply with the 

requirements that this regulation 

imposes on any or all of them. If there 

is more than one consumer, the 

disclosures may be made to any 

consumer who is primarily liable on the 

account. If the right of rescission under 

§ 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. 

(e) Effect of subsequent events. If a 

disclosure becomes inaccurate because 

of an event that occurs after the creditor 

mails or delivers the disclosures, the 

resulting inaccuracy is not a violation of 

this regulation, although new 

disclosures may be required under 

§ 226.9(c). 

7. Section 226.5a is revised to read as 

follows: 

§ 226.5a Credit and charge card 

applications and solicitations. 

(a) General rules. The card issuer shall 

provide the disclosures required under 

this section on or with a solicitation or 

an application to open a credit or charge 

card account. 

(1) Definition of solicitation. For 

purposes of this section, the term 

solicitation means an offer by the card 

issuer to open a credit or charge card 

account that does not require the 

consumer to complete an application. A 

‘‘firm offer of credit’’ as defined in 

section 603(l) of the Fair Credit 

Reporting Act (15 U.S.C. 1681a(l)) for a 

credit or charge card is a solicitation for 

purposes of this section. 

(2) Form of disclosures; tabular 

format. 

(i) The disclosures in paragraphs 

(b)(1) through (5) (except for 

(b)(1)(iv)(B)) and (b)(7) through (15) of 

this section made pursuant to paragraph 

(c), (d)(2), (e)(1) or (f) of this section 

generally shall be in the form of a table 

with headings, content, and format 

substantially similar to any of the 

applicable tables found in G–10 in 

appendix G to this part. 

(ii) The table described in paragraph 

(a)(2)(i) of this section shall contain only 

the information required or permitted 

by this section. Other information may 

be presented on or with an application 

or solicitation, provided such 

information appears outside the 

required table. 

(iii) Disclosures required by 

paragraphs (b)(1)(iv)(B) and (b)(6) of this 

section must be placed directly beneath 

the table. 

(iv) When a tabular format is required, 

any annual percentage rate required to 

be disclosed pursuant to paragraph 

(b)(1) of this section, any introductory 

rate required to be disclosed pursuant to 

paragraph (b)(1)(ii) of this section, any 

rate that will apply after a premium 

initial rate expires required to be 

disclosed under paragraph (b)(1)(iii) of 

this section, and any fee or percentage 

amounts required to be disclosed 

pursuant to paragraphs (b)(2), (b)(4), 

(b)(8) through (b)(13) of this section 

must be disclosed in bold text. 

However, bold text shall not be used for: 

Any maximum limits on fee amounts 

disclosed in the table that do not relate 

to fees that vary by State; the amount of 

any periodic fee disclosed pursuant to 

paragraph (b)(2) of this section that is 


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not an annualized amount; and other 

annual percentage rates or fee amounts 

disclosed in the table. 

(v) For an application or a solicitation 

that is accessed by the consumer in 

electronic form, the disclosures required 

under this section may be provided to 

the consumer in electronic form on or 

with the application or solicitation. 

(vi)(A) Except as provided in 

paragraph (a)(2)(vi)(B) of this section, 

the table described in paragraph (a)(2)(i) 

of this section must be provided in a 

prominent location on or with an 

application or a solicitation. 

(B) If the table described in paragraph 

(a)(2)(i) of this section is provided 

electronically, it must be provided in 

close proximity to the application or 

solicitation. 

(3) Fees based on a percentage. If the 

amount of any fee required to be 

disclosed under this section is 

determined on the basis of a percentage 

of another amount, the percentage used 

and the identification of the amount 

against which the percentage is applied 

may be disclosed instead of the amount 

of the fee. 

(4) Fees that vary by State. Card 

issuers that impose fees referred to in 

paragraphs (b)(8) through (12) of this 

section that vary by State may, at the 

issuer’s option, disclosed in the table 

required by paragraph (a)(2) of this 

section, the specific fee applicable to the 

consumer’s account, or the range of the 

fees, if the disclosure includes a 

statement that the amount of the fee 

varies by State and refers the consumer 

to a disclosure provided with the table 

where the amount of the fee applicable 

to the consumer’s account is disclosed. 

A card issuer may not list fees for 

multiple states in the table. 

(5) Exceptions. This section does not 

apply to: 

(i) Home-equity plans accessible by a 

credit or charge card that are subject to 

the requirements of § 226.5b; 

(ii) Overdraft lines of credit tied to 

asset accounts accessed by checkguarantee cards or by debit cards; 

(iii) Lines of credit accessed by checkguarantee cards or by debit cards that 

can be used only at automated teller 

machines; 

(iv) Lines of credit accessed solely by 

account numbers; 

(v) Additions of a credit or charge 

card to an existing open-end plan; 

(vi) General purpose applications 

unless the application, or material 

accompanying it, indicates that it can be 

used to open a credit or charge card 

account; or 

(vii) Consumer-initiated requests for 

applications. 

(b) Required disclosures. The card 

issuer shall disclose the items in this 

paragraph on or with an application or 

a solicitation in accordance with the 

requirements of paragraphs (c), (d), 

(e)(1) or (f) of this section. A credit card 

issuer shall disclose all applicable items 

in this paragraph except for paragraph 

(b)(7) of this section. A charge card 

issuer shall disclose the applicable 

items in paragraphs (b)(2), (4), (7) 

through (12), and (15) of this section. 

(1) Annual percentage rate. Each 

periodic rate that may be used to 

compute the finance charge on an 

outstanding balance for purchases, a 

cash advance, or a balance transfer, 

expressed as an annual percentage rate 

(as determined by § 226.14(b)). When 

more than one rate applies for a category 

of transactions, the range of balances to 

which each rate is applicable shall also 

be disclosed. The annual percentage rate 

for purchases disclosed pursuant to this 

paragraph shall be in at least 16-point 

type, except for the following: Oral 

disclosures of the annual percentage 

rate for purchases; or a penalty rate that 

may apply upon the occurrence of one 

or more specific events. 

(i) Variable rate information. If a rate 

disclosed under paragraph (b)(1) of this 

section is a variable rate, the card issuer 

shall also disclose the fact that the rate 

may vary and how the rate is 

determined. In describing how the 

applicable rate will be determined, the 

card issuer must identify the type of 

index or formula that is used in setting 

the rate. The value of the index and the 

amount of the margin that are used to 

calculate the variable rate shall not be 

disclosed in the table. A disclosure of 

any applicable limitations on rate 

increases or decreases shall not be 

included in the table. 

(ii) Discounted initial rate. If the 

initial rate is an introductory rate, as 

that term is defined in § 226.16(g)(2)(ii), 

the card issuer must disclose in the 

table the introductory rate, the time 

period during which the introductory 

rate will remain in effect, and must use 

the term ‘‘introductory’’ or ‘‘intro’’ in 

immediate proximity to the introductory 

rate. The card issuer also must disclose 

the rate that would otherwise apply to 

the account pursuant to paragraph (b)(1) 

of this section. Where the rate is not tied 

to an index or formula, the card issuer 

must disclose the rate that will apply 

after the introductory rate expires. In a 

variable-rate account, the card issuer 

must disclose a rate based on the 

applicable index or formula in 

accordance with the accuracy 

requirements set forth in paragraphs (c), 

(d), or (e) of this section, as applicable. 

(iii) Premium initial rate. If the initial 

rate is temporary and is higher than the 

rate that will apply after the temporary 

rate expires, the card issuer must 

disclose the premium initial rate 

pursuant to paragraph (b)(1) of this 

section and the time period during 

which the premium initial rate will 

remain in effect. Consistent with 

paragraph (b)(1) of this section, the 

premium initial rate for purchases must 

be in at least 16-point type. The issuer 

must also disclose in the table the rate 

that will apply after the premium initial 

rate expires in at least 16-point type. 

(iv) Penalty rates. (A) In general. 

Except as provided in paragraph 

(b)(1)(iv)(B), if a rate may increase as a 

penalty for one or more events specified 

in the account agreement, such as a late 

payment or an extension of credit that 

exceeds the credit limit, the card issuer 

must disclose pursuant to paragraph 

(b)(1) of this section the increased rate 

that may apply, a brief description of 

the event or events that may result in 

the increased rate, and a brief 

description of how long the increased 

rate will remain in effect. 

(B) Introductory rates. If the issuer 

discloses an introductory rate, as that 

term is defined in § 226.16(g)(2)(ii), in 

the table or in any written or electronic 

promotional materials accompanying 

applications or solicitations subject to 

paragraph (c) or (e) of this section, the 

issuer must briefly disclose directly 

beneath the table the circumstances, if 

any, under which the introductory rate 

may be revoked, and the type of rate 

that will apply after the introductory 

rate is revoked. 

(v) Rates that depend on consumer’s 

creditworthiness. If a rate cannot be 

determined at the time disclosures are 

given because the rate depends, at least 

in part, on a later determination of the 

consumer’s creditworthiness, the card 

issuer must disclose the specific rates or 

the range of rates that could apply and 

a statement that the rate for which the 

consumer may qualify at account 

opening will depend on the consumer’s 

creditworthiness, and other factors if 

applicable. If the rate that depends, at 

least in part, on a later determination of 

the consumer’s creditworthiness is a 

penalty rate, as described in paragraph 

(b)(1)(iv) of this section, the card issuer 

at its option may disclose the highest 

rate that could apply, instead of 

disclosing the specific rates or the range 

of rates that could apply. 

(vi) APRs that vary by State. Issuers 

imposing annual percentage rates that 

vary by State may, at the issuer’s option, 

disclose in the table (A) the specific 

annual percentage rate applicable to the 

consumer’s account, or (B) the range of 


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the annual percentage rates, if the 

disclosure includes a statement that the 

annual percentage rate varies by State 

and refers the consumer to a disclosure 

provided with the table where the 

annual percentage rate applicable to the 

consumer’s account is disclosed. A card 

issuer may not list annual percentage 

rates for multiple states in the table. 

(2) Fees for issuance or availability. (i) 

Any annual or other periodic fee that 

may be imposed for the issuance or 

availability of a credit or charge card, 

including any fee based on account 

activity or inactivity; how frequently it 

will be imposed; and the annualized 

amount of the fee. 

(ii) Any non-periodic fee that relates 

to opening an account. A card issuer 

must disclose that the fee is a one-time 

fee. 

(3) Fixed finance charge; minimum 

interest charge. Any fixed finance 

charge and a brief description of the 

charge. Any minimum interest charge if 

it exceeds $1.00 that could be imposed 

during a billing cycle, and a brief 

description of the charge. The $1.00 

threshold amount shall be adjusted 

periodically by the Board to reflect 

changes in the Consumer Price Index. 

The Board shall calculate each year a 

price level adjusted minimum interest 

charge using the Consumer Price Index 

in effect on the June 1 of that year. 

When the cumulative change in the 

adjusted minimum value derived from 

applying the annual Consumer Price 

level to the current minimum interest 

charge threshold has risen by a whole 

dollar, the minimum interest charge will 

be increased by $1.00. The issuer may, 

at its option, disclose in the table 

minimum interest charges below this 

threshold. 

(4) Transaction charges. Any 

transaction charge imposed by the card 

issuer for the use of the card for 

purchases. 

(5) Grace period. The date by which 

or the period within which any credit 

extended for purchases may be repaid 

without incurring a finance charge due 

to a periodic interest rate and any 

conditions on the availability of the 

grace period. If no grace period is 

provided, that fact must be disclosed. If 

the length of the grace period varies, the 

card issuer may disclose the range of 

days, the minimum number of days, or 

the average number of days in the grace 

period, if the disclosure is identified as 

a range, minimum, or average. In 

disclosing in the tabular format a grace 

period that applies to all types of 

purchases, the phrase ‘‘How to Avoid 

Paying Interest on Purchases’’ shall be 

used as the heading for the row 

describing the grace period. If a grace 

period is not offered on all types of 

purchases, in disclosing this fact in the 

tabular format, the phrase ‘‘Paying 

Interest’’ shall be used as the heading 

for the row describing this fact. 

(6) Balance computation method. The 

name of the balance computation 

method listed in paragraph (g) of this 

section that is used to determine the 

balance for purchases on which the 

finance charge is computed, or an 

explanation of the method used if it is 

not listed. In determining which balance 

computation method to disclose, the 

card issuer shall assume that credit 

extended for purchases will not be 

repaid within the grace period, if any. 

(7) Statement on charge card 

payments. A statement that charges 

incurred by use of the charge card are 

due when the periodic statement is 

received. 

(8) Cash advance fee. Any fee 

imposed for an extension of credit in the 

form of cash or its equivalent. 

(9) Late payment fee. Any fee imposed 

for a late payment. 

(10) Over-the-limit fee. Any fee 

imposed for exceeding a credit limit. 

(11) Balance transfer fee. Any fee 

imposed to transfer an outstanding 

balance. 

(12) Returned-payment fee. Any fee 

imposed by the card issuer for a 

returned payment. 

(13) Required insurance, debt 

cancellation or debt suspension 

coverage. (i) A fee for insurance 

described in § 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 about the 

insurance or coverage accompanying the 

application or solicitation, as 

applicable. 

(14) Available credit. If a card issuer 

requires fees for the issuance or 

availability of credit described in 

paragraph (b)(2) of this section, or 

requires a security deposit for such 

credit, and the total amount of those 

required fees and/or security deposit 

that will be imposed and charged to the 

account when the account is opened is 

15 percent or more of the minimum 

credit limit for the card, a card issuer 

must disclose the available credit 

remaining after these fees or security 

deposit are debited to the account, 

assuming that the consumer receives the 

minimum credit limit. In determining 

whether the 15 percent threshold test is 

met, the issuer must only consider fees 

for issuance or availability of credit, or 

a security deposit, that are required. If 

fees for issuance or availability are 

optional, these fees should not be 

considered in determining whether the 

disclosure must be given. Nonetheless, 

if the 15 percent threshold test is met, 

the issuer in providing the disclosure 

must disclose the amount of available 

credit calculated by excluding those 

optional fees, and the available credit 

including those optional fees. This 

paragraph does not apply with respect 

to fees or security deposits that are not 

debited to the account. 

(15) Web site reference. A reference to 

the Web site established by the Board 

and a statement that consumers may 

obtain on the Web site information 

about shopping for and using credit 

cards. 

(c) Direct mail and electronic 

applications and solicitations. (1) 

General. The card issuer shall disclose 

the applicable items in paragraph (b) of 

this section on or with an application or 

solicitation that is mailed to consumers 

or provided to consumers in electronic 

form. 

(2) Accuracy. (i) Disclosures in direct 

mail applications and solicitations must 

be accurate as of the time the 

disclosures are mailed. An accurate 

variable annual percentage rate is one in 

effect within 60 days before mailing. 

(ii) Disclosures provided in electronic 

form must be accurate as of the time 

they are sent, in the case of disclosures 

sent to a consumer’s e-mail address, or 

as of the time they are viewed by the 

public, in the case of disclosures made 

available at a location such as a card 

issuer’s Web site. An accurate variable 

annual percentage rate provided in 

electronic form is one in effect within 

30 days before it is sent to a consumer’s 

e-mail address, or viewed by the public, 

as applicable. 

(d) Telephone applications and 

solicitations. (1) Oral disclosure. The 

card issuer shall disclose orally the 

information in paragraphs (b)(1) through 

(7) and (b)(14) of this section, to the 

extent applicable, in a telephone 

application or solicitation initiated by 

the card issuer. 

(2) Alternative disclosure. The oral 

disclosure under paragraph (d)(1) of this 

section need not be given if the card 

issuer either: 

(i)(A) Does not impose a fee described 

in paragraph (b)(2) of this section; or 

(B) Imposes such a fee but provides 

the consumer with a right to reject the 

plan consistent with § 226.5(b)(1)(iv); 

and 

(ii) The card issuer discloses in 

writing within 30 days after the 

consumer requests the card (but in no 

event later than the delivery of the card) 

the following: 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
54210 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

(A) The applicable information in 

paragraph (b) of this section; and 

(B) As applicable, the fact that the 

consumer has the right to reject the plan 

and not be obligated to pay fees 

described in paragraph (b)(2) or any 

other fees or charges until the consumer 

has used the account or made a payment 

on the account after receiving a billing 

statement. 

(3) Accuracy. (i) The oral disclosures 

under paragraph (d)(1) of this section 

must be accurate as of the time they are 

given. 

(ii) The alternative disclosures under 

paragraph (d)(2) of this section generally 

must be accurate as of the time they are 

mailed or delivered. A variable annual 

percentage rate is one that is accurate if 

it was: 

(A) In effect at the time the 

disclosures are mailed or delivered; or 

(B) In effect as of a specified date 

(which rate is then updated from time 

to time, but no less frequently than each 

calendar month). 

(e) Applications and solicitations 

made available to general public. The 

card issuer shall provide disclosures, to 

the extent applicable, on or with an 

application or solicitation that is made 

available to the general public, 

including one contained in a catalog, 

magazine, or other generally available 

publication. The disclosures shall be 

provided in accordance with paragraph 

(e)(1) or (e)(2) of this section. 

(1) Disclosure of required credit 

information. The card issuer may 

disclose in a prominent location on the 

application or solicitation the following: 

(i) The applicable information in 

paragraph (b) of this section; 

(ii) The date the required information 

was printed, including a statement that 

the required information was accurate 

as of that date and is subject to change 

after that date; and 

(iii) A statement that the consumer 

should contact the card issuer for any 

change in the required information 

since it was printed, and a toll-free 

telephone number or a mailing address 

for that purpose. 

(2) No disclosure of credit 

information. If none of the items in 

paragraph (b) of this section is provided 

on or with the application or 

solicitation, the card issuer may state in 

a prominent location on the application 

or solicitation the following: 

(i) There are costs associated with the 

use of the card; and 

(ii) The consumer may contact the 

card issuer to request specific 

information about the costs, along with 

a toll-free telephone number and a 

mailing address for that purpose. 

(3) Prompt response to requests for 

information. Upon receiving a request 

for any of the information referred to in 

this paragraph, the card issuer shall 

promptly and fully disclose the 

information requested. 

(4) Accuracy. The disclosures given 

pursuant to paragraph (e)(1) of this 

section must be accurate as of the date 

of printing. A variable annual 

percentage rate is accurate if it was in 

effect within 30 days before printing. 

(f) In-person applications and 

solicitations. A card issuer shall 

disclose the information in paragraph 

(b) of this section, to the extent 

applicable, on or with an application or 

solicitation that is initiated by the card 

issuer and given to the consumer in 

person. A card issuer complies with the 

requirements of this paragraph if the 

issuer provides disclosures in 

accordance with paragraph (c)(1) or 

(e)(1) of this section. 

(g) Balance computation methods 

defined. The following methods may be 

described by name. Methods that differ 

due to variations such as the allocation 

of payments, whether the finance charge 

begins to accrue on the transaction date 

or the date of posting the transaction, 

the existence or length of a grace period, 

and whether the balance is adjusted by 

charges such as late payment fees, 

annual fees and unpaid finance charges 

do not constitute separate balance 

computation methods. 

(1)(i) Average daily balance (including 

new purchases). This balance is figured 

by adding the outstanding balance 

(including new purchases and 

deducting payments and credits) for 

each day in the billing cycle, and then 

dividing by the number of days in the 

billing cycle. 

(ii) Average daily balance (excluding 

new purchases). This balance is figured 

by adding the outstanding balance 

(excluding new purchases and 

deducting payments and credits) for 

each day in the billing cycle, and then 

dividing by the number of days in the 

billing cycle. 

(2) Adjusted balance. This balance is 

figured by deducting payments and 

credits made during the billing cycle 

from the outstanding balance at the 

beginning of the billing cycle. 

(3) Previous balance. This balance is 

the outstanding balance at the beginning 

of the billing cycle. 

(4) Daily balance. For each day in the 

billing cycle, this balance is figured by 

taking the beginning balance each day, 

adding any new purchases, and 

subtracting any payment and credits. 

8. In § 226.6, revise paragraph (b) to 

read as follows: 

§ 226.6 Account-opening disclosures. 

* * * * * 

(b) Rules affecting open-end (not 

home-secured) plans. The requirements 

of paragraph (b) of this section apply to 

plans other than home-equity plans 

subject to the requirements of § 226.5b. 

(1) Form of disclosures; tabular 

format for open-end (not home-secured) 

plans. Creditors must provide the 

account-opening disclosures specified 

in paragraph (b)(2)(i) through (b)(2)(v) 

(except for (b)(2)(i)(D)(2)) and (b)(2)(vii) 

through (b)(2)(xiv) of this section in the 

form of a table with the headings, 

content, and format substantially similar 

to any of the applicable tables in G–17 

in appendix G. 

(i) Highlighting. In the table, any 

annual percentage rate required to be 

disclosed pursuant to paragraph (b)(2)(i) 

of this section; any introductory rate 

permitted to be disclosed pursuant to 

paragraph (b)(2)(i)(B) or required to be 

disclosed under paragraph (b)(2)(i)(F) of 

this section, any rate that will apply 

after a premium initial rate expires 

permitted to be disclosed pursuant to 

paragraph (b)(2)(i)(C) or required to be 

disclosed pursuant to paragraph 

(b)(2)(i)(F), and any fee or percentage 

amounts required to be disclosed 

pursuant to paragraphs (b)(2)(ii), 

(b)(2)(iv), (b)(2)(vii) through (b)(2)(xii) of 

this section must be disclosed in bold 

text. However, bold text shall not be 

used for: Any maximum limits on fee 

amounts disclosed in the table that do 

not relate to fees that vary by State; the 

amount of any periodic fee disclosed 

pursuant to paragraph (b)(2) of this 

section that is not an annualized 

amount; and other annual percentage 

rates or fee amounts disclosed in the 

table. 

(ii) Location. Only the information 

required or permitted by paragraphs 

(b)(2)(i) through (b)(2)(v) (except for 

(b)(2)(i)(D)(2)) and (b)(2)(vii) through 

(b)(2)(xiv) of this section shall be in the 

table. Disclosures required by 

paragraphs (b)(2)(i)(D)(2), (b)(2)(vi) and 

(b)(2)(xv) of this section shall be placed 

directly below the table. Disclosures 

required by paragraphs (b)(3) through 

(b)(5) of this section that are not 

otherwise required to be in the table and 

other information may be presented 

with the account agreement or accountopening disclosure statement, provided 

such information appears outside the 

required table. 

(iii) Fees that vary by State. Creditors 

that impose fees referred to in 

paragraphs (b)(2)(vii) through (b)(2)(xi) 

of this section that vary by State and 

that provide the disclosures required by 

paragraph (b) of this section in person 

at the time the open-end (not homeVerDate Nov<24>2008 18:25 Oct 20, 2009 Jkt 220002 PO 00000 Frm 00088 Fmt 4701 Sfmt 4702 E:\FR\FM\21OCP2.SGM 21OCP2

pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54211 

secured) plan is established in 

connection with financing the purchase 

of goods or services may, at the 

creditor’s option, disclose in the 

account-opening table (A) the specific 

fee applicable to the consumer’s 

account, or (B) the range of the fees, if 

the disclosure includes a statement that 

the amount of the fee varies by State and 

refers the consumer to the account 

agreement or other disclosure provided 

with the account-opening table where 

the amount of the fee applicable to the 

consumer’s account is disclosed. A 

creditor may not list fees for multiple 

states in the account-opening summary 

table. 

(iv) Fees based on a percentage. If the 

amount of any fee required to be 

disclosed under this section is 

determined on the basis of a percentage 

of another amount, the percentage used 

and the identification of the amount 

against which the percentage is applied 

may be disclosed instead of the amount 

of the fee. 

(2) Required disclosures for accountopening table for open-end (not homesecured) plans. A creditor shall disclose 

the items in this section, to the extent 

applicable: 

(i) Annual percentage rate. Each 

periodic rate that may be used to 

compute the finance charge on an 

outstanding balance for purchases, a 

cash advance, or a balance transfer, 

expressed as an annual percentage rate 

(as determined by § 226.14(b)). When 

more than one rate applies for a category 

of transactions, the range of balances to 

which each rate is applicable shall also 

be disclosed. The annual percentage rate 

for purchases disclosed pursuant to this 

paragraph shall be in at least 16-point 

type, except for the following: A penalty 

rate that may apply upon the occurrence 

of one or more specific events. 

(A) Variable-rate information. If a rate 

disclosed under paragraph (b)(2)(i) of 

this section is a variable rate, the 

creditor shall also disclose the fact that 

the rate may vary and how the rate is 

determined. In describing how the 

applicable rate will be determined, the 

creditor must identify the type of index 

or formula that is used in setting the 

rate. The value of the index and the 

amount of the margin that are used to 

calculate the variable rate shall not be 

disclosed in the table. A disclosure of 

any applicable limitations on rate 

increases or decreases shall not be 

included in the table. 

(B) Discounted initial rates. If the 

initial rate is an introductory rate, as 

that term is defined in § 226.16(g)(2)(ii), 

the creditor must disclose the rate that 

would otherwise apply to the account 

pursuant to paragraph (b)(2)(i) of this 

section. Where the rate is not tied to an 

index or formula, the creditor must 

disclose the rate that will apply after the 

introductory rate expires. In a variablerate account, the card issuer must 

disclose a rate based on the applicable 

index or formula in accordance with the 

accuracy requirements of paragraph 

(b)(4)(ii)(G) of this section. Except as 

provided in paragraph (b)(2)(i)(F) of this 

section, the creditor is not required to, 

but may disclose in the table the 

introductory rate along with the rate 

that would otherwise apply to the 

account if the creditor also discloses the 

time period during which the 

introductory rate will remain in effect, 

and uses the term ‘‘introductory’’ or 

‘‘intro’’ in immediate proximity to the 

introductory rate. 

(C) Premium initial rate. If the initial 

rate is temporary and is higher than the 

rate that will apply after the temporary 

rate expires, the creditor must disclose 

the premium initial rate pursuant to 

paragraph (b)(2)(i) of this section. 

Consistent with paragraph (b)(2)(i) of 

this section, the premium initial rate for 

purchases must be in at least 16-point 

type. Except as provided in paragraph 

(b)(2)(i)(F) of this section, the creditor is 

not required to, but may disclose in the 

table the rate that will apply after the 

premium initial rate expires if the 

creditor also discloses the time period 

during which the premium initial rate 

will remain in effect. If the creditor also 

discloses in the table the rate that will 

apply after the premium initial rate for 

purchases expires, that rate also must be 

in at least 16-point type. 

(D) Penalty rates. (1) In general. 

Except as provided in paragraph 

(b)(2)(i)(D)(2) of this section, if a rate 

may increase as a penalty for one or 

more events specified in the account 

agreement, such as a late payment or an 

extension of credit that exceeds the 

credit limit, the creditor must disclose 

pursuant to paragraph (b)(2)(i) of this 

section the increased rate that may 

apply, a brief description of the event or 

events that may result in the increased 

rate, and a brief description of how long 

the increased rate will remain in effect. 

If more than one penalty rate may apply, 

the creditor at its option may disclose 

the highest rate that could apply, 

instead of disclosing the specific rates or 

the range of rates that could apply. 

(2) Introductory rates. If the creditor 

discloses in the table an introductory 

rate, as that term is defined in 

§ 226.16(g)(2)(ii), creditors must briefly 

disclose directly beneath the table the 

circumstances under which the 

introductory rate may be revoked, and 

the rate that will apply after the 

introductory rate is revoked. 

(E) Point of sale where APRs vary by 

State or based on creditworthiness. 

Creditors imposing annual percentage 

rates that vary by State or based on the 

consumer’s creditworthiness and 

providing the disclosures required by 

paragraph (b) of this section in person 

at the time the open-end (not homesecured) plan is established in 

connection with financing the purchase 

of goods or services may, at the 

creditor’s option, disclose pursuant to 

paragraph (b)(2)(i) of this section in the 

account-opening table: 

(1) The specific annual percentage 

rate applicable to the consumer’s 

account; or 

(2) The range of the annual percentage 

rates, if the disclosure includes a 

statement that the annual percentage 

rate varies by State or will be 

determined based on the consumer’s 

creditworthiness and refers the 

consumer to the account agreement or 

other disclosure provided with the 

account-opening table where the annual 

percentage rate applicable to the 

consumer’s account is disclosed. A 

creditor may not list annual percentage 

rates for multiple states in the accountopening table. 

(F) Credit card accounts under an 

open-end (not home-secured) consumer 

credit plan. Notwithstanding paragraphs 

(b)(2)(i)(B) and (b)(2)(i)(C) of this 

section, for credit card accounts under 

an open-end (not home-secured) plan, 

issuers must disclose in the table 

required by paragraph (b)(1) of this 

section, any introductory rate that 

would apply to the account, consistent 

with the requirements of paragraph 

(b)(2)(i)(B) of this section, and any rate 

that would apply upon the expiration of 

a premium initial rate, consistent with 

the requirements of paragraph 

(b)(2)(i)(C) of this section. 

(ii) Fees for issuance or availability. 

(A) Any annual or other periodic fee 

that may be imposed for the issuance or 

availability of an open-end plan, 

including any fee based on account 

activity or inactivity; how frequently it 

will be imposed; and the annualized 

amount of the fee. 

(B) Any non-periodic fee that relates 

to opening the plan. A creditor must 

disclose that the fee is a one-time fee. 

(iii) Fixed finance charge; minimum 

interest charge. Any fixed finance 

charge and a brief description of the 

charge. Any minimum interest charge if 

it exceeds $1.00 that could be imposed 

during a billing cycle, and a brief 

description of the charge. The $1.00 

threshold amount shall be adjusted 

periodically by the Board to reflect 

changes in the Consumer Price Index. 

The Board shall calculate each year a 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
54212 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

price level adjusted minimum interest 

charge using the Consumer Price Index 

in effect on the June 1 of that year. 

When the cumulative change in the 

adjusted minimum value derived from 

applying the annual Consumer Price 

level to the current minimum interest 

charge threshold has risen by a whole 

dollar, the minimum interest charge will 

be increased by $1.00. The creditor may, 

at its option, disclose in the table 

minimum interest charges below this 

threshold. 

(iv) Transaction charges. Any 

transaction charge imposed by the 

creditor for use of the open-end plan for 

purchases. 

(v) Grace period. The date by which 

or the period within which any credit 

extended may be repaid without 

incurring a finance charge due to a 

periodic interest rate and any conditions 

on the availability of the grace period. 

If no grace period is provided, that fact 

must be disclosed. If the length of the 

grace period varies, the creditor may 

disclose the range of days, the minimum 

number of days, or the average number 

of the days in the grace period, if the 

disclosure is identified as a range, 

minimum, or average. In disclosing in 

the tabular format a grace period that 

applies to all features on the account, 

the phrase ‘‘How to Avoid Paying 

Interest’’ shall be used as the heading 

for the row describing the grace period. 

If a grace period is not offered on all 

features of the account, in disclosing 

this fact in the tabular format, the 

phrase ‘‘Paying Interest’’ shall be used 

as the heading for the row describing 

this fact. 

(vi) Balance computation method. 

The name of the balance computation 

method listed in § 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 

(b)(4)(i)(D) of this section is provided 

with the account-opening disclosures. 

In determining which balance 

computation method to disclose, the 

creditor shall assume that credit 

extended will not be repaid within any 

grace period, if any. 

(vii) Cash advance fee. Any fee 

imposed for an extension of credit in the 

form of cash or its equivalent. 

(viii) Late payment fee. Any fee 

imposed for a late payment. 

(ix) Over-the-limit fee. Any fee 

imposed for exceeding a credit limit. 

(x) Balance transfer fee. Any fee 

imposed to transfer an outstanding 

balance. 

(xi) Returned-payment fee. Any fee 

imposed by the creditor for a returned 

payment. 

(xii) Required insurance, debt 

cancellation or debt suspension 

coverage. (A) A fee for insurance 

described in § 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 about the 

insurance or coverage, as applicable. 

(xiii) Available credit. If a creditor 

requires fees for the issuance or 

availability of credit described in 

paragraph (b)(2)(ii) of this section, or 

requires a security deposit for such 

credit, and the total amount of those 

required fees and/or security deposit 

that will be imposed and charged to the 

account when the account is opened is 

15 percent or more of the minimum 

credit limit for the plan, a creditor must 

disclose the available credit remaining 

after these fees or security deposit are 

debited to the account. The 

determination whether the 15 percent 

threshold is met must be based on the 

minimum credit limit for the plan. 

However, the disclosure provided under 

this paragraph must be based on the 

actual initial credit limit provided on 

the account. In determining whether the 

15 percent threshold test is met, the 

creditor must only consider fees for 

issuance or availability of credit, or a 

security deposit, that are required. If 

fees for issuance or availability are 

optional, these fees should not be 

considered in determining whether the 

disclosure must be given. Nonetheless, 

if the 15 percent threshold test is met, 

the creditor in providing the disclosure 

must disclose the amount of available 

credit calculated by excluding those 

optional fees, and the available credit 

including those optional fees. The 

creditor shall also disclose that the 

consumer has the right to reject the plan 

and not be obligated to pay those fees 

or any other fee or charges until the 

consumer has used the account or made 

a payment on the account after receiving 

a periodic statement. This paragraph 

does not apply with respect to fees or 

security deposits that are not debited to 

the account. 

(xiv) Web site reference. For issuers of 

credit cards that are not charge cards, a 

reference to the Web site established by 

the Board and a statement that 

consumers may obtain on the Web site 

information about shopping for and 

using credit cards. 

(xv) Billing error rights reference. A 

statement that information about 

consumers’ right to dispute transactions 

is included in the account-opening 

disclosures. 

(3) Disclosure of charges imposed as 

part of open-end (not home-secured) 

plans. A creditor shall disclose, to the 

extent applicable: 

(i) For charges imposed as part of an 

open-end (not home-secured) plan, the 

circumstances under which the charge 

may be imposed, including the amount 

of the charge or an explanation of how 

the charge is determined. For finance 

charges, a statement of when the charge 

begins to accrue and an explanation of 

whether or not any time period exists 

within which any credit that has been 

extended may be repaid without 

incurring the charge. If such a time 

period is provided, a creditor may, at its 

option and without disclosure, elect not 

to impose a finance charge when 

payment is received after the time 

period expires. 

(ii) Charges imposed as part of the 

plan are: 

(A) Finance charges identified under 

§ 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, 

attorney’s fees whether or not 

automatically imposed, and postjudgment interest rates permitted by 

law. 

(C) Taxes imposed on the credit 

transaction by a State or other 

governmental body, such as 

documentary stamp taxes on cash 

advances. 

(D) Charges for which the payment, or 

nonpayment, affect the consumer’s 

access to the plan, the duration of the 

plan, the amount of credit extended, the 

period for which credit is extended, or 

the timing or method of billing or 

payment. 

(E) Charges imposed for terminating a 

plan. 

(F) Charges for voluntary credit 

insurance, debt cancellation or debt 

suspension. 

(iii) Charges that are not imposed as 

part of the plan include: 

(A) Charges imposed on a cardholder 

by an institution other than the card 

issuer for the use of the other 

institution’s ATM in a shared or 

interchange system. 

(B) A charge for a package of services 

that includes an open-end credit feature, 

if the fee is required whether or not the 

open-end credit feature is included and 

the non-credit services are not merely 

incidental to the credit feature. 

(C) Charges under § 226.4(e) disclosed 

as specified. 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 54213 

(4) Disclosure of rates for open-end 

(not home-secured) plans. A creditor 

shall disclose, to the extent applicable: 

(i) For each periodic rate that may be 

used to calculate interest: 

(A) Rates. The rate, expressed as a 

periodic rate and a corresponding 

annual percentage rate. 

(B) Range of balances. The range of 

balances to which the rate is applicable; 

however, a creditor is not required to 

adjust the range of balances disclosure 

to reflect the balance below which only 

a minimum charge applies. 

(C) Type of transaction. The type of 

transaction to which the rate applies, if 

different rates apply to different types of 

transactions. 

(D) Balance computation method. An 

explanation of the method used to 

determine the balance to which the rate 

is applied. 

(ii) Variable-rate accounts. For 

interest rate changes that are tied to 

increases in an index or formula 

(variable-rate accounts) specifically set 

forth in the account agreement: 

(A) The fact that the annual 

percentage rate may increase. 

(B) How the rate is determined, 

including the margin. 

(C) The circumstances under which 

the rate may increase. 

(D) The frequency with which the rate 

may increase. 

(E) Any limitation on the amount the 

rate may change. 

(F) The effect(s) of an increase. 

(G) 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 (b)(4)(i)(A) of this section. 

(B) How long the initial rate will 

remain in effect and the specific events 

that cause the initial rate to change. 

(C) The rate (expressed as a periodic 

rate and a corresponding annual 

percentage rate) that will apply when 

the initial rate is no longer in effect and 

any limitation on the time period the 

new rate will remain in effect. 

(D) The balances to which the new 

rate will apply. 

(E) The balances to which the current 

rate at the time of the change will apply. 

(5) Additional disclosures for openend (not home-secured) 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). 

(ii) Security interests. The fact that the 

creditor has or will acquire a security 

interest in the property purchased under 

the plan, or in other property identified 

by item or type. 

(iii) Statement of billing rights. A 

statement that outlines the consumer’s 

rights and the creditor’s responsibilities 

under §§ 226.12(c) and 226.13 and that 

is substantially similar to the statement 

found in Model Form G–3(A) in 

appendix G to this part. 

9. Section 226.7 is amended by 

revising paragraph (b), removing 

paragraphs (c), (d), (e), (f), (g), (h), (i), (j), 

and (k), and removing and reserving 

footnotes 14 and 15 to read as follows: 

§ 226.7 Periodic statement. 

* * * * * 

(b) Rules affecting open-end (not 

home-secured) plans. The requirements 

of paragraph (b) of this section apply 

only to plans other than home-equity 

plans subject to the requirements of 

§ 226.5b. 

(1) Previous balance. The account 

balance outstanding at the beginning of 

the billing cycle. 

(2) Identification of transactions. An 

identification of each credit transaction 

in accordance with § 226.8. 

(3) Credits. Any credit to the account 

during the billing cycle, including the 

amount and the date of crediting. The 

date need not be provided if a delay in 

crediting does not result in any finance 

or other charge. 

(4) Periodic rates. (i) Except as 

provided in paragraph (b)(4)(ii) of this 

section, each periodic rate that may be 

used to compute the interest charge 

expressed as an annual percentage rate 

and using the term, Annual Percentage 

Rate, along with the range of balances 

to which it is applicable. If no interest 

charge is imposed when the outstanding 

balance is less than a certain amount, 

the creditor is not required to disclose 

that fact, or the balance below which no 

interest charge will be imposed. The 

types of transactions to which the 

periodic rates apply shall also be 

disclosed. For variable-rate plans, the 

fact that the annual percentage rate may 

vary. 

(ii) Exception. A promotional rate, as 

that term is defined in § 226.16(g)(2)(i) 

is required to be disclosed only in 

periods in which the offered rate is 

actually applied. 

(5) Balance on which finance charge 

computed. The amount of the balance to 

which a periodic rate was applied and 

an explanation of how that balance was 

determined, using the term Balance 

Subject to Interest Rate. When a balance 

is determined without first deducting all 

credits and payments made during the 

billing cycle, the fact and the amount of 

the credits and payments shall be 

disclosed. As an alternative to providing 

an explanation of how the balance was 

determined, a creditor that uses a 

balance computation method identified 

in § 226.5a(g) may, at the creditor’s 

option, identify the name of the balance 

computation method and provide a tollfree 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. 

(6) Charges imposed. (i) The amounts 

of any charges imposed as part of a plan 

as stated in § 226.6(b)(3), grouped 

together, in proximity to transactions 

identified under paragraph (b)(2) of this 

section, substantially similar to Sample 

G–18(A) in appendix G to this part. 

(ii) Interest. Finance charges 

attributable to periodic interest rates, 

using the term Interest Charge, must be 

grouped together under the heading 

Interest Charged, itemized and totaled 

by type of transaction, and a total of 

finance charges attributable to periodic 

interest rates, using the term Total 

Interest, must be disclosed for the 

statement period and calendar year to 

date, using a format substantially 

similar to Sample G–18(A) in appendix 

G to this part. 

(iii) Fees. Charges imposed as part of 

the plan other than charges attributable 

to periodic interest rates must be 

grouped together under the heading 

Fees, identified consistent with the 

feature or type, and itemized, and a total 

of charges, using the term Fees, must be 

disclosed for the statement period and 

calendar year to date, using a format 

substantially similar to Sample G–18(A) 

in appendix G. 

(7) Change-in-terms and increased 

penalty rate summary for open-end (not 

home-secured) plans. Creditors that 

provide a change-in-terms notice 

required by § 226.9(c), or a rate increase 

notice required by § 226.9(g), on or with 

the periodic statement, must disclose 

the information in § 226.9(c)(2)(iv)(A) 

and (c)(2)(iv)(B) (if applicable) or 

§ 226.9(g)(3)(i) on the periodic statement 

in accordance with the format 

requirements in § 226.9(c)(2)(iv)(C), and 

§ 226.9(g)(3)(ii). See Forms G–18(F) and 

G–18(G) in appendix G to this part. 


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(8) Grace period. The date by which 

or the time period within which the 

new balance or any portion of the new 

balance must be paid to avoid 

additional finance charges. If such a 

time period is provided, a creditor may, 

at its option and without disclosure, 

impose no finance charge if payment is 

received after the time period’s 

expiration. 

(9) Address for notice of billing errors. 

The address to be used for notice of 

billing errors. Alternatively, the address 

may be provided on the billing rights 

statement permitted by § 226.9(a)(2). 

(10) Closing date of billing cycle; new 

balance. The closing date of the billing 

cycle and the account balance 

outstanding on that date. The new 

balance must be disclosed in accordance 

with the format requirements of 

paragraph (b)(13) of this section. 

(11) Due date; late payment costs. (i) 

Except as provided in paragraph 

(b)(11)(ii) of this section and in 

accordance with the format 

requirements in paragraph (b)(13) of this 

section, for a credit card account under 

an open-end (not home-secured) 

consumer credit plan, a card issuer must 

provide on each periodic statement: 

(A) The due date for a payment. The 

due date disclosed pursuant to this 

paragraph shall be the same day of the 

month for each billing cycle. 

(B) The amount of any late payment 

fee and any increased periodic rate(s) 

(expressed as an annual percentage 

rate(s)) that may be imposed on the 

account as a result of a late payment. If 

a range of late payment fees may be 

assessed, the card issuer may state the 

range of fees, or the highest fee and at 

the issuer’s option with the highest fee 

an indication that the fee imposed could 

be lower. If the rate may be increased for 

more than one feature or balance, the 

card issuer may state the range of rates 

or the highest rate that could apply and 

at the issuer’s option an indication that 

the rate imposed could be lower. 

(ii) Exception. The requirements of 

paragraph (b)(11)(i)(B) of this section do 

not apply to periodic statements 

provided solely for charge card 

accounts. 

(12) Repayment disclosures. (i) In 

general. Except as provided in 

paragraphs (b)(12)(ii) and (b)(12)(v), for 

a credit card account under an open-end 

(not home-secured) consumer credit 

plan, a card issuer must provide the 

following disclosures on each periodic 

statement: 

(A) The following statement with a 

bold heading: ‘‘Minimum Payment 

Warning: If you make only the 

minimum payment each period, you 

will pay more in interest and it will take 

you longer to pay off your balance;’’ 

(B) The minimum payment repayment 

estimate, as described in Appendix M1 

to this part. If the minimum payment 

repayment estimate is less than 2 years, 

the card issuers must disclose the 

estimate in months. Otherwise, the 

estimate must be disclosed in years and 

rounded to the nearest whole year; 

(C) The minimum payment total cost 

estimate, as described in Appendix M1 

to this part. The minimum payment 

total cost estimate must be rounded to 

the nearest whole dollar; 

(D) A statement that the minimum 

payment repayment estimate and the 

minimum payment total cost estimate 

are based on the current outstanding 

balance shown on the periodic 

statement. A statement that the 

minimum payment repayment estimate 

and the minimum payment total cost 

estimate are based on the assumption 

that only minimum payments are made 

and no other amounts are added to the 

balance; 

(E) A toll-free telephone number 

where the consumer may obtain from 

the card issuer information about credit 

counseling services consistent with 

paragraph (b)(12)(iv) of this section; and 

(F) Except if the minimum payment 

repayment estimate that is disclosed on 

the periodic statement pursuant to 

paragraph (b)(12)(i)(B) of this section is 

three years or less, the following 

disclosures: 

(1) The estimated monthly payment 

for repayment in 36 months, as 

described in Appendix M1 to this part. 

The estimated monthly payment for 

repayment in 36 months must be 

rounded to the nearest whole dollar; 

(2) A statement that the card issuer 

estimates that the consumer will repay 

the outstanding balance shown on the 

periodic statement in 3 years if the 

consumer pays the estimated monthly 

payment each month for 3 years; 

(3) The total cost estimate for 

repayment in 36 months, as described in 

Appendix M1 to this part. The total cost 

estimate for repayment in 36 months 

must be rounded to the nearest whole 

dollar; and 

(4) The savings estimate for 

repayment in 36 months, as described in 

Appendix M1 to this part. The savings 

estimate for repayment in 36 months 

must be rounded to the nearest whole 

dollar. 

(ii) Negative or no amortization. If 

negative or no amortization occurs 

when calculating the minimum 

payment repayment estimate as 

described in Appendix M1 of this part, 

a card issuer must provide the following 

disclosures on the periodic statement 

instead of the disclosures set forth in 

paragraph (b)(12)(i) of this section: 

(A) The following statement: 

‘‘Minimum Payment Warning: Even if 

you make no more charges using this 

card, if you make only the minimum 

payment each month we estimate you 

will never pay off the balance shown on 

this statement because your payment 

will be less than the interest charged 

each month;’’ 

(B) The following statement: ‘‘If you 

make more than the minimum payment 

each period, you will pay less in interest 

and pay off your balance sooner;’’ 

(C) The estimated monthly payment 

for repayment in 36 months, as 

described in Appendix M1 to this part. 

The estimated monthly payment for 

repayment in 36 months must be 

rounded to the nearest whole dollar; 

(D) A statement that the card issuer 

estimates that the consumer will repay 

the outstanding balance shown on the 

periodic statement in 3 years if the 

consumer pays the estimated monthly 

payment each month for 3 years; and 

(E) A toll-free telephone number 

where the consumer may obtain from 

the card issuer information about credit 

counseling services consistent with 

paragraph (b)(12)(iv) of this section. 

(iii) Format requirements. A card 

issuer must provide the disclosures 

required by paragraph (b)(12)(i) or 

(b)(12)(ii) of this section in accordance 

with the format requirements of 

paragraph (b)(13) of this section, and in 

a format substantially similar to 

Samples G–18(C)(1), G–18(C)(2) and G– 

18(C)(3) in Appendix G to this part, as 

applicable. 

(iv) Provision of information about 

credit counseling services. A card issuer 

must provide the following information 

about credit counseling services through 

the toll-free telephone number disclosed 

pursuant to paragraphs (b)(12)(i) or 

(b)(12)(ii) of this section: 

(A) The name, street address, 

telephone number, and Web site address 

for at least three organizations that have 

been approved by the United States 

Trustee or a bankruptcy administrator 

pursuant to 11 U.S.C. 111(a)(1) to 

provide credit counseling services in the 

State in which the billing address for 

the account is located or the State 

specified by the consumer. 

(B) Upon the request of the consumer 

and to the extent available from the 

United States Trustee or a bankruptcy 

administrator, the name, street address, 

telephone number, and Web site address 

for at least one organization that 

satisfies the requirements in paragraph 

(b)(12)(iv)(A) of this section and 

provides credit counseling services in a 


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16 [Reserved] 

17 [Reserved] 

18 [Reserved] 

19 [Reserved] 

20 [Reserved] 

language other than English that is 

specified by the consumer. 

(v) Exemptions. Paragraph (b)(12) of 

this section does not apply to: 

(A) Charge card accounts that require 

payment of outstanding balances in full 

at the end of each billing cycle; 

(B) A billing cycle immediately 

following two consecutive billing cycles 

in which the consumer paid the entire 

balance in full, had a zero outstanding 

balance or had a credit balance; and 

(C) A billing cycle where paying the 

minimum payment due for that billing 

cycle will pay the entire outstanding 

balance on the account for that billing 

cycle. 

(13) Format requirements. The due 

date required by paragraph (b)(11) of 

this section shall be disclosed on the 

front of the first page of the periodic 

statement. The amount of the late 

payment fee and the annual percentage 

rate(s) required by paragraph (b)(11) of 

this section shall be stated in close 

proximity to the due date. The ending 

balance required by paragraph (b)(10) of 

this section and the disclosures required 

by paragraph (b)(12) of this section shall 

be disclosed closely proximate to the 

minimum payment due. The due date, 

late payment fee and annual percentage 

rate, ending balance, minimum payment 

due, and disclosures required by 

paragraph (b)(12) of this section shall be 

grouped together. Sample G–18(D) in 

Appendix G to this part sets forth an 

example of how these terms may be 

grouped. 

(14) Deferred interest or similar 

transactions. For accounts with an 

outstanding balance subject to a 

deferred interest or similar program, the 

date by which that outstanding balance 

must be paid in full in order to avoid 

the obligation to pay finance charges on 

such balance must be disclosed on the 

front of the periodic statement for two 

billing cycles immediately preceding 

the billing cycle in which such date 

occurs. The disclosure provided 

pursuant to this paragraph must be 

substantially similar to Sample G–18(H) 

in Appendix G to this part. 

10. Section 226.8 is revised to read as 

follows: 

§ 226.8 Identifying transactions on 

periodic statements. 

The creditor shall identify credit 

transactions on or with the first periodic 

statement that reflects the transaction by 

furnishing the following information, as 

applicable.16

(a) Sale credit. (1) Except as provided 

in paragraph (a)(2) of this section, for 

each credit transaction involving the 

sale of property or services, the creditor 

must disclose the amount and date of 

the transaction, and either: 

(i) A brief identification 17 of the 

property or services purchased, for 

creditors and sellers that are the same or 

related; 18 or 

(ii) The seller’s name; and the city and 

State or foreign country where the 

transaction took place.19 The creditor 

may omit the address or provide any 

suitable designation that helps the 

consumer to identify the transaction 

when the transaction took place at a 

location that is not fixed; took place in 

the consumer’s home; or was a mail, 

Internet, or telephone order. 

(2) Creditors need not comply with 

paragraph (a)(1) of this section if an 

actual copy of the receipt or other credit 

document is provided with the first 

periodic statement reflecting the 

transaction, and the amount of the 

transaction and either the date of the 

transaction to the consumer’s account or 

the date of debiting the transaction are 

disclosed on the copy or on the periodic 

statement. 

(b) Nonsale credit. For each credit 

transaction not involving the sale of 

property or services, the creditor must 

disclose a brief identification of the 

transaction; 20 the amount of the 

transaction; and at least one of the 

following dates: The date of the 

transaction, the date the transaction was 

debited to the consumer’s account, or, if 

the consumer signed the credit 

document, the date appearing on the 

document. If an actual copy of the 

receipt or other credit document is 

provided and that copy shows the 

amount and at least one of the specified 

dates, the brief identification may be 

omitted. 

(c) Alternative creditor procedures; 

consumer inquiries for clarification or 

documentation. The following 

procedures apply to creditors that treat 

an inquiry for clarification or 

documentation as a notice of a billing 

error, including correcting the account 

in accordance with § 226.13(e): 

(1) Failure to disclose the information 

required by paragraphs (a) and (b) of 

this section is not a failure to comply 

with the regulation, provided that the 

creditor also maintains procedures 

reasonably designed to obtain and 

provide the information. This applies to 

transactions that take place outside a 

State, as defined in § 226.2(a)(26), 

whether or not the creditor maintains 

procedures reasonably adapted to obtain 

the required information. 

(2) As an alternative to the brief 

identification for sale or nonsale credit, 

the creditor may disclose a number or 

symbol that also appears on the receipt 

or other credit document given to the 

consumer, if the number or symbol 

reasonably identifies that transaction 

with that creditor. 

11. Section 226.9 is amended by 

revising paragraphs (a), (b), (c)(2), (e), 

(g), and (h) and to read as follows: 

§ 226.9 Subsequent disclosure 

requirements. 

(a) Furnishing statement of billing 

rights. (1) Annual statement. The 

creditor shall mail or deliver the billing 

rights statement required by 

§ 226.6(a)(5) and (b)(5)(iii) at least once 

per calendar year, at intervals of not less 

than 6 months nor more than 18 

months, either to all consumers or to 

each consumer entitled to receive a 

periodic statement under § 226.5(b)(2) 

for any one billing cycle. 

(2) Alternative summary statement. 

As an alternative to paragraph (a)(1) of 

this section, the creditor may mail or 

deliver, on or with each periodic 

statement, a statement substantially 

similar to Model Form G–4 or Model 

Form G–4(A) in appendix G to this part, 

as applicable. Creditors offering homeequity plans subject to the requirements 

of § 226.5b may use either Model Form, 

at their option. 

(b) Disclosures for supplemental 

credit access devices and additional 

features. (1) If a creditor, within 30 days 

after mailing or delivering the accountopening disclosures under § 226.6(a)(1) 

or (b)(3)(ii)(A), as applicable, adds a 

credit feature to the consumer’s account 

or mails or delivers to the consumer a 

credit access device, including but not 

limited to checks that access a credit 

card account, for which the finance 

charge terms are the same as those 

previously disclosed, no additional 

disclosures are necessary. Except as 

provided in paragraph (b)(3) of this 

section, after 30 days, if the creditor 

adds a credit feature or furnishes a 

credit access device (other than as a 

renewal, resupply, or the original 

issuance of a credit card) on the same 

finance charge terms, the creditor shall 

disclose, before the consumer uses the 

feature or device for the first time, that 

it is for use in obtaining credit under the 

terms previously disclosed. 

(2) Except as provided in paragraph 

(b)(3) of this section, whenever a credit 

feature is added or a credit access 

device is mailed or delivered, and the 

finance charge terms for the feature or 

device differ from disclosures 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
54216 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

previously given, the disclosures 

required by § 226.6(a)(1) or (b)(3)(ii)(A), 

as applicable, that are applicable to the 

added feature or device shall be given 

before the consumer uses the feature or 

device for the first time. 

(3) Checks that access a credit card 

account. 

(i) Disclosures. For open-end plans 

not subject to the requirements of 

§ 226.5b, if checks that can be used to 

access a credit card account are 

provided more than 30 days after 

account-opening disclosures under 

§ 226.6(b) are mailed or delivered, or are 

provided within 30 days of the accountopening disclosures and the finance 

charge terms for the checks differ from 

the finance charge terms previously 

disclosed, the creditor shall disclose on 

the front of the page containing the 

checks the following terms in the form 

of a table with the headings, content, 

and form substantially similar to 

Sample G–19 in appendix G to this part: 

(A) If a promotional rate, as that term 

is defined in § 226.16(g)(2)(i) applies to 

the checks: 

(1) The promotional rate and the time 

period during which the promotional 

rate will remain in effect; 

(2) The type of rate that will apply 

(such as whether the purchase or cash 

advance rate applies) after the 

promotional rate expires, and the 

annual percentage rate that will apply 

after the promotional rate expires. For a 

variable-rate account, a creditor must 

disclose an annual percentage rate based 

on the applicable index or formula in 

accordance with the accuracy 

requirements set forth in paragraph 

(b)(3)(ii) of this section; and 

(3) The date, if any, by which the 

consumer must use the checks in order 

to qualify for the promotional rate. If the 

creditor will honor checks used after 

such date but will apply an annual 

percentage rate other than the 

promotional rate, the creditor must 

disclose this fact and the type of annual 

percentage rate that will apply if the 

consumer uses the checks after such 

date. 

(B) If no promotional rate applies to 

the checks: 

(1) The type of rate that will apply to 

the checks and the applicable annual 

percentage rate. For a variable-rate 

account, a creditor must disclose an 

annual percentage rate based on the 

applicable index or formula in 

accordance with the accuracy 

requirements set forth in paragraph 

(b)(3)(ii) of this section. 

(2) [Reserved] 

(C) Any transaction fees applicable to 

the checks disclosed under 

§ 226.6(b)(2)(iv); and 

(D) Whether or not a grace period is 

given within which any credit extended 

by use of the checks may be repaid 

without incurring a finance charge due 

to a periodic interest rate. When 

disclosing whether there is a grace 

period, the phrase ‘‘How to Avoid 

Paying Interest on Check Transactions’’ 

shall be used as the row heading when 

a grace period applies to credit extended 

by the use of the checks. When 

disclosing the fact that no grace period 

exists for credit extended by use of the 

checks, the phrase ‘‘Paying Interest’’ 

shall be used as the row heading. 

(ii) Accuracy. The disclosures in 

paragraph (b)(3)(i) of this section must 

be accurate as of the time the 

disclosures are mailed or delivered. A 

variable annual percentage rate is 

accurate if it was in effect within 60 

days of when the disclosures are mailed 

or delivered. 

(c)* * * 

(2) Rules affecting open-end (not 

home-secured) plans. (i) Changes where 

written advance notice is required. For 

plans other than home-equity plans 

subject to the requirements of § 226.5b, 

except as provided in paragraphs 

(c)(2)(iii) and (c)(2)(v) of this section, 

when a significant change in account 

terms as described in paragraph (c)(2)(ii) 

of this section is made to a term 

required to be disclosed under 

§ 226.6(b)(3), (b)(4) or (b)(5) is changed 

or the required minimum periodic 

payment is increased, a creditor must 

provide a written notice of the change 

at least 45 days prior to the effective 

date of the change to each consumer 

who may be affected. The 45-day timing 

requirement does not apply if the 

consumer has agreed to a particular 

change; the notice shall be given, 

however, before the effective date of the 

change. Increases in the rate applicable 

to a consumer’s account due to 

delinquency, default or as a penalty 

described in paragraph (g) of this 

section that are not due to a change in 

the contractual terms of the consumer’s 

account must be disclosed pursuant to 

paragraph (g) of this section instead of 

paragraph (c)(2) of this section. 

(ii) Significant changes in account 

terms. For purposes of this section, a 

‘‘significant change in account terms’’ 

means a change to a term required to be 

disclosed under § 226.6(b)(1) and (b)(2) 

or an increase in the required minimum 

periodic payment. 

(iii) Charges not covered by 

§ 226.6(b)(1) and (b)(2). Except as 

provided in paragraph (c)(2)(vi) of this 

section, if a creditor increases any 

component of a charge, or introduces a 

new charge, required to be disclosed 

under § 226.6(b)(3) that is not a 

significant change in account terms as 

described in paragraph (c)(2)(ii) of this 

section, a creditor may either, at its 

option: 

(A) Comply with the requirements of 

paragraph (c)(2)(i) of this section; or 

(B) Provide notice of the amount of 

the charge before the consumer agrees to 

or becomes obligated to pay the charge, 

at a time and in a manner that a 

consumer would be likely to notice the 

disclosure of the charge. The notice may 

be provided orally or in writing. 

(iv) Disclosure requirements. (A) 

Significant changes in account terms. If 

a creditor makes a significant change in 

account terms as described in paragraph 

(c)(2)(ii) of this section, the notice 

provided pursuant to paragraph (c)(2)(i) 

of this section must provide the 

following information: 

(1) A summary of the changes made 

to terms required by § 226.6(b)(1) and 

(b)(2) and a summary of any increase in 

the required minimum periodic 

payment; 

(2) A statement that changes are being 

made to the account; 

(3) For accounts other than credit card 

accounts under an open-end (not homesecured) consumer credit plan subject to 

§ 226.9(c)(2)(iv)(B), a statement 

indicating the consumer has the right to 

opt out of these changes, if applicable, 

and a reference to additional 

information describing the opt-out right 

provided in the notice, if applicable; 

(4) The date the changes will become 

effective; 

(5) If applicable, a statement that the 

consumer may find additional 

information about the summarized 

changes, and other changes to the 

account, in the notice; 

(6) If the creditor is changing a rate on 

the account, other than a penalty rate, 

a statement that if a penalty rate 

currently applies to the consumer’s 

account, the new rate described in the 

notice will not apply to the consumer’s 

account until the consumer’s account 

balances are no longer subject to the 

penalty rate; and 

(7) If the change in terms being 

disclosed is an increase in an annual 

percentage rate, the balances to which 

the increased rate will be applied. If 

applicable, a statement identifying the 

balances to which the current rate will 

continue to apply as of the effective date 

of the change in terms. 

(B) Credit card accounts under an 

open-end (not home-secured) consumer 

credit plan. In addition to the 

information in paragraph (c)(2)(iv)(A) of 

this section, if a card issuer makes a 

significant change in account terms on 

a credit card account under an open-end 

(not home-secured) consumer credit 


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plan, the creditor must generally 

provide the following information on 

the notice provided pursuant to 

paragraph (c)(2)(i) of this section. This 

information is not required to be 

provided in the case of an increase in 

the required minimum periodic 

payment, an increase in an annual 

percentage rate applicable to a 

consumer’s account, a change in the 

balance computation method applicable 

to consumer’s account necessary to 

comply with § 226.54, or when the 

change results from the creditor not 

receiving the consumer’s required 

minimum periodic payment within 60 

days after the due date for that payment: 

(1) A statement that the consumer has 

the right to reject the change or changes 

prior to the effective date of the changes, 

unless the consumer fails to make a 

required minimum periodic payment 

within 60 days after the due date for 

that payment; 

(2) Instructions for rejecting the 

change or changes, and a toll-free 

telephone number that the consumer 

may use to notify the creditor of the 

rejection; and 

(3) If applicable, a statement that if 

the consumer rejects the change or 

changes, the consumer’s ability to use 

the account for further advances will be 

terminated or suspended. 

(C) Format requirements. (1) Tabular 

format. The summary of changes 

described in paragraph (c)(2)(iv)(A)(1) of 

this section must be in a tabular format 

(except for a summary of any increase 

in the required minimum periodic 

payment), with headings and format 

substantially similar to any of the 

account-opening tables found in G–17 

in appendix G to this part. The table 

must disclose the changed term and 

information relevant to the change, if 

that relevant information is required by 

§ 226.6(b)(1) and (b)(2). The new terms 

shall be described in the same level of 

detail as required when disclosing the 

terms under § 226.6(b)(2). 

(2) Notice included with periodic 

statement. If a notice required by 

paragraph (c)(2)(i) of this section is 

included on or with a periodic 

statement, the information described in 

paragraph (c)(2)(iv)(A)(1) of this section 

must be disclosed on the front of any 

page of the statement. The summary of 

changes described in paragraph 

(c)(1)(iv)(A)(1) of this section must 

immediately follow the information 

described in paragraph (c)(2)(iv)(A)(2) 

through (c)(2)(iv)(A)(7) and, if 

applicable, paragraph (c)(2)(iv)(B) of this 

section, and be substantially similar to 

the format shown in Sample G–20 or G– 

21 in appendix G to this part. 

(3) Notice provided separately from 

periodic statement. If a notice required 

by paragraph (c)(2)(i) of this section is 

not included on or with a periodic 

statement, the information described in 

paragraph (c)(2)(iv)(A)(1) of this section 

must, at the creditor’s option, be 

disclosed on the front of the first page 

of the notice or segregated on a separate 

page from other information given with 

the notice. The summary of changes 

required to be in a table pursuant to 

paragraph (c)(2)(iv)(A)(1) of this section 

may be on more than one page, and may 

use both the front and reverse sides, so 

long as the table begins on the front of 

the first page of the notice and there is 

a reference on the first page indicating 

that the table continues on the following 

page. The summary of changes 

described in paragraph (c)(2)(iv)(A)(1) of 

this section must immediately follow 

the information described in paragraph 

(c)(1)(iv)(A)(2) through (c)(1)(iv)(A)(7) 

and, if applicable, paragraph 

(c)(2)(iv)(B), of this section, 

substantially similar to the format 

shown in Sample G–20 or G–21 in 

appendix G to this part. 

(v) Notice not required. For open-end 

plans (other than home equity plans 

subject to the requirements of § 226.5b) 

a creditor is not required to provide 

notice under this section: 

(A) When the change involves charges 

for documentary evidence; a reduction 

of any component of a finance or other 

charge; suspension of future credit 

privileges (except as provided in 

paragraph (c)(2)(vi) of this section) or 

termination of an account or plan; when 

the change results from an agreement 

involving a court proceeding; when the 

change is an extension of the grace 

period; or if the change is applicable 

only to a check or checks that access a 

credit card account and the changed 

terms are disclosed on or with the 

checks in accordance with § 226.9(b)(3); 

(B) When the change is an increase in 

an annual percentage rate upon the 

expiration of a specified period of time, 

provided that: 

(1) Prior to commencement of that 

period, the creditor disclosed in writing 

to the consumer, in a clear and 

conspicuous manner, the length of the 

period and the annual percentage rate 

that would apply after expiration of the 

period; 

(2) The disclosure of the length of the 

period and the annual percentage rate 

that would apply after expiration of the 

period are set forth in close proximity 

and in equal prominence to the 

disclosure of the rate that applies during 

the specified period of time; and 

(3) The annual percentage rate that 

applies after that period does not exceed 

the rate disclosed pursuant to paragraph 

(c)(2)(v)(B)(1) of this paragraph or, if the 

rate disclosed pursuant to paragraph 

(c)(2)(v)(B)(1) of this section was a 

variable rate, the rate following any 

such increase is a variable rate 

determined by the same formula (index 

and margin) that was used to calculate 

the variable rate disclosed pursuant to 

paragraph (c)(2)(v)(B)(1); 

(C) When the change is an increase in 

a variable annual percentage rate in 

accordance with a credit card or other 

account agreement that provides for 

changes in the rate according to 

operation of an index that is not under 

the control of the creditor and is 

available to the general public; or 

(D) When the change is an increase in 

an annual percentage rate or a fee or 

charge required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

due to the completion of a workout or 

temporary hardship arrangement by the 

consumer or the consumer’s failure to 

comply with the terms of such an 

arrangement, provided that: 

(1) The annual percentage rate or fee 

or charge applicable to a category of 

transactions following any such increase 

does not exceed the rate or fee or charge 

that applied to that category of 

transactions prior to commencement of 

the arrangement or, if the rate that 

applied to a category of transactions 

prior to the commencement of the 

workout or temporary hardship 

arrangement was a variable rate, the rate 

following any such increase is a variable 

rate determined by the same formula 

(index and margin) that applied to the 

category of transactions prior to 

commencement of the workout or 

temporary hardship arrangement; and 

(2) The creditor has provided the 

consumer, prior to the commencement 

of such arrangement, with a clear and 

conspicuous written disclosure of the 

terms of the arrangement (including any 

increases due to such completion or 

failure). 

(vi) Reduction of the credit limit. For 

open-end plans that are not subject to 

the requirements of § 226.5b, if a 

creditor decreases the credit limit on an 

account, advance notice of the decrease 

must be provided before an over-thelimit fee or a penalty rate can be 

imposed solely as a result of the 

consumer exceeding the newly 

decreased credit limit. Notice shall be 

provided in writing or orally at least 45 

days prior to imposing the over-thelimit fee or penalty rate and shall state 

that the credit limit on the account has 

been or will be decreased. 

* * * * * 

(e) Disclosures upon renewal of credit 

or charge card. (1) Notice prior to 


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renewal. A card issuer that imposes any 

annual or other periodic fee to renew a 

credit or charge card account of the type 

subject to § 226.5a, including any fee 

based on account activity or inactivity 

or any card issuer that has changed or 

amended any term of a cardholder’s 

account required to be disclosed under 

§ 226.6(b)(1) and (b)(2) that has not 

previously been disclosed to the 

consumer, shall mail or deliver written 

notice of the renewal to the cardholder. 

If the card issuer imposes any annual or 

other periodic fee for renewal, the 

notice shall be provided at least 30 days 

or one billing cycle, whichever is less, 

before the mailing or the delivery of the 

periodic statement on which any 

renewal fee is initially charged to the 

account. If the card issuer has changed 

or amended any term required to be 

disclosed under § 226.(b)(1) and (b)(2) 

and such changed or amended term has 

not previously been disclosed to the 

consumer, the notice shall be provided 

at least 30 days prior to the scheduled 

renewal date of the consumer’s credit or 

charge card. The notice shall contain the 

following information: 

(i) The disclosures contained in 

§ 226.5a(b)(1) through (b)(7) that would 

apply if the account were renewed; 20a

and 

(ii) How and when the cardholder 

may terminate credit availability under 

the account to avoid paying the renewal 

fee, if applicable. 

(2) Notification on periodic 

statements. The disclosures required by 

this paragraph may be made on or with 

a periodic statement. If any of the 

disclosures are provided on the back of 

a periodic statement, the card issuer 

shall include a reference to those 

disclosures on the front of the 

statement. 

(g) Increase in rates due to 

delinquency or default or as a penalty. 

(1) Increases subject to this section. For 

plans other than home-equity plans 

subject to the requirements of § 226.5b, 

except as provided in paragraph (g)(4) of 

this section, a creditor must provide a 

written notice to each consumer who 

may be affected when: 

(i) A rate is increased due to the 

consumer’s delinquency or default; or 

(ii) A rate is increased as a penalty for 

one or more events specified in the 

account agreement, such as making a 

late payment or obtaining an extension 

of credit that exceeds the credit limit. 

(2) Timing of written notice. 

Whenever any notice is required to be 

given pursuant to paragraph (g)(1) of 

this section, the creditor shall provide 

written notice of the increase in rates at 

least 45 days prior to the effective date 

of the increase. The notice must be 

provided after the occurrence of the 

events described in paragraphs (g)(1)(i) 

and (g)(1)(ii) of this section that trigger 

the imposition of the rate increase. 

(3)(i) Disclosure requirements for rate 

increases. (A) General. If a creditor is 

increasing the rate due to delinquency 

or default or as a penalty, the creditor 

must provide the following information 

on the notice sent pursuant to paragraph 

(g)(1) of this section: 

(1) A statement that the delinquency 

or default rate or penalty rate, as 

applicable, has been triggered; 

(2) The date on which the 

delinquency or default rate or penalty 

rate will apply; 

(3) The circumstances under which 

the delinquency or default rate or 

penalty rate, as applicable, will cease to 

apply to the consumer’s account, or that 

the delinquency or default rate or 

penalty rate will remain in effect for a 

potentially indefinite time period; 

(4) A statement indicating to which 

balances the delinquency or default rate 

or penalty rate will be applied; and 

(5) If applicable, a description of any 

balances to which the current rate will 

continue to apply as of the effective date 

of the rate increase, unless a consumer 

fails to make a minimum periodic 

payment within 60 days from the due 

date for that payment. 

(B) Rate increases resulting from 

failure to make minimum periodic 

payment within 60 days from due date. 

For a credit card account under an 

open-end (not home-secured) consumer 

credit plan, if the rate increase required 

to be disclosed pursuant to paragraph 

(g)(1) of this section is an increase 

pursuant to § 226.55(b)(4) based on the 

consumer’s failure to make a minimum 

periodic payment within 60 days from 

the due date for that payment, the notice 

provided pursuant to paragraph (g)(1) of 

this section must also contain the 

following information: 

(1) A statement of the reason for the 

increase; and 

(2) That the increase will cease to 

apply if the creditor receives six 

consecutive required minimum periodic 

payments on or before the payment due 

date, beginning with the first payment 

due following the effective date of the 

increase. 

(ii) Format requirements. (A) If a 

notice required by paragraph (g)(1) of 

this section is included on or with a 

periodic statement, the information 

described in paragraph (g)(3)(i) of this 

section must be in the form of a table 

and provided on the front of any page 

of the periodic statement, above the 

notice described in paragraph (c)(2)(iv) 

of this section if that notice is provided 

on the same statement. 

(B) If a notice required by paragraph 

(g)(1) of this section is not included on 

or with a periodic statement, the 

information described in paragraph 

(g)(3)(i) of this section must be disclosed 

on the front of the first page of the 

notice. Only information related to the 

increase in the rate to a penalty rate may 

be included with the notice, except that 

this notice may be combined with a 

notice described in paragraph (c)(2)(iv) 

or (g)(4) of this section. 

(4) Exception for decrease in credit 

limit. A creditor is not required to 

provide, prior to increasing the rate for 

obtaining an extension of credit that 

exceeds the credit limit, a notice 

pursuant to paragraph (g)(1) of this 

section, provided that: 

(i) The creditor provides at least 45 

days in advance of imposing the penalty 

rate a notice, in writing, that includes: 

(A) A statement that the credit limit 

on the account has been or will be 

decreased. 

(B) A statement indicating the date on 

which the penalty rate will apply, if the 

outstanding balance exceeds the credit 

limit as of that date; 

(C) A statement that the penalty rate 

will not be imposed on the date 

specified in paragraph (g)(4)(i)(B) of this 

section, if the outstanding balance does 

not exceed the credit limit as of that 

date; 

(D) The circumstances under which 

the penalty rate, if applied, will cease to 

apply to the account, or that the penalty 

rate, if applied, will remain in effect for 

a potentially indefinite time period; 

(E) A statement indicating to which 

balances the penalty rate may be 

applied; and 

(F) If applicable, a description of any 

balances to which the current rate will 

continue to apply as of the effective date 

of the rate increase, unless the consumer 

fails to make a minimum periodic 

payment within 60 days from the due 

date for that payment; and 

(ii) The creditor does not increase the 

rate applicable to the consumer’s 

account to the penalty rate if the 

outstanding balance does not exceed the 

credit limit on the date set forth in the 

notice and described in paragraph 

9(g)(4)(i)(B) of this section. 

(iii) (A) If a notice provided pursuant 

to paragraph (g)(4)(i) of this section is 

included on or with a periodic 

statement, the information described in 

paragraph (g)(4)(i) of this section must 

be in the form of a table and provided 

on the front of any page of the periodic 

statement; or 

(B) If a notice required by paragraph 

(g)(4)(i) of this section is not included 


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on or with a periodic statement, the 

information described in paragraph 

(g)(4)(i) of this section must be disclosed 

on the front of the first page of the 

notice. Only information related to the 

reduction in credit limit may be 

included with the notice, except that 

this notice may be combined with a 

notice described in paragraph (c)(2)(iv) 

or (g)(1) of this section. 

(h) Consumer rejection of certain 

significant changes in terms. (1) Right to 

reject. If paragraph (c)(2)(iv)(B) of this 

section requires disclosure of the 

consumer’s right to reject a significant 

change to an account term, the 

consumer may reject that change by 

notifying the creditor of the rejection 

before the effective date of the change. 

(2) Effect of rejection. If a creditor is 

notified of a rejection of a significant 

change to an account term as provided 

in paragraph (h)(1) of this section, the 

creditor must not: 

(i) Apply the change to the account; 

(ii) Impose a fee or charge or treat the 

account as in default solely as a result 

of the rejection; or 

(iii) Require repayment of the balance 

on the account using a method that is 

less beneficial to the consumer than one 

of the methods listed in § 226.55(c)(2). 

(3) Exception. Section 226.9(h) does 

not apply when the creditor has not 

received the consumer’s required 

minimum periodic payment within 60 

days after the due date for that payment. 

12. Section 226.10 is revised to read 

as follows: 

§ 226.10 Payments. 

(a) General rule. A creditor shall 

credit a payment to the consumer’s 

account as of the date of receipt, except 

when a delay in crediting does not 

result in a finance or other charge or 

except as provided in paragraph (b) of 

this section. 

(b) Specific requirements for 

payments. (1) General rule. A creditor 

may specify reasonable requirements for 

payments that enable most consumers to 

make conforming payments. 

(2) Examples of reasonable 

requirements for payments. Reasonable 

requirements for making payment may 

include: 

(i) Requiring that payments be 

accompanied by the account number or 

payment stub; 

(ii) Setting reasonable cut-off times for 

payments to be received by mail, by 

electronic means, by telephone, and in 

person (except as provided in paragraph 

(b)(3) of this section), provided that 

such cut-off times shall be no earlier 

than 5 p.m. on the payment due date at 

the location specified by the creditor for 

the receipt of such payments; 

(iii) Specifying that only checks or 

money orders should be sent by mail; 

(iv) Specifying that payment is to be 

made in U.S. dollars; or 

(v) Specifying one particular address 

for receiving payments, such as a post 

office box. 

(3) In-person payments on credit card 

accounts. (i) General. A card issuer that 

is a financial institution shall not 

impose a cut-off time earlier than the 

close of business for payments on a 

credit card account under an open-end 

(not home-secured) consumer credit 

plan made in person at any branch or 

office of the card issuer at which such 

payments are accepted. Any such 

payment made in person at a branch or 

office of the card issuer earlier than the 

close of business of that branch or office 

shall be considered received on the date 

on which the consumer makes the 

payment. 

(ii) Financial institution. For purposes 

of paragraph (b)(3) of this section, 

‘‘financial institution’’ shall mean a 

‘‘depository institution’’ as defined in 

12 U.S.C. 1813(c). 

(4) Nonconforming payments. If a 

creditor specifies, on or with the 

periodic statement, requirements for the 

consumer to follow in making 

payments, but accepts a payment that 

does not conform to the requirements, 

the creditor shall credit the payment 

within five days of receipt. 

(c) Adjustment of account. If a 

creditor fails to credit a payment, as 

required by paragraphs (a) or (b) of this 

section, in time to avoid the imposition 

of finance or other charges, the creditor 

shall adjust the consumer’s account so 

that the charges imposed are credited to 

the consumer’s account during the next 

billing cycle. 

(d) Crediting of payments when 

creditor does not receive or accept 

payments on due date. If the due date 

for payments is a day on which the 

creditor does not receive or accept 

payments by mail, the creditor may 

generally not treat a payment received 

by any method the next business day as 

late for any purpose. However, if the 

creditor accepts or receives payments 

made on the due date by a method other 

than mail, such as electronic or 

telephone payments, the creditor is not 

required to treat a payment made by that 

method on the next business day as 

timely, even if it does not accept mailed 

payments on the due date. 

(e) Limitations on fees related to 

method of payment. For credit card 

accounts under an open-end (not homesecured) consumer credit plan, a 

creditor may not impose a separate fee 

to allow consumers to make a payment 

by any method, such as mail, electronic, 

or telephone payments, unless such 

payment method involves an expedited 

service by a customer service 

representative of the creditor. 

(f) Changes by card issuer. If a card 

issuer makes a material change in the 

address for receiving payment or 

procedures for handling cardholder 

payments, and such change causes a 

material delay in the crediting of a 

payment to the consumer’s account 

during the 60-day period following the 

date on which such change took effect, 

the card issuer may not impose any late 

fee or finance charge for a late payment 

on the credit card account. 

13. Section 226.11 is revised to read 

as follows: 

§ 226.11 Treatment of credit balances; 

account termination. 

(a) Credit balances. When a credit 

balance in excess of $1 is created on a 

credit account (through transmittal of 

funds to a creditor in excess of the total 

balance due on an account, through 

rebates of unearned finance charges or 

insurance premiums, or through 

amounts otherwise owed to or held for 

the benefit of the consumer), the 

creditor shall— 

(1) Credit the amount of the credit 

balance to the consumer’s account; 

(2) Refund any part of the remaining 

credit balance within seven business 

days from receipt of a written request 

from the consumer; 

(3) Make a good faith effort to refund 

to the consumer by cash, check, or 

money order, or credit to a deposit 

account of the consumer, any part of the 

credit balance remaining in the account 

for more than six months. No further 

action is required if the consumer’s 

current location is not known to the 

creditor and cannot be traced through 

the consumer’s last known address or 

telephone number. 

(b) Account termination. (1) A 

creditor shall not terminate an account 

prior to its expiration date solely 

because the consumer does not incur a 

finance charge. 

(2) Nothing in paragraph (b)(1) of this 

section prohibits a creditor from 

terminating an account that is inactive 

for three or more consecutive months. 

An account is inactive for purposes of 

this paragraph if no credit has been 

extended (such as by purchase, cash 

advance or balance transfer) and if the 

account has no outstanding balance. 

(c) Timely settlement of estate debts. 

(1) General rule. For credit card 

accounts under an open-end (not homesecured) consumer credit plan, creditors 

must adopt reasonable procedures 

designed to ensure that an administrator 

or executor of an estate of a deceased 


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accountholder can determine the 

amount of and pay any balance on the 

account in a timely manner. 

(2) Fees and charges. (i) Limitation on 

fees and charges. Except as provided in 

paragraph (c)(2)(ii) of this section, upon 

receiving a request by the administrator 

or executor of an estate for the amount 

of the balance on a deceased consumer’s 

account, a creditor may not impose fees 

or charges, such as a late fee or finance 

charge, on the account on or after the 

date of receiving the request. 

(ii) Application to joint accounts. For 

joint accounts, a creditor may impose 

fees and charges on an account of a 

deceased consumer if a joint 

accountholder remains on the account. 

(3) Timely statement of balance. (i) 

Requirement. Upon request by the 

administrator or executor of an estate, a 

creditor must provide the administrator 

or executor of an estate with the amount 

of the balance on a deceased consumer’s 

account in a timely manner. 

(ii) Safe harbor. For the purposes of 

paragraph (c)(3)(i) of this section, 

providing the amount of the balance on 

the account within 30 days of receiving 

the request is deemed to be timely. 

14. Section 226.12 is revised to read 

as follows: 

§ 226.12 Special credit card provisions. 

(a) Issuance of credit cards. 

Regardless of the purpose for which a 

credit card is to be used, including 

business, commercial, or agricultural 

use, no credit card shall be issued to any 

person except— 

(1) In response to an oral or written 

request or application for the card; or 

(2) As a renewal of, or substitute for, 

an accepted credit card.21

(b) Liability of cardholder for 

unauthorized use. (1)(i) Definition of 

unauthorized use. For purposes of this 

section, the term ‘‘unauthorized use’’ 

means the use of a credit card by a 

person, other than the cardholder, who 

does not have actual, implied, or 

apparent authority for such use, and 

from which the cardholder receives no 

benefit. 

(ii) Limitation on amount. The 

liability of a cardholder for 

unauthorized use 22 of a credit card shall 

not exceed the lesser of $50 or the 

amount of money, property, labor, or 

services obtained by the unauthorized 

use before notification to the card issuer 

under paragraph (b)(3) of this section. 

(2) Conditions of liability. A 

cardholder shall be liable for 

unauthorized use of a credit card only 

if: 

(i) The credit card is an accepted 

credit card; 

(ii) The card issuer has provided 

adequate notice 23 of the cardholder’s 

maximum potential liability and of 

means by which the card issuer may be 

notified of loss or theft of the card. The 

notice shall state that the cardholder’s 

liability shall not exceed $50 (or any 

lesser amount) and that the cardholder 

may give oral or written notification, 

and shall describe a means of 

notification (for example, a telephone 

number, an address, or both); and 

(iii) The card issuer has provided a 

means to identify the cardholder on the 

account or the authorized user of the 

card. 

(3) Notification to card issuer. 

Notification to a card issuer is given 

when steps have been taken as may be 

reasonably required in the ordinary 

course of business to provide the card 

issuer with the pertinent information 

about the loss, theft, or possible 

unauthorized use of a credit card, 

regardless of whether any particular 

officer, employee, or agent of the card 

issuer does, in fact, receive the 

information. Notification may be given, 

at the option of the person giving it, in 

person, by telephone, or in writing. 

Notification in writing is considered 

given at the time of receipt or, whether 

or not received, at the expiration of the 

time ordinarily required for 

transmission, whichever is earlier. 

(4) Effect of other applicable law or 

agreement. If State law or an agreement 

between a cardholder and the card 

issuer imposes lesser liability than that 

provided in this paragraph, the lesser 

liability shall govern. 

(5) Business use of credit cards. If 10 

or more credit cards are issued by one 

card issuer for use by the employees of 

an organization, this section does not 

prohibit the card issuer and the 

organization from agreeing to liability 

for unauthorized use without regard to 

this section. However, liability for 

unauthorized use may be imposed on an 

employee of the organization, by either 

the card issuer or the organization, only 

in accordance with this section. 

(c) Right of cardholder to assert 

claims or defenses against card issuer.24

(1) General rule. When a person who 

honors a credit card fails to resolve 

satisfactorily a dispute as to property or 

services purchased with the credit card 

in a consumer credit transaction, the 

cardholder may assert against the card 

issuer all claims (other than tort claims) 

and defenses arising out of the 

transaction and relating to the failure to 

resolve the dispute. The cardholder may 

withhold payment up to the amount of 

credit outstanding for the property or 

services that gave rise to the dispute and 

any finance or other charges imposed on 

that amount.25

(2) Adverse credit reports prohibited. 

If, in accordance with paragraph (c)(1) 

of this section, the cardholder withholds 

payment of the amount of credit 

outstanding for the disputed 

transaction, the card issuer shall not 

report that amount as delinquent until 

the dispute is settled or judgment is 

rendered. 

(3) Limitations. (i) General. The rights 

stated in paragraphs (c)(1) and (c)(2) of 

this section apply only if: 

(A) The cardholder has made a good 

faith attempt to resolve the dispute with 

the person honoring the credit card; and 

(B) The amount of credit extended to 

obtain the property or services that 

result in the assertion of the claim or 

defense by the cardholder exceeds $50, 

and the disputed transaction occurred 

in the same State as the cardholder’s 

current designated address or, if not 

within the same State, within 100 miles 

from that address.26

(ii) Exclusion. The limitations stated 

in paragraph (c)(3)(i)(B) of this section 

shall not apply when the person 

honoring the credit card: 

(A) Is the same person as the card 

issuer; 

(B) Is controlled by the card issuer 

directly or indirectly; 

(C) Is under the direct or indirect 

control of a third person that also 

directly or indirectly controls the card 

issuer; 

(D) Controls the card issuer directly or 

indirectly; 

(E) Is a franchised dealer in the card 

issuer’s products or services; or 

(F) Has obtained the order for the 

disputed transaction through a mail 

solicitation made or participated in by 

the card issuer. 

(d) Offsets by card issuer prohibited. 

(1) A card issuer may not take any 

action, either before or after termination 

of credit card privileges, to offset a 

cardholder’s indebtedness arising from a 

consumer credit transaction under the 

relevant credit card plan against funds 

of the cardholder held on deposit with 

the card issuer. 

(2) This paragraph does not alter or 

affect the right of a card issuer acting 

under State or Federal law to do any of 

the following with regard to funds of a 

cardholder held on deposit with the 

card issuer if the same procedure is 

constitutionally available to creditors 


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generally: obtain or enforce a 

consensual security interest in the 

funds; attach or otherwise levy upon the 

funds; or obtain or enforce a court order 

relating to the funds. 

(3) This paragraph does not prohibit 

a plan, if authorized in writing by the 

cardholder, under which the card issuer 

may periodically deduct all or part of 

the cardholder’s credit card debt from a 

deposit account held with the card 

issuer (subject to the limitations in 

§ 226.13(d)(1)). 

(e) Prompt notification of returns and 

crediting of refunds. (1) When a creditor 

other than the card issuer accepts the 

return of property or forgives a debt for 

services that is to be reflected as a credit 

to the consumer’s credit card account, 

that creditor shall, within 7 business 

days from accepting the return or 

forgiving the debt, transmit a credit 

statement to the card issuer through the 

card issuer’s normal channels for credit 

statements. 

(2) The card issuer shall, within 3 

business days from receipt of a credit 

statement, credit the consumer’s 

account with the amount of the refund. 

(3) If a creditor other than a card 

issuer routinely gives cash refunds to 

consumers paying in cash, the creditor 

shall also give credit or cash refunds to 

consumers using credit cards, unless it 

discloses at the time the transaction is 

consummated that credit or cash 

refunds for returns are not given. This 

section does not require refunds for 

returns nor does it prohibit refunds in 

kind. 

(f) Discounts; tie-in arrangements. No 

card issuer may, by contract or 

otherwise: 

(1) Prohibit any person who honors a 

credit card from offering a discount to 

a consumer to induce the consumer to 

pay by cash, check, or similar means 

rather than by use of a credit card or its 

underlying account for the purchase of 

property or services; or 

(2) Require any person who honors 

the card issuer’s credit card to open or 

maintain any account or obtain any 

other service not essential to the 

operation of the credit card plan from 

the card issuer or any other person, as 

a condition of participation in a credit 

card plan. If maintenance of an account 

for clearing purposes is determined to 

be essential to the operation of the 

credit card plan, it may be required only 

if no service charges or minimum 

balance requirements are imposed. 

(g) Relation to Electronic Fund 

Transfer Act and Regulation E. For 

guidance on whether Regulation Z (12 

CFR part 226) or Regulation E (12 CFR 

part 205) applies in instances involving 

both credit and electronic fund transfer 

aspects, refer to Regulation E, 12 CFR 

205.12(a) regarding issuance and 

liability for unauthorized use. On 

matters other than issuance and 

liability, this section applies to the 

credit aspects of combined credit/ 

electronic fund transfer transactions, as 

applicable. 

15. Section 226.13 is revised to read 

as follows: 

§ 226.13 Billing error resolution.27

(a) Definition of billing error. For 

purposes of this section, the term billing 

error means: 

(1) A reflection on or with a periodic 

statement of an extension of credit that 

is not made to the consumer or to a 

person who has actual, implied, or 

apparent authority to use the 

consumer’s credit card or open-end 

credit plan. 

(2) A reflection on or with a periodic 

statement of an extension of credit that 

is not identified in accordance with the 

requirements of §§ 226.7(a)(2) or (b)(2), 

as applicable, and 226.8. 

(3) A reflection on or with a periodic 

statement of an extension of credit for 

property or services not accepted by the 

consumer or the consumer’s designee, 

or not delivered to the consumer or the 

consumer’s designee as agreed. 

(4) A reflection on a periodic 

statement of the creditor’s failure to 

credit properly a payment or other 

credit issued to the consumer’s account. 

(5) A reflection on a periodic 

statement of a computational or similar 

error of an accounting nature that is 

made by the creditor. 

(6) A reflection on a periodic 

statement of an extension of credit for 

which the consumer requests additional 

clarification, including documentary 

evidence. 

(7) The creditor’s failure to mail or 

deliver a periodic statement to the 

consumer’s last known address if that 

address was received by the creditor, in 

writing, at least 20 days before the end 

of the billing cycle for which the 

statement was required. 

(b) Billing error notice.28 A billing 

error notice is a written notice 29 from a 

consumer that: 

(1) Is received by a creditor at the 

address disclosed under § 226.7(a)(9) or 

(b)(9), as applicable, no later than 60 

days after the creditor transmitted the 

first periodic statement that reflects the 

alleged billing error; 

(2) Enables the creditor to identify the 

consumer’s name and account number; 

and 

(3) To the extent possible, indicates 

the consumer’s belief and the reasons 

for the belief that a billing error exists, 

and the type, date, and amount of the 

error. 

(c) Time for resolution; general 

procedures. 

(1) The creditor shall mail or deliver 

written acknowledgment to the 

consumer within 30 days of receiving a 

billing error notice, unless the creditor 

has complied with the appropriate 

resolution procedures of paragraphs (e) 

and (f) of this section, as applicable, 

within the 30-day period; and 

(2) The creditor shall comply with the 

appropriate resolution procedures of 

paragraphs (e) and (f) of this section, as 

applicable, within 2 complete billing 

cycles (but in no event later than 90 

days) after receiving a billing error 

notice. 

(d) Rules pending resolution. Until a 

billing error is resolved under paragraph 

(e) or (f) of this section, the following 

rules apply: 

(1) Consumer’s right to withhold 

disputed amount; collection action 

prohibited. The consumer need not pay 

(and the creditor may not try to collect) 

any portion of any required payment 

that the consumer believes is related to 

the disputed amount (including related 

finance or other charges).30 If the 

cardholder has enrolled in an automatic 

payment plan offered by the card issuer 

and has agreed to pay the credit card 

indebtedness by periodic deductions 

from the cardholder’s deposit account, 

the card issuer shall not deduct any part 

of the disputed amount or related 

finance or other charges if a billing error 

notice is received any time up to 3 

business days before the scheduled 

payment date. 

(2) Adverse credit reports prohibited. 

The creditor or its agent shall not 

(directly or indirectly) make or threaten 

to make an adverse report to any person 

about the consumer’s credit standing, or 

report that an amount or account is 

delinquent, because the consumer failed 

to pay the disputed amount or related 

finance or other charges. 

(3) Acceleration of debt and 

restriction of account prohibited. A 

creditor shall not accelerate any part of 

the consumer’s indebtedness or restrict 

or close a consumer’s account solely 

because the consumer has exercised in 

good faith rights provided by this 

section. A creditor may be subject to the 

forfeiture penalty under section 161(e) 

of the act for failure to comply with any 

of the requirements of this section. 

(4) Permitted creditor actions. A 

creditor is not prohibited from taking 


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action to collect any undisputed portion 

of the item or bill; from deducting any 

disputed amount and related finance or 

other charges from the consumer’s 

credit limit on the account; or from 

reflecting a disputed amount and related 

finance or other charges on a periodic 

statement, provided that the creditor 

indicates on or with the periodic 

statement that payment of any disputed 

amount and related finance or other 

charges is not required pending the 

creditor’s compliance with this section. 

(e) Procedures if billing error occurred 

as asserted. If a creditor determines that 

a billing error occurred as asserted, it 

shall within the time limits in paragraph 

(c)(2) of this section: 

(1) Correct the billing error and credit 

the consumer’s account with any 

disputed amount and related finance or 

other charges, as applicable; and 

(2) Mail or deliver a correction notice 

to the consumer. 

(f) Procedures if different billing error 

or no billing error occurred. If, after 

conducting a reasonable investigation,31

a creditor determines that no billing 

error occurred or that a different billing 

error occurred from that asserted, the 

creditor shall within the time limits in 

paragraph (c)(2) of this section: 

(1) Mail or deliver to the consumer an 

explanation that sets forth the reasons 

for the creditor’s belief that the billing 

error alleged by the consumer is 

incorrect in whole or in part; 

(2) Furnish copies of documentary 

evidence of the consumer’s 

indebtedness, if the consumer so 

requests; and 

(3) If a different billing error occurred, 

correct the billing error and credit the 

consumer’s account with any disputed 

amount and related finance or other 

charges, as applicable. 

(g) Creditor’s rights and duties after 

resolution. If a creditor, after complying 

with all of the requirements of this 

section, determines that a consumer 

owes all or part of the disputed amount 

and related finance or other charges, the 

creditor: 

(1) Shall promptly notify the 

consumer in writing of the time when 

payment is due and the portion of the 

disputed amount and related finance or 

other charges that the consumer still 

owes; 

(2) Shall allow any time period 

disclosed under § 226.6(a)(1) or (b)(2)(v), 

as applicable, and § 226.7(a)(8) or (b)(8), 

as applicable, during which the 

consumer can pay the amount due 

under paragraph (g)(1) of this section 

without incurring additional finance or 

other charges; 

(3) May report an account or amount 

as delinquent because the amount due 

under paragraph (g)(1) of this section 

remains unpaid after the creditor has 

allowed any time period disclosed 

under § 226.6(a)(1) or (b)(2)(v), as 

applicable, and § 226.7(a)(8) or (b)(8), as 

applicable or 10 days (whichever is 

longer) during which the consumer can 

pay the amount; but 

(4) May not report that an amount or 

account is delinquent because the 

amount due under paragraph (g)(1) of 

the section remains unpaid, if the 

creditor receives (within the time 

allowed for payment in paragraph (g)(3) 

of this section) further written notice 

from the consumer that any portion of 

the billing error is still in dispute, 

unless the creditor also: 

(i) Promptly reports that the amount 

or account is in dispute; 

(ii) Mails or delivers to the consumer 

(at the same time the report is made) a 

written notice of the name and address 

of each person to whom the creditor 

makes a report; and 

(iii) Promptly reports any subsequent 

resolution of the reported delinquency 

to all persons to whom the creditor has 

made a report. 

(h) Reassertion of billing error. A 

creditor that has fully complied with the 

requirements of this section has no 

further responsibilities under this 

section (other than as provided in 

paragraph (g)(4) of this section) if a 

consumer reasserts substantially the 

same billing error. 

(i) Relation to Electronic Fund 

Transfer Act and Regulation E. If an 

extension of credit is incident to an 

electronic fund transfer, under an 

agreement between a consumer and a 

financial institution to extend credit 

when the consumer’s account is 

overdrawn or to maintain a specified 

minimum balance in the consumer’s 

account, the creditor shall comply with 

the requirements of Regulation E, 12 

CFR 205.11 governing error resolution 

rather than those of paragraphs (a), (b), 

(c), (e), (f), and (h) of this section. 

16. 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 Ath of 1 percentage point above or 

below the annual percentage rate 

determined in accordance with this 

section.31a An error in disclosure of the 

annual percentage rate or finance charge 

shall not, in itself, be considered a 

violation of this regulation if: 

(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 

§§ 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 


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35 [Reserved] 36d [Reserved] 

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. 

17. Section 226.16 is revised to read 

as follows: 

§ 226.16 Advertising. 

(a) Actually available terms. If an 

advertisement for credit states specific 

credit terms, it shall state only those 

terms that actually are or will be 

arranged or offered by the creditor. 

(b) Advertisement of terms that 

require additional disclosures. (1) Any 

term required to be disclosed under 

§ 226.6(b)(3) set forth affirmatively or 

negatively in an advertisement for an 

open-end (not home-secured) credit 

plan triggers additional disclosures 

under this section. Any term required to 

be disclosed under § 226.6(a)(1) or (a)(2) 

set forth affirmatively or negatively in 

an advertisement for a home-equity plan 

subject to the requirements of § 226.5b 

triggers additional disclosures under 

this section. If any of the terms that 

trigger additional disclosures under this 

paragraph is set forth in an 

advertisement, the advertisement shall 

also clearly and conspicuously set forth 

the following: 36d

(i) Any minimum, fixed, transaction, 

activity or similar charge that is a 

finance charge under § 226.4 that could 

be imposed. 

(ii) Any periodic rate that may be 

applied expressed as an annual 

percentage rate as determined under 

§ 226.14(b). If the plan provides for a 

variable periodic rate, that fact shall be 

disclosed. 

(iii) Any membership or participation 

fee that could be imposed. 

(2) If an advertisement for credit to 

finance the purchase of goods or 

services specified in the advertisement 

states a periodic payment amount, the 

advertisement shall also state the total 

of payments and the time period to 

repay the obligation, assuming that the 

consumer pays only the periodic 

payment amount advertised. The 

disclosure of the total of payments and 

the time period to repay the obligation 

must be equally prominent to the 

statement of the periodic payment 

amount. 

(c) Catalogs or other multiple-page 

advertisements; electronic 

advertisements. (1) If a catalog or other 

multiple-page advertisement, or an 

electronic advertisement (such as an 

advertisement appearing on an Internet 

Web site), gives information in a table 

or schedule in sufficient detail to permit 

determination of the disclosures 

required by paragraph (b) of this section, 

it shall be considered a single 

advertisement if: 

(i) The table or schedule is clearly and 

conspicuously set forth; and 

(ii) Any statement of terms set forth in 

§ 226.6 appearing anywhere else in the 

catalog or advertisement clearly refers to 

the page or location where the table or 

schedule begins. 

(2) A catalog or other multiple-page 

advertisement or an electronic 

advertisement (such as an advertisement 

appearing on an Internet Web site) 

complies with this paragraph if the table 

or schedule of terms includes all 

appropriate disclosures for a 

representative scale of amounts up to 

the level of the more commonly sold 

higher-priced property or services 

offered. 

(d) Additional requirements for homeequity plans. (1) Advertisement of terms 

that require additional disclosures. If 

any of the terms required to be disclosed 

under § 226.6(a)(1) or (a)(2) or the 

payment terms of the plan are set forth, 

affirmatively or negatively, in an 

advertisement for a home-equity plan 

subject to the requirements of § 226.5b, 

the advertisement also shall clearly and 

conspicuously set forth the following: 

(i) Any loan fee that is a percentage 

of the credit limit under the plan and an 

estimate of any other fees imposed for 

opening the plan, stated as a single 

dollar amount or a reasonable range. 

(ii) Any periodic rate used to compute 

the finance charge, expressed as an 

annual percentage rate as determined 

under § 226.14(b). 

(iii) The maximum annual percentage 

rate that may be imposed in a variablerate plan. 

(2) Discounted and premium rates. If 

an advertisement states an initial annual 

percentage rate that is not based on the 

index and margin used to make later 

rate adjustments in a variable-rate plan, 

the advertisement also shall state with 

equal prominence and in close 

proximity to the initial rate: 

(i) The period of time such initial rate 

will be in effect; and 

(ii) A reasonably current annual 

percentage rate that would have been in 

effect using the index and margin. 

(3) Balloon payment. If an 

advertisement contains a statement of 

any minimum periodic payment and a 

balloon payment may result if only the 

minimum periodic payments are made, 

even if such a payment is uncertain or 

unlikely, the advertisement also shall 

state with equal prominence and in 

close proximity to the minimum 

periodic payment statement that a 

balloon payment may result, if 


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36e [Reserved.] 

applicable.36e A balloon payment 

results if paying the minimum periodic 

payments does not fully amortize the 

outstanding balance by a specified date 

or time, and the consumer is required to 

repay the entire outstanding balance at 

such time. If a balloon payment will 

occur when the consumer makes only 

the minimum payments required under 

the plan, an advertisement for such a 

program which contains any statement 

of any minimum periodic payment shall 

also state with equal prominence and in 

close proximity to the minimum 

periodic payment statement: 

(i) That a balloon payment will result; 

and 

(ii) The amount and timing of the 

balloon payment that will result if the 

consumer makes only the minimum 

payments for the maximum period of 

time that the consumer is permitted to 

make such payments. 

(4) Tax implications. An 

advertisement that states that any 

interest expense incurred under the 

home-equity plan is or may be tax 

deductible may not be misleading in 

this regard. If an advertisement 

distributed in paper form or through the 

Internet (rather than by radio or 

television) is for a home-equity plan 

secured by the consumer’s principal 

dwelling, and the advertisement states 

that the advertised extension of credit 

may exceed the fair market value of the 

dwelling, the advertisement shall 

clearly and conspicuously state that: 

(i) The interest on the portion of the 

credit extension that is greater than the 

fair market value of the dwelling is not 

tax deductible for Federal income tax 

purposes; and 

(ii) The consumer should consult a 

tax adviser for further information 

regarding the deductibility of interest 

and charges. 

(5) Misleading terms. An 

advertisement may not refer to a homeequity plan as ‘‘free money’’ or contain 

a similarly misleading term. 

(6) Promotional rates and payments. 

(i) Definitions. The following definitions 

apply for purposes of paragraph (d)(6) of 

this section: 

(A) Promotional rate. The term 

‘‘promotional rate’’ means, in a variablerate plan, any annual percentage rate 

that is not based on the index and 

margin that will be used to make rate 

adjustments under the plan, if that rate 

is less than a reasonably current annual 

percentage rate that would be in effect 

under the index and margin that will be 

used to make rate adjustments under the 

plan. 

(B) Promotional payment. The term 

‘‘promotional payment’’ means: 

(1) For a variable-rate plan, any 

minimum payment applicable for a 

promotional period that: 

(i) Is not derived by applying the 

index and margin to the outstanding 

balance when such index and margin 

will be used to determine other 

minimum payments under the plan; and 

(ii) Is less than other minimum 

payments under the plan derived by 

applying a reasonably current index and 

margin that will be used to determine 

the amount of such payments, given an 

assumed balance. 

(2) For a plan other than a variablerate plan, any minimum payment 

applicable for a promotional period if 

that payment is less than other 

payments required under the plan given 

an assumed balance. 

(C) Promotional period. A 

‘‘promotional period’’ means a period of 

time, less than the full term of the loan, 

that the promotional rate or promotional 

payment may be applicable. 

(ii) Stating the promotional period 

and post-promotional rate or payments. 

If any annual percentage rate that may 

be applied to a plan is a promotional 

rate, or if any payment applicable to a 

plan is a promotional payment, the 

following must be disclosed in any 

advertisement, other than television or 

radio advertisements, in a clear and 

conspicuous manner with equal 

prominence and in close proximity to 

each listing of the promotional rate or 

payment: 

(A) The period of time during which 

the promotional rate or promotional 

payment will apply; 

(B) In the case of a promotional rate, 

any annual percentage rate that will 

apply under the plan. If such rate is 

variable, the annual percentage rate 

must be disclosed in accordance with 

the accuracy standards in §§ 226.5b or 

226.16(b)(1)(ii) as applicable; and 

(C) In the case of a promotional 

payment, the amounts and time periods 

of any payments that will apply under 

the plan. In variable-rate transactions, 

payments that will be determined based 

on application of an index and margin 

shall be disclosed based on a reasonably 

current index and margin. 

(iii) Envelope excluded. The 

requirements in paragraph (d)(6)(ii) of 

this section do not apply to an envelope 

in which an application or solicitation 

is mailed, or to a banner advertisement 

or pop-up advertisement linked to an 

application or solicitation provided 

electronically. 

(e) Alternative disclosures—television 

or radio advertisements. An 

advertisement made through television 

or radio stating any of the terms 

requiring additional disclosures under 

paragraphs (b)(1) or (d)(1) of this section 

may alternatively comply with 

paragraphs (b)(1) or (d)(1) of this section 

by stating the information required by 

paragraphs (b)(1)(ii) or (d)(1)(ii) of this 

section, as applicable, and listing a tollfree telephone number, or any telephone 

number that allows a consumer to 

reverse the phone charges when calling 

for information, along with a reference 

that such number may be used by 

consumers to obtain the additional cost 

information. 

(f) Misleading terms. An 

advertisement may not refer to an 

annual percentage rate as ‘‘fixed,’’ or use 

a similar term, unless the advertisement 

also specifies a time period that the rate 

will be fixed and the rate will not 

increase during that period, or if no 

such time period is provided, the rate 

will not increase while the plan is open. 

(g) Promotional Rates. (1) Scope. The 

requirements of this paragraph apply to 

any advertisement of an open-end (not 

home-secured) plan, including 

promotional materials accompanying 

applications or solicitations subject to 

§ 226.5a(c) or accompanying 

applications or solicitations subject to 

§ 226.5a(e). 

(2) Definitions. (i) Promotional rate 

means any annual percentage rate 

applicable to one or more balances or 

transactions on an open-end (not homesecured) plan for a specified period of 

time that is lower than the annual 

percentage rate that will be in effect at 

the end of that period on such balances 

or transactions. 

(ii) Introductory rate means a 

promotional rate offered in connection 

with the opening of an account. 

(iii) Promotional period means the 

maximum time period for which the 

promotional rate may be applicable. 

(3) Stating the term ‘‘introductory’’. If 

any annual percentage rate that may be 

applied to the account is an 

introductory rate, the term introductory 

or intro must be in immediate proximity 

to each listing of the introductory rate 

in a written or electronic advertisement. 

(4) Stating the promotional period 

and post-promotional rate. If any annual 

percentage rate that may be applied to 

the account is a promotional rate under 

paragraph (g)(2)(i) of this section, the 

information in paragraphs (g)(4)(i) and 

(g)(4)(ii) of this section must be stated in 

a clear and conspicuous manner in the 

advertisement. If the rate is stated in a 

written or electronic advertisement, the 

information in paragraphs (g)(4)(i) and 

(g)(4)(ii) of this section must also be 

stated in a prominent location closely 


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50 [Reserved.] 

proximate to the first listing of the 

promotional rate. 

(i) When the promotional rate will 

end; and 

(ii) The annual percentage rate that 

will apply after the end of the 

promotional period. If such rate is 

variable, the annual percentage rate 

must comply with the accuracy 

standards in §§ 226.5a(c)(2), 

226.5a(d)(3), 226.5a(e)(4), or 

226.16(b)(1)(ii), as applicable. If such 

rate cannot be determined at the time 

disclosures are given because the rate 

depends at least in part on a later 

determination of the consumer’s 

creditworthiness, the advertisement 

must disclose the specific rates or the 

range of rates that might apply. 

(5) Envelope excluded. The 

requirements in paragraph (g)(4) of this 

section do not apply to an envelope or 

other enclosure in which an application 

or solicitation is mailed, or to a banner 

advertisement or pop-up advertisement, 

linked to an application or solicitation 

provided electronically. 

(h) Deferred interest or similar offers. 

(1) Scope. The requirements of this 

paragraph apply to any advertisement of 

an open-end credit plan not subject to 

§ 226.5b, including promotional 

materials accompanying applications or 

solicitations subject to § 226.5a(c) or 

accompanying applications or 

solicitations subject to § 226.5a(e). 

(2) Definitions. ‘‘Deferred interest’’ 

means finance charges accrued on 

balances or transactions that a consumer 

is not obligated to pay or that will be 

waived or refunded to a consumer if 

those balances or transactions are paid 

in full by a specified date. The 

maximum period from the date the 

consumer becomes obligated for the 

balance or transaction until the 

specified date by which the consumer 

must pay the balance or transaction in 

full in order to avoid finance charges, or 

receive a waiver or refund of finance 

charges, is the ‘‘deferred interest 

period.’’ ‘‘Deferred interest’’ does not 

include any finance charges the 

consumer avoids paying in connection 

with any recurring grace period. 

(3) Stating the deferred interest 

period. If a deferred interest offer is 

advertised, the deferred interest period 

must be stated in a clear and 

conspicuous manner in the 

advertisement. If the phrase ‘‘no 

interest’’ or similar term regarding the 

possible avoidance of interest 

obligations under the deferred interest 

program is stated, the term ‘‘if paid in 

full’’ must also be stated in a clear and 

conspicuous manner preceding the 

disclosure of the deferred interest 

period in the advertisement. If the 

deferred interest offer is included in a 

written or electronic advertisement, the 

deferred interest period and, if 

applicable, the term ‘‘if paid in full’’ 

must also be stated in immediate 

proximity to each statement of ‘‘no 

interest,’’ ‘‘no payments,’’ ‘‘deferred 

interest,’’ ‘‘same as cash,’’ or similar 

term regarding interest or payments 

during the deferred interest period. 

(4) Stating the terms of the deferred 

interest or similar offer. If any deferred 

interest offer is advertised, the 

information in paragraphs (h)(4)(i) and 

(h)(4)(ii) of this section must be stated 

in the advertisement, in language 

similar to Sample G–24 in Appendix G 

to this part. If the deferred interest offer 

is included in a written or electronic 

advertisement, the information in 

paragraphs (h)(4)(i), and (h)(4)(ii) of this 

section must also be stated in a 

prominent location closely proximate to 

the first statement of ‘‘no interest,’’ ‘‘no 

payments,’’ ‘‘deferred interest,’’ ‘‘same 

as cash,’’ or similar term regarding 

interest or payments during the deferred 

interest period. 

(i) A statement that interest will be 

charged from the date the consumer 

becomes obligated for the balance or 

transaction subject to the deferred 

interest offer if the balance or 

transaction is not paid in full within the 

deferred interest period; and 

(ii) A statement, if applicable, that 

interest will be charged from the date 

the consumer incurs the balance or 

transaction subject to the deferred 

interest offer if the account is in default 

before the end of the deferred interest 

period. 

(5) Envelope excluded. The 

requirements in paragraph (h)(4) of this 

section do not apply to an envelope or 

other enclosure in which an application 

or solicitation is mailed, or to a banner 

advertisement or pop-up advertisement 

linked to an application or solicitation 

provided electronically. 

18. Section 226.30 is revised to read 

as follows: 

§ 226.30 Limitation on rates. 

A creditor shall include in any 

consumer credit contract secured by a 

dwelling and subject to the act and this 

regulation the maximum interest rate 

that may be imposed during the term of 

the obligation 50 when: 

(a) In the case of closed-end credit, 

the annual percentage rate may increase 

after consummation, or 

(b) In the case of open-end credit, the 

annual percentage rate may increase 

during the plan. 

* * * * * 

19. A new subpart G consisting of 

§§ 226.51, 226.52, 226.53, 226.54, 

226.55, 226.56, 226.57, and 226.58 is 

added to read as follows: 

Subpart G—Special Rules Applicable to 

Credit Card Accounts and Open-End Credit 

Offered to College Students 

Sec. 

226.51 Ability to Pay. 

226.52 Limitations on fees. 

226.53 Allocation of payments. 

226.54 Limitations on the imposition of 

finance charges. 

226.55 Limitations on increasing annual 

percentage rates, fees, and charges. 

226.56 Requirements for over-the-limit 

transactions. 

226.57 Special rules for marketing openend credit to college students. 

226.58 Internet posting of credit card 

agreements. 

Subpart G—Special Rules Applicable 

to Credit Card Accounts and Open-End 

Credit Offered to College Students 

§ 226.51 Ability to Pay. 

(a) General rule. (1) Consideration of 

ability to pay. A card issuer must not 

open a credit card account for a 

consumer under an open-end (not 

home-secured) consumer credit plan, or 

increase any credit limit applicable to 

such account, unless the card issuer 

considers the ability of the consumer to 

make the required minimum periodic 

payments under the terms of the 

account based on the consumer’s 

income or assets and the consumer’s 

current obligations. Card issuers must 

have reasonable policies and procedures 

in place to consider this information. 

(2) Minimum payments. (i) 

Reasonable method. For purposes of 

paragraph (a)(1) of this section, a card 

issuer must use a reasonable method for 

estimating the minimum periodic 

payments the consumer would be 

required to pay under the terms of the 

account. 

(ii) Safe harbor. A card issuer 

complies with paragraph (a)(2)(i) of this 

section if it estimates required 

minimum periodic payments using the 

following method: 

(A) The card issuer assumes 

utilization of the full credit line that the 

issuer is considering offering to the 

consumer from the first day of the 

billing cycle; and 

(B) The card issuer uses a minimum 

payment formula employed by the 

issuer for the product the issuer is 

considering offering to the consumer or, 

in the case of an existing account, the 

minimum payment formula that 

currently applies to that account, 

provided that: 

(1) If the applicable minimum 

payment formula includes interest 


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charges, the card issuer estimates those 

charges using an interest rate that the 

issuer is considering offering to the 

consumer for purchases or, in the case 

of an existing account, the interest rate 

that currently applies to purchases; and 

(2) If the applicable minimum 

payment formula includes fees, the card 

issuer may assume that no fees have 

been charged to the account. 

(b) Rules affecting young consumers. 

(1) Applications from young 

consumers. A card issuer may not open 

a credit card account under an open-end 

(not home-secured) consumer credit 

plan for a consumer less than 21 years 

old, unless the consumer has submitted 

a written application and provided: 

(i)(A) a signed agreement of a 

cosigner, guarantor, or joint applicant 

who is at least 21 years old to be either 

secondarily liable for any debt on the 

account incurred by the consumer 

before the consumer has attained the age 

of 21 in the event the consumer defaults 

on the account or jointly liable with the 

consumer for any debt on the account 

incurred by either party, and 

(B) financial information indicating 

such cosigner, guarantor, or joint 

applicant has the ability to make the 

minimum payments on such debts, 

consistent with paragraph (a) of this 

section; or 

(ii) financial information indicating 

an independent ability to make the 

minimum payments on the proposed 

extension of credit in connection with 

the account, consistent with paragraph 

(a) of this section. 

(2) Credit line increases for young 

consumers. If a credit card account has 

been opened pursuant to paragraph 

(b)(1)(i) of this section, no increase in 

the credit limit may be made on such 

account before the consumer attains the 

age of 21 unless the cosigner, guarantor, 

or joint accountholder who assumed 

liability at account opening agrees in 

writing to assume liability on the 

increase. 

§ 226.52 Limitations on fees. 

(a) Limitations during first year after 

account opening. (1) General rule. 

Except as provided in paragraph (a)(2) 

of this section, if a card issuer charges 

any fees to a credit card account under 

an open-end (not home-secured) 

consumer credit plan during the first 

year after the account is opened: 

(i) The card issuer must not charge to 

the account during that period fees that 

in total constitute more than 25 percent 

of the credit limit in effect when the 

account is opened; and 

(ii) The card issuer must not require 

the consumer to pay any fees in excess 

of the total amount permitted by 

paragraph (a)(1)(i) of this section with 

respect to the account during that 

period. 

(2) Fees not subject to limitations. 

Paragraph (a) of this section does not 

apply to: 

(i) Late payment fees, over-the-limit 

fees, and returned-payment fees; or 

(ii) Fees that the consumer is not 

required to pay with respect to the 

account. 

(3) Rule of construction. Paragraph (a) 

of this section does not authorize the 

imposition or payment of fees or charges 

otherwise prohibited by law. 

§ 226.53 Allocation of payments. 

(a) General rule. Except as provided in 

paragraph (b) of this section, when a 

consumer makes a payment in excess of 

the required minimum periodic 

payment for a credit card account under 

an open-end (not home-secured) 

consumer credit plan, the card issuer 

must allocate the excess amount first to 

the balance with the highest annual 

percentage rate and any remaining 

portion to the other balances in 

descending order based on the 

applicable annual percentage rate. 

(b) Special rule for balances subject to 

deferred interest or similar programs. 

When a balance on a credit card account 

under an open-end (not home-secured) 

consumer credit plan is subject to a 

deferred interest or similar program that 

provides that a consumer will not be 

obligated to pay interest that accrues on 

the balance if the balance is paid in full 

prior to the expiration of a specified 

period of time, the card issuer must 

allocate any amount paid by the 

consumer in excess of the required 

minimum periodic payment first to that 

balance during the two billing cycles 

immediately preceding expiration of the 

specified period and any remaining 

portion to any other balances consistent 

with paragraph (a) of this section. 

§ 226.54 Limitations on the imposition of 

finance charges. 

(a) Limitations on imposing finance 

charges as a result of the loss of a grace 

period. (1) General rule. Except as 

provided in paragraph (b) of this 

section, a card issuer must not impose 

finance charges as a result of the loss of 

a grace period on a credit card account 

under an open-end (not home-secured) 

consumer credit plan if those finance 

charges are based on: 

(i) Balances for days in billing cycles 

that precede the most recent billing 

cycle; or 

(ii) Any portion of a balance subject 

to a grace period that was repaid prior 

to the expiration of the grace period. 

(2) Definition of grace period. For 

purposes of paragraph (a)(1) of this 

section, ‘‘grace period’’ has the same 

meaning as in § 226.5(b)(2)(ii). 

(b) Exceptions. Paragraph (a) of this 

section does not apply to: 

(1) Adjustments to finance charges as 

a result of the resolution of a dispute 

under § 226.12 or § 226.13; or 

(2) Adjustments to finance charges as 

a result of the return of a payment. 

§ 226.55 Limitations on increasing annual 

percentage rates, fees, and charges. 

(a) General rule. Except as provided in 

paragraph (b) of this section, a card 

issuer must not increase an annual 

percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

on a credit card account under an openend (not home-secured) consumer credit 

plan. 

(b) Exceptions. A card issuer may 

increase an annual percentage rate or a 

fee or charge required to be disclosed 

under § 226.6(b)(2)(ii), (b)(2)(iii), or 

(b)(2)(xii) pursuant to an exception set 

forth in this paragraph even if that 

increase would not be permitted under 

a different exception. 

(1) Temporary rate exception. A card 

issuer may increase an annual 

percentage rate upon the expiration of a 

specified period of six months or longer, 

provided that: 

(i) Prior to the commencement of that 

period, the card issuer disclosed in 

writing to the consumer, in a clear and 

conspicuous manner, the length of the 

period and the annual percentage rate 

that would apply after expiration of the 

period; and 

(ii) Upon expiration of the specified 

period: 

(A) The card issuer must not apply an 

annual percentage rate to transactions 

that occurred prior to the period that 

exceeds the annual percentage rate that 

applied to those transactions prior to the 

period; 

(B) If the disclosures required by 

paragraph (b)(1)(i) of this section are 

provided pursuant to § 226.9(c), the card 

issuer must not apply an annual 

percentage rate to transactions that 

occurred within 14 days after provision 

of the notice that exceeds the annual 

percentage rate that applied to that 

category of transactions prior to 

provision of the notice; and 

(C) The card issuer must not apply an 

annual percentage rate to transactions 

that occurred during the period that 

exceeds the increased annual percentage 

rate disclosed pursuant to paragraph 

(b)(1)(i) of this section. 

(2) Variable rate exception. A card 

issuer may increase an annual 

percentage rate when: 

(i) The annual percentage rate varies 

according to an index that is not under 


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the card issuer’s control and is available 

to the general public; and 

(ii) The increase in the annual 

percentage rate is due to an increase in 

the index. 

(3) Advance notice exception. A card 

issuer may increase an annual 

percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

after complying with the applicable 

notice requirements in § 226.9(b), (c), or 

(g), provided that: 

(i) If a card issuer discloses an 

increased annual percentage rate, fee, or 

charge pursuant to § 226.9(b), the card 

issuer must not apply that rate, fee, or 

charge to transactions that occurred 

prior to provision of the notice; 

(ii) If a card issuer discloses an 

increased annual percentage rate, fee, or 

charge pursuant to § 226.9(c) or (g), the 

card issuer must not apply that rate, fee, 

or charge to transactions that occurred 

prior to or within 14 days after 

provision of the notice; and 

(iii) This exception does not permit a 

card issuer to increase an annual 

percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

during the first year after the credit card 

account is opened. 

(4) Delinquency exception. A card 

issuer may increase an annual 

percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

due to the card issuer not receiving the 

consumer’s required minimum periodic 

payment within 60 days after the due 

date for that payment, provided that: 

(i) The card issuer must disclose in a 

clear and conspicuous manner in the 

notice of the increase pursuant to 

§ 226.9(c) or (g): 

(A) A statement of the reason for the 

increase; and 

(B) That the increased annual 

percentage rate, fee, or charge will cease 

to apply if the card issuer receives six 

consecutive required minimum periodic 

payments on or before the payment due 

date beginning with the first payment 

due following the effective date of the 

increase; and 

(ii) If the card issuer receives six 

consecutive required minimum periodic 

payments on or before the payment due 

date beginning with the first payment 

due following the effective date of the 

increase, the card issuer must reduce 

any annual percentage rate, fee, or 

charge increased pursuant to this 

exception to the annual percentage rate, 

fee, or charge that applied prior to the 

increase with respect to transactions 

that occurred prior to or within 14 days 

after provision of the § 226.9(c) or (g) 

notice. 

(5) Workout and temporary hardship 

arrangement exception. A card issuer 

may increase an annual percentage rate 

or a fee or charge required to be 

disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) due to the 

consumer’s completion of a workout or 

temporary hardship arrangement or the 

consumer’s failure to comply with the 

terms of such an arrangement, provided 

that: 

(i) Prior to commencement of the 

arrangement, the card issuer has 

provided the consumer with a clear and 

conspicuous written disclosure of the 

terms of the arrangement (including any 

increases due to the completion or 

failure of the arrangement); and 

(ii) Upon the completion or failure of 

the arrangement, the card issuer must 

not apply to any transactions that 

occurred prior to commencement of the 

arrangement an annual percentage rate, 

fee, or charge that exceeds the annual 

percentage rate, fee, or charge that 

applied to those transactions prior to 

commencement of the arrangement. 

(6) Servicemembers Civil Relief Act 

exception. If an annual percentage rate 

has been decreased pursuant to 50 

U.S.C. app. 527, a card issuer may 

increase that annual percentage rate 

once 50 U.S.C. app. 527 no longer 

applies, provided that the card issuer 

must not apply to any transactions that 

occurred prior to the decrease an annual 

percentage rate that exceeds the annual 

percentage rate that applied to those 

transactions prior to the decrease. 

(c) Treatment of protected balances. 

(1) Definition of protected balance. For 

purposes of this paragraph, ‘‘protected 

balance’’ means the amount owed for a 

category of transactions to which an 

increased annual percentage rate or an 

increased fee or charge required to be 

disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) cannot be 

applied after the annual percentage rate, 

fee, or charge for that category of 

transactions has been increased 

pursuant to paragraph (b)(3) of this 

section. 

(2) Repayment of protected balance. 

The card issuer must not require 

repayment of the protected balance 

using a method that is less beneficial to 

the consumer than one of the following 

methods: 

(i) The method of repayment for the 

account before the effective date of the 

increase; 

(ii) An amortization period of not less 

than five years, beginning no earlier 

than the effective date of the increase; 

or 

(iii) A required minimum periodic 

payment that includes a percentage of 

the balance that is equal to no more than 

twice the percentage required before the 

effective date of the increase. 

(d) Continuing application. This 

section continues to apply to a balance 

on a credit card account after: 

(1) The account is closed or acquired 

by another creditor; or 

(2) The balance is transferred from a 

credit card account issued by a creditor 

to another credit account issued by the 

same creditor or its affiliate or 

subsidiary (unless the account to which 

the balance is transferred is subject to 

§ 226.5b). 

§ 226.56 Requirements for over-the-limit 

transactions. 

(a) Definition. For purposes of this 

section, the term ‘‘over-the-limit 

transaction’’ means any extension of 

credit by a creditor to complete a 

transaction that causes a consumer’s 

credit card account balance to exceed 

the credit limit. 

(b) Opt-in requirement. (1) General. A 

creditor shall not assess a fee or charge 

on a consumer’s credit card account 

under an open-end (not home-secured) 

consumer credit plan for an over-thelimit transaction unless the creditor: 

(i) Provides the consumer with an 

oral, written or electronic notice 

explaining the consumer’s right to 

affirmatively consent, or opt in, to the 

creditor’s payment of an over-the-limit 

transaction; 

(ii) Provides a reasonable opportunity 

for the consumer to affirmatively 

consent, or opt in, to the creditor’s 

payment of over-the-limit transactions; 

(iii) Obtains the consumer’s 

affirmative consent, or opt-in, to the 

creditor’s payment of such transactions; 

and 

(iv) If the consumer affirmatively 

consents, or opts in, provides the 

consumer notice of the right to revoke 

that consent following the assessment of 

an over-the-limit fee or charge. 

(2) Completion of over-the-limit 

transactions without consumer consent. 

Notwithstanding the absence of a 

consumer’s affirmative consent under 

paragraph (b)(1)(iii) of this section, a 

creditor may pay any over-the-limit 

transaction on a consumer’s account 

provided that the creditor does not 

impose any fee or charge on the account 

for paying that over-the-limit 

transaction. 

(c) Method of election. A creditor may 

permit a consumer to consent to the 

creditor’s payment of any over-the-limit 

transaction in writing, orally, or 

electronically. The creditor must also 

permit the consumer to revoke his or 


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her consent using the same methods 

available to the consumer for providing 

consent. 

(d) Timing of notices. (1) Initial 

notice. (i) General. The notice required 

by paragraph (b)(1)(i) of this section 

shall be provided prior to the 

assessment of any over-the-limit fee or 

charge on a consumer’s account; 

(ii) Oral or written consent. If a 

consumer elects to consent to the 

creditor’s payment of any over-the-limit 

transaction by oral or electronic means, 

the creditor must provide the notice 

required by paragraph (b)(1)(i) of this 

section immediately prior to and 

contemporaneously with obtaining that 

consent. 

(2) Subsequent notice. The notice 

required by paragraph (b)(1)(iv) of this 

section shall be provided on the front of 

any page of each periodic statement that 

reflects the assessment of an over-thelimit fee or charge on a consumer’s 

account. 

(e) Content. (1) Initial notice. The 

notice required by paragraph (b)(1)(i) of 

this section shall include: 

(i) Fees. The dollar amount of any fees 

or charges assessed by the creditor on a 

consumer’s account for an over-the-limit 

transaction; 

(ii) APRs. Any increased periodic 

rate(s) (expressed as an annual 

percentage rate(s)) that may be imposed 

on the account as a result of an over-thelimit transaction; and 

(iii) Disclosure of opt-in right. An 

explanation of the consumer’s right to 

affirmatively consent to the creditor’s 

payment of over-the-limit transactions, 

including the method(s) by which the 

consumer may consent to the service. 

(2) Subsequent notice. The notice 

required by paragraph (b)(1)(iv) of this 

section shall describe the consumer’s 

right to revoke any consent provided 

under paragraph (b)(1)(iii) of this 

section, including the method(s) by 

which the consumer may revoke the 

service. 

(3) Safe harbor. Use of Model Forms 

G–25(A) or G–25(B) of Appendix G to 

this part, or substantially similar 

notices, constitutes compliance with the 

notice content requirements of 

paragraph (e) of this section. 

(f) Joint relationships. If two or more 

consumers are jointly liable on a credit 

card account under an open-end (not 

home-secured) consumer credit plan, 

the creditor shall treat the affirmative 

consent of any of the joint consumers as 

affirmative consent for that account. 

Similarly, the creditor shall treat a 

revocation of consent by any of the joint 

consumers as revocation of consent for 

that account. 

(g) Continuing right to opt in or revoke 

opt-in. A consumer may affirmatively 

consent to the creditor’s payment of 

over-the-limit transactions at any time 

in the manner described in the notice 

required by paragraph (b)(1)(i) of this 

section. Similarly, the consumer may 

revoke the consent at any time in the 

manner described in the notice required 

by paragraph (b)(1)(iv) of this section. 

(h) Duration of opt-in. A consumer’s 

affirmative consent to the creditor’s 

payment of over-the-limit transactions is 

effective until revoked by the consumer, 

or until the creditor decides for any 

reason to cease paying over-the-limit 

transactions for the consumer. 

(i) Time to comply with revocation 

request. A creditor must comply with a 

consumer’s revocation request as soon 

as reasonably practicable after the 

creditor receives it. 

(j) Prohibited practices. 

Notwithstanding a consumer’s 

affirmative consent to a creditor’s 

payment of over-the-limit transactions, a 

creditor is prohibited from engaging in 

the following practices: 

(1) Fees or charges imposed per cycle. 

(i) General rule. A creditor may not 

impose more than one over-the-limit fee 

or charge on a consumer’s credit card 

account per billing cycle, and, except as 

provided in paragraph (j)(1)(ii) of this 

section, may not impose an over-thelimit fee or charge on the consumer’s 

credit card account for more than three 

billing cycles for the same over-the-limit 

transaction where the consumer has not 

reduced the account balance below the 

credit limit by the payment due date for 

either of the last two billing cycles. 

(ii) Exception. The prohibition in 

paragraph (j)(1)(i) of this section on 

imposing an over-the-limit fee or charge 

in more than three billing cycles for the 

same over-the-limit transaction(s) does 

not apply if an over-the-limit 

transaction occurs during either of the 

last two billing cycles. 

(2) Failure to promptly replenish. A 

creditor may not impose an over-thelimit fee or charge solely because of 

creditor’s failure to promptly replenish 

the consumer’s available credit 

following the crediting of the 

consumer’s payment under § 226.10. 

(3) Conditioning. A creditor may not 

condition the amount of a consumer’s 

credit limit on the consumer 

affirmatively consenting to the creditor’s 

payment of over-the-limit transactions if 

the creditor assesses a fee or charge for 

such service. 

(4) Over-the-limit fees attributed to 

fees or interest. A creditor may not 

impose an over-the-limit fee or charge if 

a consumer exceeds a credit limit solely 

because of fees or interest charged by 

the creditor to the consumer’s account 

during the billing cycle. For purposes of 

this paragraph (j)(4), fees or interest 

charges that may not trigger an over-thelimit fee or charge are charges imposed 

as part of the plan under § 226.6(b)(3). 

§ 226.57 Special rules for marketing openend credit to college students. 

(a) Definitions: 

(1) College student credit card. The 

term ‘‘college student credit card’’ in 

this section means a credit card issued 

under a credit card account under an 

open-end (not home-secured) consumer 

credit plan to any college student. 

(2) College student. The term ‘‘college 

student’’ as used in this section means 

an individual who is a full-time or parttime student of an institution of higher 

education. 

(3) Institution of higher education. 

The term ‘‘institution of higher 

education’’ as used in this section has 

the same meaning as in sections 101 and 

102 of the Higher Education Act of 1965 

(20 U.S.C. 1001 and 1002). 

(4) Affiliated organization. The term 

‘‘affiliated organization’’ in this section 

means an alumni organization or 

foundation affiliated with or related to 

an institution of higher education. 

(5) College credit card agreement. The 

term ‘‘college credit card agreement’’ in 

this section means any business, 

marketing or promotional agreement 

between a card issuer and an institution 

of higher education or an affiliated 

organization in connection with which 

college student credit cards are issued to 

college students currently enrolled at 

that institution. 

(b) Public disclosure of agreements. 

An institution of higher education shall 

publicly disclose any contract or other 

agreement made with a card issuer or 

creditor for the purpose of marketing a 

credit card. 

(c) Prohibited inducements. No card 

issuer or creditor may offer a college 

student any tangible item to induce 

such student to apply for or open an 

open-end consumer credit plan offered 

by such card issuer or creditor, if such 

offer is made: 

(1) On the campus of an institution of 

higher education; 

(2) Near the campus of an institution 

of higher education; or 

(3) At an event sponsored by or 

related to an institution of higher 

education. 

(d) Annual report to the Board. (1) 

Requirement to register. A card issuer 

subject to the requirement to report 

under § 226.57(d)(2) with regard to 

calendar year 2009 must register with 

the Board in the form and manner 

prescribed by the Board no later than 


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February 1, 2010. A card issuer that 

becomes subject to the requirement to 

report under § 226.57(d)(2) after 

December 31, 2009, must register with 

the Board in the form and manner 

prescribed by the Board no later than 

February 1 following the calendar year 

in which the issuer becomes subject. 

(2) Requirement to report. Any card 

issuer that was a party to one or more 

college credit card agreements in effect 

at any time during a calendar year must 

submit to the Board an annual report 

regarding those agreements in the form 

and manner prescribed by the Board. 

(3) Contents of report. The annual 

report to the Board must include the 

following: 

(i) A copy of any college credit card 

agreement to which the card issuer was 

a party that was in effect at any time 

during the period covered by the report; 

(ii) A copy of any memorandum of 

understanding in effect at any time 

during the period covered by the report 

between the card issuer and an 

institution of higher education or 

affiliated organization that directly or 

indirectly relates to the college credit 

card agreement or that controls or 

directs any obligations or distribution of 

benefits between any such entities; 

(iii) The total dollar amount of any 

payments pursuant to a college credit 

card agreement from the card issuer to 

an institution of higher education or 

affiliated organization during the period 

covered by the report, and how such 

amounts are determined; 

(iv) The number of credit card 

accounts opened pursuant to any 

college credit card agreement during the 

period covered by the report; and 

(v) The total number of credit card 

accounts opened pursuant to any such 

agreement that were open at the end of 

the period covered by the report. 

(4) Timing of reports. Except for the 

initial report described below, a card 

issuer must submit its annual report for 

each calendar year to the Board by the 

first business day on or after March 31 

of the following year. Card issuers must 

submit the first report following the 

effective date of this section, providing 

information for the 2009 calendar year, 

to the Board by February 22, 2010. 

§ 226.58 Internet posting of credit card 

agreements. 

(a) Applicability. The requirements of 

this section apply to any card issuer that 

issues credit cards under a credit card 

account under an open-end (not homesecured) consumer credit plan. 

(b) Definitions. (1) Agreement. For 

purposes of this section, ‘‘agreement’’ or 

‘‘credit card agreement’’ means a written 

document or documents evidencing the 

terms of the legal obligation, or the 

prospective legal obligation, between a 

card issuer and a consumer under a 

credit card account for an open-end (not 

home-secured) consumer credit plan. 

The ‘‘agreement’’ or ‘‘credit card 

agreement’’ also includes the pricing 

information, as defined in 

§ 226.58(b)(4). 

(2) Business day. For purposes of this 

section, ‘‘business day’’ means a day on 

which the creditor’s offices are open to 

the public for carrying on substantially 

all of its business functions. 

(3) Offers. For purposes of this 

section, an issuer ‘‘offers’’ or ‘‘offers to 

the public’’ an agreement if the issuer is 

soliciting or accepting applications for 

accounts that would be subject to that 

agreement. 

(4) Pricing information. For purposes 

of this section, ‘‘pricing information’’ 

means: 

(i) The information under 

§ 226.6(b)(2)(i) through (b)(2)(xii), (b)(3) 

and (b)(4) required to be disclosed in 

writing pursuant to § 226.5(a)(1)(ii); 

(ii) The credit limit; and 

(iii) The method used to calculate 

required minimum payments. 

(c) Registration with Board. (1) Initial 

registration. A card issuer that offered 

one or more credit card agreements as 

of December 31, 2009, must register 

with the Board, in the form and manner 

prescribed by the Board, no later than 

February 1, 2010, unless the card issuer 

would have qualified for the de minimis 

exception under § 226.58(e) as of 

December 31, 2009. 

(2) Subsequent registrations. A card 

issuer that that is required to make a 

submission to the Board under 

§ 226.58(d) that has not previously 

registered with the Board must register 

with the Board, in the form and manner 

prescribed by the Board, at least 21 days 

before the quarterly submission 

deadline specified in § 226.58(d)(1) on 

which the card issuer’s first submission 

to the Board is due. 

(3) Updates. If information contained 

in a card issuer’s registration under 

§ 226.58(c)(1) or (c)(2) changes, the 

issuer must provide to the Board 

updated registration information, in the 

form and manner prescribed by the 

Board, no later than the first quarterly 

submission deadline specified in 

§ 226.58(d)(1) following the change. 

(d) Submission of agreements to 

Board. (1) Timing and content of 

submissions. A card issuer must make 

quarterly submissions to the Board, in 

the form and manner specified by the 

Board, that contain: 

(i) The credit card agreements, as 

described in Appendix N, that the card 

issuer offered to the public as of the last 

business day of the preceding calendar 

quarter that the card issuer has not 

previously submitted to the Board; 

(ii) Any credit card agreement 

previously submitted to the Board that 

was modified or amended during the 

preceding calendar quarter, as described 

in § 226.58(d)(3); and 

(iii) Notification regarding any credit 

card agreement previously submitted to 

the Board that the issuer is 

withdrawing, as described in 

§ 226.58(d)(4) and (e). Except as 

provided in § 226.58(d)(2), quarterly 

submissions to the Board are due no 

later than the first business day on or 

after January 31, April 30, July 31, and 

October 31 of each year. 

(2) Timing of first two submissions. 

The first submission following the 

effective date of this section must be 

sent to the Board no later than February 

22, 2010, and must contain the credit 

card agreements that the card issuer 

offered to the public as of December 31, 

2009. The next submission must be sent 

to the Board no later than August 2, 

2010, and must contain: 

(i) The credit card agreements that the 

card issuer offered to the public as of 

June 30, 2010, that the card issuer has 

not previously submitted to the Board; 

(ii) Any credit card agreement 

previously submitted to the Board that 

was modified or amended after 

December 31, 2009, and on or before 

June 30, 2010, as described in 

§ 226.58(d)(3); and 

(iii) Notification regarding any credit 

card agreement previously submitted to 

the Board that the issuer is withdrawing 

as of June 30, 2010, as described in 

§ 226.58(d)(4) and (e). 

(3) Changes to agreements. If a credit 

card agreement has been submitted to 

the Board, no changes have been made 

to the agreement, and the card issuer 

continues to offer the agreement to the 

public, no additional submission of that 

agreement is required. If a change is 

made to a credit card agreement that 

previously has been submitted to the 

Board, including a change to any 

provisions of the agreement or to the 

pricing information, the card issuer 

must submit the entire revised 

agreement to the Board, in the form and 

manner specified by the Board, by the 

first quarterly submission deadline after 

the last day of the calendar quarter in 

which the change became effective. 

(4) Withdrawal of agreements. If a 

card issuer no longer offers to the public 

a credit card agreement that previously 

has been submitted to the Board, the 

card issuer must notify the Board, in the 

form and manner specified by the 

Board, by the first quarterly submission 

deadline after the last day of the 


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1 [Reserved]. 

calendar quarter in which the issuer 

ceased to offer the agreement that the 

agreement is being withdrawn. 

(e) De minimis exception. (1) A card 

issuer is not required to submit any 

credit card agreements to the Board 

under § 226.58(d) if the card issuer had 

fewer than 10,000 open credit card 

accounts under open-end (not homesecured) consumer credit plans as of the 

last business day of the calendar 

quarter. 

(2) If an issuer that previously 

qualified for the de minimis exception 

ceases to qualify, the card issuer must 

begin making quarterly submissions to 

the Board under § 226.58(d) no later 

than the first quarterly submission 

deadline after the date as of which the 

issuer ceased to qualify. 

(3) If a card issuer that did not 

previously qualify comes within the de 

minimis exception, the card issuer may 

notify the Board that the card issuer is 

withdrawing each agreement the card 

issuer previously submitted to the 

Board. Until the card issuer notifies the 

Board, in the form and manner specified 

by the Board, that each agreement the 

card issuer previously submitted to the 

Board is being withdrawn, the card 

issuer must continue to make quarterly 

submissions to the Board under 

§ 226.58(d) and to provide updated 

registration information under 

§ 226.58(c)(3). 

(f) Agreements posted on card issuer’s 

Web site. A card issuer must establish 

and maintain a publicly available Web 

site and make its credit card agreements 

available through the Web site, as 

specified in Appendix N, as follows: 

(1) Agreements offered to the public. 

A card issuer must post and maintain on 

its publicly available Web site the credit 

card agreements that the issuer is 

required to submit to the Board as 

provided in § 226.58(d). 

(2) Agreements for all open accounts. 

With respect to any open credit card 

account under an open-end (not homesecured) consumer credit plan, a card 

issuer must either: 

(i) Post and maintain the cardholder’s 

agreement on its Web site; or 

(ii) Promptly provide a copy of the 

cardholder’s agreement to the 

cardholder upon the cardholder’s 

request. If the card issuer makes an 

agreement available upon request, the 

issuer must provide the cardholder with 

the ability to request a copy of the 

agreement both: 

(A) By using the issuer’s Web site 

(such as by clicking on a clearly 

identified box to make the request); and 

(B) By calling a toll-free telephone 

number that is displayed on the issuer’s 

Web site and clearly identified as to 

purpose. The card issuer must send to 

the cardholder or otherwise make 

available to the cardholder a copy of the 

cardholder’s agreement no later than 10 

business days after the issuer receives 

the cardholder’s request. 

(3) E-Sign Act requirements. Card 

issuers may provide credit card 

agreements in electronic form under 

§ 226.58(f)(1) and (f)(2) without regard 

to the consumer notice and consent 

requirements of section 101(c) of the 

Electronic Signatures in Global and 

National Commerce Act (E-Sign Act) (15 

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

20. Appendix E to part 226 is revised 

to read as follows: 

Appendix E to Part 226—Rules for Card 

Issuers that Bill on a Transaction-byTransaction Basis 

The following provisions of Subpart B 

apply if credit cards are issued and the card 

issuer and the seller are the same or related 

persons; no finance charge is imposed; 

consumers are billed in full for each use of 

the card on a transaction-by-transaction 

basis, by means of an invoice or other 

statement reflecting each use of the card; and 

no cumulative account is maintained which 

reflects the transactions by each consumer 

during a period of time, such as a month. The 

term ‘‘related person’’ refers to, for example, 

a franchised or licensed seller of a creditor’s 

product or service or a seller who assigns or 

sells sales accounts to a creditor or arranges 

for credit under a plan that allows the 

consumer to use the credit only in 

transactions with that seller. A seller is not 

related to the creditor merely because the 

seller and the creditor have an agreement 

authorizing the seller to honor the creditor’s 

credit card. 

1. Section 226.6(a)(5) or § 226.6(b)(5)(iii). 

2. Section 226.6(a)(2) or § 226.6(b)(3)(ii)(B), 

as applicable. The disclosure required by 

§ 226.6(a)(2) or § 226.6(b)(3)(ii)(B) shall be 

limited to those charges that are or may be 

imposed as a result of the deferral of payment 

by use of the card, such as late payment or 

delinquency charges. A tabular format is not 

required. 

3. Section 226.6(a)(4) or § 226.6(b)(5)(ii). 

4. Section 226.7(a)(2) or § 226.7(b)(2), as 

applicable; § 226.7(a)(9) or § 226.7(b)(9), as 

applicable. Creditors may comply by placing 

the required disclosures on the invoice or 

statement sent to the consumer for each 

transaction. 

5. Section 226.9(a). Creditors may comply 

by mailing or delivering the statement 

required by § 226.6(a)(5) or § 226.6(b)(5)(iii) 

(see appendix G–3 and G–3(A) to this part) 

to each consumer receiving a transaction 

invoice during a one-month period chosen by 

the card issuer or by sending either the 

statement prescribed by § 226.6(a)(5) or 

§ 226.6(b)(5)(iii), or an alternative billing 

error rights statement substantially similar to 

that in appendix G–4 and G–4(A) to this part, 

with each invoice sent to a consumer. 

6. Section 226.9(c). A tabular format is not 

required. 

7. Section 226.10. 

8. Section 226.11(a). This section applies 

when a card issuer receives a payment or 

other credit that exceeds by more than $1 the 

amount due, as shown on the transaction 

invoice. The requirement to credit amounts 

to an account may be complied with by other 

reasonable means, such as by a credit 

memorandum. Since no periodic statement is 

provided, a notice of the credit balance shall 

be sent to the consumer within a reasonable 

period of time following its occurrence 

unless a refund of the credit balance is 

mailed or delivered to the consumer within 

seven business days of its receipt by the card 

issuer. 

9. Section 226.12 including § 226.12(c) and 

(d), as applicable. Section 226.12(e) is 

inapplicable. 

10. Section 226.13, as applicable. All 

references to ‘‘periodic statement’’ shall be 

read to indicate the invoice or other 

statement for the relevant transaction. All 

actions with regard to correcting and 

adjusting a consumer’s account may be taken 

by issuing a refund or a new invoice, or by 

other appropriate means consistent with the 

purposes of the section. 

11. Section 226.15, as applicable. 

21. Appendix F to part 226 is revised 

to read as follows: 

Appendix F to Part 226—Optional 

Annual Percentage Rate Computations 

for Creditors Offering Open-End Plans 

Subject to the Requirements of § 226.5b 

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 


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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 

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. 

22. Appendix G to part 226 is 

amended by: 

A. Revising the table of contents at the 

beginning of the appendix; 

B. Revising Forms G–1, G–2, G–3, G– 

4, G–10(A), G–10(B), G–10(C), G–11, 

and G–13(A) and (B); 

C. Adding new Forms G–1(A), G– 

2(A), G–3(A), G–4(A), G–10(D) and (E), 

G–16(A) and (B), G–17(A) through (D), 

G–18(A) through (D), and G–18(F) 

through (H), G–19, G–20, G–21, G–22, 

G–23, G–24, G–25(A) and (B) in 

numerical order; and 

D. Removing and reserving Form G– 

12. 

E. Reserving Form G–18(E). 

Appendix G to Part 226—Open-End 

Model Forms and Clauses 

G–1 Balance Computation Methods Model 

Clauses (Home-equity Plans) (§§ 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 

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) (§ 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–14(A) Home-equity Sample 

G–14(B) Home-equity Sample 

G–15 Home-equity Model Clauses 

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)(1) Minimum Payment Warning 

(When Amortization Occurs and 

Minimum Payment Repayment Estimate 

is Greater than Three Years) (§ 226.7(b)) 

G–18(C)(2) Minimum Payment Warning 

(When Amortization Occurs and 

Minimum Payment Repayment Estimate 

is Equal to or Less than Three Years) 

(§ 226.7(b)) 

G–18(C)(3) Minimum Payment Warning 

(When Negative or No Amortization 

Occurs) (§ 226.7(b)) 

G–18(D) Periodic Statement New Balance, 

Due Date, Late Payment and Minimum 

Payment Sample (Credit cards) 

(§ 226.7(b)) 

G–18(E) [Reserved] 

G–18(F) Periodic Statement Form 

G–18(G) Periodic Statement Form 

G–18(H) Deferred Interest Periodic 

Statement Clause 

G–19 Checks Accessing a Credit Card 

Account Sample (§ 226.9(b)(3)) 

G–20 Change-in-Terms Sample (Increase in 

Annual Percentage Rate) (§ 226.9(c)(2)) 

G–21 Change-in-Terms Sample (Increase in 

Fees) (§ 226.9(c)(2)) 

G–22 Penalty Rate Increase Sample 

(Payment 60 or Fewer Days Late) 

(§ 226.9(g)(3)) 

G–23 Penalty Rate Increase Sample 

(Payment More Than 60 Days Late) 

(§ 226.9(g)(3)) 

G–24 Deferred Interest Offer Clauses 

(§ 226.16(h)) 

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

Transactions (§ 226.56) 

G–25(B) Revocation Notice for Periodic 

Statement Regarding Over-the-Limit 

Transactions (§ 226.56) 

G–1—Balance Computation Methods Model 

Clauses (Home-Equity Plans) 

(a) Adjusted balance method 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the ‘‘adjusted balance’’ of your account. 

We get the ‘‘adjusted balance’’ by taking the 

balance you owed at the end of the previous 

billing cycle and subtracting [any unpaid 

finance charges and] any payments and 

credits received during the present billing 

cycle. 

(b) Previous balance method 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the amount you owe at the beginning of 

each billing cycle [minus any unpaid finance 

charges]. We do not subtract any payments or 

credits received during the billing cycle. [The 

amount of payments and credits to your 

account this billing cycle was $ ___.] 


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(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. 

If you fail to pay the amount that we think 

you owe, we may report you as delinquent. 


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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 

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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• Account information: Your name and 

account number. 

• Dollar amount: The dollar amount of the 

suspected error. 

• Description of Problem: If you think 

there is an error on your bill, describe what 

you believe is wrong and why you believe it 

is a mistake. 

You must contact us within 60 days after 

the error appeared on your statement. 

You must notify us of any potential errors 

in writing [or electronically] . You may call 

us, but if you do we are not required to 

investigate any potential errors and you may 

have to pay the amount in question. 

While we investigate whether or not there 

has been an error, the following are true: 

• We cannot try to collect the amount in 

question, or report you as delinquent on that 

amount. 

• The charge in question may remain on 

your statement, and we may continue to 

charge you interest on that amount. But, if we 

determine that we made a mistake, you will 

not have to pay the amount in question or 

any interest or other fees related to that 

amount. 

• While you do not have to pay the 

amount in question, you are responsible for 

the remainder of your balance. 

• We can apply any unpaid amount 

against your credit limit. 

Your Rights if You Are Dissatisfied With 

Your Credit Card Purchases 

If you are dissatisfied with the goods or 

services that you have purchased with your 

credit card, and you have tried in good faith 

to correct the problem with the merchant, 

you may have the right not to pay the 

remaining amount due on the purchase. 

To use this right, all of the following must 

be true: 

1. The purchase must have been made in 

your home State or within 100 miles of your 

current mailing address, and the purchase 

price must have been more than $50. (Note: 

Neither of these are necessary if your 

purchase was based on an advertisement we 

mailed to you, or if we own the company that 

sold you the goods or services.) 

2. You must have used your credit card for 

the purchase. Purchases made with cash 

advances from an ATM or with a check that 

accesses your credit card account do not 

qualify. 

3. You must not yet have fully paid for the 

purchase. 

If all of the criteria above are met and you 

are still dissatisfied with the purchase, 

contact us in writing [or electronically] at: 

[Creditor Name] 

[Creditor Address] 

[[Creditor Web address]] 

While we investigate, the same rules apply 

to the disputed amount as discussed above. 

After we finish our investigation, we will tell 

you our decision. At that point, if we think 

you owe an amount and you do not pay we 

may report you as delinquent. 

* * * * * 

BILLING CODE 6210–01–P 


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BILLING CODE 6210–01–C 

G–11—Applications and Solicitations Made 

Available to the General Public Model 

Clauses 

(a) Disclosure of Required Credit Information 

The information about the costs of the card 

described in this [application]/[solicitation] 

is accurate as of (month/year). This 

information may have changed after that 

date. To find out what may have changed, 

[call us at (telephone number)][write to us at 

(address)]. 

(b) No Disclosure of Credit Information 

There are costs associated with the use of 

this card. To obtain information about these 

costs, call us at (telephone number) or write 

to us at (address). 

G–12 [Reserved] 

G–13(A)—Change in Insurance Provider 

Model Form (Combined Notice) 

The credit card account you have with us 

is insured. This is to notify you that we plan 

to replace your current coverage with 

insurance coverage from a different insurer. 

If we obtain insurance for your account from 

a different insurer, you may cancel the 

insurance. 

[Your premium rate will increase to 

$ _ per _.] 

[Your coverage will be affected by the 

following: 

[ ] The elimination of a type of coverage 

previously provided to you. [(explanation)] 

[See _ of the attached policy for details.] 

[ ] A lowering of the age at which your 

coverage will terminate or will become more 

restrictive. [(explanation)] [See _ of the 

attached policy or certificate for details.] 

[ ] A decrease in your maximum 

insurable loan balance, maximum periodic 

benefit payment, maximum number of 

payments, or any other decrease in the dollar 

amount of your coverage or benefits. 

[(explanation)] [See _ of the attached policy 

or certificate for details.] 

[ ] A restriction on the eligibility for 

benefits for you or others. [(explanation)] 

[See _ of the attached policy or certificate for 

details.] 

[ ] A restriction in the definition of 

‘‘disability’’ or other key term of coverage. 

[(explanation)] [See _ of the attached policy 

or certificate for details.] 

[ ] The addition of exclusions or 

limitations that are broader or other than 

those under the current coverage. 

[(explanation)] [See _ of the attached policy 

or certificate for details.] 

[ ] An increase in the elimination 

(waiting) period or a change to nonretroactive 

coverage. [(explanation)] [See _ of the 

attached policy or certificate for details).] 

[The name and mailing address of the new 


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insurer providing the coverage for your 

account is (name and address).] 

G–13(B)—Change in Insurance Provider 

Model Form 

We have changed the insurer providing the 

coverage for your account. The new insurer’s 

name and address are (name and address). A 

copy of the new policy or certificate is 

attached. 

You may cancel the insurance for your 

account. 

* * * * * 

G–16(A) Debt Suspension Model Clause 

Please enroll me in the optional [insert 

name of program], and bill my account the 

fee of [how cost is determined]. I understand 

that enrollment is not required to obtain 

credit. I also understand that depending on 

the event, the protection may only 

temporarily suspend my duty to make 

minimum payments, not reduce the balance 

I owe. I understand that my balance will 

actually grow during the suspension period 

as interest continues to accumulate. 

[To Enroll, Sign Here]/[To Enroll, Initial 

Here]. X llllllllll 

G–16(B) Debt Suspension Sample 

Please enroll me in the optional [name of 

program], and bill my account the fee of $.83 

per $100 of my month-end account balance. 

I understand that enrollment is not required 

to obtain credit. I also understand that 

depending on the event, the protection may 

only temporarily suspend my duty to make 

minimum payments, not reduce the balance 

I owe. I understand that my balance will 

actually grow during the suspension period 

as interest continues to accumulate. 

[To Enroll, Initial Here]. X 

llllllllll 

BILLING CODE 6210–01–P 


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Form G–18(A) Periodic Statement 

Transactions; Interest Charges; Fees Sample 


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G–18(B)—Late Payment Fee Sample 

Late Payment Warning: If we do not 

receive your minimum payment by the date 

listed above, you may have to pay a $35 late 

fee and your APRs may be increased up to 

the Penalty APR of 28.99%. 

Form G–18(C)(1) Minimum Payment 

Warming (When Amortization Occurs and 

Minimum Payment Repayment is Greater 

than Three Years) 


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Form G–18(C)(2) Minimum Payment 

Warning (When Amortization Occurs and 

Minimum Payment Repayment Estimate is 

Equal to or less than Three Years); 

Form G–18(C)(3) Minimum Payment 

Warning (When Negative or No 

Amortization Occurs); 


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Form G–18(D) Periodic Statement New 

Balance, Due Date, late Payment and 

Minimum Payment Sample (Credit Cards) 

G–18(E) [Reserved.] 


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G–18(F) Periodic Statement Form 


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G–18(F) Periodic Statement Form (contd.) 


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G–18(G) Periodic Statement Form 


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G–18(G) Periodic Statement Form (contd.) 


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G–18(H)—Deferred Interest Periodic 

Statement Clause 

[You must pay your promotional balance 

in full by [date] to avoid paying accrued 

interest charges.] 

Form G–19 Checks Accessing a Credit Card 

Sample 

Form G–20 Change- in-Terms Sample 

(Increase Annual Percentage Rate) 

Form G–21 Change-in-Terms Sample 

(Increase in Fees) 


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Form G–22 Penalty Rate Increase Sample 

(Payment 60 or Fewer Days Late) 

Form G–23 Penalty Rate Increase Sample 

(Payment More Than 60 Days Late) 

BILLING CODE 6210–01–C 

G–24—Deferred Interest Offer Clauses 

(a) For Credit Card Accounts Under an OpenEnd (Not Home-Secured) Consumer Credit 

Plan 

[Interest will be charged to your account 

from the purchase date if the purchase 

balance is not paid in full within the/by 

[deferred interest period/date] or if you make 

a late payment.] 

(b) For Other Open-End Plans 

[Interest will be charged to your account 

from the purchase date if the purchase 

balance is not paid in full within the/by 

[deferred interest period/date] or if your 

account is otherwise in default.] 

G–25(A)—Consent Form for Over-the-Credit 

Limit Transactions 

Your Right to Request Over-the-Credit Limit 

Coverage 

Unless you tell us otherwise, we will 

decline any transaction that causes you to go 

over your credit limit. If you want us to 

authorize these transactions, you can request 

over-the-credit limit coverage. 

If you have over-the-credit limit coverage 

and you go over your credit limit, we will 

charge you a fee of $XX and may increase 

your APRs to the Penalty APR of XX.XX%. 

You will only pay one fee per billing cycle, 

even if you go over your limit multiple times 

in the same cycle. 

Even if you request over-the-credit limit 

coverage, in some cases we may still decline 

a transaction that would cause you to go over 

your limit, such as if you are past due or 

significantly over your credit limit. 

If you want us to authorize transactions 

that go over your credit limit, please: 

—Call us at [telephone number]; 

—Visit [Web site]; or 

—Check the box below, and return the form 

to us at [address]. 

__I want you to authorize transactions that 

exceed my credit limit. I understand that if 

I go over my credit limit, I will be charged 

a fee of $__ and my APRs may be increased. 

G–25(B)—Revocation Notice for Periodic 

Statement Regarding Over-the-Credit Limit 

Transactions 

You currently have over-the-credit limit 

coverage on your account, which means that 

we will pay transactions that cause you to go 

over your credit limit. If you do go over your 

credit limit, we will charge you a fee of $XX 

and your APRs may be increased. To remove 

over-the-credit-limit coverage from your 

account, call us at 1–800–xxxxxxx or visit 

http://www.xxxxxxx.com. You may also 

write us at: [insert address]. 

23. Appendix H to part 226 is 

amended by revising the table of 

contents, and adding new forms H– 

17(A) and H–17(B) to read as follows: 

Appendix H to Part 226—Closed-End 

Model Forms and Clauses 

H–1 Credit Sale Model Form (§ 226.18) 

H–2 Loan Model Form (§ 226.18) 

H–3 Amount Financed Itemization Model 

Form (§ 226.18(c)) 

H–4(A) Variable-Rate Model Clauses 

(§ 226.18(f)(1)) 

H–4(B) Variable-Rate Model Clauses 

(§ 226.18(f)(2)) 

H–4(C) Variable-Rate Model Clauses 

(§ 226.19(b)) 

H–4(D) Variable-Rate Model Clauses 

(§ 226.20(c)) 

H–5 Demand Feature Model Clauses 

(§ 226.18(i)) 

H–6 Assumption Policy Model Clause 

(§ 226.18(q)) 

H–7 Required Deposit Model Clause 

(§ 226.18(r)) 

H–8 Rescission Model Form (General) 

(§ 226.23) 

H–9 Rescission Model Form (Refinancing 

(with Original Creditor)) (§ 226.23) 

H–10 Credit Sale Sample 

H–11 Installment Loan Sample 

H–12 Refinancing Sample 

H–13 Mortgage with Demand Feature 

Sample 

H–14 Variable-Rate Mortgage Sample 

(§ 226.19(b)) 

H–15 Graduated-Payment Mortgage Sample 

H–16 Mortgage Sample 

H–17(A) Debt Suspension Model Clause 

H–17(B) Debt Suspension Sample 

* * * * * 

H–17(A) Debt Suspension Model Clause 

Please enroll me in the optional [insert 

name of program], and bill my account the 

fee of [insert charge for the initial term of 

coverage]. I understand that enrollment is not 

required to obtain credit. I also understand 

that depending on the event, the protection 

may only temporarily suspend my duty to 

make minimum payments, not reduce the 

balance I owe. I understand that my balance 

will actually grow during the suspension 

period as interest continues to accumulate. 

[To Enroll, Sign Here]/[To Enroll, Initial 

Here]. X____________________ 

H–17(B) Debt Suspension Sample 

Please enroll me in the optional [name of 

program], and bill my account the fee of 

$200.00. I understand that enrollment is not 

required to obtain credit. I also understand 

that depending on the event, the protection 

may only temporarily suspend my duty to 

make minimum payments, not reduce the 


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balance I owe. I understand that my balance 

will actually grow during the suspension 

period as interest continues to accumulate. 

To Enroll, Initial Here. 

X____________________ 

24. Appendix M1 is added to part 226 

to read as follows: 

Appendix M1 to Part 226—Repayment 

Disclosures 

(a) Definitions. (1) ‘‘Promotional terms’’ 

means terms of a cardholder’s account that 

will expire in a fixed period of time, as set 

forth by the card issuer. 

(2) ‘‘Deferred interest or similar plan’’ 

means a plan where a consumer will not be 

obligated to pay interest that accrues on 

balances or transactions if those balances or 

transactions are paid in full prior to the 

expiration of a specified period of time. 

(b) Calculating minimum payment 

repayment estimates. 

(1) Minimum payment formulas. When 

calculating the minimum payment 

repayment estimate, credit card issuers must 

use the minimum payment formula(s) that 

apply to a cardholder’s account. If more than 

one minimum payment formula applies to an 

account, the issuer must apply each 

minimum payment formula to the portion of 

the balance to which the formula applies. In 

this case, the issuer must disclose the longest 

repayment period calculated. For example, 

assume that an issuer uses one minimum 

payment formula to calculate the minimum 

payment amount for a general revolving 

feature, and another minimum payment 

formula to calculate the minimum payment 

amount for special purchases, such as a ‘‘club 

plan purchase.’’ Also, assume that based on 

a consumer’s balances in these features and 

the annual percentage rates that apply to 

such features, the repayment period 

calculated pursuant to this Appendix for the 

general revolving feature is 5 years, while the 

repayment period calculated for the special 

purchase feature is 3 years. This issuer must 

disclose 5 years as the repayment period for 

the entire balance to the consumer. If any 

promotional terms related to payments apply 

to a cardholder’s account, such as a deferred 

billing plan where minimum payments are 

not required for 12 months, credit card 

issuers may assume no promotional terms 

apply to the account. 

(2) Annual percentage rate. When 

calculating the minimum payment 

repayment estimate, a credit card issuer must 

use the annual percentage rates that apply to 

a cardholder’s account, based on the portion 

of the balance to which the rate applies. If 

any promotional terms related to annual 

percentage rates apply to a cardholder’s 

account, other than deferred interest or 

similar plans, a credit card issuer in 

calculating the minimum payment 

repayment estimate must apply the 

promotional annual percentage rate(s) until it 

expires and then must apply the rate that 

applies after the promotional rate(s) expires. 

If the rate that applies after the promotional 

rate(s) expires is a variable rate, a card issuer 

must calculate that rate based on the 

applicable index or formula. This variable 

rate is accurate if it was in effect within the 

last 30 days before the minimum payment 

repayment estimate is provided. For deferred 

interest plans or similar plans, if minimum 

payments under the deferred interest or 

similar plan will repay the balances or 

transactions in full prior to the expiration of 

the specified period of time, a card issuer 

must assume that the consumer will not be 

obligated to pay the accrued interest. This 

means, in calculating the minimum payment 

repayment estimate, the card issuer must 

apply a zero percent annual percentage rate 

to the balance subject to the deferred interest 

or similar plan. If, however, minimum 

payments under the deferred interest plan or 

similar plan may not repay the balances or 

transactions in full prior to the expiration of 

the specified period of time, a credit card 

issuer must assume that a consumer will not 

repay the balances or transactions in full 

prior to the expiration of the specified period 

of time and thus the consumer will be 

obligated to pay the accrued interest. This 

means, in calculating the minimum payment 

repayment estimate, the card issuer must 

apply the annual percentage rate at which 

interest is accruing to the balance subject to 

the deferred interest or similar plan. 

(3) Beginning balance. When calculating 

the minimum payment repayment estimate, a 

credit card issuer must use as the beginning 

balance the outstanding balance on a 

consumer’s account as of the closing date of 

the last billing cycle. When calculating the 

minimum payment repayment estimate, a 

credit card issuer may round the beginning 

balance as described above to the nearest 

whole dollar. 

(4) Assumptions. When calculating the 

minimum payment repayment estimate, a 

credit card issuer for each of the terms below, 

may either make the following assumption 

about that term, or use the account term that 

applies to a consumer’s account. 

(i) Only minimum monthly payments are 

made each month. In addition, minimum 

monthly payments are made each month—for 

example, a debt cancellation or suspension 

agreement, or skip payment feature does not 

apply to the account. 

(ii) No additional extensions of credit are 

obtained, such as new purchases, 

transactions, fees, charges or other activity. 

No refunds or rebates are given. 

(iii) The annual percentage rate or rates 

that apply to a cardholder’s account will not 

change, through either the operation of a 

variable rate or the change to a rate, except 

as provided in paragraph (b)(2) of this 

Appendix. For example, if a penalty annual 

percentage rate currently applies to a 

consumer’s account, an issuer may assume 

that the penalty annual percentage rate will 

apply to the consumer’s account indefinitely, 

even if the consumer may potentially return 

to a non-penalty annual percentage rate in 

the future under the account agreement. 

(iv) There is no grace period. 

(v) The final payment pays the account in 

full (i.e., there is no residual finance charge 

after the final month in a series of payments). 

(vi) The average daily balance method is 

used to calculate the balance. 

(vii) All months are the same length and 

leap year is ignored. A monthly or daily 

periodic rate may be assumed. If a daily 

periodic rate is assumed, the issuer may 

either assume (1) a year is 365 days long, and 

all months are 30.41667 days long, or (2) a 

year is 360 days long, and all months are 30 

days long. 

(viii) Payments are credited on the last day 

of the month. 

(ix) Payments are allocated to lower annual 

percentage rate balances before higher annual 

percentage rate balances. 

(x) The account is not past due and the 

account balance does not exceed the credit 

limit. 

(xi) When calculating the minimum 

payment repayment estimate, the assumed 

payments, current balance and interest 

charges for each month may be rounded to 

the nearest cent, as shown in Appendix M2 

to this part. 

(5) Tolerance. A minimum payment 

repayment estimate shall be considered 

accurate if it is not more than 2 months above 

or below the minimum payment repayment 

estimate determined in accordance with the 

guidance in this Appendix (prior to rounding 

described in § 226.7(b)(12)(i)(B)). For 

example, assume the minimum payment 

repayment estimate calculated using the 

guidance in this Appendix is 28 months (2 

years, 4 months), and the minimum payment 

repayment estimate calculated by the issuer 

is 30 months (2 years, 6 months). The 

minimum payment repayment estimate 

should be disclosed as 2 years, due to the 

rounding rule set forth in § 226.7(b)(12)(i)(B). 

Nonetheless, based on the 30 month estimate, 

the issuer disclosed 3 years, based on that 

rounding rule. The issuer would be in 

compliance with this guidance by disclosing 

3 years, instead of 2 years, because the 

issuer’s estimate is within the 2 months’ 

tolerance, prior to rounding. In addition, 

even if an issuer’s estimate is more than 2 

months above or below the minimum 

payment repayment estimate calculated 

using the guidance in this Appendix, so long 

as the issuer discloses the correct number of 

years to the consumer based on the rounding 

rule set forth in § 226.7(b)(12)(i)(B), the issuer 

would be in compliance with this guidance. 

For example, assume the minimum payment 

repayment estimate calculated using the 

guidance in this Appendix is 32 months (2 

years, 8 months), and the minimum payment 

repayment estimate calculated by the issuer 

is 38 months (3 years, 2 months). Under the 

rounding rule set forth in § 226.7(b)(12)(i)(B), 

both of these estimates would be rounded 

and disclosed to the consumer as 3 years. 

Thus, if the issuer disclosed 3 years to the 

consumer, the issuer would be in compliance 

with this guidance even though the 

minimum payment repayment estimate 

calculated by the issuer is outside the 2 

months’ tolerance amount. 

(c) Calculating the minimum payment total 

cost estimate. When calculating the 

minimum payment total cost estimate, a 

credit card issuer must total the dollar 

amount of the interest and principal that the 

consumer would pay if he or she made 

minimum payments for the length of time 

calculated as the minimum payment 

repayment estimate under paragraph (b) of 

this Appendix. The minimum payment total 

cost estimate is deemed to be accurate if it 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
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is based on a minimum payment repayment 

estimate that is within the tolerance guidance 

set forth in paragraph (b)(5) of this Appendix. 

For example, assume the minimum payment 

repayment estimate calculated using the 

guidance in this Appendix is 28 months (2 

years, 4 months), and the minimum payment 

repayment estimate calculated by the issuer 

is 30 months (2 years, 6 months). The 

minimum payment total cost estimate will be 

deemed accurate even if it is based on the 30 

month estimate for length of repayment, 

because the issuer’s minimum payment 

repayment estimate is within the 2 months’ 

tolerance, prior to rounding. In addition, 

assume the minimum payment repayment 

estimate calculated under this Appendix is 

32 months (2 years, 8 months), and the 

minimum payment repayment estimate 

calculated by the issuer is 38 months (3 

years, 2 months). Under the rounding rule set 

forth in § 226.7(b)(12)(i)(B), both of these 

estimates would be rounded and disclosed to 

the consumer as 3 years. If the issuer based 

the minimum payment total cost estimate on 

38 months (or any other minimum payment 

repayment estimate that would be rounded to 

3 years), the minimum payment total cost 

estimate would be deemed to be accurate. 

(d) Calculating the estimated monthly 

payment for repayment in 36 months. (1) In 

general. When calculating the estimated 

monthly payment for repayment in 36 

months, a credit card issuer must calculate 

the estimated monthly payment amount that 

would be required to pay off the outstanding 

balance shown on the statement within 36 

months, assuming the consumer paid the 

same amount each month for 36 months. 

(2) Weighted annual percentage rate. In 

calculating the estimated monthly payment 

for repayment in 36 months, an issuer must 

use a weighted annual percentage rate that is 

based on the annual percentage rates that 

apply to a cardholder’s account and the 

portion of the balance to which the rate 

applies, as shown in Appendix M2 to this 

part. If any promotional terms related to 

annual percentage rates apply to a 

cardholder’s account, other than deferred 

interest plans or similar plans, in calculating 

the weighted annual percentage rate, the 

issuer must calculate a weighted average of 

the promotional rate and the rate that will 

apply after the promotional rate expires 

based on the percentage of 36 months each 

rate will apply, as shown in Appendix M2 to 

this part. For deferred interest plans or 

similar plans, if minimum payments under 

the deferred interest or similar plan will 

repay the balances or transactions in full 

prior to the expiration of the specified period 

of time, a card issuer must assume that the 

consumer will not be obligated to pay the 

accrued interest. This means, in calculating 

the weighted annual percentage rate, the card 

issuer must apply a zero percent annual 

percentage rate to the balance subject to the 

deferred interest or similar plan. If, however, 

minimum payments under the deferred 

interest plan or similar plan may not repay 

the balances or transactions in full prior to 

the expiration of the specified period of time, 

a credit card issuer in calculating the 

weighted annual percentage rate must 

assume that a consumer will not repay the 

balances or transactions in full prior to the 

expiration of the specified period of time and 

thus the consumer will be obligated to pay 

the accrued interest. This means, in 

calculating the weighted annual percentage 

rate, the card issuer must apply the annual 

percentage rate at which interest is accruing 

to the balance subject to the deferred interest 

or similar plan. 

(3) Assumptions. In calculating the 

estimated monthly payment for repayment in 

36 months, a card issuer must use the same 

terms described in paragraph (b) of this 

Appendix, as appropriate. 

(e) Calculating the total cost estimate for 

repayment in 36 months. When calculating 

the total cost estimate for repayment in 36 

months, a credit card issuer must total the 

dollar amount of the interest and principal 

that the consumer would pay if he or she 

made the estimated monthly payment 

calculated under paragraph (d) of this 

Appendix each month for 36 months. 

(f) Calculating the savings estimate for 

repayment in 36 months. When calculating 

the saving estimate for repayment in 36 

months, a credit card issuer must subtract the 

total cost estimate for repayment in 36 

months calculated under paragraph (e) of this 

Appendix (rounded to the nearest whole 

dollar as set forth in § 226.7(b)(12)(i)(F)(3)) 

from the minimum payment total cost 

estimate calculated under paragraph (c) of 

this Appendix (rounded to the nearest whole 

dollar as set forth in § 226.7(b)(12)(i)(C)). 

24a. Appendix M2 is added to part 

226 to read as follows: 

Appendix M2 to Part 226—Sample 

Calculations of Repayment Disclosures 

The following is an example of how to 

calculate the minimum payment repayment 

estimate, the minimum payment total cost 

estimate, the estimated monthly payment for 

repayment in 36 months, the total cost 

estimate for repayment in 36 months, and the 

savings estimate for repayment in 36 month 

using the guidance in Appendix M1 to this 

part where three annual percentage rates 

apply (where one of the rates is a 

promotional APR), the total outstanding 

balance is $1000, and the minimum payment 

formula is 2 percent of the outstanding 

balance or $20, whichever is greater. The 

following calculation is written in SAS code. 

data one; 

/* 

Note: pmt01 = estimated monthly payment 

to repay balance in 36 months 

sumpmts36 = sum of payments for 

repayment in 36 months 

month = number of months to repay total 

balance if making only minimum payments 

pmt = minimum monthly payment 

fc = monthly finance charge 

sumpmts = sum of payments for minimum 

payments 

*/ 

* inputs; 

* annual percentage rates; apr1= 0.0; 

apr2=0.17; apr3=0.21; * insert in 

ascending order; 

* outstanding balances; cbal1=500; 

cbal2=250; cbal3=250; 

* dollar minimum payment; dmin=20; 

* percent minimum payment; pmin=0.02; * 

(0.02+perrate); 

* promotional rate information; 

* last month for promotional rate; expm=6; 

* = 0 if no promotional rate; 

* regular rate; rrate=.17; * = 0 if no 

promotional rate; 

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

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

* calculate estimated monthly payment to 

pay off balances in 36 months, and total 

cost of repaying balance in 36 months; 

array xperrate(3); 

do I=1 to 3; 

xperrate(I)=(apr(I)/365)*days; * calculate 

periodic rate; end; 

if expm gt 0 then xperrate1a=(expm/36)*

xperrate1+(1¥(expm/36))*(rrate/ 

365)*days; else xperrate1a=xperrate1; 

tbal=cbal1+cbal2+cbal3; 

perrate36=(cbal1*xperrate1a+cbal2

*xperrate2+cbal3*xperrate3)/ 

(cbal1+cbal2+cbal3); 

* months to repay; dmonths=36; 

* initialize counters for sum of payments for 

repayment in 36 months; 

Sumpmts36=0; 

pvaf=(1¥(1+perrate36)**¥dmonths)/ 

perrate36; * calculate present value of 

annuity factor; 

pmt01=round(tbal/pvaf,0.01); * calculate 

monthly payment for designated number 

of months; 

sumpmts36 = pmt01 * 36; 

* calculate time to repay and total cost of 

making minimum payments each month; 

* initialize counter for months, and sum of 

payments; 

month=0; 

sumpmts=0; 

do I=1 to 3; 

perrate(I)=(apr(I)/365)*days; * calculate 

periodic rate; end; 

put perrate1= perrate2= perrate3=; 

eins: 

month=month+1; * increment month 

counter; 

pmt=round(pmin*tbal,0.01); * calculate 

payment as percentage of balance; 

if month ge expm and expm ne 0 then 

perrate1=(rrate/365)*days; 

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

minimum payment; 

array xxxbal(3); array cbal(3); 

do I=1 to 3; 

xxxbal(I)=round(cbal(I)*(1+perrate(I)),0.01); 

end; 

fc=xxxbal1+xxxbal2+xxxbal3¥tbal; 

if pmt gt (tbal+fc) then do; 

do I=1 to 3; 

if cbal(I) gt 0 then 

pmt=round(cbal(I)*(1+perrate(I)),0.01); * 

set final payment amount; 

end; 

end; 

if pmt le xxxbal1 then do; 

cbal1=xxxbal1¥pmt; 

cbal2=xxxbal2; 

cbal3=xxxbal3; 

end; 

if pmt gt xxxbal1 and xxxbal2 gt 0 and pmt 

le (xxxbal1+xxxbal2) then do; 


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cbal2=xxxbal2¥(pmt¥xxxbal1); 

cbal1=0; 

cbal3=xxxbal3; 

end; 

if pmt gt xxxbal2 and xxxbal3 gt 0 then do; 

cbal3=xxxbal3¥(pmt-xxxbal1¥xxxbal2); 

cbal2=0; 

end; 

sumpmts=sumpmts+pmt; * increment sum 

of payments; 

tbal=cbal1+cbal2+cbal3; * calculate new total 

balance; 

* print month, balance, payment amount, 

and finance charge; 

put month= tbal= cbal1= cbal2= cbal3= pmt= 

fc= ; 

if tbal gt 0 then go to eins; * go to next month 

if balance is greater than zero; 

* initialize total cost savings; 

savtot=0; 

savtot= round(sumpmts,1)¥round 

(sumpmts36,1); 

* print number of months to repay debt if 

minimum payments made, final balance 

(zero), total cost if minimum payments 

made, estimated monthly payment for 

repayment in 36 months, total cost for 

repayment in 36 months, and total 

savings if repaid in 36 months; 

put title=′ ′; 

put title=′number of months to repay debt if 

minimum payment made, final balance, 

total cost if minimum payments made, 

estimated monthly payment for 

repayment in 36 months, total cost for 

repayment in 36 months, and total 

savings if repaid in 36 months’; 

put month= tbal= sumpmts= pmt01= 

sumpmts36= savtot=; 

put title=′ ′; 

run; 

25. Appendix N to part 226 is added 

to read as follows: 

Appendix N—Internet Posting of Credit 

Card Agreements 

1. Credit Card Agreements Submitted to the 

Board Under § 226.58(d) 

(a) Each agreement submitted to the Board 

must contain the provisions of the agreement 

and the pricing information in effect as of the 

last business day of the preceding calendar 

quarter. 

(b) Information that is not uniform for all 

cardholders under an agreement, but that 

instead may vary from one cardholder to 

another depending upon a cardholder’s 

creditworthiness, State of residence, or other 

factors, such as the pricing information, must 

be set forth in an addendum to the 

agreement. The addendum must provide the 

information either by setting forth all the 

possible variations (such as purchase APRs of 

6.9 percent, 8.9 percent, 10.9 percent, or 12.9 

percent), or by providing a range (such as 

purchase APR ranging from 6.9 percent to 

12.9 percent). 

(c) Card issuers are not required to submit 

any disclosures required by State or Federal 

law, such as affiliate marketing notices, 

privacy policies, or disclosures under the ESign Act, except to the extent that those 

disclosures are included in the provisions of 

the agreement or the pricing information. 

Similarly, card issuers are not required to 

submit solicitation materials or periodic 

statements. 

(d) Agreements must not include any 

personally identifiable information relating 

to any cardholder, such as name, address, 

telephone number, or account number. 

(e) Issuers may not provide provisions of 

the agreement or pricing information in the 

form of change-in-terms notices or riders 

(other than the single addendum described 

above, if applicable). Changes in provisions 

or pricing information must be integrated 

into the body of the agreement (or into the 

single addendum described above, if 

applicable). 

2. Posting of Agreements Offered to the 

Public on Card Issuer’s Web Site Under 

Proposed § 226.58(f)(1) 

(a) Agreements may be posted in any 

electronic format that is readily usable by the 

general public. 

(b) The content of the agreements posted 

on the issuer’s Web site must the same as 

those submitted to the Board, as specified in 

paragraph 1. above. 

(c) The card issuer must update the 

agreements posted on its Web site at least as 

frequently as the quarterly schedule required 

for submission of agreements to the Board 

under § 226.58(d). If the issuer chooses to 

update the agreements on its Web site more 

frequently, the agreements posted on the 

issuer’s Web site may contain the provisions 

of the agreement and the pricing information 

in effect as of a date other than the last 

business day of the preceding calendar 

quarter. 

(d) The agreements posted on the issuer’s 

Web site must be placed in a location that is 

prominent and easily accessible by the public 

and must be presented in a clear and legible 

typeface. 

3. Availability of Agreements for All Open 

Accounts under § 226.58(f)(2) 

(a) If the card issuer posts an agreement on 

its Web site under § 226.58(f)(2)(i), the 

agreement may be posted in any electronic 

format this is readily usable by the general 

public and must be placed in a location that 

is prominent and easily accessible to the 

cardholder. 

(b) The content of such agreements 

(whether posted on the card issuer’s Web site 

under § 226.58(f)(2)(i) or made available 

upon the cardholder’s request under 

§ 226.58(f)(2)(ii)) must conform to the content 

requirements for agreements submitted to the 

Board, as specified in paragraph 1. above, 

except that each agreement: (1) Must set forth 

the specific provisions and pricing 

information applicable to the particular 

cardholder; and (2) may contain personally 

identifiable information relating to the 

cardholder, such as name, address, telephone 

number, or account number, provided that 

the issuer takes appropriate measures to 

make the agreement accessible only to the 

cardholder or other authorized persons. 

Pricing information may be integrated into 

the text of the agreement or provided in a 

single attached addendum. All agreements 

must be presented in a clear and legible 

typeface. 

(c) Agreements must contain provisions 

and pricing information that is complete and 

accurate as of a date no more than 60 days 

prior to: (1) The date on which the agreement 

is posted on the card issuer’s Web site under 

§ 226.58(f)(2)(i); or (2) the date the 

cardholder’s request is received under 

§ 226.58(f)(2)(ii). 

(d) Issuers may not provide provisions of 

the agreement or pricing information in the 

form of change-in-terms notices or riders 

(other than the single addendum described 

above, if applicable). Changes in provisions 

or pricing information must be integrated 

into the body of the agreement (or into the 

single addendum described above, if 

applicable). 

26. In Supplement I to Part 226: 

A. Revise the Introduction. 

B. Revise Subpart A. 

C. In Subpart B, revise sections 226.5 

and 226.5a and sections 226.6 through 

226.14 and section 226.16. 

D. Under Section 226.5b— 

Requirements for Home-equity Plans, 

under 5b(a) Form of Disclosures, under 

5b(a)(1) General, paragraph 1. is revised. 

E. Under Section 226.5b— 

Requirements for Home-equity Plans, 

under 5b(f) Limitations on Home-equity 

Plans, under 5b(f)(3)(vi), paragraph 4. is 

revised. 

F. Under Section 226.26—Use of 

Annual Percentage Rate in Oral 

Disclosures, under 26(a) Open-end 

credit., paragraph 1. is revised. 

G. Under Section 226.27—Language 

of Disclosures, paragraph 1. is revised. 

H. Under Section 226.28—Effect on 

State Laws, under 28(a) Inconsistent 

disclosure requirements., paragraph 6. is 

revised. 

I. Under Section 226.30—Limitation 

on Rates, paragraph 8. is revised and 

paragraph 13. is deleted. 

J. Add a new Subpart G, consisting of 

sections 226.51 through 226.58. 

K. Revise Appendix F. 

L. Amend Appendix G by revising 

paragraphs 1. through 3. and 5. through 

6. and adding paragraphs 8. through 12. 

M. Remove the References paragraph 

at the end of sections 226.1, 226.2, 

226.3, 226.4, 226.5, 226.6, 226.7, 226.8, 

226.9, 226.10, 226.11, 226.12, 226.13, 

226.14, 226.16, and Appendix F. 

Supplement I to Part 226—Official Staff 

Interpretations 

Introduction 

1. Official status. This commentary is 

the vehicle by which the staff of the 

Division of Consumer and Community 

Affairs of the Federal Reserve Board 

issues official staff interpretations of 

Regulation Z. Good faith compliance 

with this commentary affords protection 

from liability under 130(f) of the Truth 

in Lending Act. Section 130(f) (15 

U.S.C. 1640) protects creditors from 


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civil liability for any act done or omitted 

in good faith in conformity with any 

interpretation issued by a duly 

authorized official or employee of the 

Federal Reserve System. 

2. Procedure for requesting 

interpretations. Under appendix C of the 

regulation, anyone may request an 

official staff interpretation. 

Interpretations that are adopted will be 

incorporated in this commentary 

following publication in the Federal 

Register. No official staff interpretations 

are expected to be issued other than by 

means of this commentary. 

3. Rules of construction. (a) Lists that 

appear in the commentary may be 

exhaustive or illustrative; the 

appropriate construction should be clear 

from the context. In most cases, 

illustrative lists are introduced by 

phrases such as ‘‘including, but not 

limited to,’’ ‘‘among other things,’’ ‘‘for 

example,’’ or ‘‘such as.’’ 

(b) Throughout the commentary, 

reference to ‘‘this section’’ or ‘‘this 

paragraph’’ means the section or 

paragraph in the regulation that is the 

subject of the comment. 

4. Comment designations. Each 

comment in the commentary is 

identified by a number and the 

regulatory section or paragraph which it 

interprets. The comments are designated 

with as much specificity as possible 

according to the particular regulatory 

provision addressed. For example, some 

of the comments to § 226.18(b) are 

further divided by subparagraph, such 

as comment 18(b)(1)–1 and comment 

18(b)(2)–1. In other cases, comments 

have more general application and are 

designated, for example, as comment 

18–1 or comment 18(b)–1. This 

introduction may be cited as comments 

I–1 through I–4. Comments to the 

appendices may be cited, for example, 

as comment app. A–1. 

Subpart A—General 

§ 226.1 Authority, Purpose, Coverage, 

Organization, Enforcement and Liability. 

1(c) Coverage. 

1. Foreign applicability. Regulation Z 

applies to all persons (including 

branches of foreign banks and sellers 

located in the United States) that extend 

consumer credit to residents (including 

resident aliens) of any State as defined 

in § 226.2. If an account is located in the 

United States and credit is extended to 

a U.S. resident, the transaction is subject 

to the regulation. This will be the case 

whether or not a particular advance or 

purchase on the account takes place in 

the United States and whether or not the 

extender of credit is chartered or based 

in the United States or a foreign 

country. For example, if a U.S. resident 

has a credit card account located in the 

consumer’s State issued by a bank 

(whether U.S. or foreign-based), the 

account is covered by the regulation, 

including extensions of credit under the 

account that occur outside the United 

States. In contrast, if a U.S. resident 

residing or visiting abroad, or a foreign 

national abroad, opens a credit card 

account issued by a foreign branch of a 

U.S. bank, the account is not covered by 

the regulation. 

1(d) Organization. 

Paragraph (1)(d)(5). 

1. Effective dates. The Board’s 

revisions to Regulation Z published on 

July 30, 2008 (the ‘‘final rules’’), apply 

to covered loans (including refinance 

loans and assumptions considered new 

transactions under § 226.20), for which 

the creditor receives an application on 

or after October 1, 2009, except for the 

final rules on advertising, escrows, and 

loan servicing. The final rules on 

escrows in § 226.35(b)(3) are effective 

for covered loans, (including 

refinancings and assumptions in 

§ 226.20) for which the creditor receives 

an application on or after April 1, 2010; 

but for such loans secured by 

manufactured housing on or after 

October 1, 2010. The final rules 

applicable to servicers in § 226.36(c) 

apply to all covered loans serviced on 

or after October 1, 2009. The final rules 

on advertising apply to advertisements 

occurring on or after October 1, 2009. 

For example, a radio ad occurs on the 

date it is first broadcast; a solicitation 

occurs on the date it is mailed to the 

consumer. The following examples 

illustrate the application of the effective 

dates for the final rules. 

i. General. A refinancing or 

assumption as defined in § 226.20(a) or 

(b) is a new transaction and is covered 

by a provision of the final rules if the 

creditor receives an application for the 

transaction on or after that provision’s 

effective date. For example, if a creditor 

receives an application for a refinance 

loan covered by § 226.35(a) on or after 

October 1, 2009, and the refinance loan 

is consummated on October 15, 2009, 

the provision restricting prepayment 

penalties in § 226.35(b)(2) applies. 

However, if the transaction were a 

modification of an existing obligation’s 

terms that does not constitute a 

refinance loan under § 226.20(a), the 

final rules, including for example the 

restriction on prepayment penalties 

would not apply. 

ii. Escrows. Assume a consumer 

applies for a refinance loan to be 

secured by a dwelling (that is not a 

manufactured home) on March 15, 2010, 

and the loan is consummated on April 

2, 2010, the escrow rule in § 226.35(b)(3) 

does not apply. 

iii. Servicing. Assume that a consumer 

applies for a new loan on August 1, 

2009. The loan is consummated on 

September 1, 2009. The servicing rules 

in § 226.36(c) apply to the servicing of 

that loan as of October 1, 2009. 

Paragraph 1(d)(6). 

1. Mandatory compliance dates. 

Compliance with the Board’s revisions 

to Regulation Z published on August 14, 

2009 is mandatory for private education 

loans for which the creditor receives an 

application on or after February 14, 

2010. Compliance with the final rules 

on co-branding in Sec. 226.48(a) and (b) 

is mandatory for marketing occurring on 

or after February 14, 2010. Compliance 

with the final rules is optional for 

private education loan transactions for 

which an application was received prior 

to February 14, 2010, even if 

consummated after the mandatory 

compliance date. 

2. Optional compliance. A creditor 

may, at its option, provide the approval 

and final disclosures required under 

§§ 226.47(b) or (c) for private education 

loans where an application was received 

prior to the mandatory compliance date. 

If the creditor opts to provide the 

disclosures, the creditor must also 

comply with the applicable timing and 

other rules in §§ 226.46 and 226.48 

(including providing the consumer with 

the 30-day acceptance period under 

§ 226.48(c), and the right to cancel 

under § 226.48(d)). For example if the 

creditor receives an application on 

January 25, 2010 and approves the 

consumer’s application on or after 

February 14, 2010, the creditor may, at 

its option, provide the approval 

disclosures under § 226.47(b), the final 

disclosures under § 226.47(c) and 

comply with the applicable 

requirements §§ 226.46 and 226.48. The 

creditor must also obtain the selfcertification form as required in 

§ 226.48(e), if applicable. Or, for 

example, if the creditor receives an 

application on January 25, 2010 and 

approves the consumer’s application 

before February 14, 2010, the creditor 

may, at its option, provide the final 

disclosure under § 226.47(c) and comply 

with the applicable timing and other 

requirements of §§ 226.46 and 226.48, 

including providing the consumer with 

the right to cancel under § 226.48(d). 

The creditor must also obtain the selfcertification form as required in 

§ 226.48(e), if applicable. 

Paragraph 1(d)(7). 

1. [Reserved.] 


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§ 226.2 Definitions and Rules of 

Construction. 

2(a)(2) Advertisement. 

1. Coverage. Only commercial 

messages that promote consumer credit 

transactions requiring disclosures are 

advertisements. Messages inviting, 

offering, or otherwise announcing 

generally to prospective customers the 

availability of credit transactions, 

whether in visual, oral, or print media, 

are covered by Regulation Z (12 CFR 

part 226). 

i. Examples include: 

A. Messages in a newspaper, 

magazine, leaflet, promotional flyer, or 

catalog. 

B. Announcements on radio, 

television, or public address system. 

C. Electronic advertisements, such as 

on the Internet. 

D. Direct mail literature or other 

printed material on any exterior or 

interior sign. 

E. Point of sale displays. 

F. Telephone solicitations. 

G. Price tags that contain credit 

information. 

H. Letters sent to customers or 

potential customers as part of an 

organized solicitation of business. 

I. Messages on checking account 

statements offering auto loans at a stated 

annual percentage rate. 

J. Communications promoting a new 

open-end plan or closed-end 

transaction. 

ii. The term does not include: 

A. Direct personal contacts, such as 

follow-up letters, cost estimates for 

individual consumers, or oral or written 

communication relating to the 

negotiation of a specific transaction. 

B. Informational material, for 

example, interest-rate and loan-term 

memos, distributed only to business 

entities. 

C. Notices required by Federal or 

State law, if the law mandates that 

specific information be displayed and 

only the information so mandated is 

included in the notice. 

D. News articles the use of which is 

controlled by the news medium. 

E. Market-research or educational 

materials that do not solicit business. 

F. Communications about an existing 

credit account (for example, a 

promotion encouraging additional or 

different uses of an existing credit card 

account.) 

2. Persons covered. All persons must 

comply with the advertising provisions 

in §§ 226.16 and 226.24, not just those 

that meet the definition of creditor in 

§ 226.2(a)(17). Thus, home builders, 

merchants, and others who are not 

themselves creditors must comply with 

the advertising provisions of the 

regulation if they advertise consumer 

credit transactions. However, under 

section 145 of the act, the owner and the 

personnel of the medium in which an 

advertisement appears, or through 

which it is disseminated, are not subject 

to civil liability for violations. 

2(a)(3) Reserved. 

2(a)(4) Billing cycle or cycle. 

1. Intervals. In open-end credit plans, 

the billing cycle determines the 

intervals for which periodic disclosure 

statements are required; these intervals 

are also used as measuring points for 

other duties of the creditor. Typically, 

billing cycles are monthly, but they may 

be more frequent or less frequent (but 

not less frequent than quarterly). 

2. Creditors that do not bill. The term 

cycle is interchangeable with billing 

cycle for definitional purposes, since 

some creditors’ cycles do not involve 

the sending of bills in the traditional 

sense but only statements of account 

activity. This is commonly the case with 

financial institutions when periodic 

payments are made through payroll 

deduction or through automatic debit of 

the consumer’s asset account. 

3. Equal cycles. Although cycles must 

be equal, there is a permissible variance 

to account for weekends, holidays, and 

differences in the number of days in 

months. If the actual date of each 

statement does not vary by more than 

four days from a fixed ‘‘day’’ (for 

example, the third Thursday of each 

month) or ‘‘date’’ (for example, the 15th 

of each month) that the creditor 

regularly uses, the intervals between 

statements are considered equal. The 

requirement that cycles be equal applies 

even if the creditor applies a daily 

periodic rate to determine the finance 

charge. The requirement that intervals 

be equal does not apply to the first 

billing cycle on an open-end account 

(i.e., the time period between account 

opening and the generation of the first 

periodic statement) or to a transitional 

billing cycle that can occur if the 

creditor occasionally changes its billing 

cycles so as to establish a new statement 

day or date. (See comments 9(c)(1)–3 

and 9(c)(2)–3.) 

4. Payment reminder. The sending of 

a regular payment reminder (rather than 

a late payment notice) establishes a 

cycle for which the creditor must send 

periodic statements. 

2(a)(6) Business day. 

1. Business function test. Activities 

that indicate that the creditor is open for 

substantially all of its business 

functions include the availability of 

personnel to make loan disbursements, 

to open new accounts, and to handle 

credit transaction inquiries. Activities 

that indicate that the creditor is not 

open for substantially all of its business 

functions include a retailer’s merely 

accepting credit cards for purchases or 

a bank’s having its customer-service 

windows open only for limited 

purposes such as deposits and 

withdrawals, bill paying, and related 

services. 

2. Rule for rescission, disclosures for 

certain mortgage transactions, and 

private education loans. A more precise 

rule for what is a business day (all 

calendar days except Sundays and the 

Federal legal holidays specified in 5 

U.S.C. 6103(a)) applies when the right of 

rescission, the receipt of disclosures for 

certain dwelling-secured mortgage 

transactions under §§ 226.19(a)(1)(ii), 

226.19(a)(2), 226.31(c), or the receipt of 

disclosures for private education loans 

under § 226.46(d)(4) is involved. Four 

Federal legal holidays are identified in 

5 U.S.C. 6103(a) by a specific date: New 

Year’s Day, January 1; Independence 

Day, July 4; Veterans Day, November 11; 

and Christmas Day, December 25. When 

one of these holidays (July 4, for 

example) falls on a Saturday, Federal 

offices and other entities might observe 

the holiday on the preceding Friday 

(July 3). In cases where the more precise 

rule applies, the observed holiday (in 

the example, July 3) is a business day. 

2(a)(7) Card issuer. 

1. Agent. An agent of a card issuer is 

considered a card issuer. Because 

agency relationships are traditionally 

defined by contract and by State or 

other applicable law, the regulation 

does not define agent. Merely providing 

services relating to the production of 

credit cards or data processing for 

others, however, does not make one the 

agent of the card issuer. In contrast, a 

financial institution may become the 

agent of the card issuer if an agreement 

between the institution and the card 

issuer provides that the cardholder may 

use a line of credit with the financial 

institution to pay obligations incurred 

by use of the credit card. 

2(a)(8) Cardholder. 

1. General rule. A cardholder is a 

natural person at whose request a card 

is issued for consumer credit purposes 

or who is a co-obligor or guarantor for 

such a card issued to another. The 

second category does not include an 

employee who is a co-obligor or 

guarantor on a card issued to the 

employer for business purposes, nor 

does it include a person who is merely 

the authorized user of a card issued to 

another. 

2. Limited application of regulation. 

For the limited purposes of the rules on 

issuance of credit cards and liability for 

unauthorized use, a cardholder includes 

any person, including an organization, 


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to whom a card is issued for any 

purpose—including a business, 

agricultural, or commercial purpose. 

3. Issuance. See the commentary to 

§ 226.12(a). 

4. Dual-purpose cards and dual-card 

systems. Some card issuers offer dualpurpose cards that are for business as 

well as consumer purposes. If a card is 

issued to an individual for consumer 

purposes, the fact that an organization 

has guaranteed to pay the debt does not 

make it business credit. On the other 

hand, if a card is issued for business 

purposes, the fact that an individual 

sometimes uses it for consumer 

purchases does not subject the card 

issuer to the provisions on periodic 

statements, billing-error resolution, and 

other protections afforded to consumer 

credit. Some card issuers offer dual-card 

systems—that is, they issue two cards to 

the same individual, one intended for 

business use, the other for consumer or 

personal use. With such a system, the 

same person may be a cardholder for 

general purposes when using the card 

issued for consumer use, and a 

cardholder only for the limited purposes 

of the restrictions on issuance and 

liability when using the card issued for 

business purposes. 

2(a)(9) Cash price. 

1. Components. This amount is a 

starting point in computing the amount 

financed and the total sale price under 

§ 226.18 for credit sales. Any charges 

imposed equally in cash and credit 

transactions may be included in the 

cash price, or they may be treated as 

other amounts financed under 

§ 226.18(b)(2). 

2. Service contracts. Service contracts 

include contracts for the repair or the 

servicing of goods, such as mechanical 

breakdown coverage, even if such a 

contract is characterized as insurance 

under State law. 

3. Rebates. The creditor has complete 

flexibility in the way it treats rebates for 

purposes of disclosure and calculation. 

(See the commentary to § 226.18(b).) 

2(a)(10) Closed-end credit. 

1. General. The coverage of this term 

is defined by exclusion. That is, it 

includes any credit arrangement that 

does not fall within the definition of 

open-end credit. Subpart C contains the 

disclosure rules for closed-end credit 

when the obligation is subject to a 

finance charge or is payable by written 

agreement in more than four 

installments. 

2(a)(11) Consumer. 

1. Scope. Guarantors, endorsers, and 

sureties are not generally consumers for 

purposes of the regulation, but they may 

be entitled to rescind under certain 

circumstances and they may have 

certain rights if they are obligated on 

credit card plans. 

2. Rescission rules. For purposes of 

rescission under §§ 226.15 and 226.23, a 

consumer includes any natural person 

whose ownership interest in his or her 

principal dwelling is subject to the risk 

of loss. Thus, if a security interest is 

taken in A’s ownership interest in a 

house and that house is A’s principal 

dwelling, A is a consumer for purposes 

of rescission, even if A is not liable, 

either primarily or secondarily, on the 

underlying consumer credit transaction. 

An ownership interest does not include, 

for example, leaseholds or inchoate 

rights, such as dower. 

3. Land trusts. Credit extended to land 

trusts, as described in the commentary 

to § 226.3(a), is considered to be 

extended to a natural person for 

purposes of the definition of consumer. 

2(a)(12) Consumer credit. 

1. Primary purpose. There is no 

precise test for what constitutes credit 

offered or extended for personal, family, 

or household purposes, nor for what 

constitutes the primary purpose. (See, 

however, the discussion of business 

purposes in the commentary to 

§ 226.3(a).) 

2(a)(13) Consummation. 

1. State law governs. When a 

contractual obligation on the 

consumer’s part is created is a matter to 

be determined under applicable law; 

Regulation Z does not make this 

determination. A contractual 

commitment agreement, for example, 

that under applicable law binds the 

consumer to the credit terms would be 

consummation. Consummation, 

however, does not occur merely because 

the consumer has made some financial 

investment in the transaction (for 

example, by paying a nonrefundable fee) 

unless, of course, applicable law holds 

otherwise. 

2. Credit v. sale. Consummation does 

not occur when the consumer becomes 

contractually committed to a sale 

transaction, unless the consumer also 

becomes legally obligated to accept a 

particular credit arrangement. For 

example, when a consumer pays a 

nonrefundable deposit to purchase an 

automobile, a purchase contract may be 

created, but consummation for purposes 

of the regulation does not occur unless 

the consumer also contracts for 

financing at that time. 

2(a)(14) Credit. 

1. Exclusions. The following 

situations are not considered credit for 

purposes of the regulation: 

i. Layaway plans, unless the 

consumer is contractually obligated to 

continue making payments. Whether the 

consumer is so obligated is a matter to 

be determined under applicable law. 

The fact that the consumer is not 

entitled to a refund of any amounts paid 

towards the cash price of the 

merchandise does not bring layaways 

within the definition of credit. 

ii. Tax liens, tax assessments, court 

judgments, and court approvals of 

reaffirmation of debts in bankruptcy. 

However, third-party financing of such 

obligations (for example, a bank loan 

obtained to pay off a tax lien) is credit 

for purposes of the regulation. 

iii. Insurance premium plans that 

involve payment in installments with 

each installment representing the 

payment for insurance coverage for a 

certain future period of time, unless the 

consumer is contractually obligated to 

continue making payments. 

iv. Home improvement transactions 

that involve progress payments, if the 

consumer pays, as the work progresses, 

only for work completed and has no 

contractual obligation to continue 

making payments. 

v. Borrowing against the accrued cash 

value of an insurance policy or a 

pension account, if there is no 

independent obligation to repay. 

vi. Letters of credit. 

vii. The execution of option contracts. 

However, there may be an extension of 

credit when the option is exercised, if 

there is an agreement at that time to 

defer payment of a debt. 

viii. Investment plans in which the 

party extending capital to the consumer 

risks the loss of the capital advanced. 

This includes, for example, an 

arrangement with a home purchaser in 

which the investor pays a portion of the 

downpayment and of the periodic 

mortgage payments in return for an 

ownership interest in the property, and 

shares in any gain or loss of property 

value. 

ix. Mortgage assistance plans 

administered by a government agency in 

which a portion of the consumer’s 

monthly payment amount is paid by the 

agency. No finance charge is imposed 

on the subsidy amount, and that amount 

is due in a lump-sum payment on a set 

date or upon the occurrence of certain 

events. (If payment is not made when 

due, a new note imposing a finance 

charge may be written, which may then 

be subject to the regulation.) 

2. Payday loans; deferred 

presentment. Credit includes a 

transaction in which a cash advance is 

made to a consumer in exchange for the 

consumer’s personal check, or in 

exchange for the consumer’s 

authorization to debit the consumer’s 

deposit account, and where the parties 

agree either that the check will not be 

cashed or deposited, or that the 


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consumer’s deposit account will not be 

debited, until a designated future date. 

This type of transaction is often referred 

to as a ‘‘payday loan’’ or ‘‘payday 

advance’’ or ‘‘deferred-presentment 

loan.’’ A fee charged in connection with 

such a transaction may be a finance 

charge for purposes of § 226.4, 

regardless of how the fee is 

characterized under State law. Where 

the fee charged constitutes a finance 

charge under § 226.4 and the person 

advancing funds regularly extends 

consumer credit, that person is a 

creditor and is required to provide 

disclosures consistent with the 

requirements of Regulation Z. (See 

§ 226.2(a)(17).) 

2(a)(15) Credit card. 

1. Usable from time to time. A credit 

card must be usable from time to time. 

Since this involves the possibility of 

repeated use of a single device, checks 

and similar instruments that can be 

used only once to obtain a single credit 

extension are not credit cards. 

2. Examples. i. Examples of credit 

cards include: 

A. A card that guarantees checks or 

similar instruments, if the asset account 

is also tied to an overdraft line or if the 

instrument directly accesses a line of 

credit. 

B. A card that accesses both a credit 

and an asset account (that is, a debitcredit card). 

C. An identification card that permits 

the consumer to defer payment on a 

purchase. 

D. An identification card indicating 

loan approval that is presented to a 

merchant or to a lender, whether or not 

the consumer signs a separate 

promissory note for each credit 

extension. 

E. A card or device that can be 

activated upon receipt to access credit, 

even if the card has a substantive use 

other than credit, such as a purchaseprice discount card. Such a card or 

device is a credit card notwithstanding 

the fact that the recipient must first 

contact the card issuer to access or 

activate the credit feature. 

ii. In contrast, credit card does not 

include, for example: 

A. A check-guarantee or debit card 

with no credit feature or agreement, 

even if the creditor occasionally honors 

an inadvertent overdraft. 

B. Any card, key, plate, or other 

device that is used in order to obtain 

petroleum products for business 

purposes from a wholesale distribution 

facility or to gain access to that facility, 

and that is required to be used without 

regard to payment terms. 

3. Charge card. Generally, charge 

cards are cards used in connection with 

an account on which outstanding 

balances cannot be carried from one 

billing cycle to another and are payable 

when a periodic statement is received. 

Under the regulation, a reference to 

credit cards generally includes charge 

cards. The term charge card is, however, 

distinguished from credit card in 

§§ 226.5a, 226.7(b)(11), 226.7(b)(12), 

226.9(e), 226.9(f) and 226.28(d), and 

appendices G–10 through G–13. When 

the term credit card is used in those 

provisions, it refers to credit cards other 

than charge cards. 

2(a)(16) Credit sale. 

1. Special disclosure. If the seller is a 

creditor in the transaction, the 

transaction is a credit sale and the 

special credit sale disclosures (that is, 

the disclosures under § 226.18(j)) must 

be given. This applies even if there is 

more than one creditor in the 

transaction and the creditor making the 

disclosures is not the seller. (See the 

commentary to § 226.17(d).) 

2. Sellers who arrange credit. If the 

seller of the property or services 

involved arranged for financing but is 

not a creditor as to that sale, the 

transaction is not a credit sale. Thus, if 

a seller assists the consumer in 

obtaining a direct loan from a financial 

institution and the consumer’s note is 

payable to the financial institution, the 

transaction is a loan and only the 

financial institution is a creditor. 

3. Refinancings. Generally, when a 

credit sale is refinanced within the 

meaning of § 226.20(a), loan disclosures 

should be made. However, if a new sale 

of goods or services is also involved, the 

transaction is a credit sale. 

4. Incidental sales. Some lenders sell 

a product or service—such as credit, 

property, or health insurance—as part of 

a loan transaction. Section 226.4 

contains the rules on whether the cost 

of credit life, disability or property 

insurance is part of the finance charge. 

If the insurance is financed, it may be 

disclosed as a separate credit-sale 

transaction or disclosed as part of the 

primary transaction; if the latter 

approach is taken, either loan or creditsale disclosures may be made. (See the 

commentary to § 226.17(c)(1) for further 

discussion of this point.) 

5. Credit extensions for educational 

purposes. A credit extension for 

educational purposes in which an 

educational institution is the creditor 

may be treated as either a credit sale or 

a loan, regardless of whether the funds 

are given directly to the student, 

credited to the student’s account, or 

disbursed to other persons on the 

student’s behalf. The disclosure of the 

total sale price need not be given if the 

transaction is treated as a loan. 

2(a)(17) Creditor. 

1. General. The definition contains 

four independent tests. If any one of the 

tests is met, the person is a creditor for 

purposes of that particular test. 

Paragraph 2(a)(17)(i). 

1. Prerequisites. This test is composed 

of two requirements, both of which 

must be met in order for a particular 

credit extension to be subject to the 

regulation and for the credit extension 

to count towards satisfaction of the 

numerical tests mentioned in 

§ 226.2(a)(17)(v). 

i. First, there must be either or both 

of the following: 

A. A written (rather than oral) 

agreement to pay in more than four 

installments. A letter that merely 

confirms an oral agreement does not 

constitute a written agreement for 

purposes of the definition. 

B. A finance charge imposed for the 

credit. The obligation to pay the finance 

charge need not be in writing. 

ii. Second, the obligation must be 

payable to the person in order for that 

person to be considered a creditor. If an 

obligation is made payable to bearer, the 

creditor is the one who initially accepts 

the obligation. 

2. Assignees. If an obligation is 

initially payable to one person, that 

person is the creditor even if the 

obligation by its terms is simultaneously 

assigned to another person. For 

example: 

i. An auto dealer and a bank have a 

business relationship in which the bank 

supplies the dealer with credit sale 

contracts that are initially made payable 

to the dealer and provide for the 

immediate assignment of the obligation 

to the bank. The dealer and purchaser 

execute the contract only after the bank 

approves the creditworthiness of the 

purchaser. Because the obligation is 

initially payable on its face to the 

dealer, the dealer is the only creditor in 

the transaction. 

3. Numerical tests. The examples 

below illustrate how the numerical tests 

of § 226.2(a)(17)(v) are applied. The 

examples assume that consumer credit 

with a finance charge or written 

agreement for more than 4 installments 

was extended in the years in question 

and that the person did not extend such 

credit in 2006. 

4. Counting transactions. For 

purposes of closed-end credit, the 

creditor counts each credit transaction. 

For open-end credit, transactions means 

accounts, so that outstanding accounts 

are counted instead of individual credit 

extensions. Normally the number of 

transactions is measured by the 

preceding calendar year; if the requisite 

number is met, then the person is a 


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creditor for all transactions in the 

current year. However, if the person did 

not meet the test in the preceding year, 

the number of transactions is measured 

by the current calendar year. For 

example, if the person extends 

consumer credit 26 times in 2007, it is 

a creditor for purposes of the regulation 

for the last extension of credit in 2007 

and for all extensions of consumer 

credit in 2008. On the other hand, if a 

business begins in 2007 and extends 

consumer credit 20 times, it is not a 

creditor for purposes of the regulation in 

2007. If it extends consumer credit 75 

times in 2008, however, it becomes a 

creditor for purposes of the regulation 

(and must begin making disclosures) 

after the 25th extension of credit in that 

year and is a creditor for all extensions 

of consumer credit in 2009. 

5. Relationship between consumer 

credit in general and credit secured by 

a dwelling. Extensions of credit secured 

by a dwelling are counted towards the 

25-extensions test. For example, if in 

2007 a person extends unsecured 

consumer credit 23 times and consumer 

credit secured by a dwelling twice, it 

becomes a creditor for the succeeding 

extensions of credit, whether or not they 

are secured by a dwelling. On the other 

hand, extensions of consumer credit not 

secured by a dwelling are not counted 

towards the number of credit extensions 

secured by a dwelling. For example, if 

in 2007 a person extends credit not 

secured by a dwelling 8 times and credit 

secured by a dwelling 3 times, it is not 

a creditor. 

6. Effect of satisfying one test. Once 

one of the numerical tests is satisfied, 

the person is also a creditor for the other 

type of credit. For example, in 2007 a 

person extends consumer credit secured 

by a dwelling 5 times. That person is a 

creditor for all succeeding credit 

extensions, whether they involve credit 

secured by a dwelling or not. 

7. Trusts. In the case of credit 

extended by trusts, each individual trust 

is considered a separate entity for 

purposes of applying the criteria. For 

example: 

i. A bank is the trustee for three trusts. 

Trust A makes 15 extensions of 

consumer credit annually; Trust B 

makes 10 extensions of consumer credit 

annually; and Trust C makes 30 

extensions of consumer credit annually. 

Only Trust C is a creditor for purposes 

of the regulation. 

Paragraph 2(a)(17)(ii). [Reserved] 

Paragraph 2(a)(17)(iii). 

1. Card issuers subject to Subpart B. 

Section 226.2(a)(17)(iii) makes certain 

card issuers creditors for purposes of the 

open-end credit provisions of the 

regulation. This includes, for example, 

the issuers of so-called travel and 

entertainment cards that expect 

repayment at the first billing and do not 

impose a finance charge. Since all 

disclosures are to be made only as 

applicable, such card issuers would 

omit finance charge disclosures. Other 

provisions of the regulation regarding 

such areas as scope, definitions, 

determination of which charges are 

finance charges, Spanish language 

disclosures, record retention, and use of 

model forms, also apply to such card 

issuers. 

Paragraph 2(a)(17)(iv). 

1. Card issuers subject to Subparts B 

and C. Section 226.2(a)(17)(iv) includes 

as creditors card issuers extending 

closed-end credit in which there is a 

finance charge or an agreement to pay 

in more than four installments. These 

card issuers are subject to the 

appropriate provisions of Subparts B 

and C, as well as to the general 

provisions. 

2(a)(18) Downpayment. 

1. Allocation. If a consumer makes a 

lump-sum payment, partially to reduce 

the cash price and partially to pay 

prepaid finance charges, only the 

portion attributable to reducing the cash 

price is part of the downpayment. (See 

the commentary to § 226.2(a)(23).) 

2. Pick-up payments. i. Creditors may 

treat the deferred portion of the 

downpayment, often referred to as pickup payments, in a number of ways. If 

the pick-up payment is treated as part 

of the downpayment: 

A. It is subtracted in arriving at the 

amount financed under § 226.18(b). 

B. It may, but need not, be reflected 

in the payment schedule under 

§ 226.18(g). 

ii. If the pick-up payment does not 

meet the definition (for example, if it is 

payable after the second regularly 

scheduled payment) or if the creditor 

chooses not to treat it as part of the 

downpayment: 

A. It must be included in the amount 

financed. 

B. It must be shown in the payment 

schedule. 

iii. Whichever way the pick-up 

payment is treated, the total of 

payments under § 226.18(h) must equal 

the sum of the payments disclosed 

under § 226.18(g). 

3. Effect of existing liens. 

i. No cash payment. In a credit sale, 

the ‘‘downpayment’’ may only be used 

to reduce the cash price. For example, 

when a trade-in is used as the 

downpayment and the existing lien on 

an automobile to be traded in exceeds 

the value of the automobile, creditors 

must disclose a zero on the 

downpayment line rather than a 

negative number. To illustrate, assume a 

consumer owes $10,000 on an existing 

automobile loan and that the trade-in 

value of the automobile is only $8,000, 

leaving a $2,000 deficit. The creditor 

should disclose a downpayment of $0, 

not –$2,000. 

ii. Cash payment. If the consumer 

makes a cash payment, creditors may, at 

their option, disclose the entire cash 

payment as the downpayment, or apply 

the cash payment first to any excess lien 

amount and disclose any remaining 

cash as the downpayment. In the above 

example: 

A. If the downpayment disclosed is 

equal to the cash payment, the $2,000 

deficit must be reflected as an 

additional amount financed under 

§ 226.18(b)(2). 

B. If the consumer provides $1,500 in 

cash (which does not extinguish the 

$2,000 deficit), the creditor may 

disclose a downpayment of $1,500 or of 

$0. 

C. If the consumer provides $3,000 in 

cash, the creditor may disclose a 

downpayment of $3,000 or of $1,000. 

2(a)(19) Dwelling. 

1. Scope. A dwelling need not be the 

consumer’s principal residence to fit the 

definition, and thus a vacation or 

second home could be a dwelling. 

However, for purposes of the definition 

of residential mortgage transaction and 

the right to rescind, a dwelling must be 

the principal residence of the consumer. 

(See the commentary to §§ 226.2(a)(24), 

226.15, and 226.23.) 

2. Use as a residence. Mobile homes, 

boats, and trailers are dwellings if they 

are in fact used as residences, just as are 

condominium and cooperative units. 

Recreational vehicles, campers, and the 

like not used as residences are not 

dwellings. 

3. Relation to exemptions. Any 

transaction involving a security interest 

in a consumer’s principal dwelling (as 

well as in any real property) remains 

subject to the regulation despite the 

general exemption in § 226.3(b) for 

credit extensions over $25,000. 

2(a)(20) Open-end credit. 

1. General. This definition describes 

the characteristics of open-end credit 

(for which the applicable disclosure and 

other rules are contained in Subpart B), 

as distinct from closed-end credit. 

Open-end credit is consumer credit that 

is extended under a plan and meets all 

3 criteria set forth in the definition. 

2. Existence of a plan. The definition 

requires that there be a plan, which 

connotes a contractual arrangement 

between the creditor and the consumer. 

Some creditors offer programs 

containing a number of different credit 

features. The consumer has a single 


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account with the institution that can be 

accessed repeatedly via a number of 

sub-accounts established for the 

different program features and rate 

structures. Some features of the program 

might be used repeatedly (for example, 

an overdraft line) while others might be 

used infrequently (such as the part of 

the credit line available for secured 

credit). If the program as a whole is 

subject to prescribed terms and 

otherwise meets the definition of openend credit, such a program would be 

considered a single, multifeatured plan. 

3. Repeated transactions. Under this 

criterion, the creditor must reasonably 

contemplate repeated transactions. This 

means that the credit plan must be 

usable from time to time and the 

creditor must legitimately expect that 

there will be repeat business rather than 

a one-time credit extension. The 

creditor must expect repeated dealings 

with consumers under the credit plan as 

a whole and need not believe a 

consumer will reuse a particular feature 

of the plan. The determination of 

whether a creditor can reasonably 

contemplate repeated transactions 

requires an objective analysis. 

Information that much of the creditor’s 

customer base with accounts under the 

plan make repeated transactions over 

some period of time is relevant to the 

determination, particularly when the 

plan is opened primarily for the 

financing of infrequently purchased 

products or services. A standard based 

on reasonable belief by a creditor 

necessarily includes some margin for 

judgmental error. The fact that 

particular consumers do not return for 

further credit extensions does not 

prevent a plan from having been 

properly characterized as open-end. For 

example, if much of the customer base 

of a clothing store makes repeat 

purchases, the fact that some consumers 

use the plan only once would not affect 

the characterization of the store’s plan 

as open-end credit. The criterion 

regarding repeated transactions is a 

question of fact to be decided in the 

context of the creditor’s type of business 

and the creditor’s relationship with its 

customers. For example, it would be 

more reasonable for a bank or 

depository institution to contemplate 

repeated transactions with a customer 

than for a seller of aluminum siding to 

make the same assumption about its 

customers. 

4. Finance charge on an outstanding 

balance. The requirement that a finance 

charge may be computed and imposed 

from time to time on the outstanding 

balance means that there is no specific 

amount financed for the plan for which 

the finance charge, total of payments, 

and payment schedule can be 

calculated. A plan may meet the 

definition of open-end credit even 

though a finance charge is not normally 

imposed, provided the creditor has the 

right, under the plan, to impose a 

finance charge from time to time on the 

outstanding balance. For example, in 

some plans, a finance charge is not 

imposed if the consumer pays all or a 

specified portion of the outstanding 

balance within a given time period. 

Such a plan could meet the finance 

charge criterion, if the creditor has the 

right to impose a finance charge, even 

though the consumer actually pays no 

finance charges during the existence of 

the plan because the consumer takes 

advantage of the option to pay the 

balance (either in full or in installments) 

within the time necessary to avoid 

finance charges. 

5. Reusable line. The total amount of 

credit that may be extended during the 

existence of an open-end plan is 

unlimited because available credit is 

generally replenished as earlier 

advances are repaid. A line of credit is 

self-replenishing even though the plan 

itself has a fixed expiration date, as long 

as during the plan’s existence the 

consumer may use the line, repay, and 

reuse the credit. The creditor may 

occasionally or routinely verify credit 

information such as the consumer’s 

continued income and employment 

status or information for security 

purposes but, to meet the definition of 

open-end credit, such verification of 

credit information may not be done as 

a condition of granting a consumer’s 

request for a particular advance under 

the plan. In general, a credit line is selfreplenishing if the consumer can take 

further advances as outstanding 

balances are repaid without being 

required to separately apply for those 

additional advances. A credit card 

account where the plan as a whole 

replenishes meets the self-replenishing 

criterion, notwithstanding the fact that a 

credit card issuer may verify credit 

information from time to time in 

connection with specific transactions. 

This criterion of unlimited credit 

distinguishes open-end credit from a 

series of advances made pursuant to a 

closed-end credit loan commitment. For 

example: 

i. Under a closed-end commitment, 

the creditor might agree to lend a total 

of $10,000 in a series of advances as 

needed by the consumer. When a 

consumer has borrowed the full 

$10,000, no more is advanced under 

that particular agreement, even if there 

has been repayment of a portion of the 

debt. (See § 226.2(a)(17)(iv) for 

disclosure requirements when a credit 

card is used to obtain the advances.) 

ii. This criterion does not mean that 

the creditor must establish a specific 

credit limit for the line of credit or that 

the line of credit must always be 

replenished to its original amount. The 

creditor may reduce a credit limit or 

refuse to extend new credit in a 

particular case due to changes in the 

creditor’s financial condition or the 

consumer’s creditworthiness. (The rules 

in § 226.5b(f), however, limit the ability 

of a creditor to suspend credit advances 

for home equity plans.) While 

consumers should have a reasonable 

expectation of obtaining credit as long 

as they remain current and within any 

preset credit limits, further extensions 

of credit need not be an absolute right 

in order for the plan to meet the selfreplenishing criterion. 

6. Verifications of collateral value. 

Creditors that otherwise meet the 

requirements of § 226.2(a)(20) extend 

open-end credit notwithstanding the 

fact that the creditor must verify 

collateral values to comply with 

Federal, State, or other applicable law or 

verifies the value of collateral in 

connection with a particular advance 

under the plan. 

7. Open-end real estate mortgages. 

Some credit plans call for negotiated 

advances under so-called open-end real 

estate mortgages. Each such plan must 

be independently measured against the 

definition of open-end credit, regardless 

of the terminology used in the industry 

to describe the plan. The fact that a 

particular plan is called an open-end 

real estate mortgage, for example, does 

not, by itself, mean that it is open-end 

credit under the regulation. 

2(a)(21) Periodic rate. 

1. Basis. The periodic rate may be 

stated as a percentage (for example, 1c% 

per month) or as a decimal equivalent 

(for example, .015 monthly). It may be 

based on any portion of a year the 

creditor chooses. Some creditors use 

1⁄360 of an annual rate as their periodic 

rate. These creditors: 

i. May disclose a 1⁄360 rate as a daily 

periodic rate, without further 

explanation, if it is in fact only applied 

360 days per year. But if the creditor 

applies that rate for 365 days, the 

creditor must note that fact and, of 

course, disclose the true annual 

percentage rate. 

ii. Would have to apply the rate to the 

balance to disclose the annual 

percentage rate with the degree of 

accuracy required in the regulation (that 

is, within 1⁄8th of 1 percentage point of 

the rate based on the actual 365 days in 

the year). 


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2. Transaction charges. Periodic rate 

does not include initial one-time 

transaction charges, even if the charge is 

computed as a percentage of the 

transaction amount. 

2(a)(22) Person. 

1. Joint ventures. A joint venture is an 

organization and is therefore a person. 

2. Attorneys. An attorney and his or 

her client are considered to be the same 

person for purposes of this regulation 

when the attorney is acting within the 

scope of the attorney-client relationship 

with regard to a particular transaction. 

3. Trusts. A trust and its trustee are 

considered to be the same person for 

purposes of this regulation. 

2(a)(23) Prepaid finance charge. 

1. General. Prepaid finance charges 

must be taken into account under 

§ 226.18(b) in computing the disclosed 

amount financed, and must be disclosed 

if the creditor provides an itemization of 

the amount financed under § 226.18(c). 

2. Examples. i. Common examples of 

prepaid finance charges include: 

A. Buyer’s points. 

B. Service fees. 

C. Loan fees. 

D. Finder’s fees. 

E. Loan-guarantee insurance. 

F. Credit-investigation fees. 

ii. However, in order for these or any 

other finance charges to be considered 

prepaid, they must be either paid 

separately in cash or check or withheld 

from the proceeds. Prepaid finance 

charges include any portion of the 

finance charge paid prior to or at closing 

or settlement. 

3. Exclusions. Add-on and discount 

finance charges are not prepaid finance 

charges for purposes of this regulation. 

Finance charges are not prepaid merely 

because they are precomputed, whether 

or not a portion of the charge will be 

rebated to the consumer upon 

prepayment. (See the commentary to 

§ 226.18(b).) 

4. Allocation of lump-sum payments. 

In a credit sale transaction involving a 

lump-sum payment by the consumer 

and a discount or other item that is a 

finance charge under § 226.4, the 

discount or other item is a prepaid 

finance charge to the extent the lumpsum payment is not applied to the cash 

price. For example, a seller sells 

property to a consumer for $10,000, 

requires the consumer to pay $3,000 at 

the time of the purchase, and finances 

the remainder as a closed-end credit 

transaction. The cash price of the 

property is $9,000. The seller is the 

creditor in the transaction and therefore 

the $1,000 difference between the credit 

and cash prices (the discount) is a 

finance charge. (See the commentary to 

§ 226.4(b)(9) and (c)(5).) If the creditor 

applies the entire $3,000 to the cash 

price and adds the $1,000 finance 

charge to the interest on the $6,000 to 

arrive at the total finance charge, all of 

the $3,000 lump-sum payment is a 

downpayment and the discount is not a 

prepaid finance charge. However, if the 

creditor only applies $2,000 of the 

lump-sum payment to the cash price, 

then $2,000 of the $3,000 is a 

downpayment and the $1,000 discount 

is a prepaid finance charge. 

2(a)(24) Residential mortgage 

transaction. 

1. Relation to other sections. This 

term is important in five provisions in 

the regulation: 

i. Section 226.4(c)(7)—exclusions 

from the finance charge. 

ii. Section 226.15(f)—exemption from 

the right of rescission. 

iii. Section 226.18(q)—whether or not 

the obligation is assumable. 

iv. Section 226.20(b)—disclosure 

requirements for assumptions. 

v. Section 226.23(f)—exemption from 

the right of rescission. 

2. Lien status. The definition is not 

limited to first lien transactions. For 

example, a consumer might assume a 

paid-down first mortgage (or borrow 

part of the purchase price) and borrow 

the balance of the purchase price from 

a creditor who takes a second mortgage. 

The second mortgage transaction is a 

residential mortgage transaction if the 

dwelling purchased is the consumer’s 

principal residence. 

3. Principal dwelling. A consumer can 

have only one principal dwelling at a 

time. Thus, a vacation or other second 

home would not be a principal 

dwelling. However, if a consumer buys 

or builds a new dwelling that will 

become the consumer’s principal 

dwelling within a year or upon the 

completion of construction, the new 

dwelling is considered the principal 

dwelling for purposes of applying this 

definition to a particular transaction. 

(See the commentary to §§ 226.15(a) and 

226.23(a).) 

4. Construction financing. If a 

transaction meets the definition of a 

residential mortgage transaction and the 

creditor chooses to disclose it as several 

transactions under § 226.17(c)(6), each 

one is considered to be a residential 

mortgage transaction, even if different 

creditors are involved. For example: 

i. The creditor makes a construction 

loan to finance the initial construction 

of the consumer’s principal dwelling, 

and the loan will be disbursed in five 

advances. The creditor gives six sets of 

disclosures (five for the construction 

phase and one for the permanent phase). 

Each one is a residential mortgage 

transaction. 

ii. One creditor finances the initial 

construction of the consumer’s principal 

dwelling and another creditor makes a 

loan to satisfy the construction loan and 

provide permanent financing. Both 

transactions are residential mortgage 

transactions. 

5. Acquisition. i. A residential 

mortgage transaction finances the 

acquisition of a consumer’s principal 

dwelling. The term does not include a 

transaction involving a consumer’s 

principal dwelling if the consumer had 

previously purchased and acquired 

some interest to the dwelling, even 

though the consumer had not acquired 

full legal title. 

ii. Examples of new transactions 

involving a previously acquired 

dwelling include the financing of a 

balloon payment due under a land sale 

contract and an extension of credit 

made to a joint owner of property to buy 

out the other joint owner’s interest. In 

these instances, disclosures are not 

required under § 226.18(q) (assumability 

policies). However, the rescission rules 

of §§ 226.15 and 226.23 do apply to 

these new transactions. 

iii. In other cases, the disclosure and 

rescission rules do not apply. For 

example, where a buyer enters into a 

written agreement with the creditor 

holding the seller’s mortgage, allowing 

the buyer to assume the mortgage, if the 

buyer had previously purchased the 

property and agreed with the seller to 

make the mortgage payments, 

§ 226.20(b) does not apply (assumptions 

involving residential mortgages). 

6. Multiple purpose transactions. A 

transaction meets the definition of this 

section if any part of the loan proceeds 

will be used to finance the acquisition 

or initial construction of the consumer’s 

principal dwelling. For example, a 

transaction to finance the initial 

construction of the consumer’s principal 

dwelling is a residential mortgage 

transaction even if a portion of the 

funds will be disbursed directly to the 

consumer or used to satisfy a loan for 

the purchase of the land on which the 

dwelling will be built. 

7. Construction on previously 

acquired vacant land. A residential 

mortgage transaction includes a loan to 

finance the construction of a consumer’s 

principal dwelling on a vacant lot 

previously acquired by the consumer. 

2(a)(25) Security interest. 

1. Threshold test. The threshold test is 

whether a particular interest in property 

is recognized as a security interest 

under applicable law. The regulation 

does not determine whether a particular 

interest is a security interest under 

applicable law. If the creditor is unsure 

whether a particular interest is a 


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security interest under applicable law 

(for example, if statutes and case law are 

either silent or inconclusive on the 

issue), the creditor may at its option 

consider such interests as security 

interests for Truth in Lending purposes. 

However, the regulation and the 

commentary do exclude specific 

interests, such as after-acquired 

property and accessories, from the scope 

of the definition regardless of their 

categorization under applicable law, 

and these named exclusions may not be 

disclosed as security interests under the 

regulation. (But see the discussion of 

exclusions elsewhere in the 

commentary to § 226.2(a)(25).) 

2. Exclusions. The general definition 

of security interest excludes three 

groups of interests: incidental interests, 

interests in after-acquired property, and 

interests that arise solely by operation of 

law. These interests may not be 

disclosed with the disclosures required 

under § 226.18, but the creditor is not 

precluded from preserving these rights 

elsewhere in the contract documents, or 

invoking and enforcing such rights, if it 

is otherwise lawful to do so. If the 

creditor is unsure whether a particular 

interest is one of the excluded interests, 

the creditor may, at its option, consider 

such interests as security interests for 

Truth in Lending purposes. 

3. Incidental interests. i. Incidental 

interests in property that are not 

security interests include, among other 

things: 

A. Assignment of rents. 

B. Right to condemnation proceeds. 

C. Interests in accessories and 

replacements. 

D. Interests in escrow accounts, such 

as for taxes and insurance. 

E. Waiver of homestead or personal 

property rights. 

ii. The notion of an incidental interest 

does not encompass an explicit security 

interest in an insurance policy if that 

policy is the primary collateral for the 

transaction—for example, in an 

insurance premium financing 

transaction. 

4. Operation of law. Interests that 

arise solely by operation of law are 

excluded from the general definition. 

Also excluded are interests arising by 

operation of law that are merely 

repeated or referred to in the contract. 

However, if the creditor has an interest 

that arises by operation of law, such as 

a vendor’s lien, and takes an 

independent security interest in the 

same property, such as a UCC security 

interest, the latter interest is a 

disclosable security interest unless 

otherwise provided. 

5. Rescission rules. Security interests 

that arise solely by operation of law are 

security interests for purposes of 

rescission. Examples of such interests 

are mechanics’ and materialmen’s liens. 

6. Specificity of disclosure. A creditor 

need not separately disclose multiple 

security interests that it may hold in the 

same collateral. The creditor need only 

disclose that the transaction is secured 

by the collateral, even when security 

interests from prior transactions remain 

of record and a new security interest is 

taken in connection with the 

transaction. In disclosing the fact that 

the transaction is secured by the 

collateral, the creditor also need not 

disclose how the security interest arose. 

For example, in a closed-end credit 

transaction, a rescission notice need not 

specifically state that a new security 

interest is ‘‘acquired’’ or an existing 

security interest is ‘‘retained’’ in the 

transaction. The acquisition or retention 

of a security interest in the consumer’s 

principal dwelling instead may be 

disclosed in a rescission notice with a 

general statement such as the following: 

‘‘Your home is the security for the new 

transaction.’’ 

2(b) Rules of construction. 

1. Footnotes. Footnotes are used 

extensively in the regulation to provide 

special exceptions and more detailed 

explanations and examples. Material 

that appears in a footnote has the same 

legal weight as material in the body of 

the regulation. 

2. Amount. The numerical amount 

must be a dollar amount unless 

otherwise indicated. For example, in a 

closed-end transaction (Subpart C), the 

amount financed and the amount of any 

payment must be expressed as a dollar 

amount. In some cases, an amount 

should be expressed as a percentage. For 

example, in disclosures provided before 

the first transaction under an open-end 

plan (Subpart B), creditors are permitted 

to explain how the amount of any 

finance charge will be determined; 

where a cash-advance fee (which is a 

finance charge) is a percentage of each 

cash advance, the amount of the finance 

charge for that fee is expressed as a 

percentage. 

§ 226.3 Exempt Transactions. 

1. Relationship to § 226.12. The 

provisions in § 226.12(a) and (b) 

governing the issuance of credit cards 

and the limitations on liability for their 

unauthorized use apply to all credit 

cards, even if the credit cards are issued 

for use in connection with extensions of 

credit that otherwise are exempt under 

this section. 

3(a) Business, commercial, 

agricultural, or organizational credit. 

1. Primary purposes. A creditor must 

determine in each case if the transaction 

is primarily for an exempt purpose. If 

some question exists as to the primary 

purpose for a credit extension, the 

creditor is, of course, free to make the 

disclosures, and the fact that disclosures 

are made under such circumstances is 

not controlling on the question of 

whether the transaction was exempt. 

(See comment 3(a)–2, however, with 

respect to credit cards.) 

2. Business purpose purchases. 

i. Business-purpose credit cards— 

extensions of credit for consumer 

purposes. If a business-purpose credit 

card is issued to a person, the 

provisions of the regulation do not 

apply, other than as provided in 

§§ 226.12(a) and 226.12(b), even if 

extensions of credit for consumer 

purposes are occasionally made using 

that business-purpose credit card. For 

example, the billing error provisions set 

forth in § 226.13 do not apply to 

consumer-purpose extensions of credit 

using a business-purpose credit card. 

ii. Consumer-purpose credit cards— 

extensions of credit for business 

purposes. If a consumer-purpose credit 

card is issued to a person, the 

provisions of the regulation apply, even 

to occasional extensions of credit for 

business purposes made using that 

consumer-purpose credit card. For 

example, a consumer may assert a 

billing error with respect to any 

extension of credit using a consumerpurpose credit card, even if the specific 

extension of credit on such credit card 

or open-end credit plan that is the 

subject of the dispute was made for 

business purposes. 

3. Factors. In determining whether 

credit to finance an acquisition—such as 

securities, antiques, or art—is primarily 

for business or commercial purposes (as 

opposed to a consumer purpose), the 

following factors should be considered: 

i. General. 

A. The relationship of the borrower’s 

primary occupation to the acquisition. 

The more closely related, the more 

likely it is to be business purpose. 

B. The degree to which the borrower 

will personally manage the acquisition. 

The more personal involvement there is, 

the more likely it is to be business 

purpose. 

C. The ratio of income from the 

acquisition to the total income of the 

borrower. The higher the ratio, the more 

likely it is to be business purpose. 

D. The size of the transaction. The 

larger the transaction, the more likely it 

is to be business purpose. 

E. The borrower’s statement of 

purpose for the loan. 

ii. Business-purpose examples. 

Examples of business-purpose credit 

include: 


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A. A loan to expand a business, even 

if it is secured by the borrower’s 

residence or personal property. 

B. A loan to improve a principal 

residence by putting in a business 

office. 

C. A business account used 

occasionally for consumer purposes. 

iii. Consumer-purpose examples. 

Examples of consumer-purpose credit 

include: 

A. Credit extensions by a company to 

its employees or agents if the loans are 

used for personal purposes. 

B. A loan secured by a mechanic’s 

tools to pay a child’s tuition. 

C. A personal account used 

occasionally for business purposes. 

4. Non-owner-occupied rental 

property. Credit extended to acquire, 

improve, or maintain rental property 

(regardless of the number of housing 

units) that is not owner-occupied is 

deemed to be for business purposes. 

This includes, for example, the 

acquisition of a warehouse that will be 

leased or a single-family house that will 

be rented to another person to live in. 

If the owner expects to occupy the 

property for more than 14 days during 

the coming year, the property cannot be 

considered non-owner-occupied and 

this special rule will not apply. For 

example, a beach house that the owner 

will occupy for a month in the coming 

summer and rent out the rest of the year 

is owner occupied and is not governed 

by this special rule. (See comment 3(a)– 

5, however, for rules relating to owneroccupied rental property.) 

5. Owner-occupied rental property. If 

credit is extended to acquire, improve, 

or maintain rental property that is or 

will be owner-occupied within the 

coming year, different rules apply: 

i. Credit extended to acquire the 

rental property is deemed to be for 

business purposes if it contains more 

than 2 housing units. 

ii. Credit extended to improve or 

maintain the rental property is deemed 

to be for business purposes if it contains 

more than 4 housing units. Since the 

amended statute defines dwelling to 

include 1 to 4 housing units, this rule 

preserves the right of rescission for 

credit extended for purposes other than 

acquisition. Neither of these rules 

means that an extension of credit for 

property containing fewer than the 

requisite number of units is necessarily 

consumer credit. In such cases, the 

determination of whether it is business 

or consumer credit should be made by 

considering the factors listed in 

comment 3(a)–3. 

6. Business credit later refinanced. 

Business-purpose credit that is exempt 

from the regulation may later be 

rewritten for consumer purposes. Such 

a transaction is consumer credit 

requiring disclosures only if the existing 

obligation is satisfied and replaced by a 

new obligation made for consumer 

purposes undertaken by the same 

obligor. 

7. Credit card renewal. A consumerpurpose credit card that is subject to the 

regulation may be converted into a 

business-purpose credit card at the time 

of its renewal, and the resulting 

business-purpose credit card would be 

exempt from the regulation. Conversely, 

a business-purpose credit card that is 

exempt from the regulation may be 

converted into a consumer-purpose 

credit card at the time of its renewal, 

and the resulting consumer-purpose 

credit card would be subject to the 

regulation. 

8. Agricultural purpose. An 

agricultural purpose includes the 

planting, propagating, nurturing, 

harvesting, catching, storing, exhibiting, 

marketing, transporting, processing, or 

manufacturing of food, beverages 

(including alcoholic beverages), flowers, 

trees, livestock, poultry, bees, wildlife, 

fish, or shellfish by a natural person 

engaged in farming, fishing, or growing 

crops, flowers, trees, livestock, poultry, 

bees, or wildlife. The exemption also 

applies to a transaction involving real 

property that includes a dwelling (for 

example, the purchase of a farm with a 

homestead) if the transaction is 

primarily for agricultural purposes. 

9. Organizational credit. The 

exemption for transactions in which the 

borrower is not a natural person applies, 

for example, to loans to corporations, 

partnerships, associations, churches, 

unions, and fraternal organizations. The 

exemption applies regardless of the 

purpose of the credit extension and 

regardless of the fact that a natural 

person may guarantee or provide 

security for the credit. 

10. Land trusts. Credit extended for 

consumer purposes to a land trust is 

considered to be credit extended to a 

natural person rather than credit 

extended to an organization. In some 

jurisdictions, a financial institution 

financing a residential real estate 

transaction for an individual uses a land 

trust mechanism. Title to the property is 

conveyed to the land trust for which the 

financial institution itself is trustee. The 

underlying installment note is executed 

by the financial institution in its 

capacity as trustee and payment is 

secured by a trust deed, reflecting title 

in the financial institution as trustee. In 

some instances, the consumer executes 

a personal guaranty of the indebtedness. 

The note provides that it is payable only 

out of the property specifically 

described in the trust deed and that the 

trustee has no personal liability on the 

note. Assuming the transactions are for 

personal, family, or household 

purposes, these transactions are subject 

to the regulation since in substance (if 

not form) consumer credit is being 

extended. 

3(b) Credit over $25,000 not secured 

by real property or a dwelling. 

1. Coverage. Since a mobile home can 

be a dwelling under § 226.2(a)(19), this 

exemption does not apply to a credit 

extension secured by a mobile home 

used or expected to be used as the 

principal dwelling of the consumer, 

even if the credit exceeds $25,000. A 

loan commitment for closed-end credit 

in excess of $25,000 is exempt even 

though the amounts actually drawn 

never actually reach $25,000. 

2. Open-end credit. i. An open-end 

credit plan is exempt under § 226.3(b) 

(unless secured by real property or 

personal property used or expected to 

be used as the consumer’s principal 

dwelling) if either of the following 

conditions is met: 

A. The creditor makes a firm 

commitment to lend over $25,000 with 

no requirement of additional credit 

information for any advances (except as 

permitted from time to time pursuant to 

§ 226.2(a)(20)). 

B. The initial extension of credit on 

the line exceeds $25,000. 

ii. If a security interest is taken at a 

later time in any real property, or in 

personal property used or expected to 

be used as the consumer’s principal 

dwelling, the plan would no longer be 

exempt. The creditor must comply with 

all of the requirements of the regulation 

including, for example, providing the 

consumer with an initial disclosure 

statement. If the security interest being 

added is in the consumer’s principal 

dwelling, the creditor must also give the 

consumer the right to rescind the 

security interest. (See the commentary 

to § 226.15 concerning the right of 

rescission.) 

3. Closed-end credit—subsequent 

changes. A closed-end loan for over 

$25,000 may later be rewritten for 

$25,000 or less, or a security interest in 

real property or in personal property 

used or expected to be used as the 

consumer’s principal dwelling may be 

added to an extension of credit for over 

$25,000. Such a transaction is consumer 

credit requiring disclosures only if the 

existing obligation is satisfied and 

replaced by a new obligation made for 

consumer purposes undertaken by the 

same obligor. (See the commentary to 

§ 226.23(a)(1) regarding the right of 

rescission when a security interest in a 


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consumer’s principal dwelling is added 

to a previously exempt transaction.) 

3(c) Public utility credit. 

1. Examples. Examples of public 

utility services include: 

i. General. 

A. Gas, water, or electrical services. 

B. Cable television services. 

C. Installation of new sewer lines, 

water lines, conduits, telephone poles, 

or metering equipment in an area not 

already serviced by the utility. 

ii. Extensions of credit not covered. 

The exemption does not apply to 

extensions of credit, for example: 

A. To purchase appliances such as gas 

or electric ranges, grills, or telephones. 

B. To finance home improvements 

such as new heating or air conditioning 

systems. 

3(d) Securities or commodities 

accounts. 

1. Coverage. This exemption does not 

apply to a transaction with a broker 

registered solely with the State, or to a 

separate credit extension in which the 

proceeds are used to purchase 

securities. 

3(e) Home fuel budget plans. 

1. Definition. Under a typical home 

fuel budget plan, the fuel dealer 

estimates the total cost of fuel for the 

season, bills the customer for an average 

monthly payment, and makes an 

adjustment in the final payment for any 

difference between the estimated and 

the actual cost of the fuel. Fuel is 

delivered as needed, no finance charge 

is assessed, and the customer may 

withdraw from the plan at any time. 

Under these circumstances, the 

arrangement is exempt from the 

regulation, even if a charge to cover the 

billing costs is imposed. 

3(f) Student loan programs. 

1. Coverage. This exemption applies 

to loans made, insured, or guaranteed 

under title IV of the Higher Education 

Act of 1965 (20 U.S.C. 1070 et seq.). 

This exemption does not apply to 

private education loans as defined by 

§ 226.46(b)(5). 

§ 226.4 Finance Charge. 

4(a) Definition. 

1. Charges in comparable cash 

transactions. Charges imposed 

uniformly in cash and credit 

transactions are not finance charges. In 

determining whether an item is a 

finance charge, the creditor should 

compare the credit transaction in 

question with a similar cash transaction. 

A creditor financing the sale of property 

or services may compare charges with 

those payable in a similar cash 

transaction by the seller of the property 

or service. 

i. For example, the following items 

are not finance charges: 

A. Taxes, license fees, or registration 

fees paid by both cash and credit 

customers. 

B. Discounts that are available to cash 

and credit customers, such as quantity 

discounts. 

C. Discounts available to a particular 

group of consumers because they meet 

certain criteria, such as being members 

of an organization or having accounts at 

a particular financial institution. This is 

the case even if an individual must pay 

cash to obtain the discount, provided 

that credit customers who are members 

of the group and do not qualify for the 

discount pay no more than the 

nonmember cash customers. 

D. Charges for a service policy, auto 

club membership, or policy of insurance 

against latent defects offered to or 

required of both cash and credit 

customers for the same price. 

ii. In contrast, the following items are 

finance charges: 

A. Inspection and handling fees for 

the staged disbursement of constructionloan proceeds. 

B. Fees for preparing a Truth in 

Lending disclosure statement, if 

permitted by law (for example, the Real 

Estate Settlement Procedures Act 

prohibits such charges in certain 

transactions secured by real property). 

C. Charges for a required maintenance 

or service contract imposed only in a 

credit transaction. 

iii. If the charge in a credit transaction 

exceeds the charge imposed in a 

comparable cash transaction, only the 

difference is a finance charge. For 

example: 

A. If an escrow agent is used in both 

cash and credit sales of real estate and 

the agent’s charge is $100 in a cash 

transaction and $150 in a credit 

transaction, only $50 is a finance 

charge. 

2. Costs of doing business. Charges 

absorbed by the creditor as a cost of 

doing business are not finance charges, 

even though the creditor may take such 

costs into consideration in determining 

the interest rate to be charged or the 

cash price of the property or service 

sold. However, if the creditor separately 

imposes a charge on the consumer to 

cover certain costs, the charge is a 

finance charge if it otherwise meets the 

definition. For example: 

i. A discount imposed on a credit 

obligation when it is assigned by a 

seller-creditor to another party is not a 

finance charge as long as the discount 

is not separately imposed on the 

consumer. (See § 226.4(b)(6).) 

ii. A tax imposed by a State or other 

governmental body on a creditor is not 

a finance charge if the creditor absorbs 

the tax as a cost of doing business and 

does not separately impose the tax on 

the consumer. (For additional 

discussion of the treatment of taxes, see 

other commentary to § 226.4(a).) 

3. Forfeitures of interest. If the 

creditor reduces the interest rate it pays 

or stops paying interest on the 

consumer’s deposit account or any 

portion of it for the term of a credit 

transaction (including, for example, an 

overdraft on a checking account or a 

loan secured by a certificate of deposit), 

the interest lost is a finance charge. (See 

the commentary to § 226.4(c)(6).) For 

example: 

A. A consumer borrows $5,000 for 90 

days and secures it with a $10,000 

certificate of deposit paying 15% 

interest. The creditor charges the 

consumer an interest rate of 6% on the 

loan and stops paying interest on $5,000 

of the $10,000 certificate for the term of 

the loan. The interest lost is a finance 

charge and must be reflected in the 

annual percentage rate on the loan. 

B. However, the consumer must be 

entitled to the interest that is not paid 

in order for the lost interest to be a 

finance charge. For example: 

iii. A consumer wishes to buy from a 

financial institution a $10,000 certificate 

of deposit paying 15% interest but has 

only $4,000. The financial institution 

offers to lend the consumer $6,000 at an 

interest rate of 6% but will pay the 15% 

interest only on the amount of the 

consumer’s deposit, $4,000. The 

creditor’s failure to pay interest on the 

$6,000 does not result in an additional 

finance charge on the extension of 

credit, provided the consumer is 

entitled by the deposit agreement with 

the financial institution to interest only 

on the amount of the consumer’s 

deposit. 

iv. A consumer enters into a 

combined time deposit/credit agreement 

with a financial institution that 

establishes a time deposit account and 

an open-end line of credit. The line of 

credit may be used to borrow against the 

funds in the time deposit. The 

agreement provides for an interest rate 

on any credit extension of, for example, 

1%. In addition, the agreement states 

that the creditor will pay 0% interest on 

the amount of the time deposit that 

corresponds to the amount of the credit 

extension(s). The interest that is not 

paid on the time deposit by the financial 

institution is not a finance charge (and 

therefore does not affect the annual 

percentage rate computation). 

4. Treatment of transaction fees on 

credit card plans. Any transaction 

charge imposed on a cardholder by a 

card issuer is a finance charge, 

regardless of whether the issuer imposes 

the same, greater, or lesser charge on 


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withdrawals of funds from an asset 

account such as a checking or savings 

account. For example: 

i. Any charge imposed on a credit 

cardholder by a card issuer for the use 

of an automated teller machine (ATM) 

to obtain a cash advance (whether in a 

proprietary, shared, interchange, or 

other system) is a finance charge 

regardless of whether the card issuer 

imposes a charge on its debit 

cardholders for using the ATM to 

withdraw cash from a consumer asset 

account, such as a checking or savings 

account. 

ii. Any charge imposed on a credit 

cardholder for making a purchase or 

obtaining a cash advance outside the 

United States, with a foreign merchant, 

or in a foreign currency is a finance 

charge, regardless of whether a charge is 

imposed on debit cardholders for such 

transactions. The following principles 

apply in determining what is a foreign 

transaction fee and the amount of the 

fee: 

A. Included are (1) fees imposed 

when transactions are made in a foreign 

currency and converted to U.S. dollars; 

(2) fees imposed when transactions are 

made in U.S. dollars outside the U.S.; 

and (3) fees imposed when transactions 

are made (whether in a foreign currency 

or in U.S. dollars) with a foreign 

merchant, such as via a merchant’s Web 

site. For example, a consumer may use 

a credit card to make a purchase in 

Bermuda, in U.S. dollars, and the card 

issuer may impose a fee because the 

transaction took place outside the 

United States. 

B. Included are fees imposed by the 

card issuer and fees imposed by a third 

party that performs the conversion, such 

as a credit card network or the card 

issuer’s corporate parent. (For example, 

in a transaction processed through a 

credit card network, the network may 

impose a 1 percent charge and the cardissuing bank may impose an additional 

2 percent charge, for a total of a 3 

percentage point foreign transaction fee 

being imposed on the consumer.) 

C. Fees imposed by a third party are 

included only if they are directly passed 

on to the consumer. For example, if a 

credit card network imposes a 1 percent 

fee on the card issuer, but the card 

issuer absorbs the fee as a cost of doing 

business (and only passes it on to 

consumers in the general sense that the 

interest and fees are imposed on all its 

customers to recover its costs), then the 

fee is not a foreign transaction fee and 

need not be disclosed. In another 

example, if the credit card network 

imposes a 1 percent fee for a foreign 

transaction on the card issuer, and the 

card issuer imposes this same fee on the 

consumer who engaged in the foreign 

transaction, then the fee is a foreign 

transaction fee and a finance charge. 

D. A card issuer is not required to 

disclose a fee imposed by a merchant. 

For example, if the merchant itself 

performs the currency conversion and 

adds a fee, this fee need not be disclosed 

by the card issuer. Under § 226.9(d), a 

card issuer is not obligated to disclose 

finance charges imposed by a party 

honoring a credit card, such as a 

merchant, although the merchant is 

required to disclose such a finance 

charge if the merchant is subject to the 

Truth in Lending Act and Regulation Z. 

E. The foreign transaction fee is 

determined by first calculating the 

dollar amount of the transaction by 

using a currency conversion rate outside 

the card issuer’s and third party’s 

control. Any amount in excess of that 

dollar amount is a foreign transaction 

fee. Conversion rates outside the card 

issuer’s and third party’s control 

include, for example, a rate selected 

from the range of rates available in the 

wholesale currency exchange markets, 

an average of the highest and lowest 

rates available in such markets, or a 

government-mandated or governmentmanaged exchange rate (or a rate 

selected from a range of such rates). 

F. The rate used for a particular 

transaction need not be the same rate 

that the card issuer (or third party) itself 

obtains in its currency conversion 

operations. In addition, the rate used for 

a particular transaction need not be the 

rate in effect on the date of the 

transaction (purchase or cash advance). 

5. Taxes. 

i. Generally, a tax imposed by a State 

or other governmental body solely on a 

creditor is a finance charge if the 

creditor separately imposes the charge 

on the consumer. 

ii. In contrast, a tax is not a finance 

charge (even if it is collected by the 

creditor) if applicable law imposes the 

tax: 

A. Solely on the consumer; 

B. On the creditor and the consumer 

jointly; 

C. On the credit transaction, without 

indicating which party is liable for the 

tax; or 

D. On the creditor, if applicable law 

directs or authorizes the creditor to pass 

the tax on to the consumer. (For 

purposes of this section, if applicable 

law is silent as to passing on the tax, the 

law is deemed not to authorize passing 

it on.) 

iii. For example, a stamp tax, property 

tax, intangible tax, or any other State or 

local tax imposed on the consumer, or 

on the credit transaction, is not a 

finance charge even if the tax is 

collected by the creditor. 

iv. In addition, a tax is not a finance 

charge if it is excluded from the finance 

charge by another provision of the 

regulation or commentary (for example, 

if the tax is imposed uniformly in cash 

and credit transactions). 

4(a)(1) Charges by third parties. 

1. Choosing the provider of a required 

service. An example of a third-party 

charge included in the finance charge is 

the cost of required mortgage insurance, 

even if the consumer is allowed to 

choose the insurer. 

2. Annuities associated with reverse 

mortgages. Some creditors offer 

annuities in connection with a reversemortgage transaction. The amount of the 

premium is a finance charge if the 

creditor requires the purchase of the 

annuity incident to the credit. Examples 

include the following: 

i. The credit documents reflect the 

purchase of an annuity from a specific 

provider or providers. 

ii. The creditor assesses an additional 

charge on consumers who do not 

purchase an annuity from a specific 

provider. 

iii. The annuity is intended to replace 

in whole or in part the creditor’s 

payments to the consumer either 

immediately or at some future date. 

4(a)(2) Special rule; closing agent 

charges. 

1. General. This rule applies to 

charges by a third party serving as the 

closing agent for the particular loan. An 

example of a closing agent charge 

included in the finance charge is a 

courier fee where the creditor requires 

the use of a courier. 

2. Required closing agent. If the 

creditor requires the use of a closing 

agent, fees charged by the closing agent 

are included in the finance charge only 

if the creditor requires the particular 

service, requires the imposition of the 

charge, or retains a portion of the 

charge. Fees charged by a third-party 

closing agent may be otherwise 

excluded from the finance charge under 

§ 226.4. For example, a fee that would 

be paid in a comparable cash 

transaction may be excluded under 

§ 226.4(a). A charge for conducting or 

attending a closing is a finance charge 

and may be excluded only if the charge 

is included in and is incidental to a 

lump-sum fee excluded under 

§ 226.4(c)(7). 

4(a)(3) Special rule; mortgage broker 

fees. 

1. General. A fee charged by a 

mortgage broker is excluded from the 

finance charge if it is the type of fee that 

is also excluded when charged by the 

creditor. For example, to exclude an 


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application fee from the finance charge 

under § 226.4(c)(1), a mortgage broker 

must charge the fee to all applicants for 

credit, whether or not credit is 

extended. 

2. Coverage. This rule applies to 

charges paid by consumers to a 

mortgage broker in connection with a 

consumer credit transaction secured by 

real property or a dwelling. 

3. Compensation by lender. The rule 

requires all mortgage broker fees to be 

included in the finance charge. 

Creditors sometimes compensate 

mortgage brokers under a separate 

arrangement with those parties. 

Creditors may draw on amounts paid by 

the consumer, such as points or closing 

costs, to fund their payment to the 

broker. Compensation paid by a creditor 

to a mortgage broker under an 

agreement is not included as a separate 

component of a consumer’s total finance 

charge (although this compensation may 

be reflected in the finance charge if it 

comes from amounts paid by the 

consumer to the creditor that are finance 

charges, such as points and interest). 

4(b) Examples of finance charges. 

1. Relationship to other provisions. 

Charges or fees shown as examples of 

finance charges in § 226.4(b) may be 

excludable under § 226.4(c), (d), or (e). 

For example: 

i. Premiums for credit life insurance, 

shown as an example of a finance 

charge under § 226.4(b)(7), may be 

excluded if the requirements of 

§ 226.4(d)(1) are met. 

ii Appraisal fees mentioned in 

§ 226.4(b)(4) are excluded for real 

property or residential mortgage 

transactions under § 226.4(c)(7). 

Paragraph 4(b)(2). 

1. Checking account charges. A 

checking or transaction account charge 

imposed in connection with a credit 

feature is a finance charge under 

§ 226.4(b)(2) to the extent the charge 

exceeds the charge for a similar account 

without a credit feature. If a charge for 

an account with a credit feature does 

not exceed the charge for an account 

without a credit feature, the charge is 

not a finance charge under § 226.4(b)(2). 

To illustrate: 

i. A $5 service charge is imposed on 

an account with an overdraft line of 

credit (where the institution has agreed 

in writing to pay an overdraft), while a 

$3 service charge is imposed on an 

account without a credit feature; the $2 

difference is a finance charge. (If the 

difference is not related to account 

activity, however, it may be excludable 

as a participation fee. See the 

commentary to § 226.4(c)(4).) 

ii. A $5 service charge is imposed for 

each item that results in an overdraft on 

an account with an overdraft line of 

credit, while a $25 service charge is 

imposed for paying or returning each 

item on a similar account without a 

credit feature; the $5 charge is not a 

finance charge. 

Paragraph 4(b)(3). 

1. Assumption fees. The assumption 

fees mentioned in § 226.4(b)(3) are 

finance charges only when the 

assumption occurs and the fee is 

imposed on the new buyer. The 

assumption fee is a finance charge in the 

new buyer’s transaction. 

Paragraph 4(b)(5). 

1. Credit loss insurance. Common 

examples of the insurance against credit 

loss mentioned in § 226.4(b)(5) are 

mortgage guaranty insurance, holder in 

due course insurance, and repossession 

insurance. Such premiums must be 

included in the finance charge only for 

the period that the creditor requires the 

insurance to be maintained. 

2. Residual value insurance. Where a 

creditor requires a consumer to 

maintain residual value insurance or 

where the creditor is a beneficiary of a 

residual value insurance policy written 

in connection with an extension of 

credit (as is the case in some forms of 

automobile balloon-payment financing, 

for example), the premiums for the 

insurance must be included in the 

finance charge for the period that the 

insurance is to be maintained. If a 

creditor pays for residual value 

insurance and absorbs the payment as a 

cost of doing business, such costs are 

not considered finance charges. (See 

comment 4(a)–2.) 

Paragraphs 4(b)(7) and (b)(8). 

1. Pre-existing insurance policy. The 

insurance discussed in § 226.4(b)(7) and 

(b)(8) does not include an insurance 

policy (such as a life or an automobile 

collision insurance policy) that is 

already owned by the consumer, even if 

the policy is assigned to or otherwise 

made payable to the creditor to satisfy 

an insurance requirement. Such a policy 

is not ‘‘written in connection with’’ the 

transaction, as long as the insurance was 

not purchased for use in that credit 

extension, since it was previously 

owned by the consumer. 

2. Insurance written in connection 

with a transaction. Credit insurance 

sold before or after an open-end (not 

home-secured) plan is opened is 

considered ‘‘written in connection with 

a credit transaction.’’ Insurance sold 

after consummation in closed-end credit 

transactions or after the opening of a 

home-equity plan subject to the 

requirements of § 226.5b is not 

considered ‘‘written in connection 

with’’ the credit transaction if the 

insurance is written because of the 

consumer’s default (for example, by 

failing to obtain or maintain required 

property insurance) or because the 

consumer requests insurance after 

consummation or the opening of a 

home-equity plan subject to the 

requirements of § 226.5b (although 

credit-sale disclosures may be required 

for the insurance sold after 

consummation if it is financed). 

3. Substitution of life insurance. The 

premium for a life insurance policy 

purchased and assigned to satisfy a 

credit life insurance requirement must 

be included in the finance charge, but 

only to the extent of the cost of the 

credit life insurance if purchased from 

the creditor or the actual cost of the 

policy (if that is less than the cost of the 

insurance available from the creditor). If 

the creditor does not offer the required 

insurance, the premium to be included 

in the finance charge is the cost of a 

policy of insurance of the type, amount, 

and term required by the creditor. 

4. Other insurance. Fees for required 

insurance not of the types described in 

§ 226.4(b)(7) and (b)(8) are finance 

charges and are not excludable. For 

example: 

i. The premium for a hospitalization 

insurance policy, if it is required to be 

purchased only in a credit transaction, 

is a finance charge. 

Paragraph 4(b)(9). 

1. Discounts for payment by other 

than credit. The discounts to induce 

payment by other than credit mentioned 

in § 226.4(b)(9) include, for example, the 

following situation: 

i. The seller of land offers individual 

tracts for $10,000 each. If the purchaser 

pays cash, the price is $9,000, but if the 

purchaser finances the tract with the 

seller the price is $10,000. The $1,000 

difference is a finance charge for those 

who buy the tracts on credit. 

2. Exception for cash discounts. 

i. Creditors may exclude from the 

finance charge discounts offered to 

consumers for using cash or another 

means of payment instead of using a 

credit card or an open-end plan. The 

discount may be in whatever amount 

the seller desires, either as a percentage 

of the regular price (as defined in 

section 103(z) of the act, as amended) or 

a dollar amount. Pursuant to section 

167(b) of the act, this provision applies 

only to transactions involving an openend credit plan or a credit card (whether 

open-end or closed-end credit is 

extended on the card). The merchant 

must offer the discount to prospective 

buyers whether or not they are 

cardholders or members of the open-end 

credit plan. The merchant may, 

however, make other distinctions. For 

example: 


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A. The merchant may limit the 

discount to payment by cash and not 

offer it for payment by check or by use 

of a debit card. 

B. The merchant may establish a 

discount plan that allows a 15% 

discount for payment by cash, a 10% 

discount for payment by check, and a 

5% discount for payment by a particular 

credit card. None of these discounts is 

a finance charge. 

ii. Pursuant to section 171(c) of the 

act, discounts excluded from the finance 

charge under this paragraph are also 

excluded from treatment as a finance 

charge or other charge for credit under 

any State usury or disclosure laws. 

3. Determination of the regular price. 

i. The regular price is critical in 

determining whether the difference 

between the price charged to cash 

customers and credit customers is a 

discount or a surcharge, as these terms 

are defined in amended section 103 of 

the act. The regular price is defined in 

section 103 of the act as— 

* * * the tag or posted price charged 

for the property or service if a single 

price is tagged or posted, or the price 

charged for the property or service when 

payment is made by use of an open-end 

credit account or a credit card if either 

(1) no price is tagged or posted, or (2) 

two prices are tagged or posted. * * * 

ii. For example, in the sale of motor 

vehicle fuel, the tagged or posted price 

is the price displayed at the pump. As 

a result, the higher price (the open-end 

credit or credit card price) must be 

displayed at the pump, either alone or 

along with the cash price. Service 

station operators may designate separate 

pumps or separate islands as being for 

either cash or credit purchases and 

display only the appropriate prices at 

the various pumps. If a pump is capable 

of displaying on its meter either a cash 

or a credit price depending upon the 

consumer’s means of payment, both the 

cash price and the credit price must be 

displayed at the pump. A service station 

operator may display the cash price of 

fuel by itself on a curb sign, as long as 

the sign clearly indicates that the price 

is limited to cash purchases. 

4(b)(10) Debt cancellation and debt 

suspension fees. 

1. Definition. Debt cancellation 

coverage provides for payment or 

satisfaction of all or part of a debt when 

a specified event occurs. The term ‘‘debt 

cancellation coverage’’ includes 

guaranteed automobile protection, or 

‘‘GAP,’’ agreements, which pay or 

satisfy the remaining debt after property 

insurance benefits are exhausted. Debt 

suspension coverage provides for 

suspension of the obligation to make 

one or more payments on the date(s) 

otherwise required by the credit 

agreement, when a specified event 

occurs. The term ‘‘debt suspension’’ 

does not include loan payment deferral 

arrangements in which the triggering 

event is the bank’s unilateral decision to 

allow a deferral of payment and the 

borrower’s unilateral election to do so, 

such as by skipping or reducing one or 

more payments (‘‘skip payments’’). 

2. Coverage written in connection with 

a transaction. Coverage sold after 

consummation in closed-end credit 

transactions or after the opening of a 

home-equity plan subject to the 

requirements of § 226.5b is not ‘‘written 

in connection with’’ the credit 

transaction if the coverage is written 

because the consumer requests coverage 

after consummation or the opening of a 

home-equity plan subject to the 

requirements of § 226.5b (although 

credit-sale disclosures may be required 

for the coverage sold after 

consummation if it is financed). 

Coverage sold before or after an openend (not home-secured) plan is opened 

is considered ‘‘written in connection 

with a credit transaction.’’ 

4(c) Charges excluded from the 

finance charge. 

Paragraph 4(c)(1). 

1. Application fees. An application 

fee that is excluded from the finance 

charge is a charge to recover the costs 

associated with processing applications 

for credit. The fee may cover the costs 

of services such as credit reports, credit 

investigations, and appraisals. The 

creditor is free to impose the fee in only 

certain of its loan programs, such as 

mortgage loans. However, if the fee is to 

be excluded from the finance charge 

under § 226.4(c)(1), it must be charged 

to all applicants, not just to applicants 

who are approved or who actually 

receive credit. 

Paragraph 4(c)(2). 

1. Late payment charges. 

i. Late payment charges can be 

excluded from the finance charge under 

§ 226.4(c)(2) whether or not the person 

imposing the charge continues to extend 

credit on the account or continues to 

provide property or services to the 

consumer. In determining whether a 

charge is for actual unanticipated late 

payment on a 30-day account, for 

example, factors to be considered 

include: 

A. The terms of the account. For 

example, is the consumer required by 

the account terms to pay the account 

balance in full each month? If not, the 

charge may be a finance charge. 

B. The practices of the creditor in 

handling the accounts. For example, 

regardless of the terms of the account, 

does the creditor allow consumers to 

pay the accounts over a period of time 

without demanding payment in full or 

taking other action to collect? If no effort 

is made to collect the full amount due, 

the charge may be a finance charge. 

ii. Section 226.4(c)(2) applies to late 

payment charges imposed for failure to 

make payments as agreed, as well as 

failure to pay an account in full when 

due. 

2. Other excluded charges. Charges 

for ‘‘delinquency, default, or a similar 

occurrence’’ include, for example, 

charges for reinstatement of credit 

privileges or for submitting as payment 

a check that is later returned unpaid. 

Paragraph 4(c)(3). 

1. Assessing interest on an overdraft 

balance. A charge on an overdraft 

balance computed by applying a rate of 

interest to the amount of the overdraft 

is not a finance charge, even though the 

consumer agrees to the charge in the 

account agreement, unless the financial 

institution agrees in writing that it will 

pay such items. 

Paragraph 4(c)(4). 

1. Participation fees—periodic basis. 

The participation fees described in 

§ 226.4(c)(4) do not necessarily have to 

be formal membership fees, nor are they 

limited to credit card plans. The 

provision applies to any credit plan in 

which payment of a fee is a condition 

of access to the plan itself, but it does 

not apply to fees imposed separately on 

individual closed-end transactions. The 

fee may be charged on a monthly, 

annual, or other periodic basis; a onetime, non-recurring fee imposed at the 

time an account is opened is not a fee 

that is charged on a periodic basis, and 

may not be treated as a participation fee. 

2. Participation fees—exclusions. 

Minimum monthly charges, charges for 

non-use of a credit card, and other 

charges based on either account activity 

or the amount of credit available under 

the plan are not excluded from the 

finance charge by § 226.4(c)(4). Thus, for 

example, a fee that is charged and then 

refunded to the consumer based on the 

extent to which the consumer uses the 

credit available would be a finance 

charge. (See the commentary to 

§ 226.4(b)(2). Also, see comment 14(c)– 

2 for treatment of certain types of fees 

excluded in determining the annual 

percentage rate for the periodic 

statement.) 

Paragraph 4(c)(5). 

1. Seller’s points. The seller’s points 

mentioned in § 226.4(c)(5) include any 

charges imposed by the creditor upon 

the noncreditor seller of property for 

providing credit to the buyer or for 

providing credit on certain terms. These 

charges are excluded from the finance 

charge even if they are passed on to the 


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buyer, for example, in the form of a 

higher sales price. Seller’s points are 

frequently involved in real estate 

transactions guaranteed or insured by 

governmental agencies. A commitment 

fee paid by a noncreditor seller (such as 

a real estate developer) to the creditor 

should be treated as seller’s points. 

Buyer’s points (that is, points charged to 

the buyer by the creditor), however, are 

finance charges. 

2. Other seller-paid amounts. 

Mortgage insurance premiums and other 

finance charges are sometimes paid at or 

before consummation or settlement on 

the borrower’s behalf by a noncreditor 

seller. The creditor should treat the 

payment made by the seller as seller’s 

points and exclude it from the finance 

charge if, based on the seller’s payment, 

the consumer is not legally bound to the 

creditor for the charge. A creditor who 

gives disclosures before the payment 

has been made should base them on the 

best information reasonably available. 

Paragraph 4(c)(6). 

1. Lost interest. Certain Federal and 

State laws mandate a percentage 

differential between the interest rate 

paid on a deposit and the rate charged 

on a loan secured by that deposit. In 

some situations, because of usury limits 

the creditor must reduce the interest 

rate paid on the deposit and, as a result, 

the consumer loses some of the interest 

that would otherwise have been earned. 

Under § 226.4(c)(6), such ‘‘lost interest’’ 

need not be included in the finance 

charge. This rule applies only to an 

interest reduction imposed because a 

rate differential is required by law and 

a usury limit precludes compliance by 

any other means. If the creditor imposes 

a differential that exceeds that required, 

only the lost interest attributable to the 

excess amount is a finance charge. (See 

the commentary to § 226.4(a).) 

Paragraph 4(c)(7). 

1. Real estate or residential mortgage 

transaction charges. The list of charges 

in § 226.4(c)(7) applies both to 

residential mortgage transactions (which 

may include, for example, the purchase 

of a mobile home) and to other 

transactions secured by real estate. The 

fees are excluded from the finance 

charge even if the services for which the 

fees are imposed are performed by the 

creditor’s employees rather than by a 

third party. In addition, the cost of 

verifying or confirming information 

connected to the item is also excluded. 

For example, credit-report fees cover not 

only the cost of the report but also the 

cost of verifying information in the 

report. In all cases, charges excluded 

under § 226.4(c)(7) must be bona fide 

and reasonable. 

2. Lump-sum charges. If a lump sum 

charged for several services includes a 

charge that is not excludable, a portion 

of the total should be allocated to that 

service and included in the finance 

charge. However, a lump sum charged 

for conducting or attending a closing 

(for example, by a lawyer or a title 

company) is excluded from the finance 

charge if the charge is primarily for 

services related to items listed in 

§ 226.4(c)(7) (for example, reviewing or 

completing documents), even if other 

incidental services such as explaining 

various documents or disbursing funds 

for the parties are performed. The entire 

charge is excluded even if a fee for the 

incidental services would be a finance 

charge if it were imposed separately. 

3. Charges assessed during the loan 

term. Real estate or residential mortgage 

transaction charges excluded under 

§ 226.4(c)(7) are those charges imposed 

solely in connection with the initial 

decision to grant credit. This would 

include, for example, a fee to search for 

tax liens on the property or to determine 

if flood insurance is required. The 

exclusion does not apply to fees for 

services to be performed periodically 

during the loan term, regardless of when 

the fee is collected. For example, a fee 

for one or more determinations during 

the loan term of the current tax-lien 

status or flood-insurance requirements 

is a finance charge, regardless of 

whether the fee is imposed at closing, or 

when the service is performed. If a 

creditor is uncertain about what portion 

of a fee to be paid at consummation or 

loan closing is related to the initial 

decision to grant credit, the entire fee 

may be treated as a finance charge. 

4(d) Insurance and debt cancellation 

and debt suspension coverage. 

1. General. Section 226.4(d) permits 

insurance premiums and charges and 

debt cancellation and debt suspension 

charges to be excluded from the finance 

charge. The required disclosures must 

be made in writing, except as provided 

in § 226.4(d)(4). The rules on location of 

insurance and debt cancellation and 

debt suspension disclosures for closedend transactions are in § 226.17(a). For 

purposes of § 226.4(d), all references to 

insurance also include debt cancellation 

and debt suspension coverage unless the 

context indicates otherwise. 

2. Timing of disclosures. If disclosures 

are given early, for example under 

§ 226.17(f) or § 226.19(a), the creditor 

need not redisclose if the actual 

premium is different at the time of 

consummation. If insurance disclosures 

are not given at the time of early 

disclosure and insurance is in fact 

written in connection with the 

transaction, the disclosures under 

§ 226.4(d) must be made in order to 

exclude the premiums from the finance 

charge. 

3. Premium rate increases. The 

creditor should disclose the premium 

amount based on the rates currently in 

effect and need not designate it as an 

estimate even if the premium rates may 

increase. An increase in insurance rates 

after consummation of a closed-end 

credit transaction or during the life of an 

open-end credit plan does not require 

redisclosure in order to exclude the 

additional premium from treatment as a 

finance charge. 

4. Unit-cost disclosures. 

i. Open-end credit. The premium or 

fee for insurance or debt cancellation or 

debt suspension for the initial term of 

coverage may be disclosed on a unitcost basis in open-end credit 

transactions. The cost per unit should 

be based on the initial term of coverage, 

unless one of the options under 

comment 4(d)–12 is available. 

ii. Closed-end credit. One of the 

transactions for which unit-cost 

disclosures (such as 50 cents per year 

for each $100 of the amount financed) 

may be used in place of the total 

insurance premium involves a 

particular kind of insurance plan. For 

example, a consumer with a current 

indebtedness of $8,000 is covered by a 

plan of credit life insurance coverage 

with a maximum of $10,000. The 

consumer requests an additional $4,000 

loan to be covered by the same 

insurance plan. Since the $4,000 loan 

exceeds, in part, the maximum amount 

of indebtedness that can be covered by 

the plan, the creditor may properly give 

the insurance-cost disclosures on the 

$4,000 loan on a unit-cost basis. 

5. Required credit life insurance; debt 

cancellation or suspension coverage. 

Credit life, accident, health, or loss-ofincome insurance, and debt cancellation 

and suspension coverage described in 

§ 226.4(b)(10), must be voluntary in 

order for the premium or charges to be 

excluded from the finance charge. 

Whether the insurance or coverage is in 

fact required or optional is a factual 

question. If the insurance or coverage is 

required, the premiums must be 

included in the finance charge, whether 

the insurance or coverage is purchased 

from the creditor or from a third party. 

If the consumer is required to elect one 

of several options—such as to purchase 

credit life insurance, or to assign an 

existing life insurance policy, or to 

pledge security such as a certificate of 

deposit—and the consumer purchases 

the credit life insurance policy, the 

premium must be included in the 

finance charge. (If the consumer assigns 

a preexisting policy or pledges security 


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instead, no premium is included in the 

finance charge. The security interest 

would be disclosed under § 226.6(a)(4), 

§ 226.6(b)(5)(ii), or § 226.18(m). See the 

commentary to § 226.4(b)(7) and (b)(8).) 

6. Other types of voluntary insurance. 

Insurance is not credit life, accident, 

health, or loss-of-income insurance if 

the creditor or the credit account of the 

consumer is not the beneficiary of the 

insurance coverage. If the premium for 

such insurance is not imposed by the 

creditor as an incident to or a condition 

of credit, it is not covered by § 226.4. 

7. Signatures. If the creditor offers a 

number of insurance options under 

§ 226.4(d), the creditor may provide a 

means for the consumer to sign or initial 

for each option, or it may provide for a 

single authorizing signature or initial 

with the options selected designated by 

some other means, such as a check 

mark. The insurance authorization may 

be signed or initialed by any consumer, 

as defined in § 226.2(a)(11), or by an 

authorized user on a credit card 

account. 

8. Property insurance. To exclude 

property insurance premiums or charges 

from the finance charge, the creditor 

must allow the consumer to choose the 

insurer and disclose that fact. This 

disclosure must be made whether or not 

the property insurance is available from 

or through the creditor. The requirement 

that an option be given does not require 

that the insurance be readily available 

from other sources. The premium or 

charge must be disclosed only if the 

consumer elects to purchase the 

insurance from the creditor; in such a 

case, the creditor must also disclose the 

term of the property insurance coverage 

if it is less than the term of the 

obligation. 

9. Single-interest insurance. Blanket 

and specific single-interest coverage are 

treated the same for purposes of the 

regulation. A charge for either type of 

single-interest insurance may be 

excluded from the finance charge if: 

i. The insurer waives any right of 

subrogation. 

ii. The other requirements of 

§ 226.4(d)(2) are met. This includes, of 

course, giving the consumer the option 

of obtaining the insurance from a person 

of the consumer’s choice. The creditor 

need not ascertain whether the 

consumer is able to purchase the 

insurance from someone else. 

10. Single-interest insurance defined. 

The term single-interest insurance as 

used in the regulation refers only to the 

types of coverage traditionally included 

in the term vendor’s single-interest 

insurance (or VSI), that is, protection of 

tangible property against normal 

property damage, concealment, 

confiscation, conversion, embezzlement, 

and skip. Some comprehensive 

insurance policies may include a variety 

of additional coverages, such as 

repossession insurance and holder-indue-course insurance. These types of 

coverage do not constitute singleinterest insurance for purposes of the 

regulation, and premiums for them do 

not qualify for exclusion from the 

finance charge under § 226.4(d). If a 

policy that is primarily VSI also 

provides coverages that are not VSI or 

other property insurance, a portion of 

the premiums must be allocated to the 

nonexcludable coverages and included 

in the finance charge. However, such 

allocation is not required if the total 

premium in fact attributable to all of the 

non-VSI coverages included in the 

policy is $1.00 or less (or $5.00 or less 

in the case of a multiyear policy). 

11. Initial term. 

i. The initial term of insurance or debt 

cancellation or debt suspension 

coverage determines the period for 

which a premium amount must be 

disclosed, unless one of the options 

discussed under comment 4(d)–12 is 

available. For purposes of § 226.4(d), the 

initial term is the period for which the 

insurer or creditor is obligated to 

provide coverage, even though the 

consumer may be allowed to cancel the 

coverage or coverage may end due to 

nonpayment before that term expires. 

ii. For example: 

A. The initial term of a property 

insurance policy on an automobile that 

is written for one year is one year even 

though premiums are paid monthly and 

the term of the credit transaction is four 

years. 

B. The initial term of an insurance 

policy is the full term of the credit 

transaction if the consumer pays or 

finances a single premium in advance. 

12. Initial term; alternative. 

i. General. A creditor has the option 

of providing cost disclosures on the 

basis of one year of insurance or debt 

cancellation or debt suspension 

coverage instead of a longer initial term 

(provided the premium or fee is clearly 

labeled as being for one year) if: 

A. The initial term is indefinite or not 

clear, or 

B. The consumer has agreed to pay a 

premium or fee that is assessed 

periodically but the consumer is under 

no obligation to continue the coverage, 

whether or not the consumer has made 

an initial payment. 

ii. Open-end plans. For open-end 

plans, a creditor also has the option of 

providing unit-cost disclosure on the 

basis of a period that is less than one 

year if the consumer has agreed to pay 

a premium or fee that is assessed 

periodically, for example monthly, but 

the consumer is under no obligation to 

continue the coverage. 

iii. Examples. To illustrate: 

A. A credit life insurance policy 

providing coverage for a 30-year 

mortgage loan has an initial term of 30 

years, even though premiums are paid 

monthly and the consumer is not 

required to continue the coverage. 

Disclosures may be based on the initial 

term, but the creditor also has the 

option of making disclosures on the 

basis of coverage for an assumed initial 

term of one year. 

13. Loss-of-income insurance. The 

loss-of-income insurance mentioned in 

§ 226.4(d) includes involuntary 

unemployment insurance, which 

provides that some or all of the 

consumer’s payments will be made if 

the consumer becomes unemployed 

involuntarily. 

4(d)(3) Voluntary debt cancellation or 

debt suspension fees. 

1. General. Fees charged for the 

specialized form of debt cancellation 

agreement known as guaranteed 

automobile protection (‘‘GAP’’) 

agreements must be disclosed according 

to § 226.4(d)(3) rather than according to 

§ 226.4(d)(2) for property insurance. 

2. Disclosures. Creditors can comply 

with § 226.4(d)(3) by providing a 

disclosure that refers to debt 

cancellation or debt suspension 

coverage whether or not the coverage is 

considered insurance. Creditors may use 

the model credit insurance disclosures 

only if the debt cancellation or debt 

suspension coverage constitutes 

insurance under State law. (See Model 

Clauses and Samples at G–16 and H–17 

in appendix G and appendix H to part 

226 for guidance on how to provide the 

disclosure required by § 226.4(d)(3)(iii) 

for debt suspension products.) 

3. Multiple events. If debt cancellation 

or debt suspension coverage for two or 

more events is provided at a single 

charge, the entire charge may be 

excluded from the finance charge if at 

least one of the events is accident or loss 

of life, health, or income and the 

conditions specified in § 226.4(d)(3) or, 

as applicable, § 226.4(d)(4), are satisfied. 

4. Disclosures in programs combining 

debt cancellation and debt suspension 

features. If the consumer’s debt can be 

cancelled under certain circumstances, 

the disclosure may be modified to 

reflect that fact. The disclosure could, 

for example, state (in addition to the 

language required by § 226.4(d)(3)(iii)) 

that ‘‘In some circumstances, my debt 

may be cancelled.’’ However, the 

disclosure would not be permitted to 

list the specific events that would result 

in debt cancellation. 


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4(d)(4) Telephone purchases. 

1. Affirmative request. A creditor 

would not satisfy the requirement to 

obtain a consumer’s affirmative request 

if the ‘‘request’’ was a response to a 

script that uses leading questions or 

negative consent. A question asking 

whether the consumer wishes to enroll 

in the credit insurance or debt 

cancellation or suspension plan and 

seeking a yes-or-no response (such as 

‘‘Do you want to enroll in this optional 

debt cancellation plan?’’) would not be 

considered leading. 

4(e) Certain security interest charges. 

1. Examples. 

i. Excludable charges. Sums must be 

actually paid to public officials to be 

excluded from the finance charge under 

§ 226.4(e)(1) and (e)(3). Examples are 

charges or other fees required for filing 

or recording security agreements, 

mortgages, continuation statements, 

termination statements, and similar 

documents, as well as intangible 

property or other taxes even when the 

charges or fees are imposed by the State 

solely on the creditor and charged to the 

consumer (if the tax must be paid to 

record a security agreement). (See 

comment 4(a)–5 regarding the treatment 

of taxes, generally.) 

ii. Charges not excludable. If the 

obligation is between the creditor and a 

third party (an assignee, for example), 

charges or other fees for filing or 

recording security agreements, 

mortgages, continuation statements, 

termination statements, and similar 

documents relating to that obligation are 

not excludable from the finance charge 

under this section. 

2. Itemization. The various charges 

described in § 226.4(e)(1) and (e)(3) may 

be totaled and disclosed as an aggregate 

sum, or they may be itemized by the 

specific fees and taxes imposed. If an 

aggregate sum is disclosed, a general 

term such as security interest fees or 

filing fees may be used. 

3. Notary fees. In order for a notary fee 

to be excluded under § 226.4(e)(1), all of 

the following conditions must be met: 

i. The document to be notarized is one 

used to perfect, release, or continue a 

security interest. 

ii. The document is required by law 

to be notarized. 

iii. A notary is considered a public 

official under applicable law. 

iv. The amount of the fee is set or 

authorized by law. 

4. Nonfiling insurance. The exclusion 

in § 226.4(e)(2) is available only if 

nonfiling insurance is purchased. If the 

creditor collects and simply retains a fee 

as a sort of ‘‘self-insurance’’ against 

nonfiling, it may not be excluded from 

the finance charge. If the nonfiling 

insurance premium exceeds the amount 

of the fees excludable from the finance 

charge under § 226.4(e)(1), only the 

excess is a finance charge. For example: 

i. The fee for perfecting a security 

interest is $5.00 and the fee for releasing 

the security interest is $3.00. The 

creditor charges $10.00 for nonfiling 

insurance. Only $8.00 of the $10.00 is 

excludable from the finance charge. 

4(f) Prohibited offsets. 

1. Earnings on deposits or 

investments. The rule that the creditor 

shall not deduct any earnings by the 

consumer on deposits or investments 

applies whether or not the creditor has 

a security interest in the property. 

Subpart B—Open-end Credit 

§ 226.5 General Disclosure Requirements. 

5(a) Form of disclosures. 

5(a)(1) General. 

1. Clear and conspicuous standard. 

The ‘‘clear and conspicuous’’ standard 

generally requires that disclosures be in 

a reasonably understandable form. 

Disclosures for credit card applications 

and solicitations under § 226.5a, 

highlighted account-opening disclosures 

under § 226.6(b)(1), highlighted 

disclosure on checks that access a credit 

card under § 226.9(b)(3), highlighted 

change-in-terms disclosures under 

§ 226.9(c)(2)(iv)(C), and highlighted 

disclosures when a rate is increased due 

to delinquency, default or for a penalty 

under § 226.9(g)(3)(ii) must also be 

readily noticeable to the consumer. 

2. Clear and conspicuous—reasonably 

understandable form. Except where 

otherwise provided, the reasonably 

understandable form standard does not 

require that disclosures be segregated 

from other material or located in any 

particular place on the disclosure 

statement, or that numerical amounts or 

percentages be in any particular type 

size. For disclosures that are given 

orally, the standard requires that they be 

given at a speed and volume sufficient 

for a consumer to hear and comprehend 

them. (See comment 5(b)(1)(ii)–1.) 

Except where otherwise provided, the 

standard does not prohibit: 

i. Pluralizing required terminology 

(‘‘finance charge’’ and ‘‘annual 

percentage rate’’). 

ii. Adding to the required disclosures 

such items as contractual provisions, 

explanations of contract terms, State 

disclosures, and translations. 

iii. Sending promotional material 

with the required disclosures. 

iv. Using commonly accepted or 

readily understandable abbreviations 

(such as ‘‘mo.’’ for ‘‘month’’ or ‘‘Tx.’’ for 

‘‘Texas’’) in making any required 

disclosures. 

v. Using codes or symbols such as 

‘‘APR’’ (for annual percentage rate), 

‘‘FC’’ (for finance charge), or ‘‘Cr’’ (for 

credit balance), so long as a legend or 

description of the code or symbol is 

provided on the disclosure statement. 

3. Clear and conspicuous—readily 

noticeable standard. To meet the readily 

noticeable standard, disclosures for 

credit card applications and 

solicitations under § 226.5a, highlighted 

account-opening disclosures under 

§ 226.6(b)(1), highlighted disclosures on 

checks that access a credit card account 

under § 226.9(b)(3), highlighted changein-terms disclosures under 

§ 226.9(c)(2)(iv)(C), and highlighted 

disclosures when a rate is increased due 

to delinquency, default or penalty 

pricing under § 226.9(g)(3)(ii) must be 

given in a minimum of 10-point font. 

(See special rule for font size 

requirements for the annual percentage 

rate for purchases under §§ 226.5a(b)(1) 

and 226.6(b)(2)(i).) 

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. Therefore, disclosures made by 

a person other than the card issuer, such 

as disclosures of finance charges 

imposed at the time of honoring a 

consumer’s credit card under § 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). 

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 


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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). 

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, 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, 

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 effect 

the balance transfer until 10 days after 

the creditor has sent account-opening 

disclosures to the consumer, assuming 

the consumer has not contacted the 

creditor to withdraw the request. Card 

issuers that are subject to the 

requirements of § 226.5a may establish 

procedures that comply with both 

§§ 226.5a and 226.6 in a single 

disclosure statement. 

6. Substitution or replacement of 

credit card accounts. 

i. Generally. When a card issuer 

substitutes or replaces an existing credit 

card account with another credit card 

account, the card issuer must either 

provide notice of the terms of the new 

account consistent with § 226.6(b) or 

provide notice of the changes in the 

terms of the existing account consistent 

with § 226.9(c)(2). Whether a 

substitution or replacement results in 

the opening of a new account or a 

change in the terms of an existing 

account for purposes of the disclosure 

requirements in §§ 226.6(b) and 

226.9(c)(2) is determined in light of all 

the relevant facts and circumstances. 

For additional requirements and 

limitations related to the substitution or 

replacement of credit card accounts, see 

§§ 226.12(a) and 226.55(d) and 

comments 12(a)(1)–1 through –8, 


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12(a)(2)–1 through –9, 55(b)(3)–3, and 

55(d)–1 through –3. 

ii. Relevant facts and circumstances. 

Listed below are facts and 

circumstances that are relevant to 

whether a substitution or replacement 

results in the opening of a new account 

or a change in the terms of an existing 

account for purposes of the disclosure 

requirements in §§ 226.6(b) and 

226.9(c)(2). When most of the facts and 

circumstances listed below are present, 

the substitution or replacement likely 

constitutes the opening of a new 

account for which § 226.6(b) disclosures 

are appropriate. When few of the facts 

and circumstances listed below are 

present, the substitution or replacement 

likely constitutes a change in the terms 

of an existing account for which 

§ 226.9(c)(2) disclosures are appropriate. 

A. Whether the card issuer provides 

the consumer with a new credit card; 

B. Whether the card issuer provides 

the consumer with a new account 

number; 

C. Whether the account provides new 

features or benefits after the substitution 

or replacement (such as rewards on 

purchases); 

D. Whether the account can be used 

to conduct transactions at a greater or 

lesser number of merchants after the 

substitution or replacement; 

E. Whether the card issuer 

implemented the substitution or 

replacement on an individualized basis; 

and 

F. Whether the account becomes a 

different type of open-end plan after the 

substitution or replacement (such as 

when a charge card is replaced by a 

credit card). 

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 § 226.6(b)(2). (Charges imposed as 

part of an open-end (not home-secured 

plan) that are not specified under 

§ 226.6(b)(2) may alternatively be 

disclosed in electronic form; see the 

commentary to § 226.5(a)(1)(ii)(A).) 

Creditors must provide such disclosures 

at a time and in a manner that a 

consumer would be likely to notice 

them. For example, if a consumer 

telephones a card issuer to discuss a 

particular service, a creditor would meet 

the standard if the creditor clearly and 

conspicuously discloses the fee 

associated with the service that is the 

topic of the telephone call orally to the 

consumer. Similarly, a creditor 

providing marketing materials in 

writing to a consumer about a particular 

service would meet the standard if the 

creditor provided a clear and 

conspicuous written disclosure of the 

fee for that service in those same 

materials. A creditor that provides 

written materials to a consumer about a 

particular service but provides a fee 

disclosure for another service not 

promoted in such materials would not 

meet the standard. For example, if a 

creditor provided marketing materials 

promoting payment by Internet, but 

included the fee for a replacement card 

on such materials with no explanation, 

the creditor would not be disclosing the 

fee at a time and in a manner that the 

consumer would be likely to notice the 

fee. 

5(b)(1)(iii) Telephone purchases. 

1. Return policies. In order for 

creditors to provide disclosures in 

accordance with the timing 

requirements of this paragraph, 

consumers must be permitted to return 

merchandise purchased at the time the 

plan was established without paying 

mailing or return-shipment costs. 

Creditors may impose costs to return 

subsequent purchases of merchandise 

under the plan, or to return 

merchandise purchased by other means 

such as a credit card issued by another 

creditor. A reasonable return policy 

would be of sufficient duration that the 

consumer is likely to have received the 

disclosures and had sufficient time to 

make a decision about the financing 

plan before his or her right to return the 

goods expires. Return policies need not 

provide a right to return goods if the 

consumer consumes or damages the 

goods, or for installed appliances or 

fixtures, provided there is a reasonable 

repair or replacement policy to cover 

defective goods or installations. If the 

consumer chooses to reject the financing 

plan, creditors comply with the 

requirements of this paragraph by 

permitting the consumer to pay for the 

goods with another reasonable form of 

payment acceptable to the merchant and 

keep the goods although the creditor 

cannot require the consumer to do so. 

5(b)(1)(iv) Membership fees. 

1. Membership fees. See § 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(h) 

regarding the collection of fees. 

5(b)(2) Periodic statements. 

Paragraph 5(b)(2)(i). 

1. Periodic statements not required. 

Periodic statements need not be sent in 

the following cases: 

i. If the creditor adjusts an account 

balance so that at the end of the cycle 

the balance is less than $1—so long as 

no finance charge has been imposed on 

the account for that cycle. 

ii. If a statement was returned as 

undeliverable. If a new address is 

provided, however, within a reasonable 

time before the creditor must send a 

statement, the creditor must resume 

sending statements. Receiving the 

address at least 20 days before the end 

of a cycle would be a reasonable amount 

of time to prepare the statement for that 

cycle. For example, if an address is 

received 22 days before the end of the 

June cycle, the creditor must send the 

periodic statement for the June cycle. 

(See § 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 


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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. Reasonable procedures. A creditor 

is not required to determine the specific 

date on which periodic statements are 

mailed or delivered to each individual 

consumer. A creditor complies with 

§ 226.5(b)(2)(ii) if it has adopted 

reasonable procedures designed to 

ensure that periodic statements are 

mailed or delivered to consumers no 

later than a certain number of days after 

the closing date of the billing cycle and 

adds that number of days to the 21-day 

period required by § 226.5(b)(2)(ii) when 

determining the payment due date and 

the date on which any grace period 

expires. For example, if a creditor has 

adopted reasonable procedures designed 

to ensure that periodic statements are 

mailed or delivered to consumers no 

later than three days after the closing 

date of the billing cycle, the payment 

due date and the date on which any 

grace period expires must be no less 

than 24 days after the closing date of the 

billing cycle. 

2. Treating a payment as late for any 

purpose and collecting any finance or 

other charges. Treating a payment as 

late for any purpose includes increasing 

the annual percentage rate as a penalty, 

reporting the consumer as delinquent to 

a credit reporting agency, or assessing a 

late fee or any other fee based on the 

consumer’s failure to make a payment 

within a specified amount of time or by 

a specified date. The prohibition in 

§ 226.5(b)(2)(ii) on treating a payment as 

late for any purpose or collecting 

finance or other charges applies only 

during the 21-day period following 

mailing or delivery of the periodic 

statement. When an account is not 

eligible for a grace period, imposing a 

finance charge due to a periodic interest 

rate does not constitute treating a 

payment as late or collecting finance or 

other charges as a result of a failure to 

comply with § 226.5(b)(2)(ii). 

3. Payment due date. For purposes of 

§ 226.5(b)(2)(ii), ‘‘payment due date’’ 

means the date by which the creditor 

requires the consumer to make the 

required minimum periodic payment in 

order to avoid being treated as late for 

any purpose, except as set forth in 

paragraphs i. and ii. below. 

i. Courtesy period following payment 

due date. Although the terms of the 

account agreement may require that 

payment be made by a certain date, 

some creditors provide an additional 

period of time after that date during 

which a late payment fee will not be 

assessed. In some cases, this period is 

set forth in the account agreement while 

in others it is provided as an informal 

policy or practice. Regardless, for 

purposes of § 226.5(b)(2)(ii), the 

payment due date is the due date 

according to the legal obligation 

between the parties, not the end of the 

additional period of time. For example, 

if an account agreement for a home 

equity plan subject to the requirements 

of § 226.5b provides that payment is due 

on the first day of the month but a late 

payment fee will not be assessed if the 

payment is received by the fifteenth day 

of the month, the payment due date for 

purposes of § 226.5(b)(2)(ii) is the first 

day of the month. Similarly, if a 

cardholder agreement provides that 

payment is due on the fifteenth day of 

the month but, under the creditor’s 

informal ‘‘courtesy’’ period, a late 

payment fee will not be assessed if the 

payment is received by the eighteenth 

day of the month, the payment due date 

for purposes of § 226.5(b)(2)(ii) is the 

fifteenth day of the month. 

ii. Laws affecting assessment of late 

payment and other fees. Some State or 

other laws require that a certain number 

of days must elapse following a due date 

before a late payment or other fee may 

be imposed. For example, assume that 

the account agreement provides that 

payment is due on the fifteenth day of 

the month but, under State law, the 

creditor is prohibited from assessing a 

late payment fee until the twenty-sixth 

day of the month. For purposes of 

§ 226.5(b)(2)(ii), the payment due date is 

the due date according to the legal 

obligation between the parties (the 

fifteenth day of the month), not the date 

before which State law prohibits the 

imposition of a late payment fee (the 

twenty-sixth day of the month). 

4. Definition of grace period. For 

purposes of § 226.5(b)(2)(ii), ‘‘grace 

period’’ means a period within which 

any credit extended may be repaid 

without incurring a finance charge due 

to a periodic interest rate. A deferred 

interest or similar promotional program 

under which the consumer is not 

obligated to pay interest that accrues on 

a balance if that balance is paid in full 

prior to the expiration of a specified 

period of time is not a grace period for 

purposes of § 226.5(b)(2)(ii). Similarly, a 

courtesy period following the payment 

due date is not a grace period for 

purposes of § 226.5(b)(2)(ii). See 

comment 5(b)(2)(ii)–3.i. 

5. Consumer request to pick up 

periodic statements. When a consumer 

initiates a request, the creditor may 

permit, but may not require, the 

consumer to pick up periodic 

statements. If the consumer wishes to 

pick up a statement, the statement must 

be made available in accordance with 

§ 226.5(b)(2)(ii). 

6. Deferred interest and similar 

promotional programs. See comment 

7(b)–1.iv. 

Paragraph 5(b)(2)(iii). 

1. Computer malfunction. The 

exceptions identified in § 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 


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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 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. 

§ 226.5a Credit and Charge Card 

Applications and Solicitations. 

1. General. Section 226.5a generally 

requires that credit disclosures be 

contained in application forms and 

solicitations initiated by a card issuer to 

open a credit or charge card account. 

(See § 226.5a(a)(5) and (e)(2) for 

exceptions; see § 226.5a(a)(1) and 

accompanying commentary for the 

definition of solicitation; see also 

§ 226.2(a)(15) and accompanying 

commentary for the definition of charge 

card.) 

2. Substitution of account-opening 

summary table for the disclosures 

required by § 226.5a. In complying with 

§ 226.5a(c), (e)(1) or (f), a card issuer 

may provide the account-opening 

summary table described in § 226.6(b)(1) 

in lieu of the disclosures required by 

§ 226.5a, if the issuer provides the 

disclosures required by § 226.6 on or 

with the application or solicitation. 

3. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

§ 226.5a disclosures. 

5a(a) General rules. 

5a(a)(1) Definition of solicitation. 

1. Invitations to apply. A card issuer 

may contact a consumer who has not 

been preapproved for a card account 

about opening an account (whether by 

direct mail, telephone, or other means) 

and invite the consumer to complete an 

application. Such a contact does not 

meet the definition of solicitation, nor is 

it covered by this section, unless the 

contact itself includes an application 

form in a direct mailing, electronic 

communication or ‘‘take-one’’; an oral 

application in a telephone contact 

initiated by the card issuer; or an 

application in an in-person contact 

initiated by the card issuer. 

5a(a)(2) Form of disclosures; tabular 

format. 

1. Location of table. i. General. Except 

for disclosures given electronically, 

disclosures in § 226.5a(b) that are 

required to be provided in a table must 

be prominently located on or with the 

application or solicitation. Disclosures 

are deemed to be prominently located, 

for example, if the disclosures are on the 

same page as an application or 

solicitation reply form. If the disclosures 

appear elsewhere, they are deemed to be 

prominently located if the application 

or solicitation reply form contains a 

clear and conspicuous reference to the 

location of the disclosures and indicates 

that they contain rate, fee, and other 

cost information, as applicable. 

ii. Electronic disclosures. If the table 

is provided electronically, the table 

must be provided in close proximity to 

the application or solicitation. Card 

issuers have flexibility in satisfying this 

requirement. Methods card issuers 

could use to satisfy the requirement 

include, but are not limited to, the 

following examples: 

A. The disclosures could 

automatically appear on the screen 

when the application or reply form 

appears; 

B. The disclosures could be located 

on the same Web page as the application 

or reply form (whether or not they 

appear on the initial screen), if the 

application or reply form contains a 

clear and conspicuous reference to the 

location of the disclosures and indicates 

that the disclosures contain rate, fee, 

and other cost information, as 

applicable; 

C. Card issuers could provide a link 

to the electronic disclosures on or with 

the application (or reply form) as long 

as consumers cannot bypass the 

disclosures before submitting the 

application or reply form. The link 

would take the consumer to the 

disclosures, but the consumer need not 

be required to scroll completely through 

the disclosures; or 

D. The disclosures could be located 

on the same Web page as the application 

or reply form without necessarily 

appearing on the initial screen, 

immediately preceding the button that 

the consumer will click to submit the 

application or reply. 

Whatever method is used, a card 

issuer need not confirm that the 

consumer has read the disclosures. 

2. Multiple accounts. If a tabular 

format is required to be used, card 

issuers offering several types of 

accounts may disclose the various terms 


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for the accounts in a single table or may 

provide a separate table for each 

account. 

3. Information permitted in the table. 

See the commentary to § 226.5a(b), 

(d)(2)(ii) and (e)(1) for guidance on 

additional information permitted in the 

table. 

4. Deletion of inapplicable 

disclosures. Generally, disclosures need 

only be given as applicable. Card issuers 

may, therefore, omit inapplicable 

headings and their corresponding boxes 

in the table. For example, if no foreign 

transaction fee is imposed on the 

account, the heading Foreign 

transaction and disclosure may be 

deleted from the table or the disclosure 

form may contain the heading Foreign 

transaction and a disclosure showing 

none. There is an exception for the grace 

period disclosure; even if no grace 

period exists, that fact must be stated. 

5. Highlighting of annual percentage 

rates and fee amounts. i. In general. See 

Samples G–10(B) and G–10(C) for 

guidance on providing the disclosures 

described in § 226.5a(a)(2)(iv) in bold 

text. Other annual percentage rates or 

fee amounts disclosed in the table may 

not be in bold text. Samples G–10(B) 

and G–10(C) also provide guidance to 

issuers on how to disclose the rates and 

fees described in § 226.5a(a)(2)(iv) in a 

clear and conspicuous manner, by 

including these rates and fees generally 

as the first text in the applicable rows 

of the table so that the highlighted rates 

and fees generally are aligned vertically 

in the table. 

ii. Maximum limits on fees. Section 

226.5a(a)(2)(iv) provides that any 

maximum limits on fee amounts 

unrelated to fees that vary by State may 

not be disclosed in bold text. For 

example, assume an issuer will charge 

a cash advance fee of $5 or 3 percent of 

the cash advance transaction amount, 

whichever is greater, but the fee will not 

exceed $100. The maximum limit of 

$100 for the cash advance fee must not 

be highlighted in bold. Nonetheless, 

assume that the amount of the late fee 

varies by State, and the range of amount 

of late fees disclosed is $15–$25. In this 

case, the maximum limit of $25 on the 

late fee amounts must be highlighted in 

bold. In both cases, the minimum fee 

amount (e.g. $5 or $15) must be 

disclosed in bold text. 

iii. Periodic fees. Section 

226.5a(a)(2)(iv) provides that any 

periodic fee disclosed pursuant to 

§ 226.5a(b)(2) that is not an annualized 

amount must not be disclosed in bold. 

For example, if an issuer imposes a $10 

monthly maintenance fee for a card 

account, the issuer must disclose in the 

table that there is a $10 monthly 

maintenance fee, and that the fee is 

$120 on an annual basis. In this 

example, the $10 fee disclosure would 

not be disclosed in bold, but the $120 

annualized amount must be disclosed in 

bold. In addition, if an issuer must 

disclose any annual fee in the table, the 

amount of the annual fee must be 

disclosed in bold. 

6. Form of disclosures. Whether 

disclosures must be in electronic form 

depends upon the following: 

i. If a consumer accesses a credit card 

application or solicitation electronically 

(other than as described under ii. 

below), such as on-line at a home 

computer, the card issuer must provide 

the disclosures in electronic form (such 

as with the application or solicitation on 

its Web site) in order to meet the 

requirement to provide disclosures in a 

timely manner on or with the 

application or solicitation. If the issuer 

instead mailed paper disclosures to the 

consumer, this requirement would not 

be met. 

ii. In contrast, if a consumer is 

physically present in the card issuer’s 

office, and accesses a credit card 

application or solicitation 

electronically, such as via a terminal or 

kiosk (or if the consumer uses a terminal 

or kiosk located on the premises of an 

affiliate or third party that has arranged 

with the card issuer to provide 

applications or solicitations to 

consumers), the issuer may provide 

disclosures in either electronic or paper 

form, provided the issuer complies with 

the timing and delivery (‘‘on or with’’) 

requirements of the regulation. 

7. Terminology. Section 226.5a(a)(2)(i) 

generally requires that the headings, 

content and format of the tabular 

disclosures be substantially similar, but 

need not be identical, to the applicable 

tables in appendix G–10 to part 226; but 

see § 226.5(a)(2) for terminology 

requirements applicable to § 226.5a 

disclosures. 

5a(a)(4) Fees that vary by State. 

1. Manner of disclosing range. If the 

card issuer discloses a range of fees 

instead of disclosing the amount of the 

specific fee applicable to the consumer’s 

account, the range may be stated as the 

lowest authorized fee (zero, if there are 

one or more states where no fee applies) 

to the highest authorized fee. 

5a(a)(5) Exceptions. 

1. Noncoverage of consumer-initiated 

requests. Applications provided to a 

consumer upon request are not covered 

by § 226.5a, even if the request is made 

in response to the card issuer’s 

invitation to apply for a card account. 

To illustrate, if a card issuer invites 

consumers to call a toll-free number or 

to return a response card to obtain an 

application, the application sent in 

response to the consumer’s request need 

not contain the disclosures required 

under § 226.5a. Similarly, if the card 

issuer invites consumers to call and 

make an oral application on the 

telephone, § 226.5a does not apply to 

the application made by the consumer. 

If, however, the card issuer calls a 

consumer or initiates a telephone 

discussion with a consumer about 

opening a card account and 

contemporaneously takes an oral 

application, such applications are 

subject to § 226.5a, specifically 

§ 226.5a(d). Likewise, if the card issuer 

initiates an in-person discussion with a 

consumer about opening a card account 

and contemporaneously takes an 

application, such applications are 

subject to § 226.5a, specifically 

§ 226.5a(f). 

5a(b) Required disclosures. 

1. Tabular format. Provisions in 

§ 226.5a(b) and its commentary provide 

that certain information must appear or 

is permitted to appear in a table. The 

tabular format is required for § 226.5a(b) 

disclosures given pursuant to 

§ 226.5a(c), (d)(2), (e)(1) and (f). The 

tabular format does not apply to oral 

disclosures given pursuant to 

§ 226.5a(d)(1). (See § 226.5a(a)(2).) 

2. Accuracy. Rules concerning 

accuracy of the disclosures required by 

§ 226.5a(b), including variable rate 

disclosures, are stated in § 226.5a(c), (d), 

and (e), as applicable. 

5a(b)(1) Annual percentage rate. 

1. Variable-rate accounts—definition. 

For purposes of § 226.5a(b)(1), a 

variable-rate account exists when rate 

changes are part of the plan and are tied 

to an index or formula. (See the 

commentary to § 226.6(b)(4)(ii) for 

examples of variable-rate plans.) 

2. Variable-rate accounts—fact that 

rate varies and how the rate will be 

determined. In describing how the 

applicable rate will be determined, the 

card issuer must identify in the table the 

type of index or formula used, such as 

the prime rate. In describing the index, 

the issuer may not include in the table 

details about the index. For example, if 

the issuer uses a prime rate, the issuer 

must disclose the rate as a ‘‘prime rate’’ 

and may not disclose in the table other 

details about the prime rate, such as the 

fact that it is the highest prime rate 

published in the Wall Street Journal two 

business days before the closing date of 

the statement for each billing period. 

The issuer may not disclose in the table 

the current value of the index (such as 

that the prime rate is currently 7.5 

percent) or the amount of the margin or 

spread added to the index or formula in 

setting the applicable rate. A card issuer 


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may not disclose any applicable 

limitations on rate increases or 

decreases in the table, such as 

describing that the rate will not go 

below a certain rate or higher than a 

certain rate. (See Samples G–10(B) and 

G–10(C) for guidance on how to disclose 

the fact that the applicable rate varies 

and how it is determined.) 

3. Discounted initial rates. i. 

Immediate proximity. If the term 

‘‘introductory’’ is in the same phrase as 

the introductory rate, as that term is 

defined in § 226.16(g)(2)(ii), it will be 

deemed to be in immediate proximity of 

the listing. For example, an issuer that 

uses the phrase ‘‘introductory balance 

transfer APR X percent’’ has used the 

word ‘‘introductory’’ within the same 

phrase as the rate. (See Sample G–10(C) 

for guidance on how to disclose clearly 

and conspicuously the expiration date 

of the introductory rate and the rate that 

will apply after the introductory rate 

expires, if an introductory rate is 

disclosed in the table.) 

ii. Subsequent changes in terms. The 

fact that an issuer may reserve the right 

to change a rate subsequent to account 

opening, pursuant to the notice 

requirements of § 226.9(c) and the 

limitations in § 226.55, does not, by 

itself, make that rate an introductory 

rate. For example, assume an issuer 

discloses an annual percentage rate for 

purchases of 12.99% but does not 

specify a time period during which that 

rate will be in effect. Even if that issuer 

subsequently increases the annual 

percentage rate for purchases to 15.99%, 

pursuant to a change-in-terms notice 

provided under § 226.9(c), the 12.99% is 

not an introductory rate. 

iii. More than one introductory rate. If 

more than one introductory rate may 

apply to a particular balance in 

succeeding periods, the term 

‘‘introductory’’ need only be used to 

describe the first introductory rate. For 

example, if an issuer offers a rate of 

8.99% on purchases for six months, 

10.99% on purchases for the following 

six months, and 14.99% on purchases 

after the first year, the term 

‘‘introductory’’ need only be used to 

describe the 8.99% rate. 

4. Premium initial rates—subsequent 

changes in terms. The fact that an issuer 

may reserve the right to change a rate 

subsequent to account opening, 

pursuant to the notice requirements of 

§ 226.9(c) and the limitations in § 226.55 

(as applicable), does not, by itself, make 

that rate a premium initial rate. For 

example, assume an issuer discloses an 

annual percentage rate for purchases of 

18.99% but does not specify a time 

period during which that rate will be in 

effect. Even if that issuer subsequently 

reduces the annual percentage rate for 

purchases to 15.99%, the 18.99% is not 

a premium initial rate. If the rate 

decrease is the result of a change from 

a non-variable rate to a variable rate or 

from a variable rate to a non-variable 

rate, see comments 9(c)(2)(v)–3 and 

9(c)(2)(v)–4 for guidance on the notice 

requirements under § 226.9(c). 

5. Increased penalty rates. i. In 

general. For rates that are not 

introductory rates, if a rate may increase 

as a penalty for one or more events 

specified in the account agreement, 

such as a late payment or an extension 

of credit that exceeds the credit limit, 

the card issuer must disclose the 

increased rate that would apply, a brief 

description of the event or events that 

may result in the increased rate, and a 

brief description of how long the 

increased rate will remain in effect. The 

description of the specific event or 

events that may result in an increased 

rate should be brief. For example, if an 

issuer may increase a rate to the penalty 

rate because the consumer does not 

make the minimum payment by 5 p.m., 

Eastern Time, on its payment due date, 

the issuer should describe this 

circumstance in the table as ‘‘make a 

late payment.’’ Similarly, if an issuer 

may increase a rate that applies to a 

particular balance because the account 

is more than 30 days late, the issuer 

should describe this circumstance in the 

table as ‘‘make a late payment.’’ An 

issuer may not distinguish between the 

events that may result in an increased 

rate for existing balances and the events 

that may result in an increased rate for 

new transactions. (See Samples G–10(B) 

and G–10(C) (in the row labeled 

‘‘Penalty APR and When it Applies’’) for 

additional guidance on the level of 

detail in which the specific event or 

events should be described.) The 

description of how long the increased 

rate will remain in effect also should be 

brief. If a card issuer reserves the right 

to apply the increased rate indefinitely, 

that fact should be stated. (See Samples 

G–10(B) and G–10(C) (in the row labeled 

‘‘Penalty APR and When it Applies’’) for 

additional guidance on the level of 

detail which the issuer should use to 

describe how long the increased rate 

will remain in effect.) A card issuer will 

be deemed to meet the standard to 

clearly and conspicuously disclose the 

information required by 

§ 226.5a(b)(1)(iv)(A) if the issuer uses 

the format shown in Samples G–10(B) 

and G–10(C) (in the row labeled 

‘‘Penalty APR and When it Applies’’) to 

disclose this information. 

ii. Introductory rates—general. An 

issuer is required to disclose directly 

beneath the table the circumstances 

under which an introductory rate, as 

that term is defined in § 226.16(g)(2)(ii), 

may be revoked, and the rate that will 

apply after the revocation. This 

information about revocation of an 

introductory rate and the rate that will 

apply after revocation must be provided 

even if the rate that will apply after the 

introductory rate is revoked is the rate 

that would have applied at the end of 

the promotional period. In a variablerate account, the rate that would have 

applied at the end of the promotional 

period is a rate based on the applicable 

index or formula in accordance with the 

accuracy requirements set forth in 

§ 226.5a(c) or (e). In describing the rate 

that will apply after revocation of the 

introductory rate, if the rate that will 

apply after revocation of the 

introductory rate is already disclosed in 

the table, the issuer is not required to 

repeat the rate, but may refer to that rate 

in a clear and conspicuous manner. For 

example, if the rate that will apply after 

revocation of an introductory rate is the 

standard rate that applies to that type of 

transaction (such as a purchase or 

balance transfer transaction), and the 

standard rates are labeled in the table as 

‘‘standard APRs,’’ the issuer may refer to 

the ‘‘standard APR’’ when describing 

the rate that will apply after revocation 

of an introductory rate. (See Sample G– 

10(C) in the disclosure labeled ‘‘Loss of 

Introductory APR’’ directly beneath the 

table.) The description of the 

circumstances in which an introductory 

rate could be revoked should be brief. 

For example, if an issuer may increase 

an introductory rate because the account 

is more than 60 days late, the issuer 

should describe this circumstance in the 

table as ‘‘make a late payment.’’ In 

addition, if the circumstances in which 

an introductory rate could be revoked 

are already listed elsewhere in the table, 

the issuer is not required to repeat the 

circumstances again, but may refer to 

those circumstances in a clear and 

conspicuous manner. For example, if 

the circumstances in which an 

introductory rate could be revoked are 

the same as the event or events that may 

trigger a ‘‘penalty rate’’ as described in 

§ 226.5a(b)(1)(iv)(A), the issuer may 

refer to the actions listed in the Penalty 

APR row, in describing the 

circumstances in which the 

introductory rate could be revoked. (See 

Sample G–10(C) in the disclosure 

labeled ‘‘Loss of Introductory APR’’ 

directly beneath the table for additional 

guidance on the level of detail in which 

to describe the circumstances in which 

an introductory rate could be revoked.) 

A card issuer will be deemed to meet 

the standard to clearly and 


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conspicuously disclose the information 

required by § 226.5a(b)(1)(iv)(B) if the 

issuer uses the format shown in Sample 

G–10(C) to disclose this information. 

iii. Introductory rates—limitations on 

revocation. Issuers that are disclosing an 

introductory rate are prohibited by 

§ 226.55 from increasing or revoking the 

introductory rate before it expires unless 

the consumer fails to make a required 

minimum periodic payment within 60 

days after the due date for the payment. 

In making the required disclosure 

pursuant to § 226.5a(b)(1)(iv)(B), issuers 

should describe this circumstance 

directly beneath the table as ‘‘make a 

late payment.’’ 

6. Rates that depend on consumer’s 

creditworthiness. i. In general. The card 

issuer, at its option, may disclose the 

possible rates that may apply as either 

specific rates, or a range of rates. For 

example, if there are three possible rates 

that may apply (9.99, 12.99 or 17.99 

percent), an issuer may disclose specific 

rates (9.99, 12.99 or 17.99 percent) or a 

range of rates (9.99 to 17.99 percent). 

The card issuer may not disclose only 

the lowest, highest or median rate that 

could apply. (See Samples G–10(B) and 

G–10(C) for guidance on how to disclose 

a range of rates.) 

ii. Penalty rates. If the rate is a penalty 

rate, as described in § 226.5a(b)(1)(iv), 

the card issuer at its option may 

disclose the highest rate that could 

apply, instead of disclosing the specific 

rates or the range of rates that could 

apply. For example, if the penalty rate 

could be up to 28.99 percent, but the 

issuer may impose a penalty rate that is 

less than that rate depending on factors 

at the time the penalty rate is imposed, 

the issuer may disclose the penalty rate 

as ‘‘up to’’ 28.99 percent. The issuer also 

must include a statement that the 

penalty rate for which the consumer 

may qualify will depend on the 

consumer’s creditworthiness, and other 

factors if applicable. 

iii. Other factors. Section 

226.5a(b)(1)(v) applies even if other 

factors are used in combination with a 

consumer’s creditworthiness to 

determine the rate for which a consumer 

may qualify at account opening. For 

example, § 226.5a(b)(1)(v) would apply 

if the issuer considers the type of 

purchase the consumer is making at the 

time the consumer opens the account, in 

combination with the consumer’s 

creditworthiness, to determine the rate 

for which the consumer may qualify at 

account opening. If other factors are 

considered, the issuer should amend the 

statement about creditworthiness, to 

indicate that the rate for which the 

consumer may qualify at account 

opening will depend on the consumer’s 

creditworthiness and other factors. 

Nonetheless, § 226.5a(b)(1)(v) does not 

apply if a consumer’s creditworthiness 

is not one of the factors that will 

determine the rate for which the 

consumer may qualify at account 

opening (for example, if the rate is based 

solely on the type of purchase that the 

consumer is making at the time the 

consumer opens the account, or is based 

solely on whether the consumer has 

other banking relationships with the 

card issuer). 

7. Rate based on another rate on the 

account. In some cases, one rate may be 

based on another rate on the account. 

For example, assume that a penalty rate 

as described in § 226.5a(b)(1)(iv)(A) is 

determined by adding 5 percentage 

points to the current purchase rate, 

which is 10 percent. In this example, 

the card issuer in disclosing the penalty 

rate must disclose 15 percent as the 

current penalty rate. If the purchase rate 

is a variable rate, then the penalty rate 

also is a variable rate. In that case, the 

card issuer also must disclose the fact 

that the penalty rate may vary and how 

the rate is determined, such as ‘‘This 

APR may vary with the market based on 

the Prime Rate.’’ In describing the 

penalty rate, the issuer shall not 

disclose in the table the amount of the 

margin or spread added to the current 

purchase rate to determine the penalty 

rate, such as describing that the penalty 

rate is determined by adding 5 

percentage points to the purchase rate. 

(See § 226.5a(b)(1)(i) and comment 

5a(b)(1)–2 for further guidance on 

describing a variable rate.) 

8. Rates. The only rates that shall be 

disclosed in the table are annual 

percentage rates determined under 

§ 226.14(b). Periodic rates shall not be 

disclosed in the table. 

9. Deferred interest or similar 

transactions. An issuer offering a 

deferred interest or similar plan, such as 

a promotional program that provides 

that a consumer will not be obligated to 

pay interest that accrues on a balance if 

that balance is paid in full prior to the 

expiration of a specified period of time, 

may not disclose a 0% rate as the rate 

applicable to deferred interest or similar 

transactions if there are any 

circumstances under which the 

consumer will be obligated for interest 

on such transactions for the deferred 

interest or similar period. 

5a(b)(2) Fees for issuance or 

availability. 

1. Membership fees. Membership fees 

for opening an account must be 

disclosed under this paragraph. A 

membership fee to join an organization 

that provides a credit or charge card as 

a privilege of membership must be 

disclosed only if the card is issued 

automatically upon membership. Such a 

fee shall not be disclosed in the table if 

membership results merely in eligibility 

to apply for an account. 

2. Enhancements. Fees for optional 

services in addition to basic 

membership privileges in a credit or 

charge card account (for example, travel 

insurance or card-registration services) 

shall not be disclosed in the table if the 

basic account may be opened without 

paying such fees. Issuing a card to each 

primary cardholder (not authorized 

users) is considered a basic membership 

privilege and fees for additional cards, 

beyond the first card on the account, 

must be disclosed as a fee for issuance 

or availability. Thus, a fee to obtain an 

additional card on the account beyond 

the first card (so that each cardholder 

would have his or her own card) must 

be disclosed in the table as a fee for 

issuance or availability under 

§ 226.5a(b)(2). This fee must be 

disclosed even if the fee is optional; that 

is, if the fee is charged only if the 

cardholder requests one or more 

additional cards. (See the available 

credit disclosure in § 226.5a(b)(14).) 

3. One-time fees. Disclosure of nonperiodic fees is limited to fees related to 

opening the account, such as one-time 

membership or participation fees, or an 

application fee that is excludable from 

the finance charge under § 226.4(c)(1). 

The following are examples of fees that 

shall not be disclosed in the table: 

i. Fees for reissuing a lost or stolen 

card. 

ii. Statement reproduction fees. 

4. Waived or reduced fees. If fees 

required to be disclosed are waived or 

reduced for a limited time, the 

introductory fees or the fact of fee 

waivers may be provided in the table in 

addition to the required fees if the card 

issuer also discloses how long the 

reduced fees or waivers will remain in 

effect. 

5. Periodic fees and one-time fees. A 

card issuer disclosing a periodic fee 

must disclose the amount of the fee, 

how frequently it will be imposed, and 

the annualized amount of the fee. A 

card issuer disclosing a non-periodic fee 

must disclose that the fee is a one-time 

fee. (See Sample G–10(C) for guidance 

on how to meet these requirements.) 

5a(b)(3) Fixed finance charge; 

minimum interest charge. 

1. Example of brief statement. See 

Samples G–10(B) and G–10(C) for 

guidance on how to provide a brief 

description of a minimum interest 

charge. 

2. Adjustment of $1.00 threshold 

amount. Consistent with § 226.5a(b)(3), 

the Board will publish adjustments to 


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the $1.00 threshold amount, as 

appropriate. 

5a(b)(4) Transaction charges. 

1. Charges imposed by person other 

than card issuer. Charges imposed by a 

third party, such as a seller of goods, 

shall not be disclosed in the table under 

this section; the third party would be 

responsible for disclosing the charge 

under § 226.9(d)(1). 

2. Foreign transaction fees. A 

transaction charge imposed by the card 

issuer for the use of the card for 

purchases includes any fee imposed by 

the issuer for purchases in a foreign 

currency or that take place outside the 

United States or with a foreign 

merchant. (See comment 4(a)–4 for 

guidance on when a foreign transaction 

fee is considered charged by the card 

issuer.) If an issuer charges the same 

foreign transaction fee for purchases and 

cash advances in a foreign currency, or 

that take place outside the United States 

or with a foreign merchant, the issuer 

may disclose this foreign transaction fee 

as shown in Samples G–10(B) and G– 

10(C). Otherwise, the issuer must revise 

the foreign transaction fee language 

shown in Samples G–10(B) and G–10(C) 

to disclose clearly and conspicuously 

the amount of the foreign transaction fee 

that applies to purchases and the 

amount of the foreign transaction fee 

that applies to cash advances. 

5a(b)(5) Grace period. 

1. How grace period disclosure is 

made. The card issuer must state any 

conditions on the applicability of the 

grace period. An issuer that offers a 

grace period on all purchases and 

conditions the grace period on the 

consumer paying his or her outstanding 

balance in full by the due date each 

billing cycle, or on the consumer paying 

the outstanding balance in full by the 

due date in the previous and/or the 

current billing cycle(s) will be deemed 

to meet these requirements by providing 

the following disclosure, as applicable: 

‘‘Your due date is [at least] ___ days 

after the close of each billing cycle. We 

will not charge you any interest on 

purchases if you pay your entire balance 

by the due date each month.’’ 

2. No grace period. The issuer may 

use the following language to describe 

that no grace period on any purchases 

is offered, as applicable: ‘‘We will begin 

charging interest on purchases on the 

transaction date.’’ 

3. Grace period on some purchases. If 

the issuer provides a grace period on 

some types of purchases but no grace 

period on others, the issuer may 

combine and revise the language in 

comments 5a(b)(5)–1 and –2 as 

appropriate to describe to which types 

of purchases a grace period applies and 

to which types of purchases no grace 

period is offered. 

5a(b)(6) Balance computation 

method. 

1. Form of disclosure. In cases where 

the card issuer uses a balance 

computation method that is identified 

by name in the regulation, the card 

issuer must disclose below the table 

only the name of the method. In cases 

where the card issuer uses a balance 

computation method that is not 

identified by name in the regulation, the 

disclosure below the table must clearly 

explain the method in as much detail as 

set forth in the descriptions of balance 

methods in § 226.5a(g). The explanation 

need not be as detailed as that required 

for the disclosures under 

§ 226.6(b)(4)(i)(D). (See the commentary 

to § 226.5a(g) for guidance on particular 

methods.) 

2. Determining the method. In 

determining which balance computation 

method to disclose for purchases, the 

card issuer must assume that a purchase 

balance will exist at the end of any grace 

period. Thus, for example, if the average 

daily balance method will include new 

purchases only if purchase balances are 

not paid within the grace period, the 

card issuer would disclose the name of 

the average daily balance method that 

includes new purchases. The card issuer 

must not assume the existence of a 

purchase balance, however, in making 

other disclosures under § 226.5a(b). 

5a(b)(7) Statement on charge card 

payments. 

1. Applicability and content. The 

disclosure that charges are payable upon 

receipt of the periodic statement is 

applicable only to charge card accounts. 

In making this disclosure, the card 

issuer may make such modifications as 

are necessary to more accurately reflect 

the circumstances of repayment under 

the account. For example, the disclosure 

might read, ‘‘Charges are due and 

payable upon receipt of the periodic 

statement and must be paid no later 

than 15 days after receipt of such 

statement.’’ 

5a(b)(8) Cash advance fee. 

1. Content. See Samples G–10(B) and 

G–10(C) for guidance on how to disclose 

clearly and conspicuously the cash 

advance fee. 

2. Foreign cash advances. Cash 

advance fees required to be disclosed 

under § 226.5a(b)(8) include any charge 

imposed by the card issuer for cash 

advances in a foreign currency or that 

take place outside the United States or 

with a foreign merchant. (See comment 

4(a)–4 for guidance on when a foreign 

transaction fee is considered charged by 

the card issuer.) If an issuer charges the 

same foreign transaction fee for 

purchases and cash advances in a 

foreign currency or that take place 

outside the United States or with a 

foreign merchant, the issuer may 

disclose this foreign transaction fee as 

shown in Samples G–10(B) and (C). 

Otherwise, the issuer must revise the 

foreign transaction fee language shown 

in Samples G–10(B) and (C) to disclose 

clearly and conspicuously the amount 

of the foreign transaction fee that 

applies to purchases and the amount of 

the foreign transaction fee that applies 

to cash advances. 

3. ATM fees. An issuer is not required 

to disclose pursuant to § 226.5a(b)(8) 

any charges imposed on a cardholder by 

an institution other than the card issuer 

for the use of the other institution’s 

ATM in a shared or interchange system. 

5a(b)(9) Late payment fee. 

1. Applicability. The disclosure of the 

fee for a late payment includes only 

those fees that will be imposed for 

actual, unanticipated late payments. 

(See the commentary to § 226.4(c)(2) for 

additional guidance on late payment 

fees. See Samples G–10(B) and G–10(C) 

for guidance on how to disclose clearly 

and conspicuously the late payment 

fee.) 

5a(b)(10) Over-the-limit fee. 

1. Applicability. The disclosure of fees 

for exceeding a credit limit does not 

include fees for other types of default or 

for services related to exceeding the 

limit. For example, no disclosure is 

required of fees for reinstating credit 

privileges or fees for the dishonor of 

checks on an account that, if paid, 

would cause the credit limit to be 

exceeded. (See Samples G–10(B) and G– 

10(C) for guidance on how to disclose 

clearly and conspicuously the over-thelimit fee.) 

5a(b)(13) Required insurance, debt 

cancellation, or debt suspension 

coverage. 

1. Content. See Sample G–10(B) for 

guidance on how to comply with the 

requirements in § 226.5a(b)(13). 

5a(b)(14) Available credit. 

1. Calculating available credit. If the 

15 percent threshold test is met, the 

issuer must disclose the available credit 

excluding optional fees, and the 

available credit including optional fees. 

In calculating the available credit to 

disclose in the table, the issuer must 

consider all fees for the issuance or 

availability of credit described in 

§ 226.5a(b)(2), and any security deposit, 

that will be imposed and charged to the 

account when the account is opened, 

such as one-time issuance and set-up 

fees. For example, in calculating the 

available credit, issuers must consider 

the first year’s annual fee and the first 

month’s maintenance fee (as applicable) 


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if they are charged to the account on the 

first billing statement. In calculating the 

amount of the available credit including 

optional fees, if optional fees could be 

charged multiple times, the issuer shall 

assume that the optional fee is only 

imposed once. For example, if an issuer 

charges a fee for each additional card 

issued on the account, the issuer in 

calculating the amount of the available 

credit including optional fees may 

assume that the cardholder requests 

only one additional card. In disclosing 

the available credit, the issuer shall 

round down the available credit amount 

to the nearest whole dollar. 

2. Content. See Sample G–10(C) for 

guidance on how to provide the 

disclosure required by § 226.5a(b)(14) 

clearly and conspicuously. 

5a(b)(15) Web site reference. 

1. Content. See Samples G–10(B) and 

G–10(C) for guidance on disclosing a 

reference to the Web site established by 

the Board and a statement that 

consumers may obtain on the Web site 

information about shopping for and 

using credit card accounts. 

5a(c) Direct mail and electronic 

applications and solicitations. 

1. Mailed publications. Applications 

or solicitations contained in generally 

available publications mailed to 

consumers (such as subscription 

magazines) are subject to the 

requirements applicable to take-ones in 

§ 226.5a(e), rather than the direct mail 

requirements of § 226.5a(c). However, if 

a primary purpose of a card issuer’s 

mailing is to offer credit or charge card 

accounts—for example, where a card 

issuer ‘‘prescreens’’ a list of potential 

cardholders using credit criteria, and 

then mails to the targeted group its 

catalog containing an application or a 

solicitation for a card account—the 

direct mail rules apply. In addition, a 

card issuer may use a single application 

form as a take-one (in racks in public 

locations, for example) and for direct 

mailings, if the card issuer complies 

with the requirements of § 226.5a(c) 

even when the form is used as a takeone—that is, by presenting the required 

§ 226.5a disclosures in a tabular format. 

When used in a direct mailing, the 

credit term disclosures must be accurate 

as of the mailing date whether or not the 

§ 226.5a(e)(1)(ii) and (e)(1)(iii) 

disclosures are included; when used in 

a take-one, the disclosures must be 

accurate for as long as the take-one 

forms remain available to the public if 

the § 226.5a(e)(1)(ii) and (e)(1)(iii) 

disclosures are omitted. (If those 

disclosures are included in the take-one, 

the credit term disclosures need only be 

accurate as of the printing date.) 

5a(d) Telephone applications and 

solicitations. 

1. Coverage. i. This paragraph applies 

if: 

A. A telephone conversation between 

a card issuer and consumer may result 

in the issuance of a card as a 

consequence of an issuer-initiated offer 

to open an account for which the issuer 

does not require any application (that is, 

a prescreened telephone solicitation). 

B. The card issuer initiates the contact 

and at the same time takes application 

information over the telephone. 

ii. This paragraph does not apply to: 

A. Telephone applications initiated 

by the consumer. 

B. Situations where no card will be 

issued—because, for example, the 

consumer indicates that he or she does 

not want the card, or the card issuer 

decides either during the telephone 

conversation or later not to issue the 

card. 

2. Right to reject the plan. The right 

to reject the plan referenced in this 

paragraph is the same as the right to 

reject the plan described in 

§ 226.5(b)(1)(iv). If an issuer substitutes 

the account-opening summary table 

described in § 226.6(b)(1) in lieu of the 

disclosures specified in 

§ 226.5a(d)(2)(ii), the disclosure 

specified in § 226.5a(d)(2)(ii)(B) must 

appear in the table, if the issuer is 

required to do so pursuant to 

§ 226.6(b)(2)(xiii). Otherwise, the 

disclosure specified in 

§ 226.5a(d)(2)(ii)(B) may appear either in 

or outside the table containing the 

required credit disclosures. 

3. Substituting account-opening table 

for alternative written disclosures. An 

issuer may substitute the accountopening summary table described in 

§ 226.6(b)(1) in lieu of the disclosures 

specified in § 226.5a(d)(2)(ii). 

5a(e) Applications and solicitations 

made available to general public. 

1. Coverage. Applications and 

solicitations made available to the 

general public include what are 

commonly referred to as take-one 

applications typically found at counters 

in banks and retail establishments, as 

well as applications contained in 

catalogs, magazines and other generally 

available publications. In the case of 

credit unions, this paragraph applies to 

applications and solicitations to open 

card accounts made available to those in 

the general field of membership. 

2. In-person applications and 

solicitations. In-person applications and 

solicitations initiated by a card issuer 

are subject to § 226.5a(f), not § 226.5a(e). 

(See § 226.5a(f) and accompanying 

commentary for rules relating to inperson applications and solicitations.) 

3. Toll-free telephone number. If a 

card issuer, in complying with any of 

the disclosure options of § 226.5a(e), 

provides a telephone number for 

consumers to call to obtain credit 

information, the number must be tollfree for nonlocal calls made from an 

area code other than the one used in the 

card issuer’s dialing area. Alternatively, 

a card issuer may provide any telephone 

number that allows a consumer to call 

for information and reverse the 

telephone charges. 

5a(e)(1) Disclosure of required credit 

information. 

1. Date of printing. Disclosure of the 

month and year fulfills the requirement 

to disclose the date an application was 

printed. 

2. Form of disclosures. The 

disclosures specified in § 226.5a(e)(1)(ii) 

and (e)(1)(iii) may appear either in or 

outside the table containing the required 

credit disclosures. 

5a(e)(2) No disclosure of credit 

information. 

1. When disclosure option available. 

A card issuer may use this option only 

if the issuer does not include on or with 

the application or solicitation any 

statement that refers to the credit 

disclosures required by § 226.5a(b). 

Statements such as no annual fee, low 

interest rate, favorable rates, and low 

costs are deemed to refer to the required 

credit disclosures and, therefore, may 

not be included on or with the 

solicitation or application, if the card 

issuer chooses to use this option. 

5a(e)(3) Prompt response to requests 

for information. 

1. Prompt disclosure. Information is 

promptly disclosed if it is given within 

30 days of a consumer’s request for 

information but in no event later than 

delivery of the credit or charge card. 

2. Information disclosed. When a 

consumer requests credit information, 

card issuers need not provide all the 

required credit disclosures in all 

instances. For example, if disclosures 

have been provided in accordance with 

§ 226.5a(e)(1) and a consumer calls or 

writes a card issuer to obtain 

information about changes in the 

disclosures, the issuer need only 

provide the items of information that 

have changed from those previously 

disclosed on or with the application or 

solicitation. If a consumer requests 

information about particular items, the 

card issuer need only provide the 

requested information. If, however, the 

card issuer has made disclosures in 

accordance with the option in 

§ 226.5a(e)(2) and a consumer calls or 

writes the card issuer requesting 

information about costs, all the required 

disclosure information must be given. 


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3. Manner of response. A card issuer’s 

response to a consumer’s request for 

credit information may be provided 

orally or in writing, regardless of the 

manner in which the consumer’s 

request is received by the issuer. 

Furthermore, the card issuer must 

provide the information listed in 

§ 226.5a(e)(1). Information provided in 

writing need not be in a tabular format. 

5a(f) In-person applications and 

solicitations. 

1. Coverage. i. This paragraph applies 

if: 

A. An in-person conversation between 

a card issuer and a consumer may result 

in the issuance of a card as a 

consequence of an issuer-initiated offer 

to open an account for which the issuer 

does not require any application (that is, 

a preapproved in-person solicitation). 

B. The card issuer initiates the contact 

and at the same time takes application 

information in person. For example, the 

following are covered: 

1. A consumer applies in person for 

a car loan at a financial institution and 

the loan officer invites the consumer to 

apply for a credit or charge card 

account; the consumer accepts the 

invitation and submits an application. 

2. An employee of a retail 

establishment, in the course of 

processing a sales transaction using a 

bank credit card, asks a customer if he 

or she would like to apply for the 

retailer’s credit or charge card; the 

customer responds affirmatively and 

submits an application. 

ii. This paragraph does not apply to: 

A. In-person applications initiated by 

the consumer. 

B. Situations where no card will be 

issued—because, for example, the 

consumer indicates that he or she does 

not want the card, or the card issuer 

decides during the in-person 

conversation not to issue the card. 

§ 226.5b Requirements for Home-equity 

Plans. 

* * * * * 

5b(a) Form of Disclosure. 

5b(a)(1) General. 

1. Written disclosures. The 

disclosures required under this section 

must be clear and conspicuous and in 

writing, but need not be in a form the 

consumer can keep. (See the 

commentary to § 226.6(a)(3) for special 

rules when disclosures required under 

§ 226.5b(d) are given in a retainable 

form.) 

* * * * * 

5b(f) Limitations on Home-equity 

Plans. 

* * * * * 

Paragraph 5b(f)(3)(vi). 

* * * * * 

4. Reinstatement of credit privileges. 

Creditors are responsible for ensuring 

that credit privileges are restored as 

soon as reasonably possible after the 

condition that permitted the creditor’s 

action ceases to exist. One way a 

creditor can meet this responsibility is 

to monitor the line on an ongoing basis 

to determine when the condition ceases 

to exist. The creditor must investigate 

the condition frequently enough to 

assure itself that the condition 

permitting the freeze continues to exist. 

The frequency with which the creditor 

must investigate to determine whether a 

condition continues to exist depends 

upon the specific condition permitting 

the freeze. As an alternative to such 

monitoring, the creditor may shift the 

duty to the consumer to request 

reinstatement of credit privileges by 

providing a notice in accordance with 

§ 226.9(c)(1)(iii). A creditor may require 

a reinstatement request to be in writing 

if it notifies the consumer of this 

requirement on the notice provided 

under § 226.9(c)(1)(iii). Once the 

consumer requests reinstatement, the 

creditor must promptly investigate to 

determine whether the condition 

allowing the freeze continues to exist. 

Under this alternative, the creditor has 

a duty to investigate only upon the 

consumer’s request. 

* * * * * 

§ 226.6 Account-opening Disclosures. 

6(a) Rules affecting home-equity 

plans. 

(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: 

(1) Finance charge. The circumstances 

under which a finance charge will be 

imposed and an explanation of how it 

will be determined, as follows. 

(i) A statement of when finance 

charges begin to accrue, including an 

explanation of whether or not any time 

period exists within which any credit 

extended may be repaid without 

incurring a finance charge. If such a 

time period is provided, a creditor may, 

at its option and without disclosure, 

impose no finance charge when 

payment is received after the time 

period’s expiration. 

(ii) A disclosure of each periodic rate 

that may be used to compute the finance 

charge, the range of balances to which 

it is applicable,11 and the corresponding 

annual percentage rate.12 If a creditor 

offers a variable-rate plan, the creditor 

shall also disclose: the circumstances 

under which the rate(s) may increase; 

any limitations on the increase; and the 

effect(s) of an increase. When different 

periodic rates apply to different types of 

transactions, the types of transactions to 

which the periodic rates shall apply 

shall also be disclosed. A creditor is not 

required to adjust the range of balances 

disclosure to reflect the balance below 

which only a minimum charge applies. 11 [Reserved] 12 [Reserved] 

(iii) An explanation of the method 

used to determine the balance on which 

the finance charge may be computed. 

(iv) An explanation of how the 

amount of any finance charge will be 

determined,13 including a description of 

how any finance charge other than the 

periodic rate will be determined. 13 [Reserved] 

(2) Other charges. The amount of any 

charge other than a finance charge that 

may be imposed as part of the plan, or 

an explanation of how the charge will 

be determined. 

(3) Home-equity plan information. 

The following disclosures described in 

§ 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. 

(4) Security interests. The fact that the 

creditor has or will acquire a security 

interest in the property purchased under 

the plan, or in other property identified 

by item or type. 

(5) Statement of billing rights. A 

statement that outlines the consumer’s 

rights and the creditor’s responsibilities 


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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. 

6(b) Rules affecting open-end (not 

home-secured) plans. 

6(b)(1) Form of disclosures; tabular 

format for open-end (not home-secured) 

plans. 

1. Relation to tabular summary for 

applications and solicitations. See 

commentary to § 226.5a(a), (b), and (c) 

regarding format and content 

requirements, except for the following: 

i. Creditors must use the accuracy 

standard for annual percentage rates in 

§ 226.6(b)(4)(ii)(G). 

ii. Generally, creditors must disclose 

the specific rate for each feature that 

applies to the account. If the rates on an 

open-end (not home-secured) plan vary 

by State and the creditor is providing 

the account-opening table in person at 

the time the plan is established in 

connection with financing the purchase 

of goods or services the creditor may, at 

its option, disclose in the accountopening table (A) the rate applicable to 

the consumer’s account, or (B) the range 

of rates, if the disclosure includes a 

statement that the rate varies by State 

and refers the consumer to the account 

agreement or other disclosure provided 

with the account-opening table where 

the rate applicable to the consumer’s 

account is disclosed. 

iii. Creditors must explain whether or 

not a grace period exists for all features 

on the account. The row heading 

‘‘Paying Interest’’ must be used if any 

one feature on the account does not 

have a grace period. 

iv. Creditors must name the balance 

computation method used for each 

feature of the account and state that an 

explanation of the balance computation 

method(s) is provided in the accountopening disclosures. 

v. Creditors must state that 

consumers’ billing rights are provided 

in the account-opening disclosures. 

vi. If fees on an open-end (not homesecured) plan vary by State and the 

creditor is providing the accountopening table in person at the time the 

plan is established in connection with 

financing the purchase of goods or 

services the creditor may, at its option, 

disclose in the account-opening table 

(A) the specific fee applicable to the 

consumer’s account, or (B) the range of 

fees, if the disclosure includes a 

statement that the amount of the fee 

varies by State and refers the consumer 

to the account agreement or other 

disclosure provided with the accountopening table where the fee applicable 

to the consumer’s account is disclosed. 

vii. Creditors that must disclose the 

amount of available credit must state the 

initial credit limit provided on the 

account. 

viii. Creditors must disclose directly 

beneath the table the circumstances 

under which an introductory rate may 

be revoked and the rate that will apply 

after the introductory rate is revoked. 

Issuers of credit card accounts under an 

open-end (not home-secured) consumer 

credit plan are subject to limitations on 

the circumstances under which an 

introductory rate may be revoked. (See 

comment 5a(b)(1)–4 for guidance on 

how a card issuer may disclose the 

circumstances under which an 

introductory rate may be revoked.) 

ix. The applicable forms providing 

safe harbors for account-opening tables 

are under appendix G–17 to part 226. 

2. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

§ 226.6 disclosures. 

3. Terminology. Section 226.6(b)(1) 

generally requires that the headings, 

content, and format of the tabular 

disclosures be substantially similar, but 

need not be identical, to the tables in 

appendix G to part 226; but see 

§ 226.5(a)(2) for terminology 

requirements applicable to § 226.6(b). 

6(b)(2) Required disclosures for 

account-opening table for open-end (not 

home-secured) plans. 

6(b)(2)(iii) Fixed finance charge; 

minimum interest charge. 

1. Example of brief statement. See 

Samples G–17(B), G–17(C), and G–17(D) 

for guidance on how to provide a brief 

description of a minimum interest 

charge. 

6(b)(2)(v) Grace period. 

1. Grace period. Creditors must state 

any conditions on the applicability of 

the grace period. A creditor that offers 

a grace period on all types of 

transactions for the account and 

conditions the grace period on the 

consumer paying his or her outstanding 

balance in full by the due date each 

billing cycle, or on the consumer paying 

the outstanding balance in full by the 

due date in the previous and/or the 

current billing cycle(s) will be deemed 

to meet these requirements by providing 

the following disclosure, as applicable: 

‘‘Your due date is [at least] ___ days 

after the close of each billing cycle. We 

will not charge you any interest on your 

account if you pay your entire balance 

by the due date each month.’’ 

2. No grace period. Creditors may use 

the following language to describe that 

no grace period is offered, as applicable: 

‘‘We will begin charging interest on 

[applicable transactions] on the 

transaction date.’’ 

3. Grace period on some features. See 

Samples G–17(B) and G–17(C) for 

guidance on complying with 

§ 226.6(b)(2)(v) when a creditor offers a 

grace period for purchases but no grace 

period on balance transfers and cash 

advances. 

6(b)(2)(vi) Balance computation 

method. 

1. Content. See Samples G–17(B) and 

G–17(C) for guidance on how to disclose 

the balance computation method where 

the same method is used for all features 

on the account. 

6(b)(2)(xiii) Available credit. 

1. Right to reject the plan. Creditors 

may use the following language to 

describe consumers’ right to reject a 

plan after receiving account-opening 

disclosures: ‘‘You may still reject this 

plan, provided that you have not yet 

used the account or paid a fee after 

receiving a billing statement. If you do 

reject the plan, you are not responsible 

for any fees or charges.’’ 

6(b)(3) Disclosure of charges imposed 

as part of open-end (not home-secured) 

plans. 

1. When finance charges accrue. 

Creditors are not required to disclose a 

specific date when a cost that is a 

finance charge under § 226.4 will begin 

to accrue. 

2. Grace periods. In disclosing in the 

account agreement or disclosure 

statement whether or not a grace period 

exists, the creditor need not use any 

particular descriptive phrase or term. 

However, the descriptive phrase or term 

must be sufficiently similar to the 

disclosures provided pursuant to 

§§ 226.5a(b)(5) and 226.6(b)(2)(v) to 

satisfy a creditor’s duty to provide 

consistent terminology under 

§ 226.5(a)(2). 

3. No finance charge imposed below 

certain balance. Creditors are not 

required to disclose the fact that no 

finance charge is imposed when the 

outstanding balance is less than a 

certain amount or the balance below 

which no finance charge will be 

imposed. 

Paragraph 6(b)(3)(ii). 

1. Failure to use the plan as agreed. 

Late payment fees, over-the-limit fees, 

and fees for payments returned unpaid 

are examples of charges resulting from 

consumers’ failure to use the plan as 

agreed. 

2. Examples of fees that affect the 

plan. Examples of charges the payment, 

or nonpayment, of which affects the 

consumer’s account are: 

i. Access to the plan. Fees for using 

the card at the creditor’s ATM to obtain 

a cash advance, fees to obtain additional 

cards including replacements for lost or 

stolen cards, fees to expedite delivery of 


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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(b)(3)(iii)(B). 

1. Fees for package of services. A fee 

to join a credit union is an example of 

a fee for a package of services that is not 

imposed as part of the plan, even if the 

consumer must join the credit union to 

apply for credit. In contrast, a 

membership fee is an example of a fee 

for a package of services that is 

considered to be imposed as part of a 

plan where the primary benefit of 

membership in the organization is the 

opportunity to apply for a credit card, 

and the other benefits offered (such as 

a newsletter or a member information 

hotline) are merely incidental to the 

credit feature. 

6(b)(4) Disclosure of rates for openend (not home-secured) plans. 

Paragraph 6(b)(4)(i)(B). 

1. Range of balances. Creditors are not 

required to disclose the range of 

balances: 

i. If only one periodic interest rate 

may be applied to the entire account 

balance. 

ii. If only one periodic interest rate 

may be applied to the entire balance for 

a feature (for example, cash advances), 

even though the balance for another 

feature (purchases) may be subject to 

two rates (a 1.5% monthly periodic 

interest rate on purchase balances of $0– 

$500, and a 1% periodic interest rate for 

balances above $500). In this example, 

the creditor must give a range of 

balances disclosure for the purchase 

feature. 

Paragraph 6(b)(4)(i)(D). 

1. Explanation of balance 

computation method. Creditors do not 

provide a sufficient explanation of a 

balance computation method by using a 

shorthand phrase such as ‘‘previous 

balance method’’ or the name of a 

balance computation method listed in 

§ 226.5a(g). (See Model Clauses G–1(A) 

in appendix G to part 226. See 

§ 226.6(b)(2)(vi) regarding balance 

computation descriptions in the 

account-opening summary.) 

2. Allocation of payments. Creditors 

may, but need not, explain how 

payments and other credits are allocated 

to outstanding balances. 

6(b)(4)(ii) Variable-rate accounts. 

1. Variable-rate disclosures— 

coverage. 

i. Examples. Examples of open-end 

plans that permit the rate to change and 

are considered variable-rate plans 

include: 

A. Rate changes that are tied to the 

rate the creditor pays on its six-month 

certificates of deposit. 

B. Rate changes that are tied to 

Treasury bill rates. 

C. Rate changes that are tied to 

changes in the creditor’s commercial 

lending rate. 

ii. Examples of open-end plans that 

permit the rate to change and are not 

considered variable-rate include: 

A. Rate changes that are invoked 

under a creditor’s contract reservation to 

increase the rate without reference to 

such an index or formula (for example, 

a plan that simply provides that the 

creditor reserves the right to raise its 

rates). 

B. Rate changes that are triggered by 

a specific event such as an open-end 

credit plan in which the employee 

receives a lower rate contingent upon 

employment, and the rate increases 

upon termination of employment. 

2. Variable-rate plan—circumstances 

for increase. 

i. The following are examples that 

comply with the requirement to disclose 

circumstances under which the rate(s) 

may increase: 

A. ‘‘The Treasury bill rate increases.’’ 

B. ‘‘The Federal Reserve discount rate 

increases.’’ 

ii. Disclosing the frequency with 

which the rate may increase includes 

disclosing when the increase will take 

effect; for example: 

A. ‘‘An increase will take effect on the 

day that the Treasury bill rate 

increases.’’ 

B. ‘‘An increase in the Federal 

Reserve discount rate will take effect on 

the first day of the creditor’s billing 

cycle.’’ 

3. Variable-rate plan—limitations on 

increase. In disclosing any limitations 

on rate increases, limitations such as the 

maximum increase per year or the 

maximum increase over the duration of 

the plan must be disclosed. When there 

are no limitations, the creditor may, but 

need not, disclose that fact. Legal limits 

such as usury or rate ceilings under 

State or Federal statutes or regulations 

need not be disclosed. Examples of 

limitations that must be disclosed 

include: 

i. ‘‘The rate on the plan will not 

exceed 25% annual percentage rate.’’ 

ii. ‘‘Not more than 1⁄2 of 1% increase 

in the annual percentage rate per year 

will occur.’’ 

4. Variable-rate plan—effects of 

increase. Examples of effects of rate 

increases that must be disclosed 

include: 

i. Any requirement for additional 

collateral if the annual percentage rate 

increases beyond a specified rate. 

ii. Any increase in the scheduled 

minimum periodic payment amount. 

5. Discounted variable-rate plans. In 

some variable-rate plans, creditors may 

set an initial interest rate that is not 

determined by the index or formula 

used to make later interest rate 

adjustments. Typically, this initial rate 

is lower than the rate would be if it were 

calculated using the index or formula. 

i. For example, a creditor may 

calculate interest rates according to a 

formula using the six-month Treasury 

bill rate plus a 2 percent margin. If the 

current Treasury bill rate is 10 percent, 

the creditor may forgo the 2 percent 

spread and charge only 10 percent for a 

limited time, instead of setting an initial 

rate of 12 percent, or the creditor may 

disregard the index or formula and set 

the initial rate at 9 percent. 

ii. When creditors disclose in the 

account-opening disclosures an initial 

rate that is not calculated using the 

index or formula for later rate 

adjustments, the disclosure should 

reflect: 

A. The initial rate (expressed as a 

periodic rate and a corresponding 

annual percentage rate), together with a 

statement of how long the initial rate 

will remain in effect; 

B. The current rate that would have 

been applied using the index or formula 

(also expressed as a periodic rate and a 

corresponding annual percentage rate); 

and 

C. The other variable-rate information 

required by § 226.6(b)(4)(ii). 

6(b)(4)(iii) Rate changes not due to 

index or formula. 

1. Events that cause the initial rate to 

change. 

i. Changes based on expiration of time 

period. If the initial rate will change at 

the expiration of a time period, creditors 

that disclose the initial rate in the 

account-opening disclosure must 

identify the expiration date and the fact 

that the initial rate will end at that time. 

ii. Changes based on specified 

contract terms. If the account agreement 

provides that the creditor may change 

the initial rate upon the occurrence of 

specified event or events, the creditor 

must identify the events or events. 

Examples include the consumer not 

making the required minimum payment 

when due, or the termination of an 


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employee preferred rate when the 

employment relationship is terminated. 

2. Rate that will apply after initial rate 

changes. 

i. Increased margins. If the initial rate 

is based on an index and the rate may 

increase due to a change in the margin 

applied to the index, the creditor must 

disclose the increased margin. If more 

than one margin could apply, the 

creditor may disclose the highest 

margin. 

ii. Risk-based pricing. In some plans, 

the amount of the rate change depends 

on how the creditor weighs the 

occurrence of events specified in the 

account agreement that authorize the 

creditor to change rates, as well as other 

factors. Creditors must state the 

increased rate that may apply. At the 

creditor’s option, the creditor may state 

the possible rates as a range, or by 

stating only the highest rate that could 

be assessed. The creditor must disclose 

the period for which the increased rate 

will remain in effect, such as ‘‘until you 

make three timely payments,’’ or if there 

is no limitation, the fact that the 

increased rate may remain indefinitely. 

3. Effect of rate change on balances. 

Creditors must disclose information to 

consumers about the balance to which 

the new rate will apply and the balance 

to which the current rate at the time of 

the change will apply. Card issuers 

subject to § 226.55 may be subject to 

certain restrictions on the application of 

increased rates to certain balances. 

6(b)(5) Additional disclosures for 

open-end (not home-secured) plans. 

6(b)(5)(i) Voluntary credit insurance, 

debt cancellation or debt suspension. 

1. Timing. Under § 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(b)(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. 

6(b)(5)(ii) Security interests. 

1. General. Creditors are not required 

to use specific terms to describe a 

security interest, or to explain the type 

of security or the creditor’s rights with 

respect to the collateral. 

2. Identification of property. Creditors 

sufficiently identify collateral by type 

by stating, for example, motor vehicle or 

household appliances. (Creditors should 

be aware, however, that the Federal 

credit practices rules, as well as some 

State laws, prohibit certain security 

interests in household goods.) The 

creditor may, at its option, provide a 

more specific identification (for 

example, a model and serial number.) 

3. Spreader clause. If collateral for 

preexisting credit with the creditor will 

secure the plan being opened, the 

creditor must disclose that fact. (Such 

security interests may be known as 

‘‘spreader’’ or ‘‘dragnet’’ clauses, or as 

‘‘cross-collateralization’’ clauses.) The 

creditor need not specifically identify 

the collateral; a reminder such as 

‘‘collateral securing other loans with us 

may also secure this loan’’ is sufficient. 

At the creditor’s option, a more specific 

description of the property involved 

may be given. 

4. Additional collateral. If collateral is 

required when advances reach a certain 

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(b)(5)(ii)–2.) 

5. Collateral from third party. Security 

interests taken in connection with the 

plan must be disclosed, whether the 

collateral is owned by the consumer or 

a third party. 

6(b)(5)(iii) Statement of billing rights. 

1. See the commentary to Model 

Forms G–3(A) and G–4(A). 

§ 226.7 Periodic Statement. 

1. Multifeatured plans. Some plans 

involve a number of different features, 

such as purchases, cash advances, or 

overdraft checking. Groups of 

transactions subject to different finance 

charge terms because of the dates on 

which the transactions took place are 

treated like different features for 

purposes of disclosures on the periodic 

statements. The commentary includes 

additional guidance for multifeatured 

plans. 

7(a) Rules affecting home-equity 

plans. 

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 does not result in any 

finance or other charge. 

(4) Periodic rates. (i) Except as 

provided in paragraph (a)(4)(ii) of this 

section, each periodic rate that may be 

used to compute the finance charge, the 

range of balances to which it is 

applicable,14 and the corresponding 

annual percentage rate.15 If no finance 

charge is imposed when the outstanding 

balance is less than a certain amount, 

the creditor is not required to disclose 

that fact, or the balance below which no 

finance charge will be imposed. If 

different periodic rates apply to 

different types of transactions, the types 

of transactions to which the periodic 

rates apply shall also be disclosed. For 

variable-rate plans, the fact that the 

periodic rate(s) may vary. 14 [Reserved] 15 [Reserved] 

(ii) Exception. An annual percentage 

rate that differs from the rate that would 

otherwise apply and is offered only for 

a promotional period need not be 

disclosed except in periods in which the 

offered rate is actually applied. 

(5) Balance on which finance charge 

computed. The amount of the balance to 

which a periodic rate was applied and 

an explanation of how that balance was 

determined. When a balance is 

determined without first deducting all 

credits and payments made during the 

billing cycle, the fact and the amount of 

the credits and payments shall be 

disclosed. 

(6) Amount of finance charge and 

other charges. Creditors may comply 

with paragraphs (a)(6) of this section, or 

with paragraph (b)(6) of this section, at 

their option. 

(i) Finance charges. The amount of 

any finance charge debited or added to 

the account during the billing cycle, 

using the term finance charge. The 

components of the finance charge shall 

be individually itemized and identified 

to show the amount(s) due to the 

application of any periodic rates and the 

amounts(s) of any other type of finance 


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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 

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(b) Rules affecting open-end (not 

home-secured) plans. 

1. Deferred interest or similar 

transactions. Creditors offer a variety of 

payment plans for purchases that permit 

consumers to avoid interest charges if 

the purchase balance is paid in full by 

a certain date. The following provides 

guidance for a deferred interest or 

similar plan where, for example, no 

interest charge is imposed on a $500 

purchase made in January if the $500 

balance is paid by March 31. 

i. Annual percentage rates. Under 

§ 226.7(b)(4), creditors must disclose 

each annual percentage rate that may be 

used to compute the interest charge. 

Under some plans with a deferred 

interest or similar feature, if the deferred 

interest balance is not paid by a certain 

date, March 31 in this example, interest 

charges applicable to the billing cycles 

between the date of purchase in January 

and March 31 may be imposed. Annual 

percentage rates that may apply to the 

deferred interest balance ($500 in this 

example) if the balance is not paid in 

full by March 31 must appear on 

periodic statements for the billing cycles 

between the date of purchase and March 

31. However, if the consumer does not 

pay the deferred interest balance by 

March 31, the creditor is not required to 

identify, on the periodic statement 

disclosing the interest charge for the 

deferred interest balance, annual 

percentage rates that have been 

disclosed in previous billing cycles 

between the date of purchase and March 

31. 

ii. Balances subject to periodic rates. 

Under § 226.7(b)(5), creditors must 

disclose the balances subject to interest 

during a billing cycle. The deferred 

interest balance ($500 in this example) 

is not subject to interest for billing 

cycles between the date of purchase and 

March 31 in this example. Periodic 

statements sent for those billing cycles 

should not include the deferred interest 

balance in the balance disclosed under 

§ 226.7(b)(5). This amount must be 

separately disclosed on periodic 

statements and identified by a term 

other than the term used to identify the 

balance disclosed under § 226.7(b)(5) 

(such as ‘‘deferred interest balance’’). 

During any billing cycle in which an 

interest charge on the deferred interest 

balance is debited to the account, the 

balance disclosed under § 226.7(b)(5) 

should include the deferred interest 

balance for that billing cycle. 

iii. Amount of interest charge. Under 

§ 226.7(b)(6)(ii), creditors must disclose 

interest charges imposed during a 

billing cycle. For some deferred interest 

purchases, the creditor may impose 

interest from the date of purchase if the 

deferred interest balance ($500 in this 

example) is not paid in full by March 31 

in this example, but otherwise will not 

impose interest for billing cycles 

between the date of purchase and March 

31. Periodic statements for billing cycles 

preceding March 31 in this example 

should not include in the interest charge 

disclosed under § 226.7(b)(6)(ii) the 

amounts a consumer may owe if the 

deferred interest balance is not paid in 

full by March 31. In this example, the 

February periodic statement should not 

identify as interest charges interest 

attributable to the $500 January 

purchase. This amount must be 

separately disclosed on periodic 

statements and identified by a term 

other than ‘‘interest charge’’ (such as 

‘‘contingent interest charge’’ or 

‘‘deferred interest charge’’). The interest 

charge on a deferred interest balance 

should be reflected on the periodic 

statement under § 226.7(b)(6)(ii) for the 

billing cycle in which the interest 

charge is debited to the account. 

iv. Due date to avoid obligation for 

finance charges under a deferred 

interest or similar program. Section 

226.7(b)(14) requires disclosure on 

periodic statements of the date by which 

any outstanding balance subject to a 

deferred interest or similar program 

must be paid in full in order to avoid 

the obligation for finance charges on 

such balance. This disclosure must 

appear on the front of the periodic 

statement for two billing cycles 

immediately preceding the billing cycle 

in which the disclosed date occurs. 

However, if the duration of the deferred 

interest period is such that the reminder 

cannot be given for the last two billing 

cycles immediately preceding the 

disclosed date, the disclosure must be 

included on all periodic statements 

during the deferred interest period. 

Assuming monthly billing cycles ending 

at month-end and a payment due date 

of the 25th of the following month for 

balances not subject to the deferred 

interest program, the following 

examples illustrate how a creditor may 

comply with the requirement in 

§ 226.7(b)(14) to disclose the date by 

which payment in full of balances 

subject to the deferred interest program 

must occur in order to avoid the 

obligation to pay finance charges 

applicable to a deferred interest balance 

($500 in this example): 

A. If the creditor identifies March 31 

as the payment-due date for the $500 

purchase, the creditor must include the 

$500 purchase and its due date on the 

periodic statement reflecting activity for 

January sent on February 1, and the 

periodic statement reflecting activity for 

February sent on March 1. (For the 

periodic statement reflecting account 

activity for February sent on March 1, 

the creditor could also identify March 

31 as the payment-due date for any 

other amounts that would normally be 

due on March 25.) 

B. If the creditor opts to delay the end 

of the deferred interest period to 

coincide with the end of the grace 

period for balances not subject to the 

deferred interest program by permitting 

the consumer to avoid finance charges 

if the $500 is paid in full by April 25, 

the creditor must include the $500 

purchase and its due date on the 

periodic statement reflecting activity for 

February sent on March 1, and the 

periodic statement reflecting activity for 

March sent on April 1. The creditor 

could also include the $500 purchase 

and its due date on the periodic 

statement reflecting activity for January 

sent on February 1. 

C. If the purchase was made in 

December (instead of January), the 

creditor must include the $500 purchase 

and its due date on the periodic 

statement reflecting activity for January 

sent on February 1 and the periodic 

statement reflecting activity for 

February sent on March 1. The creditor 

also could include the $500 purchase 

and its due date on the periodic 

statement reflecting activity for 

December sent on January 1. 


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D. If the due date for the deferred 

interest balance is February 20 (instead 

of March 31), the creditor must include 

the $500 purchase and its due date on 

the periodic statement reflecting activity 

for January and sent on February 1. 

7(b)(1) Previous balance. 

1. Credit balances. If the previous 

balance is a credit balance, it must be 

disclosed in such a way so as to inform 

the consumer that it is a credit balance, 

rather than a debit balance. 

2. Multifeatured plans. In a 

multifeatured plan, the previous balance 

may be disclosed either as an aggregate 

balance for the account or as separate 

balances for each feature (for example, 

a previous balance for purchases and a 

previous balance for cash advances). If 

separate balances are disclosed, a total 

previous balance is optional. 

3. Accrued finance charges allocated 

from payments. Some open-end credit 

plans provide that the amount of the 

finance charge that has accrued since 

the consumer’s last payment is directly 

deducted from each new payment, 

rather than being separately added to 

each statement and reflected as an 

increase in the obligation. In such a 

plan, the previous balance need not 

reflect finance charges accrued since the 

last payment. 

7(b)(2) Identification of transactions. 

1. Multifeatured plans. Creditors may, 

but are not required to, arrange 

transactions by feature (such as 

disclosing purchase transactions 

separately from cash advance 

transactions). Pursuant to § 226.7(b)(6), 

however, creditors must group all fees 

and all interest separately from 

transactions and may not disclose any 

fees or interest charges with 

transactions. 

2. Automated teller machine (ATM) 

charges imposed by other institutions in 

shared or interchange systems. A charge 

imposed on the cardholder by an 

institution other than the card issuer for 

the use of the other institution’s ATM in 

a shared or interchange system and 

included by the terminal-operating 

institution in the amount of the 

transaction need not be separately 

disclosed on the periodic statement. 

7(b)(3) Credits. 

1. Identification—sufficiency. The 

creditor need not describe each credit 

by type (returned merchandise, rebate of 

finance charge, etc.)—‘‘credit’’ would 

suffice—except if the creditor is using 

the periodic statement to satisfy the 

billing-error correction notice 

requirement. (See the commentary to 

§ 226.13(e) and (f).) Credits may be 

distinguished from transactions in any 

way that is clear and conspicuous, for 

example, by use of debit and credit 

columns or by use of plus signs and/or 

minus signs. 

2. Date. If only one date is disclosed 

(that is, the crediting date as required by 

the regulation), no further identification 

of that date is necessary. More than one 

date may be disclosed for a single entry, 

as long as it is clear which date 

represents the date on which credit was 

given. 

3. Totals. A total of amounts credited 

during the billing cycle is not required. 

7(b)(4) Periodic rates. 

1. Disclosure of periodic interest 

rates—whether or not actually applied. 

Except as provided in § 226.7(b)(4)(ii), 

any periodic interest rate that may be 

used to compute finance charges, 

expressed as and labeled ‘‘Annual 

Percentage Rate,’’ must be disclosed 

whether or not it is applied during the 

billing cycle. For example: 

i. If the consumer’s account has both 

a purchase feature and a cash advance 

feature, the creditor must disclose the 

annual percentage rate for each, even if 

the consumer only makes purchases on 

the account during the billing cycle. 

ii. If the annual percentage rate varies 

(such as when it is tied to a particular 

index), the creditor must disclose each 

annual percentage rate in effect during 

the cycle for which the statement was 

issued. 

2. Disclosure of periodic interest rates 

required only if imposition possible. 

With regard to the periodic interest rate 

disclosure (and its corresponding 

annual percentage rate), only rates that 

could have been imposed during the 

billing cycle reflected on the periodic 

statement need to be disclosed. For 

example: 

i. If the creditor is changing annual 

percentage rates effective during the 

next billing cycle (either because it is 

changing terms or because of a variablerate plan), the annual percentage rates 

required to be disclosed under 

§ 226.7(b)(4) are only those in effect 

during the billing cycle reflected on the 

periodic statement. For example, if the 

annual percentage rate applied during 

May was 18%, but the creditor will 

increase the rate to 21% effective June 

1, 18% is the only required disclosure 

under § 226.7(b)(4) for the periodic 

statement reflecting the May account 

activity. 

ii. If the consumer has an overdraft 

line that might later be expanded upon 

the consumer’s request to include 

secured advances, the rates for the 

secured advance feature need not be 

given until such time as the consumer 

has requested and received access to the 

additional feature. 

iii. If annual percentage rates 

applicable to a particular type of 

transaction changed after a certain date 

and the old rate is only being applied to 

transactions that took place prior to that 

date, the creditor need not continue to 

disclose the old rate for those 

consumers that have no outstanding 

balances to which that rate could be 

applied. 

3. Multiple rates—same transaction. If 

two or more periodic rates are applied 

to the same balance for the same type 

of transaction (for example, if the 

interest charge consists of a monthly 

periodic interest rate of 1.5% applied to 

the outstanding balance and a required 

credit life insurance component 

calculated at 0.1% per month on the 

same outstanding balance), creditors 

must disclose the interest periodic 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(b)(6)(iii). 

4. Fees. Creditors that identify fees in 

accordance with § 226.7(b)(6)(iii) need 

not identify the periodic rate at which 

a fee would accrue if the fee remains 

unpaid. For example, assume a fee is 

imposed for a late payment in the 

previous cycle and that the fee, unpaid, 

would be included in the purchases 

balance and accrue interest at the rate 

for purchases. The creditor need not 

separately disclose that the purchase 

rate applies to the portion of the 

purchases balance attributable to the 

unpaid fee. 

5. Ranges of balances. See comment 

6(b)(4)(i)(B)–1. A creditor is not required 

to adjust the range of balances 

disclosure to reflect the balance below 

which only a minimum charge applies. 

6. Deferred interest transactions. See 

comment 7(b)–1.iv. 

7(b)(5) Balance on which finance 

charge computed. 

1. Split rates applied to balance 

ranges. If split rates were applied to a 

balance because different portions of the 

balance fall within two or more balance 

ranges, the creditor need not separately 

disclose the portions of the balance 

subject to such different rates since the 

range of balances to which the rates 

apply has been separately disclosed. For 

example, a creditor could disclose a 

balance of $700 for purchases even 

though a monthly periodic rate of 1.5% 

applied to the first $500, and a monthly 

periodic rate of 1% to the remainder. 

This option to disclose a combined 

balance does not apply when the 

interest charge is computed by applying 

the split rates to each day’s balance (in 

contrast, for example, to applying the 

rates to the average daily balance). In 

that case, the balances must be 


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disclosed using any of the options that 

are available if two or more daily rates 

are imposed. (See comment 7(b)(5)–4.) 

2. Monthly rate on average daily 

balance. Creditors may apply a monthly 

periodic rate to an average daily 

balance. 

3. Multifeatured plans. In a 

multifeatured plan, the creditor must 

disclose a separate balance (or balances, 

as applicable) to which a periodic rate 

was applied for each feature. Separate 

balances are not required, however, 

merely because a grace period is 

available for some features but not 

others. A total balance for the entire 

plan is optional. This does not affect 

how many balances the creditor must 

disclose—or may disclose—within each 

feature. (See, for example, comments 

7(b)(5)–4 and 7(b)(4)–5.) 

4. Daily rate on daily balance. i. If a 

finance charge is computed on the 

balance each day by application of one 

or more daily periodic interest rates, the 

balance on which the interest charge 

was computed may be disclosed in any 

of the following ways for each feature: 

ii. If a single daily periodic interest 

rate is imposed, the balance to which it 

is applicable may be stated as: 

A. A balance for each day in the 

billing cycle. 

B. A balance for each day in the 

billing cycle on which the balance in 

the account changes. 

C. The sum of the daily balances 

during the billing cycle. 

D. The average daily balance during 

the billing cycle, in which case the 

creditor may, at its option, explain that 

the average daily balance is or can be 

multiplied by the number of days in the 

billing cycle and the periodic rate 

applied to the product to determine the 

amount of interest. 

iii. If two or more daily periodic 

interest rates may be imposed, the 

balances to which the rates are 

applicable may be stated as: 

A. A balance for each day in the 

billing cycle. 

B. A balance for each day in the 

billing cycle on which the balance in 

the account changes. 

C. Two or more average daily 

balances, each applicable to the daily 

periodic interest rates imposed for the 

time that those rates were in effect. The 

creditor may, at its option, explain that 

interest is or may be determined by (1) 

multiplying each of the average balances 

by the number of days in the billing 

cycle (or if the daily rate varied during 

the cycle, by multiplying by the number 

of days the applicable rate was in 

effect), (2) multiplying each of the 

results by the applicable daily periodic 

rate, and (3) adding these products 

together. 

5. Information to compute balance. In 

connection with disclosing the interest 

charge balance, the creditor need not 

give the consumer all of the information 

necessary to compute the balance if that 

information is not otherwise required to 

be disclosed. For example, if current 

purchases are included from the date 

they are posted to the account, the 

posting date need not be disclosed. 

6. Non-deduction of credits. The 

creditor need not specifically identify 

the total dollar amount of credits not 

deducted in computing the finance 

charge balance. Disclosure of the 

amount of credits not deducted is 

accomplished by listing the credits 

(§ 226.7(b)(3)) and indicating which 

credits will not be deducted in 

determining the balance (for example, 

‘‘credits after the 15th of the month are 

not deducted in computing the interest 

charge.’’). 

7. Use of one balance computation 

method explanation when multiple 

balances disclosed. Sometimes the 

creditor will disclose more than one 

balance to which a periodic rate was 

applied, even though each balance was 

computed using the same balance 

computation method. For example, if a 

plan involves purchases and cash 

advances that are subject to different 

rates, more than one balance must be 

disclosed, even though the same 

computation method is used for 

determining the balance for each 

feature. In these cases, one explanation 

or a single identification of the name of 

the balance computation method is 

sufficient. Sometimes the creditor 

separately discloses the portions of the 

balance that are subject to different rates 

because different portions of the balance 

fall within two or more balance ranges, 

even when a combined balance 

disclosure would be permitted under 

comment 7(b)(5)–1. In these cases, one 

explanation or a single identification of 

the name of the balance computation 

method is also sufficient (assuming, of 

course, that all portions of the balance 

were computed using the same method). 

8. Deferred interest transactions. See 

comment 7(b)–1.iv. 

7(b)(6) Charges imposed. 

1. Examples of charges. See 

commentary to § 226.6(b)(3). 

2. Fees. Costs attributable to periodic 

rates other than interest charges shall be 

disclosed as a fee. For example, if a 

consumer obtains credit life insurance 

that is calculated at 0.1% per month on 

an outstanding balance and a monthly 

interest rate of 1.5% applies to the same 

balance, the creditor must disclose the 

dollar cost attributable to interest as an 

‘‘interest charge’’ and the credit 

insurance cost as a ‘‘fee.’’ 

3. Total fees for calendar year to date. 

i. Monthly statements. Some creditors 

send monthly statements but the 

statement periods do not coincide with 

the calendar month. For creditors 

sending monthly statements, the 

following comply with the requirement 

to provide calendar year-to-date totals. 

A. A creditor may disclose a 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 


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imposed during a previous period were 

waived or reversed and credited to the 

account. Creditors may, but are not 

required to, reflect the adjustment in the 

year-to-date totals, nor, if an adjustment 

is made, to provide an explanation 

about the reason for the adjustment. 

Such adjustments should not affect the 

total fees or interest charges imposed for 

the current statement period. 

6. Acquired accounts. An institution 

that acquires an account or plan must 

include, as applicable, fees and charges 

imposed on the account or plan prior to 

the acquisition in the aggregate 

disclosures provided under § 226.7(b)(6) 

for the acquired account or plan. 

Alternatively, the institution may 

provide separate totals reflecting 

activity prior and subsequent to the 

account or plan acquisition. For 

example, a creditor that acquires an 

account or plan on August 12 of a given 

calendar year may provide one total for 

the period from January 1 to August 11 

and a separate total for the period 

beginning on August 12 . 

7. Account upgrades. A creditor that 

upgrades, or otherwise changes, a 

consumer’s plan to a different open-end 

credit plan must include, as applicable, 

fees and charges imposed for that 

portion of the calendar year prior to the 

upgrade or change in the consumer’s 

plan in the aggregate disclosures 

provided pursuant to § 226.7(b)(6) for 

the new plan. For example, assume a 

consumer has incurred $125 in fees for 

the calendar year to date for a retail 

credit card account, which is then 

replaced by a cobranded credit card 

account also issued by the creditor. In 

this case, the creditor must reflect the 

$125 in fees incurred prior to the 

replacement of the retail credit card 

account in the calendar year-to-date 

totals provided for the cobranded credit 

card account. Alternatively, the 

institution may provide two separate 

totals reflecting activity prior and 

subsequent to the plan upgrade or 

change. 

7(b)(7) Change-in-terms and increased 

penalty rate summary for open-end (not 

home-secured) plans. 

1. Location of summary tables. If a 

change-in-terms notice required by 

§ 226.9(c)(2) is provided on or with a 

periodic statement, a tabular summary 

of key changes must appear on the front 

of the statement. Similarly, if a notice of 

a rate increase due to delinquency or 

default or as a penalty required by 

§ 226.9(g)(1) is provided on or with a 

periodic statement, information 

required to be provided about the 

increase, presented in a table, must 

appear on the front of the statement. 

7(b)(8) Grace period. 

1. Terminology. In describing the 

grace period, the language used must be 

consistent with that used on the 

account-opening disclosure statement. 

(See § 226.5(a)(2)(i).) 

2. Deferred interest transactions. See 

comment 7(b)–1.iv. 

7(b)(9) Address for notice of billing 

errors. 

1. Terminology. The periodic 

statement should indicate the general 

purpose for the address for billing-error 

inquiries, although a detailed 

explanation or particular wording is not 

required. 

2. Telephone number. A telephone 

number, e-mail address, or Web site 

location may be included, but the 

mailing address for billing-error 

inquiries, which is the required 

disclosure, must be clear and 

conspicuous. The address is deemed to 

be clear and conspicuous if a 

precautionary instruction is included 

that telephoning or notifying the 

creditor by e-mail or Web site will not 

preserve the consumer’s billing rights, 

unless the creditor has agreed to treat 

billing error notices provided by 

electronic means as written notices, in 

which case the precautionary 

instruction is required only for 

telephoning. 

7(b)(10) Closing date of billing cycle; 

new balance. 

1. Credit balances. See comment 

7(b)(1)–1. 

2. Multifeatured plans. In a 

multifeatured plan, the new balance 

may be disclosed for each feature or for 

the plan as a whole. If separate new 

balances are disclosed, a total new 

balance is optional. 

3. Accrued finance charges allocated 

from payments. Some plans provide that 

the amount of the finance charge that 

has accrued since the consumer’s last 

payment is directly deducted from each 

new payment, rather than being 

separately added to each statement and 

therefore reflected as an increase in the 

obligation. In such a plan, the new 

balance need not reflect finance charges 

accrued since the last payment. 

7(b)(11) Due date; late payment costs. 

1. Informal periods affecting late 

payments. Although the terms of the 

account agreement may provide that a 

card issuer may assess a late payment 

fee if a payment is not received by a 

certain date, the card issuer may have 

an informal policy or practice that 

delays the assessment of the late 

payment fee for payments received a 

brief period of time after the date upon 

which a card issuer has the contractual 

right to impose the fee. A card issuer 

must disclose the due date according to 

the legal obligation between the parties, 

and need not consider the end of an 

informal ‘‘courtesy period’’ as the due 

date under § 226.7(b)(11). 

2. Assessment of late payment fees. 

Some State or other laws require that a 

certain number of days must elapse 

following a due date before a late 

payment fee may be imposed. In 

addition, a card issuer may be restricted 

by the terms of the account agreement 

from imposing a late payment fee until 

a payment is late for a certain number 

of days following a due date. For 

example, assume a payment is due on 

March 10 and the account agreement or 

State law provides that a late payment 

fee cannot be assessed before March 21. 

A card issuer must disclose the due date 

under the terms of the legal obligation 

(March 10 in this example), and not a 

date different than the due date, such as 

when the card issuer is restricted by the 

account agreement or State or other law 

from imposing a late payment fee unless 

a payment is late for a certain number 

of days following the due date (March 

21 in this example). Consumers’ rights 

under State law to avoid the imposition 

of late payment fees during a specified 

period following a due date are 

unaffected by the disclosure 

requirement. In this example, the card 

issuer would disclose March 10 as the 

due date for purposes of § 226.7(b)(11), 

but could not, under State law, assess a 

late payment fee before March 21. 

3. Fee or rate triggered by multiple 

events. If a late payment fee or penalty 

rate is triggered after multiple events, 

such as two late payments in six 

months, the card issuer may, but is not 

required to, disclose the late payment 

and penalty rate disclosure each month. 

The disclosures must be included on 

any periodic statement for which a late 

payment could trigger the late payment 

fee or penalty rate, such as after the 

consumer made one late payment in this 

example. For example, if a cardholder 

has already made one late payment, the 

disclosure must be on each statement 

for the following five billing cycles. 

4. Range of late fees or penalty rates. 

A card issuer that imposes a range of 

late payment fees or rates on a credit 

card account under an open-end (not 

home-secured) consumer credit plan 

may state the highest fee or rate along 

with an indication lower fees or rates 

could be imposed. For example, a 

phrase indicating the late payment fee 

could be ‘‘up to $29’’ complies with this 

requirement. 

5. Penalty rate in effect. If the highest 

penalty rate has previously been 

triggered on an account, the card issuer 

may, but is not required to, delete the 

amount of the penalty rate and the 

warning that the rate may be imposed 


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for an untimely payment, as not 

applicable. Alternatively, the card issuer 

may, but is not required to, modify the 

language to indicate that the penalty 

rate has been increased due to previous 

late payments (if applicable). 

6. Same day each month. The 

requirement that the due date be the 

same day each month means that the 

due date must be the same numerical 

date. For example, a consumer’s due 

date could be the 25th of every month. 

In contrast, a due date that is the same 

relative date but not numerical date 

each month, such as the third Tuesday 

of the month, would not comply with 

this requirement. 

7. Change in due date. A creditor may 

adjust a consumer’s due date from time 

to time provided that the new due date 

will be the same numerical date each 

month on an ongoing basis. For 

example, a creditor may choose to honor 

a consumer’s request to change from a 

due date that is the 20th of each month 

to the 5th of each month, or may choose 

to change a consumer’s due date from 

time to time for operational reasons. See 

comment 2(a)(4)–3 for guidance on 

transitional billing cycles. 

8. Billing cycles longer than one 

month. The requirement that the due 

date be the same day each month does 

not prohibit billing cycles that are two 

or three months, provided that the due 

date for each billing cycle is on the same 

numerical date of the month. For 

example, a creditor that establishes twomonth billing cycles could send a 

consumer periodic statements 

disclosing due dates of January 25, 

March 25, and May 25. 

9. Payment due date when the 

creditor does not accept or receive 

payments by mail. If due date in a given 

month falls on a day on which the 

creditor does not receive or accept 

payments by mail and the creditor is 

required to treat a payment received the 

next business day as timely pursuant to 

§ 226.10(d), the creditor must disclose 

the due date according to the legal 

obligation between the parties, not the 

date as of which the creditor is 

permitted to treat the payment as late. 

For example, assume that the 

consumer’s due date is the 4th of every 

month and the creditor does not accept 

or receive payments by mail on 

Thursday, July 4. Pursuant to 

§ 226.10(d), the creditor may not treat a 

mailed payment received on the 

following business day, Friday, July 5, 

as late for any purpose. The creditor 

must nonetheless disclose July 4 as the 

due date on the periodic statement and 

may not disclose a July 5 due date. 

7(b)(12) Repayment disclosures. 

7(b)(12)(iv) Provision of information 

about credit counseling services. 

1. Approved credit counseling 

agencies. Section 226.7(b)(12)(iv)(A) 

requires card issuers to provide 

information regarding at least three 

organizations that have been approved 

by the United States Trustee or a 

bankruptcy administrator pursuant to 11 

U.S.C. 111(a)(1) to provide credit 

counseling services in the state in which 

the billing address for the account is 

located or the State specified by the 

consumer. The card issuer may use the 

billing address for the account or, at its 

option, allow the consumer to specify 

the State. A card issuer does not satisfy 

the requirements in § 226.7(b)(12)(iv)(A) 

by providing information regarding 

providers that have been approved 

pursuant to 11 U.S.C. 111(a)(2) to offer 

personal financial management courses. 

2. Information provided by United 

States Trustee or a bankruptcy 

administrator. A card issuer complies 

with the requirements of 

§ 226.7(b)(12)(iv) if it provides the 

consumer with information obtained 

from the United States Trustee or a 

bankruptcy administrator, including 

information obtained from the Web site 

operated by the United States Trustee. 

If, for example, the Web site address for 

an organization approved by the United 

States Trustee is not available from the 

Web site operated by the United States 

Trustee, a card issuer is not required to 

provide a Web site address for that 

organization. However, at least 

annually, the card issuer must verify 

and update the information it provides 

for consistency with the information 

provided by the United States Trustee or 

a bankruptcy administrator. 

3. Automated response systems or 

devices. At their option, card issuers 

may use toll-free telephone numbers 

that connect consumers to automated 

systems, such as an interactive voice 

response system, through which 

consumers may obtain the information 

required by § 226.7(b)(12)(iv) by 

inputting information using a touchtone telephone or similar device. 

4. Toll-free telephone number. A card 

issuer may provide a toll-free telephone 

number that is designed to handle 

customer service calls generally, so long 

as the option to receive the information 

required by § 226.7(b)(12)(iv) is 

prominently disclosed to the consumer. 

For automated systems, the option to 

receive the information required by 

§ 226.7(b)(12)(iv) is prominently 

disclosed to the consumer if it is listed 

as one of the options in the first menu 

of options given to the consumer, such 

as ‘‘Press or say ‘3’ if you would like 

information about credit counseling 

services.’’ If the automated system 

permits callers to select the language in 

which the call is conducted and in 

which information is provided, the 

menu to select the language may 

precede the menu with the option to 

receive information about accessing 

credit counseling services. 

5. Third parties. At their option, card 

issuers may use a third party to 

establish and maintain a toll-free 

telephone number for use by the issuer 

to provide the information required by 

§ 226.7(b)(12)(iv). 

6. Web site address. When making the 

repayment disclosures on the periodic 

statement pursuant to § 226.7(b)(12), a 

card issuer at its option may also 

include a reference to a Web site 

address (in addition to the toll-free 

telephone number) where its customers 

may obtain the information required by 

§ 226.7(b)(12)(iv), so long as the 

information provided on the Web site 

complies with § 226.7(b)(12)(iv). The 

Web site address disclosed must take 

consumers directly to the Web page 

where information about accessing 

credit counseling may be obtained. In 

the alternative, the card issuer may 

disclose the Web site address for the 

Web page operated by the United States 

Trustee where consumers may obtain 

information about approved credit 

counseling organizations. 

7. Advertising or marketing 

information. If a consumer requests 

information about credit counseling 

services, the card issuer may not 

provide advertisements or marketing 

materials to the consumer (except for 

providing the name of the issuer) prior 

to providing the information required by 

§ 226.7(b)(12)(iv). Educational materials 

that do not solicit business are not 

considered advertisements or marketing 

materials for this purpose. Examples: 

i. Toll-free telephone number. As 

described in comment 7(b)(12)(iv)–4, an 

issuer may provide a toll-free telephone 

number that is designed to handle 

customer service calls generally, so long 

as the option to receive the information 

required by § 226.7(b)(12)(iv) through 

that toll-free telephone number is 

prominently disclosed to the consumer. 

Once the consumer selects the option to 

receive the information required by 

§ 226.7(b)(12)(iv), the issuer may not 

provide advertisements or marketing 

materials to the consumer (except for 

providing the name of the issuer) prior 

to providing the required information. 

ii. Web page. If the issuer discloses a 

link to a Web site address as part of the 

repayment disclosures pursuant to 

comment 7(b)(12)(iv)–6, the issuer may 

not provide advertisements or marketing 

materials (except for providing the name 


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of the issuer) on the Web page accessed 

by the address prior to providing the 

information required by 

§ 226.7(b)(12)(iv). 

7(b)(13) Format requirements. 

1. Combined deposit account and 

credit account statements. Some 

financial institutions provide 

information about deposit account and 

open-end credit account activity on one 

periodic statement. For purposes of 

providing disclosures on the front of the 

first page of the periodic statement 

pursuant to § 226.7(b)(13), the first page 

of such a combined statement shall be 

the page on which credit transactions 

first appear. 

§ 226.8 Identifying Transactions on 

Periodic Statements. 

8(a) Sale credit. 

1. Sale credit. The term ‘‘sale credit’’ 

refers to a purchase in which the 

consumer uses a credit card or 

otherwise directly accesses an open-end 

line of credit (see comment 8(b)–1 if 

access is by means of a check) to obtain 

goods or services from a merchant, 

whether or not the merchant is the card 

issuer or creditor. ‘‘Sale credit’’ 

includes: 

i. The purchase of funds-transfer 

services (such as a wire transfer) from 

an intermediary. 

ii. The purchase of services from the 

card issuer or creditor. For the purchase 

of services that are costs imposed as part 

of the plan under § 226.6(b)(3), card 

issuers and creditors comply with the 

requirements for identifying 

transactions under this section by 

disclosing the fees in accordance with 

the requirements of § 226.7(b)(6). For 

the purchases of services that are not 

costs imposed as part of the plan, card 

issuers and creditors may, at their 

option, identify transactions under this 

section or in accordance with the 

requirements of § 226.7(b)(6). 

2. Amount—transactions not billed in 

full. If sale transactions are not billed in 

full on any single statement, but are 

billed periodically in precomputed 

installments, the first periodic statement 

reflecting the transaction must show 

either the full amount of the transaction 

together with the date the transaction 

actually took place; or the amount of the 

first installment that was debited to the 

account together with the date of the 

transaction or the date on which the 

first installment was debited to the 

account. In any event, subsequent 

periodic statements should reflect each 

installment due, together with either 

any other identifying information 

required by § 226.8(a) (such as the 

seller’s name and address in a threeparty situation) or other appropriate 

identifying information relating the 

transaction to the first billing. The 

debiting date for the particular 

installment, or the date the transaction 

took place, may be used as the date of 

the transaction on these subsequent 

statements. 

3. Date—when a transaction takes 

place. 

i. If the consumer conducts the 

transaction in person, the date of the 

transaction is the calendar date on 

which the consumer made the purchase 

or order, or secured the advance. 

ii. For transactions billed to the 

account on an ongoing basis (other than 

installments to pay a precomputed 

amount), the date of the transaction is 

the date on which the amount is debited 

to the account. This might include, for 

example, monthly insurance premiums. 

iii. For mail, Internet, or telephone 

orders, a creditor may disclose as the 

transaction date either the invoice date, 

the debiting date, or the date the order 

was placed by telephone or via the 

Internet. 

iv. In a foreign transaction, the 

debiting date may be considered the 

transaction date. 

4. Date—sufficiency of description. 

i. If the creditor discloses only the 

date of the transaction, the creditor need 

not identify it as the ‘‘transaction date.’’ 

If the creditor discloses more than one 

date (for example, the transaction date 

and the posting date), the creditor must 

identify each. 

ii. The month and day sufficiently 

identify the transaction date, unless the 

posting of the transaction is delayed so 

long that the year is needed for a clear 

disclosure to the consumer. 

5. Same or related persons. i. For 

purposes of identifying transactions, the 

term same or related persons refers to, 

for example: 

A. Franchised or licensed sellers of a 

creditor’s product or service. 

B. Sellers who assign or sell open-end 

sales accounts to a creditor or arrange 

for such credit under a plan that allows 

the consumer to use the credit only in 

transactions with that seller. 

ii. A seller is not related to the 

creditor merely because the seller and 

the creditor have an agreement 

authorizing the seller to honor the 

creditor’s credit card. 

6. Brief identification—sufficiency of 

description. The ‘‘brief identification’’ 

provision in § 226.8(a)(1)(i) requires a 

designation that will enable the 

consumer to reconcile the periodic 

statement with the consumer’s own 

records. In determining the sufficiency 

of the description, the following rules 

apply: 

i. While item-by-item descriptions are 

not necessary, reasonable precision is 

required. For example, ‘‘merchandise,’’ 

‘‘miscellaneous,’’ ‘‘second-hand goods,’’ 

or ‘‘promotional items’’ would not 

suffice. 

ii. A reference to a department in a 

sales establishment that accurately 

conveys the identification of the types 

of property or services available in the 

department is sufficient—for example, 

‘‘jewelry,’’ or ‘‘sporting goods.’’ 

iii. A number or symbol that is related 

to an identification list printed 

elsewhere on the statement that 

reasonably identifies the transaction 

with the creditor is sufficient. 

7. Seller’s name—sufficiency of 

description. The requirement 

contemplates that the seller’s name will 

appear on the periodic statement in 

essentially the same form as it appears 

on transaction documents provided to 

the consumer at the time of the sale. The 

seller’s name may also be disclosed as, 

for example: 

i. A more complete spelling of the 

name that was alphabetically 

abbreviated on the receipt or other 

credit document. 

ii. An alphabetical abbreviation of the 

name on the periodic statement even if 

the name appears in a more complete 

spelling on the receipt or other credit 

document. Terms that merely indicate 

the form of a business entity, such as 

‘‘Inc.,’’ ‘‘Co.,’’ or ‘‘Ltd.,’’ may always be 

omitted. 

8. Location of transaction. 

i. If the seller has multiple stores or 

branches within a city, the creditor need 

not identify the specific branch at which 

the sale occurred. 

ii. When no meaningful address is 

available because the consumer did not 

make the purchase at any fixed location 

of the seller, the creditor may omit the 

address, or may provide some other 

identifying designation, such as ‘‘aboard 

plane,’’ ‘‘ABC Airways Flight,’’ 

‘‘customer’s home,’’ ‘‘telephone order,’’ 

‘‘Internet order’’ or ‘‘mail order.’’ 

8(b) Nonsale credit. 

1. Nonsale credit. The term ‘‘nonsale 

credit’’ refers to any form of loan credit 

including, for example: 

i. A cash advance. 

ii. An advance on a credit plan that 

is accessed by overdrafts on a checking 

account. 

iii. The use of a ‘‘supplemental credit 

device’’ in the form of a check or draft 

or the use of the overdraft credit plan 

accessed by a debit card, even if such 

use is in connection with a purchase of 

goods or services. 

iv. Miscellaneous debits to remedy 

mispostings, returned checks, and 

similar entries. 


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2. Amount—overdraft credit plans. If 

credit is extended under an overdraft 

credit plan tied to a checking account or 

by means of a debit card tied to an 

overdraft credit plan: 

i. The amount to be disclosed is that 

of the credit extension, not the face 

amount of the check or the total amount 

of the debit/credit transaction. 

ii. The creditor may disclose the 

amount of the credit extensions on a 

cumulative daily basis, rather than the 

amount attributable to each check or 

each use of the debit card that accesses 

the credit plan. 

3. Date of transaction. See comment 

8(a)–4. 

4. Nonsale transaction—sufficiency of 

identification. The creditor sufficiently 

identifies a nonsale transaction by 

describing the type of advance it 

represents, such as cash advance, loan, 

overdraft loan, or any readily 

understandable trade name for the 

credit program. 

§ 226.9 Subsequent Disclosure 

Requirements. 

9(a) Furnishing statement of billing 

rights. 

9(a)(1) Annual statement. 

1. General. The creditor may provide 

the annual billing rights statement: 

i. By sending it in one billing period 

per year to each consumer that gets a 

periodic statement for that period; or 

ii. By sending a copy to all of its 

accountholders sometime during the 

calendar year but not necessarily all in 

one billing period (for example, sending 

the annual notice in connection with 

renewal cards or when imposing annual 

membership fees). 

2. Substantially similar. See the 

commentary to Model Forms G–3 and 

G–3(A) in appendix G to part 226. 

9(a)(2) Alternative summary 

statement. 

1. Changing from long-form to short 

form statement and vice versa. If the 

creditor has been sending the long-form 

annual statement, and subsequently 

decides to use the alternative summary 

statement, the first summary statement 

must be sent no later than 12 months 

after the last long-form statement was 

sent. Conversely, if the creditor wants to 

switch to the long-form, the first longform statement must be sent no later 

than 12 months after the last summary 

statement. 

2. Substantially similar. See the 

commentary to Model Forms G–4 and 

G–4(A) in appendix G to part 226. 

9(b) Disclosures for supplemental 

credit access devices and additional 

features. 

1. Credit access device—examples. 

Credit access device includes, for 

example, a blank check, payeedesignated check, blank draft or order, 

or authorization form for issuance of a 

check; it does not include a check 

issued payable to a consumer 

representing loan proceeds or the 

disbursement of a cash advance. 

2. Credit account feature—examples. 

A new credit account feature would 

include, for example: 

i. The addition of overdraft checking 

to an existing account (although the 

regular checks that could trigger the 

overdraft feature are not themselves 

‘‘devices’’). 

ii. The option to use an existing credit 

card to secure cash advances, when 

previously the card could only be used 

for purchases. 

Paragraph 9(b)(2). 

1. Different finance charge terms. 

Except as provided in § 226.9(b)(3) for 

checks that access a credit card account, 

if the finance charge terms are different 

from those previously disclosed, the 

creditor may satisfy the requirement to 

give the finance charge terms either by 

giving a complete set of new accountopening disclosures reflecting the terms 

of the added device or feature or by 

giving only the finance charge 

disclosures for the added device or 

feature. 

9(b)(3) Checks that access a credit 

card account. 

9(b)(3)(i) Disclosures. 

1. Front of the page containing the 

checks. The following would comply 

with the requirement that the tabular 

disclosures provided pursuant to 

§ 226.9(b)(3) appear on the front of the 

page containing the checks: 

i. Providing the tabular disclosure on 

the front of the first page on which 

checks appear, for an offer where checks 

are provided on multiple pages; 

ii. Providing the tabular disclosure on 

the front of a mini-book or accordion 

booklet containing the checks; or 

iii. Providing the tabular disclosure 

on the front of the solicitation letter, 

when the checks are printed on the front 

of the same page as the solicitation letter 

even if the checks can be separated by 

the consumer from the solicitation letter 

using perforations. 

Paragraph 9(b)(3)(i)(D). 

1. Grace period. Creditors may use the 

following language to describe a grace 

period on check transactions: ‘‘Your due 

date is [at least] ____ days after the close 

of each billing cycle. We will not charge 

you interest on check transactions if you 

pay your entire balance by the due date 

each month.’’ Creditors may use the 

following language to describe that no 

grace period on check transactions is 

offered, as applicable: ‘‘We will begin 

charging interest on these checks on the 

transaction date.’’ 

9(c) Change in terms. 

9(c)(1) Rules affecting home-equity 

plans. 

For home-equity plans subject to the 

requirements of § 226.5b and other 

open-end plans that are not credit card 

accounts, whenever any term required 

to be disclosed under § 226.6 is changed 

or the required minimum periodic 

payment is increased, the creditor shall 

mail or deliver written notice of the 

change to each consumer who may be 

affected. The notice shall be mailed or 

delivered at least 15 days prior to the 

effective date of the change. The 15-day 

timing requirement does not apply if the 

change has been agreed to by the 

consumer, or if a periodic rate or other 

finance charge is increased because of 

the consumer’s delinquency or default; 

the notice shall be given, however, 

before the effective date of the change. 

(ii) Notice not required. For homeequity plans subject to the requirements 

of § 226.5b and other open-end plans 

that are not credit card accounts, no 

notice under this section is required 

when the change involves late payment 

charges, charges for documentary 

evidence, or over-the-limit charges; a 

reduction of any component of a finance 

or other charge; suspension of future 

credit privileges or termination of an 

account or plan; or when the change 

results from an agreement involving a 

court proceeding, or from the 

consumer’s default or delinquency 

(other than an increase in the periodic 

rate or other finance charge). 

(iii) Notice for home equity plans. 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 

§ 226.5b(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. 

9(c)(2) Rules affecting open-end (not 

home-secured) plans. 

1. Changes initially disclosed. Except 

as provided in § 226.9(g)(1), no notice of 

a change in terms need be given if the 

specific change is set forth initially, 

such as rate increases under a properly 

disclosed variable-rate plan in 

accordance with § 226.9(c)(2)(v)(C). In 

contrast, notice must be given if the 

contract allows the creditor to increase 

the rate at its discretion. 


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2. State law issues. Some issues are 

not addressed by § 226.9(c)(2) because 

they are controlled by State or other 

applicable laws. These issues include 

the types of changes a creditor may 

make, to the extent otherwise permitted 

by this regulation. 

3. Change in billing cycle. Whenever 

the creditor changes the consumer’s 

billing cycle, it must give a change-interms notice if the change affects any of 

the terms described in § 226.9(c)(2)(i), 

unless an exception under 

§ 226.9(c)(2)(v) applies; for example, the 

creditor must give advance notice if the 

creditor initially disclosed a 28-day 

grace period on purchases and the 

consumer will have fewer days during 

the billing cycle change. But see 

§ 226.7(b)(11)(i)(A) regarding the general 

requirement that the payment due date 

for a credit card account under an openend (not home-secured) consumer credit 

plan must be the same day each month. 

4. Relationship to § 226.9(b). If a 

creditor adds a feature to the account on 

the type of terms otherwise required to 

be disclosed under § 226.6, the creditor 

must satisfy: the requirement to provide 

the finance charge disclosures for the 

added feature under § 226.9(b); and any 

applicable requirement to provide a 

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

including any advance notice that must 

be provided. For example, if a creditor 

adds a balance transfer feature to an 

account more than 30 days after 

account-opening disclosures are 

provided, it must give the finance 

charge disclosures for the balance 

transfer feature under § 226.9(b) as well 

as comply with the change-in-terms 

notice requirements under § 226.9(c), 

including providing notice of the 

change at least 45 days prior to the 

effective date of the change. Similarly, 

if a creditor makes a balance transfer 

offer on finance charge terms that are 

higher than those previously disclosed 

for balance transfers, it would also 

generally be required to provide a 

change-in-terms notice at least 45 days 

in advance of the effective date of the 

change. A creditor may provide a single 

notice under § 226.9(c) to satisfy the 

notice requirements of both paragraphs 

(b) and (c) of § 226.9. For checks that 

access a credit card account subject to 

the disclosure requirements in 

§ 226.9(b)(3), a creditor is not subject to 

the notice requirements under § 226.9(c) 

even if the applicable rate or fee is 

higher than those previously disclosed 

for such checks. Thus, for example, the 

creditor need not wait 45 days before 

applying the new rate or fee for 

transactions made using such checks, 

but the creditor must make the required 

disclosures on or with the checks in 

accordance with § 226.9(b)(3). 

9(c)(2)(i) Changes where written 

advance notice is 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. 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. Timing—effective date of change. 

The rule that the notice of the change in 

terms be provided at least 45 days 

before the change takes effect permits 

mid-cycle changes when there is clearly 

no retroactive effect, such as the 

imposition of a transaction fee. Any 

change in the balance computation 

method, in contrast, would need to be 

disclosed at least 45 days prior to the 

billing cycle in which the change is to 

be implemented. 

3. Timing—advance notice not 

required. Advance notice of 45 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 if the 

consumer agrees to the particular 

change. This provision is solely 

intended for use in the unusual instance 

when a consumer substitutes collateral 

or when the creditor can advance 

additional credit only if a change 

relatively unique to that consumer is 

made, such as the consumer’s providing 

additional security or paying an 

increased minimum payment amount. 

Therefore, the following are not 

‘‘agreements’’ between the consumer 

and the creditor for purposes of 

§ 226.9(c)(2)(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); the consumer’s 

acceptance of a unilateral term change 

that is not particular to that consumer, 

but rather is of general applicability to 

consumers with that type of account; 

and the consumer’s request to reopen a 

closed account or to upgrade an existing 

account to another account offered by 

the creditor with different credit or 

other features. See also comment 

5(b)(1)(i)–6. 

4. Form of change-in-terms notice. 

Except if § 226.9(c)(2)(iv) applies, a 

complete new set of the initial 

disclosures containing the changed term 

complies with § 226.9(c)(2)(i) if the 

change is highlighted on the disclosure 

statement, or if the disclosure statement 

is accompanied by a letter or some other 

insert that indicates or draws attention 

to the term being changed. 

5. Security interest change—form of 

notice. A copy of the security agreement 

that describes the collateral securing the 

consumer’s account may be used as the 

notice, when the term change is the 

addition of a security interest or the 

addition or substitution of collateral. 

6. Examples. See comment 55(a)–1 

and 55(b)–3 for examples of how a card 

issuer that is subject to § 226.55 may 

comply with the timing requirements 

for notices required by § 226.9(c)(2)(i). 

9(c)(2)(iii) Charges not covered by 

§ 226.6(b)(1) and (b)(2). 

1. Applicability. Generally, if a 

creditor increases any component of a 

charge, or introduces a new charge, that 

is imposed as part of the plan under 

§ 226.6(b)(3) but is not required to be 

disclosed as part of the account-opening 

summary table under § 226.6(b)(1) and 

(b)(2), the creditor may either, at its 

option (i) provide at least 45 days’ 

written advance notice before the 

change becomes effective to comply 

with the requirements of § 226.9(c)(2)(i), 

or (ii) provide notice orally or in 

writing, or electronically if the 

consumer requests the service 

electronically, of the amount of the 

charge to an affected consumer before 

the consumer agrees to or becomes 

obligated to pay the charge, at a time 

and in a manner that a consumer would 

be likely to notice the disclosure. (See 

the commentary under § 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(b)(3) but is not required to 

be disclosed in the account-opening 

summary table under § 226.6(b)(1) and 

(b)(2). If a creditor changes the amount 

of that expedited delivery fee, the 

creditor may provide written advance 

notice of the change to affected 

consumers at least 45 days before the 

change becomes effective. Alternatively, 

the creditor may provide oral or written 

notice, or electronic notice if the 

consumer requests the service 

electronically, of the amount of the 

charge to an affected consumer before 

the consumer agrees to or becomes 

obligated to pay the charge, at a time 

and in a manner that the consumer 

would be likely to notice the disclosure. 

(See comment 5(b)(1)(ii)–1 for examples 

of disclosures given at a time and in a 

manner that the consumer would be 

likely to notice them.) 

9(c)(2)(iv) Disclosure requirements. 


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9(c)(2)(iv) Significant changes to 

account terms. 

1. Changing margin for calculating a 

variable rate. If a creditor is changing a 

margin used to calculate a variable rate, 

the creditor must disclose the amount of 

the new rate (as calculated using the 

new margin) in the table described in 

§ 226.9(c)(2)(iv), and include a reminder 

that the rate is a variable rate. For 

example, if a creditor is changing the 

margin for a variable rate that uses the 

prime rate as an index, the creditor must 

disclose in the table the new rate (as 

calculated using the new margin) and 

indicate that the rate varies with the 

market based on the prime rate. 

2. Changing index for calculating a 

variable rate. If a creditor is changing 

the index used to calculate a variable 

rate, the creditor must disclose the 

amount of the new rate (as calculated 

using the new index) and indicate that 

the rate varies and the how the rate is 

determined, as explained in 

§ 226.6(b)(2)(i)(A). For example, if a 

creditor is changing from using a prime 

rate to using the LIBOR in calculating a 

variable rate, the creditor would 

disclose in the table the new rate (using 

the new index) and indicate that the rate 

varies with the market based on the 

LIBOR. 

3. Changing from a variable rate to a 

non-variable rate. If a creditor is 

changing from a variable rate to a nonvariable rate, the creditor must disclose 

the amount of the new rate (that is, the 

non-variable rate) in the table. 

4. Changing from a non-variable rate 

to a variable rate. If a creditor is 

changing from a non-variable rate to a 

variable rate, the creditor must disclose 

the amount of the new rate (the variable 

rate using the index and margin), and 

indicate that the rate varies with the 

market based on the index used, such as 

the prime rate or the LIBOR. 

5. Changes in the penalty rate, the 

triggers for the penalty rate, or how long 

the penalty rate applies. If a creditor is 

changing the amount of the penalty rate, 

the creditor must also redisclose the 

triggers for the penalty rate and the 

information about how long the penalty 

rate applies even if those terms are not 

changing. Likewise, if a creditor is 

changing the triggers for the penalty 

rate, the creditor must redisclose the 

amount of the penalty rate and 

information about how long the penalty 

rate applies. If a creditor is changing 

how long the penalty rate applies, the 

creditor must redisclose the amount of 

the penalty rate and the triggers for the 

penalty rate, even if they are not 

changing. 

6. Changes in fees. If a creditor is 

changing part of how a fee that is 

disclosed in a tabular format under 

§ 226.6(b)(1) and (b)(2) is determined, 

the creditor must redisclose all relevant 

information related to that fee regardless 

of whether this other information is 

changing. For example, if a creditor 

currently charges a cash advance fee of 

‘‘Either $5 or 3% of the transaction 

amount, whichever is greater. (Max: 

$100),’’ and the creditor is only 

changing the minimum dollar amount 

from $5 to $10, the issuer must 

redisclose the other information related 

to how the fee is determined. For 

example, the creditor in this example 

would disclose the following: ‘‘Either 

$10 or 3% of the transaction amount, 

whichever is greater. (Max: $100).’’ 

7. Combining a notice described in 

§ 226.9(c)(2)(iv) with a notice described 

in § 226.9(g)(3). If a creditor is required 

to provide a notice described in 

§ 226.9(c)(2)(iv) and a notice described 

in § 226.9(g)(3) to a consumer, the 

creditor may combine the two notices. 

This would occur if penalty pricing has 

been triggered, and other terms are 

changing on the consumer’s account at 

the same time. 

8. Content. Sample G–20 contains an 

example of how to comply with the 

requirements in § 226.9(c)(2)(iv) when a 

variable rate is being changed to a nonvariable rate on a credit card account. 

The sample explains when the new rate 

will apply to new transactions and to 

which balances the current rate will 

continue to apply. Sample G–21 

contains an example of how to comply 

with the requirements in 

§ 226.9(c)(2)(iv) when (i) the late 

payment fee on a credit card account is 

being increased in accordance with a 

formula that depends on the 

outstanding balance on the account, and 

(ii) the returned payment fee is also 

being increased. The sample discloses 

the consumer’s right to reject the 

changes in accordance with § 226.9(h). 

9. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

disclosures required under 

§ 226.9(c)(2)(iv)(A)(1). 

10. Terminology. See § 226.5(a)(2) for 

terminology requirements applicable to 

disclosures required under 

§ 226.9(c)(2)(iv)(A)(1). 

9(c)(2)(v) Notice not required. 

1. Changes not requiring notice. The 

following are examples of changes that 

do not require a change-in-terms notice: 

i. A change in the consumer’s credit 

limit except as otherwise required by 

§ 226.9(c)(2)(vi). 

ii. A change in the name of the credit 

card or credit card plan. 

iii. The substitution of one insurer for 

another. 

iv. A termination or suspension of 

credit privileges. 

v. Changes arising merely by 

operation of law; for example, if the 

creditor’s security interest in a 

consumer’s car automatically extends to 

the proceeds when the consumer sells 

the car. 

2. Skip features. i. General. If a credit 

program allows consumers to skip or 

reduce one or more payments during the 

year, or involves temporary reductions 

in finance charges other than reductions 

in an interest rate (except if 

§ 226.9(c)(2)(v)(B) or (c)(2)(v)(D) 

applies), no notice of the change in 

terms is required either prior to the 

reduction or upon resumption of the 

higher finance charges or payments if 

these features are explained on the 

account-opening disclosure statement 

(including an explanation of the terms 

upon resumption). For example, a 

merchant may allow consumers to skip 

the December payment to encourage 

holiday shopping, or a teacher’s credit 

union may not require payments during 

summer vacation. Otherwise, the 

creditor must give notice prior to 

resuming the original schedule or 

finance charge, even though no notice is 

required prior to the reduction. The 

change-in-terms notice may be 

combined with the notice offering the 

reduction. For example, the periodic 

statement reflecting the reduction or 

skip feature may also be used to notify 

the consumer of the resumption of the 

original schedule or finance charge, 

either by stating explicitly when the 

higher payment or charges resume or by 

indicating the duration of the skip 

option. Language such as ‘‘You may 

skip your October payment’’ may serve 

as the change-in-terms notice. 

ii. Temporary reductions in interest 

rates. If a credit program involves 

temporary reductions in an interest rate, 

no notice of the change in terms is 

required either prior to the reduction or 

upon resumption of the original rate if 

these features are disclosed in advance 

in accordance with the requirements of 

§ 226.9(c)(2)(v)(B). Otherwise, the 

creditor must give notice prior to 

resuming the original rate, even though 

no notice is required prior to the 

reduction. The notice provided prior to 

resuming the original rate must comply 

with the timing requirements of 

§ 226.9(c)(2)(i) and the content and 

format requirements of 

§ 226.9(c)(2)(iv)(A), (B) (if applicable), 

and (C). See comment 55(b)–3 for 

guidance regarding the application of 

§ 226.55 in these circumstances. 

3. Changing from a variable rate to a 

non-variable rate. If a creditor is 

changing a rate applicable to a 


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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) even if the variable rate 

at the time of the change is higher than 

the non-variable rate. (See comment 

9(c)(2)(iv)(A)–3.) 

4. Changing from a non-variable rate 

to a variable rate. If a creditor is 

changing a rate applicable to a 

consumer’s account from a non-variable 

rate to a variable rate, the creditor must 

provide a notice as otherwise required 

under § 226.9(c) even if the non-variable 

rate is higher than the variable rate at 

the time of the change. (See comment 

9(c)(2)(iv)(A)–4.) 

5. Telephone purchases. The timing 

requirements of § 226.9(c)(2)(v)(B) are 

deemed to have been met, and written 

disclosures required by 

§ 226.9(c)(2)(v)(B) may be provided as 

soon as reasonably practicable after the 

first transaction subject to a rate that 

will be in effect for a specified period 

of time (a temporary rate) if: 

i. The first transaction subject to the 

temporary rate occurs when a consumer 

contacts a merchant by telephone to 

purchase goods and at the same time the 

consumer accepts an offer to finance the 

purchase at the temporary rate; 

ii. The merchant or third-party 

creditor permits consumers to return 

any goods financed subject to the 

temporary rate and return the goods free 

of cost after the merchant or third-party 

creditor has provided the written 

disclosures required by 

§ 226.9(c)(2)(v)(B); and 

iii. The disclosures required by 

§ 226.9(c)(2)(v)(B) and the consumer’s 

right to reject the temporary rate offer 

and return the goods are disclosed to the 

consumer as part of the offer to finance 

the purchase. 

6. Disclosure of annual percentage 

rates. If a rate disclosed pursuant to 

§ 226.9(c)(2)(v)(B) or (c)(2)(v)(D) is a 

variable rate, the creditor must disclose 

the fact that the rate may vary and how 

the rate is determined. For example, a 

creditor could state ‘‘After October 1, 

2009, your APR will be 14.99%. This 

APR will vary with the market based on 

the Prime Rate.’’ 

7. Deferred interest or similar 

programs. If the applicable conditions 

are met, the exception in 

§ 226.9(c)(2)(v)(B) applies to deferred 

interest or similar promotional programs 

under which the consumer is not 

obligated to pay interest that accrues on 

a balance if that balance is paid in full 

prior to the expiration of a specified 

period of time. For such programs, a 

creditor must disclose pursuant to 

§ 226.9(c)(2)(v)(B)(1) the length of the 

deferred interest period and the rate that 

will apply to the balance subject to the 

deferred interest program if that balance 

is not paid in full prior to expiration of 

the deferred interest period. Examples 

of language that a creditor may use to 

make the required disclosures under 

§ 226.9(c)(2)(v)(B)(1) include: 

i. ‘‘No interest if paid in full in 6 

months. If the balance is not paid in full 

in 6 months, interest will be imposed 

from the date of purchase at a rate of 

15.99%.’’ 

ii. ‘‘No interest if paid in full by 

December 31, 2010. If the balance is not 

paid in full by that date, interest will be 

imposed from the transaction date at a 

rate of 15%.’’ 

8. Disclosure of the terms of a workout 

or temporary hardship arrangement. In 

order for the exception in 

§ 226.9(c)(2)(v)(D) to apply, the 

disclosure provided to the consumer 

pursuant to § 226.9(c)(2)(v)(D)(2) must 

set forth: 

i. The annual percentage rate that will 

apply to balances subject to the workout 

or temporary hardship arrangement; 

ii. The annual percentage rate that 

will apply to such balances if the 

consumer completes or fails to comply 

with the terms of, the workout or 

temporary hardship arrangement; 

iii. Any reduced fee or charge of a 

type required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

that will apply to balances subject to the 

workout or temporary hardship 

arrangement, as well as the fee or charge 

that will apply if the consumer 

completes or fails to comply with the 

terms of the workout or temporary 

hardship arrangement; and 

iv. If applicable, that the consumer 

must make timely minimum payments 

in order to remain eligible for the 

workout or temporary hardship 

arrangement. 

9(d) Finance charge imposed at time 

of transaction. 

1. Disclosure prior to imposition. A 

person imposing a finance charge at the 

time of honoring a consumer’s credit 

card must disclose the amount of the 

charge, or an explanation of how the 

charge will be determined, prior to its 

imposition. This must be disclosed 

before the consumer becomes obligated 

for property or services that may be paid 

for by use of a credit card. For example, 

disclosure must be given before the 

consumer has dinner at a restaurant, 

stays overnight at a hotel, or makes a 

deposit guaranteeing the purchase of 

property or services. 

9(e) Disclosures upon renewal of 

credit or charge card. 

1. Coverage. This paragraph applies to 

credit and charge card accounts of the 

type subject to § 226.5a. (See 

§ 226.5a(a)(5) and the accompanying 

commentary for discussion of the types 

of accounts subject to § 226.5a.) The 

disclosure requirements are triggered 

when a card issuer imposes any annual 

or other periodic fee on such an account 

or if the card issuer has changed or 

amended any term of a cardholder’s 

account required to be disclosed under 

§ 226.6(b)(1) and (b)(2) that has not 

previously been disclosed to the 

consumer, whether or not the card 

issuer originally was required to provide 

the application and solicitation 

disclosures described in § 226.5a. 

2. Form. The disclosures under this 

paragraph must be clear and 

conspicuous, but need not appear in a 

tabular format or in a prominent 

location. The disclosures need not be in 

a form the cardholder can retain. 

3. Terms at renewal. Renewal notices 

must reflect the terms actually in effect 

at the time of renewal. For example, a 

card issuer that offers a preferential 

annual percentage rate to employees 

during their employment must send a 

renewal notice to employees disclosing 

the lower rate actually charged to 

employees (although the card issuer also 

may show the rate charged to the 

general public). 

4. Variable rate. If the card issuer 

cannot determine the rate that will be in 

effect if the cardholder chooses to renew 

a variable-rate account, the card issuer 

may disclose the rate in effect at the 

time of mailing or delivery of the 

renewal notice. Alternatively, the card 

issuer may use the rate as of a specified 

date within the last 30 days before the 

disclosure is provided. 

5. Renewals more frequent than 

annual. If a renewal fee is billed more 

often than annually, the renewal notice 

should be provided each time the fee is 

billed. In this instance, the fee need not 

be disclosed as an annualized amount. 

Alternatively, the card issuer may 

provide the notice no less than once 

every 12 months if the notice explains 

the amount and frequency of the fee that 

will be billed during the time period 

covered by the disclosure, and also 

discloses the fee as an annualized 

amount. The notice under this 

alternative also must state the 

consequences of a cardholder’s decision 

to terminate the account after the 

renewal-notice period has expired. For 

example, if a $2 fee is billed monthly 

but the notice is given annually, the 

notice must inform the cardholder that 

the monthly charge is $2, the 

annualized fee is $24, and $2 will be 

billed to the account each month for the 

coming year unless the cardholder 

notifies the card issuer. If the cardholder 

is obligated to pay an amount equal to 


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the remaining unpaid monthly charges 

if the cardholder terminates the account 

during the coming year but after the first 

month, the notice must disclose the fact. 

6. Terminating credit availability. 

Card issuers have some flexibility in 

determining the procedures for how and 

when an account may be terminated. 

However, the card issuer must clearly 

disclose the time by which the 

cardholder must act to terminate the 

account to avoid paying a renewal fee, 

if applicable. State and other applicable 

law govern whether the card issuer may 

impose requirements such as specifying 

that the cardholder’s response be in 

writing or that the outstanding balance 

be repaid in full upon termination. 

7. Timing of termination by 

cardholder. When a card issuer provides 

notice under § 226.9(e)(1), a cardholder 

must be given at least 30 days or one 

billing cycle, whichever is less, from the 

date the notice is mailed or delivered to 

make a decision whether to terminate an 

account. 

8. Timing of notices. A renewal notice 

is deemed to be provided when mailed 

or delivered. Similarly, notice of 

termination is deemed to be given when 

mailed or delivered. 

9. Prompt reversal of renewal fee 

upon termination. In a situation where 

a cardholder has provided timely notice 

of termination and a renewal fee has 

been billed to a cardholder’s account, 

the card issuer must reverse or 

otherwise withdraw the fee promptly. 

Once a cardholder has terminated an 

account, no additional action by the 

cardholder may be required. 

9(e)(2) Notification on periodic 

statements. 

1. Combined disclosures. If a single 

disclosure is used to comply with both 

§§ 226.9(e) and 226.7, the periodic 

statement must comply with the rules in 

§§ 226.5a and 226.7. For example, a 

description substantially similar to the 

heading describing the grace period 

required by § 226.5a(b)(5) must be used 

and the name of the balance-calculation 

method must be identified (if listed in 

§ 226.5a(g)) to comply with the 

requirements of § 226.5a. A card issuer 

may include some of the renewal 

disclosures on a periodic statement and 

others on a separate document so long 

as there is some reference indicating 

that the disclosures relate to one 

another. All renewal disclosures must 

be provided to a cardholder at the same 

time. 

2. Preprinted notices on periodic 

statements. A card issuer may preprint 

the required information on its periodic 

statements. A card issuer that does so, 

however, must make clear on the 

periodic statement when the preprinted 

renewal disclosures are applicable. For 

example, the card issuer could include 

a special notice (not preprinted) at the 

appropriate time that the renewal fee 

will be billed in the following billing 

cycle, or could show the renewal date 

as a regular (preprinted) entry on all 

periodic statements. 

9(f) Change in credit card account 

insurance provider. 

1. Coverage. This paragraph applies to 

credit card accounts of the type subject 

to § 226.5a if credit insurance (typically 

life, disability, and unemployment 

insurance) is offered on the outstanding 

balance of such an account. (Credit card 

accounts subject to § 226.9(f) are the 

same as those subject to § 226.9(e); see 

comment 9(e)–1.) Charge card accounts 

are not covered by this paragraph. In 

addition, the disclosure requirements of 

this paragraph apply only where the 

card issuer initiates the change in 

insurance provider. For example, if the 

card issuer’s current insurance provider 

is merged into or acquired by another 

company, these disclosures would not 

be required. Disclosures also need not 

be given in cases where card issuers pay 

for credit insurance themselves and do 

not separately charge the cardholder. 

2. No increase in rate or decrease in 

coverage. The requirement to provide 

the disclosure arises when the card 

issuer changes the provider of 

insurance, even if there will be no 

increase in the premium rate charged to 

the consumer and no decrease in 

coverage under the insurance policy. 

3. Form of notice. If a substantial 

decrease in coverage will result from the 

change in provider, the card issuer 

either must explain the decrease or refer 

to an accompanying copy of the policy 

or group certificate for details of the 

new terms of coverage. (See the 

commentary to appendix G–13 to part 

226.) 

4. Discontinuation of insurance. In 

addition to stating that the cardholder 

may cancel the insurance, the card 

issuer may explain the effect the 

cancellation would have on the 

consumer’s credit card plan. 

5. Mailing by third party. Although 

the card issuer is responsible for the 

disclosures, the insurance provider or 

another third party may furnish the 

disclosures on the card issuer’s behalf. 

9(f)(3) Substantial decrease in 

coverage. 

1. Determination. Whether a 

substantial decrease in coverage will 

result from the change in provider is 

determined by the two-part test in 

§ 226.9(f)(3): First, whether the decrease 

is in a significant term of coverage; and 

second, whether the decrease might 

reasonably be expected to affect a 

cardholder’s decision to continue the 

insurance. If both conditions are met, 

the decrease must be disclosed in the 

notice. 

9(g) Increase in rates due to 

delinquency or default or as a penalty. 

1. Relationship between § 226.9(c) 

and (g) and § 226.55– examples. Card 

issuers subject to § 226.55 are prohibited 

from increasing the annual percentage 

rate for a category of transactions on any 

consumer credit card account unless 

specifically permitted by one of the 

exceptions in § 226.55(b). See comments 

55(a)–1 and 55(b)–3 and the 

commentary to § 226.55(b)(4) for 

examples that illustrate the relationship 

between the notice requirements of 

§ 226.9(c) and (g) and § 226.55. 

2. Affected consumers. If a single 

credit account involves multiple 

consumers that may be affected by the 

change, the creditor should refer to 

§ 226.5(d) to determine the number of 

notices that must be given. 

3. Combining a notice described in 

§ 226.9(g)(3) with a notice described in 

§ 226.9(c)(2)(iv). If a creditor is required 

to provide notices pursuant to both 

§ 226.9(c)(2)(iv) and (g)(3) to a 

consumer, the creditor may combine the 

two notices. This would occur when 

penalty pricing has been triggered, and 

other terms are changing on the 

consumer’s account at the same time. 

4. Content. Sample G–22 contains an 

example of how to comply with the 

requirements in § 226.9(g)(3)(i) when 

the rate on a consumer’s credit card 

account is being increased to a penalty 

rate as described in § 226.9(g)(1)(ii), 

based on a late payment that is not more 

than 60 days late Sample G–23 contains 

an example of how to comply with the 

requirements in § 226.9(g)(3)(i) when 

the rate increase is triggered by a 

delinquency of more than 60 days. 

5. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

disclosures required under § 226.9(g). 

6. Terminology. See § 226.5(a)(2) for 

terminology requirements applicable to 

disclosures required under § 226.9(g). 

9(g)(4) Exception for decrease in 

credit limit. 

1. The following illustrates the 

requirements of § 226.9(g)(4). Assume 

that a creditor decreased the credit limit 

applicable to a consumer’s account and 

sent a notice pursuant to § 226.9(g)(4) on 

January 1, stating among other things 

that the penalty rate would apply if the 

consumer’s balance exceeded the new 

credit limit as of February 16. If the 

consumer’s balance exceeded the credit 

limit on February 16, the creditor could 

impose the penalty rate on that date. 

However, a creditor could not apply the 


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penalty rate if the consumer’s balance 

did not exceed the new credit limit on 

February 16, even if the consumer’s 

balance had exceeded the new credit 

limit on several dates between January 

1 and February 15. If the consumer’s 

balance did not exceed the new credit 

limit on February 16 but the consumer 

conducted a transaction on February 17 

that caused the balance to exceed the 

new credit limit, the general rule in 

§ 226.9(g)(1)(ii) would apply and the 

creditor would be required to give an 

additional 45 days’ notice prior to 

imposition of the penalty rate (but 

under these circumstances the 

consumer would have no ability to cure 

the over-the-limit balance in order to 

avoid penalty pricing). 

9(h) Consumer rejection of certain 

significant changes in terms. 

1. Circumstances in which § 226.9(h) 

does not apply. Section 226.9(h) applies 

when § 226.9(c)(2)(iv)(B) requires 

disclosure of the consumer’s right to 

reject a significant change to an account 

term. Thus, for example, § 226.9(h) does 

not apply to changes to the terms of 

home equity plans subject to the 

requirements of § 226.5b that are 

accessible by a credit or charge card 

because § 226.9(c)(2) does not apply to 

such plans. Similarly, § 226.9(h) does 

not apply in the following 

circumstances because 

§ 226.9(c)(2)(iv)(B) does not require 

disclosure of the right to reject in those 

circumstances: (i) An increase in the 

required minimum periodic payment; 

(ii) an increase in an annual percentage 

rate applicable to a consumer’s account; 

(iii) a change in the balance 

computation method necessary to 

comply with § 226.54; and (iv) when the 

change results from the creditor not 

receiving the consumer’s required 

minimum periodic payment within 60 

days after the due date for that payment. 

9(h)(1) Right to reject. 

1. Reasonable requirements for 

submission of rejections. A creditor may 

establish reasonable requirements for 

the submission of rejections pursuant to 

§ 226.9(h)(1). For example: 

i. It would be reasonable for a creditor 

to require that rejections be made by the 

primary account holder and that the 

consumer identify the account number. 

ii. It would be reasonable for a 

creditor to require that rejections be 

made only using the toll-free telephone 

number disclosed pursuant to § 226.9(c). 

It would also be reasonable for a 

creditor to designate additional 

channels for the submission of 

rejections (such as an address for 

rejections submitted by mail) so long as 

the creditor does not require that 

rejections be submitted through such 

additional channels. 

iii. It would be reasonable for a 

creditor to require that rejections be 

received before the effective date 

disclosed pursuant to § 226.9(c) and to 

treat the account as not subject to 

§ 226.9(h) if a rejection is received on or 

after that date. It would not, however, be 

reasonable to require that rejections be 

submitted earlier than the day before the 

effective date. If a creditor is unable to 

process all rejections received before the 

effective date, the creditor may delay 

implementation of the change in terms 

until all rejections have been processed. 

In the alternative, the creditor could 

implement the change on the effective 

date and then, on any account for which 

a timely rejection was received, reverse 

the change and remove or credit any 

interest charges or fees imposed as a 

result of the change. For example, if the 

effective date for a change in terms is 

June 15 and the creditor cannot process 

all rejections received by telephone on 

June 14 until June 16, the creditor may 

delay imposition of the change until 

June 17. Alternatively, the creditor 

could implement the change for all 

affected accounts on June 15 and then, 

once all rejections have been processed, 

return any account for which a timely 

rejection was received to the prior terms 

and ensure that the account is not 

assessed any additional interest or fees 

as a result of the change or that the 

account is credited for such interest or 

fees. 

2. Use of account following provision 

of notice. A consumer does not waive or 

forfeit the right to reject a significant 

change in terms by using the account for 

transactions prior to the effective date of 

the change. Similarly, a consumer does 

not revoke a rejection by using the 

account for transactions after the 

rejection is received. 

9(h)(2)(ii) Prohibition on penalties. 

1. Termination or suspension of credit 

availability. Section 226.9(h)(2)(ii) does 

not prohibit a creditor from terminating 

or suspending credit availability as a 

result of the consumer’s rejection of a 

significant change in terms. 

2. Solely as a result of rejection. A 

creditor is prohibited from imposing a 

fee or charge or treating an account as 

in default solely as a result of the 

consumer’s rejection of a significant 

change in terms. For example, if credit 

availability is terminated or suspended 

as a result of the consumer’s rejection of 

a significant change in terms, a creditor 

is prohibited from imposing a periodic 

fee that was not charged before the 

consumer rejected the change (such as 

a closed account fee). However, 

regardless of whether credit availability 

is terminated or suspended as a result 

of the consumer’s rejection, a creditor is 

not prohibited from continuing to 

charge a periodic fee that was charged 

before the rejection. Similarly, a creditor 

that charged a fee for late payment 

before a change was rejected is not 

prohibited from charging that fee after 

rejection of the change. 

9(h)(2)(iii) Repayment of outstanding 

balance. 

1. Relevant date for repayment 

methods. Once a consumer has rejected 

a significant change in terms, 

§ 226.9(h)(2)(iii) prohibits the creditor 

from requiring repayment of the balance 

on the account using a method that is 

less beneficial to the consumer than one 

of the methods listed in § 226.55(c)(2). 

When applying the methods listed in 

§ 226.55(c)(2) pursuant to 

§ 226.9(h)(2)(iii), a creditor may utilize 

the date on which the creditor was 

notified of the rejection or a later date 

(such as the date on which the change 

would have gone into effect but for the 

rejection). For example, assume that on 

April 16 a creditor provides a notice 

pursuant to § 226.9(c) informing the 

consumer that the monthly maintenance 

fee for the account will increase 

effective June 1. The notice also states 

that the consumer may reject the 

increase by calling a specified toll-free 

telephone number before June 1 but 

that, if the consumer does so, credit 

availability for the account will be 

terminated. On May 5, the consumer 

calls the toll-free number and exercises 

the right to reject. If the creditor chooses 

to establish a five-year amortization 

period for the balance on the account 

consistent with § 226.55(c)(2)(ii), that 

period may begin no earlier than the 

date on which the creditor was notified 

of the rejection (May 5). However, the 

creditor may also begin the amortization 

period on the date on which the change 

would have gone into effect but for the 

rejection (June 1). 

2. Balance on the account. 

i. In general. When applying the 

methods listed in § 226.55(c)(2) 

pursuant to § 226.9(h)(2)(iii), the 

provisions in § 226.55(c)(2) and the 

guidance in the commentary to 

§ 226.55(c)(2) regarding protected 

balances also apply to a balance on the 

account subject to § 226.9(h)(2)(iii). If a 

creditor terminates or suspends credit 

availability based on a consumer’s 

rejection of a significant change in 

terms, the balance on the account that 

is subject to § 226.9(h)(2)(iii) is the 

balance at the end of the day on which 

credit availability is terminated or 

suspended. However, if a creditor does 

not terminate or suspend credit 

availability based on the consumer’s 


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rejection, the balance on the account 

subject to § 226.9(h)(2)(iii) is the balance 

at the end of the day on which the 

creditor was notified of the rejection or, 

at the creditor’s option, a later date. 

ii. Example. Assume that on June 16 

a creditor provides a notice pursuant to 

§ 226.9(c) informing the consumer that 

the annual fee for the account will 

increase effective August 1. The notice 

also states that the consumer may reject 

the increase by calling a specified tollfree telephone number before August 1 

but that, if the consumer does so, credit 

availability for the account will be 

terminated. On July 20, the account has 

a purchase balance of $1,000 and the 

consumer calls the toll-free number and 

exercises the right to reject. On July 22, 

a $200 purchase is charged to the 

account. If the creditor terminates credit 

availability on July 25 as a result of the 

rejection, the balance subject to the 

repayment limitations in 

§ 226.9(h)(2)(iii) is the $1,200 purchase 

balance at the end of the day on July 25. 

However, if the creditor does not 

terminate credit availability as a result 

of the rejection, the balance subject to 

the repayment limitations in 

§ 226.9(h)(2)(iii) is the $1,000 purchase 

balance at the end of the day on the date 

the creditor was notified of the rejection 

(July 20), although the creditor may, at 

its option, treat the $200 purchase as 

part of the balance subject to 

§ 226.9(h)(2)(iii). 

9(h)(3) Exception. 

1. Examples. Section 226.9(h)(3) 

provides that § 226.9(h) does not apply 

when the creditor has not received the 

consumer’s required minimum periodic 

payment within 60 days after the due 

date for that payment. The following 

examples illustrate the application of 

this exception: 

i. Account becomes more than 60 

days delinquent before notice provided. 

Assume that a credit card account is 

opened on January 1 of year one and 

that the payment due date for the 

account is the fifteenth day of the 

month. On June 20 of year two, the 

creditor has not received the required 

minimum periodic payments due on 

April 15, May 15, and June 15. On June 

20, the creditor provides a notice 

pursuant to § 226.9(c) informing the 

consumer that a monthly maintenance 

fee of $10 will be charged beginning on 

August 4. However, § 226.9(c)(2)(iv)(B) 

does not require the creditor to notify 

the consumer of the right to reject 

because the creditor has not received 

the April 15 minimum payment within 

60 days after the due date. Furthermore, 

the exception in § 226.9(h)(3) applies 

and the consumer may not reject the fee. 

ii. Account becomes more than 60 

days delinquent after rejection. Assume 

that a credit card account is opened on 

January 1 of year one and that the 

payment due date for the account is the 

fifteenth day of the month. On April 20 

of year two, the creditor has not 

received the required minimum 

periodic payment due on April 15. On 

April 20, the creditor provides a notice 

pursuant to § 226.9(c) informing the 

consumer that an annual fee of $100 

will be charged beginning on June 4. 

The notice further states that the 

consumer may reject the fee by calling 

a specified toll-free telephone number 

before June 4 but that, if the consumer 

does so, credit availability for the 

account will be terminated. On May 5, 

the consumer calls the toll-free 

telephone number and rejects the fee. 

Section 226.9(h)(2)(i) prohibits the 

creditor from charging the $100 fee to 

the account. If, however, the creditor 

does not receive the minimum 

payments due on April 15 and May 15 

by June 15, § 226.9(h)(3) permits the 

creditor to charge the $100 fee. The 

creditor must provide a second notice of 

the fee pursuant to § 226.9(c), but 

§ 226.9(c)(2)(iv)(B) does not require the 

creditor to disclose the right to reject 

and § 226.9(h)(3) does not allow the 

consumer to reject the fee. Similarly, the 

restrictions in § 226.9(h)(2)(ii) and (iii) 

no longer apply. 

§ 226.10 Payments. 

10(a) General rule. 

1. Crediting date. Section 226.10(a) 

does not require the creditor to post the 

payment to the consumer’s account on 

a particular date; the creditor is only 

required to credit the payment as of the 

date of receipt. 

2. Date of receipt. The ‘‘date of 

receipt’’ is the date that the payment 

instrument or other means of 

completing the payment reaches the 

creditor. For example: 

i. Payment by check is received when 

the creditor gets it, not when the funds 

are collected. 

ii. In a payroll deduction plan in 

which funds are deposited to an asset 

account held by the creditor, and from 

which payments are made periodically 

to an open-end credit account, payment 

is received on the date when it is 

debited to the asset account (rather than 

on the date of the deposit), provided the 

payroll deduction method is voluntary 

and the consumer retains use of the 

funds until the contractual payment 

date. 

iii. If the consumer elects to have 

payment made by a third party payor 

such as a financial institution, through 

a preauthorized payment or telephone 

bill-payment arrangement, payment is 

received when the creditor gets the third 

party payor’s check or other transfer 

medium, such as an electronic fund 

transfer, as long as the payment meets 

the creditor’s requirements as specified 

under § 226.10(b). 

iv. Payment made via the creditor’s 

Web site is received on the date on 

which the consumer authorizes the 

creditor to effect the payment, even if 

the consumer gives the instruction 

authorizing that payment in advance of 

the date on which the creditor is 

authorized to effect the payment. If the 

consumer authorizes the creditor to 

effect the payment immediately, but the 

consumer’s instruction is received after 

5 p.m. or any later cut-off time specified 

by the creditor, the date on which the 

consumer authorizes the creditor to 

effect the payment is deemed to be the 

next business day. 

10(b) Specific requirements for 

payments. 

1. Payment by electronic fund 

transfer. A creditor may be prohibited 

from specifying payment by 

preauthorized electronic fund transfer. 

(See section 913 of the Electronic Fund 

Transfer Act.) 

2. Payment via creditor’s Web site. If 

a creditor promotes electronic payment 

via its Web site (such as by disclosing 

on the Web site itself that payments may 

be made via the Web site), any 

payments made via the creditor’s Web 

site would generally be conforming 

payments for purposes of § 226.10(b). 

3. Acceptance of nonconforming 

payments. If the creditor accepts a 

nonconforming payment (for example, 

payment mailed to a branch office, 

when the creditor had specified that 

payment be sent to a different location), 

finance charges may accrue for the 

period between receipt and crediting of 

payments. 

4. Implied guidelines for payments. In 

the absence of specified requirements 

for making payments (See § 226.10(b)): 

i. Payments may be made at any 

location where the creditor conducts 

business. 

ii. Payments may be made any time 

during the creditor’s normal business 

hours. 

iii. Payment may be by cash, money 

order, draft, or other similar instrument 

in properly negotiable form, or by 

electronic fund transfer if the creditor 

and consumer have so agreed. 

5. Payments made at point of sale. If 

a creditor that is a financial institution 

issues a credit card that can be used 

only for transactions with a particular 

merchant or merchants, and a consumer 

is able to make a payment on that credit 

card account at a retail location 


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maintained by such a merchant, that 

retail location is not considered to be a 

branch or office of the creditor for 

purposes of § 226.10(b)(3). 

6. In-person payments on credit card 

accounts. For purposes of § 226.10(b)(3), 

payments made in person at a branch or 

office of a financial institution include 

payments made with the direct 

assistance of, or to, a branch or office 

employee, for example a teller at a bank 

branch. A payment made at the bank 

branch without the direct assistance of 

a branch or office employee, for 

example a payment placed in a branch 

or office mail slot, is not a payment 

made in person for purposes of 

§ 226.10(b)(3). 

10(d) Crediting of payments when 

creditor does not receive or accept 

payments on due date. 

1. Example. A day on which the 

creditor does not receive or accept 

payments by mail may occur, for 

example, if the U.S. Postal Service does 

not deliver mail on that date. 

10(e) Limitations on fees related to 

method of payment. 

1. Separate fee to allow consumers to 

make a payment. For purposes of 

§ 226.10(e), ‘‘separate fee’’ means a fee 

imposed on a consumer for making a 

single payment to the consumer’s 

account. A fee or other charge imposed 

if payment is made after the due date, 

such as a late fee or finance charge, is 

not a separate fee to allow consumers to 

make a payment for purposes of 

§ 226.10(e). 

2. Expedited. For purposes of 

§ 226.10(e), the term ‘‘expedited’’ means 

crediting a payment the same day or, if 

the payment is received after any cut-off 

time established by the creditor, the 

next business day. 

3. Service by a customer service 

representative. Service by a customer 

service representative of a creditor 

means any payment made to the 

consumer’s account with the assistance 

of a live representative or agent of the 

creditor, including those made in 

person, on the telephone, or by 

electronic means. A customer service 

representative does not include 

automated means of making payment 

that do not involve a live representative 

or agent of the creditor, such as a voice 

response unit or interactive voice 

response system. 

10(f) Changes by card issuer. 

1. Address for receiving payment. For 

purposes of § 226.10(f), ‘‘address for 

receiving payment’’ means a mailing 

address for receiving payment, such as 

a post office box, or the address of a 

branch or office at which payments on 

credit card accounts are accepted. 

2. Materiality. For purposes of 

§ 226.10(f), a ‘‘material change’’ means 

any change in the address for receiving 

payment or procedures for handling 

cardholder payments which causes a 

material delay in the crediting of a 

payment. ‘‘Material delay’’ means any 

delay in crediting payment to a 

consumer’s account which would result 

in a late payment and the imposition of 

a late fee or finance charge. A delay in 

crediting a payment which does not 

result in a late fee or finance charge 

would be immaterial. 

3. Safe harbor. A card issuer may 

elect not to impose a late fee or finance 

charge on a consumer’s account for the 

60-day period following a change in 

address for receiving payment or 

procedures for handling cardholder 

payments which could reasonably be 

expected to cause a material delay in 

crediting of a payment to the 

consumer’s account. 

4. Examples. 

i. A card issuer changes the mailing 

address for receiving payments by mail 

from a five-digit postal zip code to a 

nine-digit postal zip code. A consumer 

mails a payment using the five-digit 

postal zip code. The change in mailing 

address is immaterial and it does not 

cause a delay. Therefore, a card issuer 

may impose a late fee or finance charge 

for a late payment on the account. 

ii. A card issuer changes the mailing 

address for receiving payments by mail 

from one post office box number to 

another post office box number. For a 

60-day period following the change, the 

card issuer continues to use both post 

office box numbers for the collection of 

payments received by mail. The change 

in mailing address would not cause a 

material delay in crediting a payment 

because payments would be received 

and credited at both addresses. 

Therefore, a card issuer may impose a 

late fee or finance charge for a late 

payment on the account during the 60- 

day period following the date on which 

the change took effect. 

iii. Same facts as paragraph ii. above, 

except the prior post office box number 

is no longer valid and mail sent to that 

address during the 60-day period 

following the change would be returned 

to sender. The change in mailing 

address is material and the change 

could cause a material delay in the 

crediting of a payment because a 

payment sent to the old address could 

be delayed past the due date. If, as a 

result, a consumer makes a late payment 

on the account during the 60-day period 

following the date on which the change 

took effect, a card issuer may not 

impose any late fee or finance charge for 

the late payment. 

iv. A consumer regularly makes 

payments in person at a local branch of 

a card issuer which maintains offices at 

which payments are accepted on credit 

card accounts. The card issuer 

permanently closes that local branch 

office. The permanent closing of the 

local branch office is a material change 

in address for receiving payment. If, as 

a result, a consumer makes a late 

payment on the account during the 60- 

day period following the date on which 

the change took effect, the card issuer 

may not impose any late fee or finance 

charge for the late payment. 

v. A consumer has elected to make 

payments automatically to a credit card 

account, such as through a payroll 

deduction plan or a third party payor’s 

preauthorized payment arrangement. A 

card issuer changes the procedures for 

handling such payments and as a result, 

a payment is delayed and not credited 

to the consumer’s account before the 

due date. In these circumstances, a card 

issuer may not impose any late fee or 

finance charge during the 60-day period 

following the date on which the change 

took effect for a late payment on the 

account. 

5. Finance charge due to periodic 

interest rate. When an account is not 

eligible for a grace period, imposing a 

finance charge due to a periodic interest 

rate does not constitute imposition of a 

finance charge for a late payment for the 

purposes of § 226.10(f). 

§ 226.11 Treatment of Credit Balances; 

Account Termination. 

11(a) Credit balances. 

1. Timing of refund. The creditor may 

also fulfill its obligations under § 226.11 

by: 

i. Refunding any credit balance to the 

consumer immediately. 

ii. Refunding any credit balance prior 

to receiving a written request (under 

§ 226.11(a)(2)) from the consumer. 

iii. Refunding any credit balance upon 

the consumer’s oral or electronic 

request. 

iv. Making a good faith effort to 

refund any credit balance before 6 

months have passed. If that attempt is 

unsuccessful, the creditor need not try 

again to refund the credit balance at the 

end of the 6-month period. 

2. Amount of refund. The phrases any 

part of the remaining credit balance in 

§ 226.11(a)(2) and any part of the credit 

balance remaining in the account in 

§ 226.11(a)(3) mean the amount of the 

credit balance at the time the creditor is 

required to make the refund. The 

creditor may take into consideration 

intervening purchases or other debits to 

the consumer’s account (including those 

that have not yet been reflected on a 


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periodic statement) that decrease or 

eliminate the credit balance. 

Paragraph 11(a)(2). 

1. Written requests—standing orders. 

The creditor is not required to honor 

standing orders requesting refunds of 

any credit balance that may be created 

on the consumer’s account. 

Paragraph 11(a)(3). 

1. Good faith effort to refund. The 

creditor must take positive steps to 

return any credit balance that has 

remained in the account for over 6 

months. This includes, if necessary, 

attempts to trace the consumer through 

the consumer’s last known address or 

telephone number, or both. 

2. Good faith effort unsuccessful. 

Section 226.11 imposes no further 

duties on the creditor if a good faith 

effort to return the balance is 

unsuccessful. The ultimate disposition 

of the credit balance (or any credit 

balance of $1 or less) is to be 

determined under other applicable law. 

11(b) Account termination. 

Paragraph 11(b)(1). 

1. Expiration date. The credit 

agreement determines whether or not an 

open-end plan has a stated expiration 

(maturity) date. Creditors that offer 

accounts with no stated expiration date 

are prohibited from terminating those 

accounts solely because a consumer 

does not incur a finance charge, even if 

credit cards or other access devices 

associated with the account expire after 

a stated period. Creditors may still 

terminate such accounts for inactivity 

consistent with § 226.11(b)(2). 

11(c) Timely settlement of estate 

debts. 

1. Examples. The following are 

examples of reasonable procedures that 

may satisfy this rule: 

i. A creditor may decline future 

transactions and terminate the account 

upon receiving reasonable notice of the 

consumer’s death. 

ii. A creditor may credit the account 

for fees and charges imposed after the 

date of receiving reasonable notice of 

the consumer’s death. 

iii. A creditor may waive the estate’s 

liability for all charges made to the 

account after receiving reasonable 

notice of the consumer’s death. 

iv. A creditor may authorize an agent 

to handle matters in accordance with 

the requirements of this rule. 

2. Fees and charges. Section 

226.11(c)(2) does not prohibit a creditor 

from imposing finance charges based on 

balances for days that precede the date 

on which the creditor receives a request 

pursuant to § 226.11(c)(3). For example, 

if the last day of the billing cycle is June 

30 and the creditor receives a request 

pursuant to § 226.11(c)(3) on June 25, 

the creditor may charge interest that 

accrued prior to June 25. 

3. Application to joint accounts. A 

creditor may impose fees and charges on 

an account of a deceased consumer if a 

joint accountholder remains on the 

account. If only an authorized user 

remains on the account of a deceased 

consumer, however, then a creditor may 

not impose fees and charges. 

4. Request by an administrator or 

executor of an estate. A creditor may 

receive a request for the amount of the 

balance on a deceased consumer’s 

account in writing or by telephone call 

from the administrator or executor of an 

estate. If a request is made in writing, 

such as by mail, the request is received 

on the date the creditor receives the 

correspondence. 

5. Timely statement of balance. A 

creditor must disclose the balance on a 

deceased consumer’s account, upon 

request by the administrator or executor 

of the decedent’s estate. A creditor may 

provide the amount, if any, by a written 

statement or by telephone. This does not 

preclude a creditor from providing the 

balance amount to appropriate persons, 

other than the administrator or executor, 

such as the spouse or a relative of the 

decedent, who indicate that they may 

pay any balance. This provision does 

not relieve creditors of the requirements 

to provide a periodic statement, under 

§ 226.5(b)(2). A periodic statement, 

under § 226.5(b)(2), may satisfy the 

requirements of § 226.11(c)(3), if 

provided within 30 days of the notice of 

the consumer’s death. 

§ 226.12 Special Credit Card Provisions. 

1. Scope. Sections 226.12(a) and (b) 

deal with the issuance and liability 

rules for credit cards, whether the card 

is intended for consumer, business, or 

any other purposes. Sections 226.12(a) 

and (b) are exceptions to the general 

rule that the regulation applies only to 

consumer credit. (See §§ 226.1 and 

226.3.) 

2. Definition of ‘‘accepted credit 

card’’. For purposes of this section, 

‘‘accepted credit card’’ means any credit 

card that a cardholder has requested or 

applied for and received, or has signed, 

used, or authorized another person to 

use to obtain credit. Any credit card 

issued as a renewal or substitute in 

accordance with § 226.12(a) becomes an 

accepted credit card when received by 

the cardholder. 

12(a) Issuance of credit cards. 

Paragraph 12(a)(1). 

1. Explicit request. A request or 

application for a card must be explicit. 

For example, a request for an overdraft 

plan tied to a checking account does not 

constitute an application for a credit 

card with overdraft checking features. 

2. Addition of credit features. If the 

consumer has a non-credit card, the 

addition of credit features to the card 

(for example, the granting of overdraft 

privileges on a checking account when 

the consumer already has a check 

guarantee card) constitutes issuance of a 

credit card. 

3. Variance of card from request. The 

request or application need not 

correspond exactly to the card that is 

issued. For example: 

i. The name of the card requested may 

be different when issued. 

ii. The card may have features in 

addition to those reflected in the request 

or application. 

4. Permissible form of request. The 

request or application may be oral (in 

response to a telephone solicitation by 

a card issuer, for example) or written. 

5. Time of issuance. A credit card may 

be issued in response to a request made 

before any cards are ready for issuance 

(for example, if a new program is 

established), even if there is some delay 

in issuance. 

6. Persons to whom cards may be 

issued. A card issuer may issue a credit 

card to the person who requests it, and 

to anyone else for whom that person 

requests a card and who will be an 

authorized user on the requester’s 

account. In other words, cards may be 

sent to consumer A on A’s request, and 

also (on A’s request) to consumers B and 

C, who will be authorized users on A’s 

account. In these circumstances, the 

following rules apply: 

i. The additional cards may be 

imprinted in either A’s name or in the 

names of B and C. 

ii. No liability for unauthorized use 

(by persons other than B and C), not 

even the $50, may be imposed on B or 

C since they are merely users and not 

cardholders as that term is defined in 

§ 226.2 and used in § 226.12(b); of 

course, liability of up to $50 for 

unauthorized use of B’s and C’s cards 

may be imposed on A. 

iii. Whether B and C may be held 

liable for their own use, or on the 

account generally, is a matter of State or 

other applicable law. 

7. Issuance of non-credit cards. 

i. General. Under § 226.12(a)(1), a 

credit card cannot be issued except in 

response to a request or an application. 

(See comment 2(a)(15)–2 for examples 

of cards or devices that are and are not 

credit cards.) A non-credit card may be 

sent on an unsolicited basis by an issuer 

that does not propose to connect the 

card to any credit plan; a credit feature 

may be added to a previously issued 


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non-credit card only upon the 

consumer’s specific request. 

ii. Examples. A purchase-price 

discount card may be sent on an 

unsolicited basis by an issuer that does 

not propose to connect the card to any 

credit plan. An issuer demonstrates that 

it proposes to connect the card to a 

credit plan by, for example, including 

promotional materials about credit 

features or account agreements and 

disclosures required by § 226.6. The 

issuer will violate the rule against 

unsolicited issuance if, for example, at 

the time the card is sent a credit plan 

can be accessed by the card or the 

recipient of the unsolicited card has 

been preapproved for credit that the 

recipient can access by contacting the 

issuer and activating the card. 

8. Unsolicited issuance of PINs. A 

card issuer may issue personal 

identification numbers (PINs) to existing 

credit cardholders without a specific 

request from the cardholders, provided 

the PINs cannot be used alone to obtain 

credit. For example, the PINs may be 

necessary if consumers wish to use their 

existing credit cards at automated teller 

machines or at merchant locations with 

point of sale terminals that require PINs. 

Paragraph 12(a)(2). 

1. Renewal. Renewal generally 

contemplates the regular replacement of 

existing cards because of, for example, 

security reasons or new technology or 

systems. It also includes the re-issuance 

of cards that have been suspended 

temporarily, but does not include the 

opening of a new account after a 

previous account was closed. 

2. Substitution—examples. 

Substitution encompasses the 

replacement of one card with another 

because the underlying account 

relationship has changed in some way— 

such as when the card issuer has: 

i. Changed its name. 

ii. Changed the name of the card. 

iii. Changed the credit or other 

features available on the account. For 

example, the original card could be used 

to make purchases and obtain cash 

advances at teller windows. The 

substitute card might be usable, in 

addition, for obtaining cash advances 

through automated teller machines. (If 

the substitute card constitutes an access 

device, as defined in Regulation E, then 

the Regulation E issuance rules would 

have to be followed.) The substitution of 

one card with another on an unsolicited 

basis is not permissible, however, where 

in conjunction with the substitution an 

additional credit card account is opened 

and the consumer is able to make new 

purchases or advances under both the 

original and the new account with the 

new card. For example, if a retail card 

issuer replaces its credit card with a 

combined retailer/bank card, each of the 

creditors maintains a separate account, 

and both accounts can be accessed for 

new transactions by use of the new 

credit card, the card cannot be provided 

to a consumer without solicitation. 

iv. Substituted a card user’s name on 

the substitute card for the cardholder’s 

name appearing on the original card. 

v. Changed the merchant base, 

provided that the new card is honored 

by at least one of the persons that 

honored the original card. However, 

unless the change in the merchant base 

is the addition of an affiliate of the 

existing merchant base, the substitution 

of a new card for another on an 

unsolicited basis is not permissible 

where the account is inactive. A credit 

card cannot be issued in these 

circumstances without a request or 

application. For purposes of § 226.12(a), 

an account is inactive if no credit has 

been extended and if the account has no 

outstanding balance for the prior 24 

months. (See § 226.11(b)(2).) 

3. Substitution—successor card 

issuer. Substitution also occurs when a 

successor card issuer replaces the 

original card issuer (for example, when 

a new card issuer purchases the 

accounts of the original issuer and 

issues its own card to replace the 

original one). A permissible substitution 

exists even if the original issuer retains 

the existing receivables and the new 

card issuer acquires the right only to 

future receivables, provided use of the 

original card is cut off when use of the 

new card becomes possible. 

4. Substitution—non-credit-card plan. 

A credit card that replaces a retailer’s 

open-end credit plan not involving a 

credit card is not considered a substitute 

for the retailer’s plan—even if the 

consumer used the retailer’s plan. A 

credit card cannot be issued in these 

circumstances without a request or 

application. 

5. One-for-one rule. An accepted card 

may be replaced by no more than one 

renewal or substitute card. For example, 

the card issuer may not replace a credit 

card permitting purchases and cash 

advances with two cards, one for the 

purchases and another for the cash 

advances. 

6. One-for-one rule—exceptions. The 

regulation does not prohibit the card 

issuer from: 

i. Replacing a debit/credit card with a 

credit card and another card with only 

debit functions (or debit functions plus 

an associated overdraft capability), since 

the latter card could be issued on an 

unsolicited basis under Regulation E. 

ii. Replacing an accepted card with 

more than one renewal or substitute 

card, provided that: 

A. No replacement card accesses any 

account not accessed by the accepted 

card; 

B. For terms and conditions required 

to be disclosed under § 226.6, all 

replacement cards are issued subject to 

the same terms and conditions, except 

that a creditor may vary terms for which 

no change in terms notice is required 

under § 226.9(c); and 

C. Under the account’s terms the 

consumer’s total liability for 

unauthorized use with respect to the 

account does not increase. 

7. Methods of terminating replaced 

card. The card issuer need not 

physically retrieve the original card, 

provided the old card is voided in some 

way, for example: 

i. The issuer includes with the new 

card a notification that the existing card 

is no longer valid and should be 

destroyed immediately. 

ii. The original card contained an 

expiration date. 

iii. The card issuer, in order to 

preclude use of the card, reprograms 

computers or issues instructions to 

authorization centers. 

8. Incomplete replacement. If a 

consumer has duplicate credit cards on 

the same account (Card A—one type of 

bank credit card, for example), the card 

issuer may not replace the duplicate 

cards with one Card A and one Card B 

(Card B—another type of bank credit 

card) unless the consumer requests Card 

B. 

9. Multiple entities. Where multiple 

entities share responsibilities with 

respect to a credit card issued by one of 

them, the entity that issued the card 

may replace it on an unsolicited basis, 

if that entity terminates the original card 

by voiding it in some way, as described 

in comment 12(a)(2)–7. The other entity 

or entities may not issue a card on an 

unsolicited basis in these 

circumstances. 

12(b) Liability of cardholder for 

unauthorized use. 

1. Meaning of cardholder. For 

purposes of this provision, cardholder 

includes any person (including 

organizations) to whom a credit card is 

issued for any purpose, including 

business. When a corporation is the 

cardholder, required disclosures should 

be provided to the corporation (as 

opposed to an employee user). 

2. Imposing liability. A card issuer is 

not required to impose liability on a 

cardholder for the unauthorized use of 

a credit card; if the card issuer does not 

seek to impose liability, the issuer need 


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not conduct any investigation of the 

cardholder’s claim. 

3. Reasonable investigation. If a card 

issuer seeks to impose liability when a 

claim of unauthorized use is made by a 

cardholder, the card issuer must 

conduct a reasonable investigation of 

the claim. In conducting its 

investigation, the card issuer may 

reasonably request the cardholder’s 

cooperation. The card issuer may not 

automatically deny a claim based solely 

on the cardholder’s failure or refusal to 

comply with a particular request, 

including providing an affidavit or filing 

a police report; however, if the card 

issuer otherwise has no knowledge of 

facts confirming the unauthorized use, 

the lack of information resulting from 

the cardholder’s failure or refusal to 

comply with a particular request may 

lead the card issuer reasonably to 

terminate the investigation. The 

procedures involved in investigating 

claims may differ, but actions such as 

the following represent steps that a card 

issuer may take, as appropriate, in 

conducting a reasonable investigation: 

i. Reviewing the types or amounts of 

purchases made in relation to the 

cardholder’s previous purchasing 

pattern. 

ii. Reviewing where the purchases 

were delivered in relation to the 

cardholder’s residence or place of 

business. 

iii. Reviewing where the purchases 

were made in relation to where the 

cardholder resides or has normally 

shopped. 

iv. Comparing any signature on credit 

slips for the purchases to the signature 

of the cardholder or an authorized user 

in the card issuer’s records, including 

other credit slips. 

v. Requesting documentation to assist 

in the verification of the claim. 

vi. Requiring a written, signed 

statement from the cardholder or 

authorized user. For example, the 

creditor may include a signature line on 

a billing rights form that the cardholder 

may send in to provide notice of the 

claim. However, a creditor may not 

require the cardholder to provide an 

affidavit or signed statement under 

penalty of perjury as part of a reasonable 

investigation. 

vii. Requesting a copy of a police 

report, if one was filed. 

viii. Requesting information regarding 

the cardholder’s knowledge of the 

person who allegedly used the card or 

of that person’s authority to do so. 

4. Checks that access a credit card 

account. The liability provisions for 

unauthorized use under § 226.12(b)(1) 

only apply to transactions involving the 

use of a credit card, and not if an 

unauthorized transaction is made using 

a check accessing the credit card 

account. However, the billing error 

provisions in § 226.13 apply to both of 

these types of transactions. 

12(b)(1)(ii) Limitation on amount. 

1. Meaning of authority. Section 

226.12(b)(1)(i) defines unauthorized use 

in terms of whether the user has actual, 

implied, or apparent authority. Whether 

such authority exists must be 

determined under State or other 

applicable law. 

2. Liability limits—dollar amounts. As 

a general rule, the cardholder’s liability 

for a series of unauthorized uses cannot 

exceed either $50 or the value obtained 

through the unauthorized use before the 

card issuer is notified, whichever is less. 

3. Implied or apparent authority. If a 

cardholder furnishes a credit card and 

grants authority to make credit 

transactions to a person (such as a 

family member or coworker) who 

exceeds the authority given, the 

cardholder is liable for the transaction(s) 

unless the cardholder has notified the 

creditor that use of the credit card by 

that person is no longer authorized. 

4. Credit card obtained through 

robbery or fraud. An unauthorized use 

includes, but is not limited to, a 

transaction initiated by a person who 

has obtained the credit card from the 

consumer, or otherwise initiated the 

transaction, through fraud or robbery. 

12(b)(2) Conditions of liability. 

1. Issuer’s option not to comply. A 

card issuer that chooses not to impose 

any liability on cardholders for 

unauthorized use need not comply with 

the disclosure and identification 

requirements discussed in 

§ 226.12(b)(2). 

Paragraph 12(b)(2)(ii). 

1. Disclosure of liability and means of 

notifying issuer. The disclosures 

referred to in § 226.12(b)(2)(ii) may be 

given, for example, with the initial 

disclosures under § 226.6, on the credit 

card itself, or on periodic statements. 

They may be given at any time 

preceding the unauthorized use of the 

card. 

2. Meaning of ‘‘adequate notice.’’ For 

purposes of this provision, ‘‘adequate 

notice’’ means a printed notice to a 

cardholder that sets forth clearly the 

pertinent facts so that the cardholder 

may reasonably be expected to have 

noticed it and understood its meaning. 

The notice may be given by any means 

reasonably assuring receipt by the 

cardholder. 

Paragraph 12(b)(2)(iii). 

1. Means of identifying cardholder or 

user. To fulfill the condition set forth in 

§ 226.12(b)(2)(iii), the issuer must 

provide some method whereby the 

cardholder or the authorized user can be 

identified. This could include, for 

example, a signature, photograph, or 

fingerprint on the card or other 

biometric means, or electronic or 

mechanical confirmation. 

2. Identification by magnetic strip. 

Unless a magnetic strip (or similar 

device not readable without physical 

aids) must be used in conjunction with 

a secret code or the like, it would not 

constitute sufficient means of 

identification. Sufficient identification 

also does not exist if a ‘‘pool’’ or group 

card, issued to a corporation and signed 

by a corporate agent who will not be a 

user of the card, is intended to be used 

by another employee for whom no 

means of identification is provided. 

3. Transactions not involving card. 

The cardholder may not be held liable 

under § 226.12(b) when the card itself 

(or some other sufficient means of 

identification of the cardholder) is not 

presented. Since the issuer has not 

provided a means to identify the user 

under these circumstances, the issuer 

has not fulfilled one of the conditions 

for imposing liability. For example, 

when merchandise is ordered by 

telephone or the Internet by a person 

without authority to do so, using a 

credit card account number by itself or 

with other information that appears on 

the card (for example, the card 

expiration date and a 3- or 4-digit 

cardholder identification number), no 

liability may be imposed on the 

cardholder. 

12(b)(3) Notification to card issuer. 

1. How notice must be provided. 

Notice given in a normal business 

manner—for example, by mail, 

telephone, or personal visit—is effective 

even though it is not given to, or does 

not reach, some particular person 

within the issuer’s organization. Notice 

also may be effective even though it is 

not given at the address or phone 

number disclosed by the card issuer 

under § 226.12(b)(2)(ii). 

2. Who must provide notice. Notice of 

loss, theft, or possible unauthorized use 

need not be initiated by the cardholder. 

Notice is sufficient so long as it gives 

the ‘‘pertinent information’’ which 

would include the name or card number 

of the cardholder and an indication that 

unauthorized use has or may have 

occurred. 

3. Relationship to § 226.13. The 

liability protections afforded to 

cardholders in § 226.12 do not depend 

upon the cardholder’s following the 

error resolution procedures in § 226.13. 

For example, the written notification 

and time limit requirements of § 226.13 

do not affect the § 226.12 protections. 

(See also comment 12(b)–4.) 


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12(b)(5) Business use of credit cards. 

1. Agreement for higher liability for 

business use cards. The card issuer may 

not rely on § 226.12(b)(5) if the business 

is clearly not in a position to provide 10 

or more cards to employees (for 

example, if the business has only 3 

employees). On the other hand, the 

issuer need not monitor the personnel 

practices of the business to make sure 

that it has at least 10 employees at all 

times. 

2. Unauthorized use by employee. The 

protection afforded to an employee 

against liability for unauthorized use in 

excess of the limits set in § 226.12(b) 

applies only to unauthorized use by 

someone other than the employee. If the 

employee uses the card in an 

unauthorized manner, the regulation 

sets no restriction on the employee’s 

potential liability for such use. 

12(c) Right of cardholder to assert 

claims or defenses against card issuer. 

1. Relationship to § 226.13. The 

§ 226.12(c) credit card ‘‘holder in due 

course’’ provision deals with the 

consumer’s right to assert against the 

card issuer a claim or defense 

concerning property or services 

purchased with a credit card, if the 

merchant has been unwilling to resolve 

the dispute. Even though certain 

merchandise disputes, such as nondelivery of goods, may also constitute 

‘‘billing errors’’ under § 226.13, that 

section operates independently of 

§ 226.12(c). The cardholder whose 

asserted billing error involves 

undelivered goods may institute the 

error resolution procedures of § 226.13; 

but whether or not the cardholder has 

done so, the cardholder may assert 

claims or defenses under § 226.12(c). 

Conversely, the consumer may pay a 

disputed balance and thus have no 

further right to assert claims and 

defenses, but still may assert a billing 

error if notice of that billing error is 

given in the proper time and manner. 

An assertion that a particular 

transaction resulted from unauthorized 

use of the card could also be both a 

‘‘defense’’ and a billing error. 

2. Claims and defenses assertible. 

Section 226.12(c) merely preserves the 

consumer’s right to assert against the 

card issuer any claims or defenses that 

can be asserted against the merchant. It 

does not determine what claims or 

defenses are valid as to the merchant; 

this determination must be made under 

State or other applicable law. 

3. Transactions excluded. Section 

226.12(c) does not apply to the use of 

a check guarantee card or a debit card 

in connection with an overdraft credit 

plan, or to a check guarantee card used 

in connection with cash-advance 

checks. 

4. Method of calculating the amount 

of credit outstanding. The amount of the 

claim or defense that the cardholder 

may assert shall not exceed the amount 

of credit outstanding for the disputed 

transaction at the time the cardholder 

first notifies the card issuer or the 

person honoring the credit card of the 

existence of the claim or defense. To 

determine the amount of credit 

outstanding for purposes of this section, 

payments and other credits shall be 

applied to: (i) Late charges in the order 

of entry to the account; then to (ii) 

finance charges in the order of entry to 

the account; and then to (iii) any other 

debits in the order of entry to the 

account. If more than one item is 

included in a single extension of credit, 

credits are to be distributed pro rata 

according to prices and applicable taxes. 

12(c)(1) General rule. 

1. Situations excluded and included. 

The consumer may assert claims or 

defenses only when the goods or 

services are ‘‘purchased with the credit 

card.’’ This could include mail, the 

Internet or telephone orders, if the 

purchase is charged to the credit card 

account. But it would exclude: 

i. Use of a credit card to obtain a cash 

advance, even if the consumer then uses 

the money to purchase goods or 

services. Such a transaction would not 

involve ‘‘property or services purchased 

with the credit card.’’ 

ii. The purchase of goods or services 

by use of a check accessing an overdraft 

account and a credit card used solely for 

identification of the consumer. (On the 

other hand, if the credit card is used to 

make partial payment for the purchase 

and not merely for identification, the 

right to assert claims or defenses would 

apply to credit extended via the credit 

card, although not to the credit 

extended on the overdraft line.) 

iii. Purchases made by use of a check 

guarantee card in conjunction with a 

cash advance check (or by cash advance 

checks alone). (See comment 12(c)–3.) A 

cash advance check is a check that, 

when written, does not draw on an asset 

account; instead, it is charged entirely to 

an open-end credit account. 

iv. Purchases effected by use of either 

a check guarantee card or a debit card 

when used to draw on overdraft credit 

plans. (See comment 12(c)–3.) The debit 

card exemption applies whether the 

card accesses an asset account via point 

of sale terminals, automated teller 

machines, or in any other way, and 

whether the card qualifies as an ‘‘access 

device’’ under Regulation E or is only a 

paper based debit card. If a card serves 

both as an ordinary credit card and also 

as check guarantee or debit card, a 

transaction will be subject to this rule 

on asserting claims and defenses when 

used as an ordinary credit card, but not 

when used as a check guarantee or debit 

card. 

12(c)(2) Adverse credit reports 

prohibited. 

1. Scope of prohibition. Although an 

amount in dispute may not be reported 

as delinquent until the matter is 

resolved: 

i. That amount may be reported as 

disputed. 

ii. Nothing in this provision prohibits 

the card issuer from undertaking its 

normal collection activities for the 

delinquent and undisputed portion of 

the account. 

2. Settlement of dispute. A card issuer 

may not consider a dispute settled and 

report an amount disputed as 

delinquent or begin collection of the 

disputed amount until it has completed 

a reasonable investigation of the 

cardholder’s claim. A reasonable 

investigation requires an independent 

assessment of the cardholder’s claim 

based on information obtained from 

both the cardholder and the merchant, 

if possible. In conducting an 

investigation, the card issuer may 

request the cardholder’s reasonable 

cooperation. The card issuer may not 

automatically consider a dispute settled 

if the cardholder fails or refuses to 

comply with a particular request. 

However, if the card issuer otherwise 

has no means of obtaining information 

necessary to resolve the dispute, the 

lack of information resulting from the 

cardholder’s failure or refusal to comply 

with a particular request may lead the 

card issuer reasonably to terminate the 

investigation. 

12(c)(3) Limitations. 

Paragraph 12(c)(3)(i)(A). 

1. Resolution with merchant. The 

consumer must have tried to resolve the 

dispute with the merchant. This does 

not require any special procedures or 

correspondence between them, and is a 

matter for factual determination in each 

case. The consumer is not required to 

seek satisfaction from the manufacturer 

of the goods involved. When the 

merchant is in bankruptcy proceedings, 

the consumer is not required to file a 

claim in those proceedings, and may 

instead file a claim for the property or 

service purchased with the credit card 

with the card issuer directly. 

Paragraph 12(c)(3)(i)(B). 

1. Geographic limitation. The 

question of where a transaction occurs 

(as in the case of mail, Internet, or 

telephone orders, for example) is to be 

determined under State or other 

applicable law. 


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Paragraph 12(c)(3)(ii). 

1. Merchant honoring card. The 

exceptions (stated in § 226.12(c)(3)(ii)) 

to the amount and geographic 

limitations in § 226.12(c)(3)(i)(B) do not 

apply if the merchant merely honors, or 

indicates through signs or advertising 

that it honors, a particular credit card. 

12(d) Offsets by card issuer 

prohibited. 

Paragraph 12(d)(1). 

1. Holds on accounts. ‘‘Freezing’’ or 

placing a hold on funds in the 

cardholder’s deposit account is the 

functional equivalent of an offset and 

would contravene the prohibition in 

§ 226.12(d)(1), unless done in the 

context of one of the exceptions 

specified in § 226.12(d)(2). For example, 

if the terms of a security agreement 

permitted the card issuer to place a hold 

on the funds, the hold would not violate 

the offset prohibition. Similarly, if an 

order of a bankruptcy court required the 

card issuer to turn over deposit account 

funds to the trustee in bankruptcy, the 

issuer would not violate the regulation 

by placing a hold on the funds in order 

to comply with the court order. 

2. Funds intended as deposits. If the 

consumer tenders funds as a deposit (to 

a checking account, for example), the 

card issuer may not apply the funds to 

repay indebtedness on the consumer’s 

credit card account. 

3. Types of indebtedness; overdraft 

accounts. The offset prohibition applies 

to any indebtedness arising from 

transactions under a credit card plan, 

including accrued finance charges and 

other charges on the account. The 

prohibition also applies to balances 

arising from transactions not using the 

credit card itself but taking place under 

plans that involve credit cards. For 

example, if the consumer writes a check 

that accesses an overdraft line of credit, 

the resulting indebtedness is subject to 

the offset prohibition since it is incurred 

through a credit card plan, even though 

the consumer did not use an associated 

check guarantee or debit card. 

4. When prohibition applies in case of 

termination of account. The offset 

prohibition applies even after the card 

issuer terminates the cardholder’s credit 

card privileges, if the indebtedness was 

incurred prior to termination. If the 

indebtedness was incurred after 

termination, the prohibition does not 

apply. 

Paragraph 12(d)(2). 

1. Security interest—limitations. In 

order to qualify for the exception stated 

in § 226.12(d)(2), a security interest 

must be affirmatively agreed to by the 

consumer and must be disclosed in the 

issuer’s account-opening disclosures 

under § 226.6. The security interest 

must not be the functional equivalent of 

a right of offset; as a result, routinely 

including in agreements contract 

language indicating that consumers are 

giving a security interest in any deposit 

accounts maintained with the issuer 

does not result in a security interest that 

falls within the exception in 

§ 226.12(d)(2). For a security interest to 

qualify for the exception under 

§ 226.12(d)(2) the following conditions 

must be met: 

i. The consumer must be aware that 

granting a security interest is a 

condition for the credit card account (or 

for more favorable account terms) and 

must specifically intend to grant a 

security interest in a deposit account. 

Indicia of the consumer’s awareness and 

intent include at least one of the 

following (or a substantially similar 

procedure that evidences the 

consumer’s awareness and intent): 

A. Separate signature or initials on the 

agreement indicating that a security 

interest is being given. 

B. Placement of the security 

agreement on a separate page, or 

otherwise separating the security 

interest provisions from other contract 

and disclosure provisions. 

C. Reference to a specific amount of 

deposited funds or to a specific deposit 

account number. 

ii. The security interest must be 

obtainable and enforceable by creditors 

generally. If other creditors could not 

obtain a security interest in the 

consumer’s deposit accounts to the 

same extent as the card issuer, the 

security interest is prohibited by 

§ 226.12(d)(2). 

2. Security interest—after-acquired 

property. As used in § 226.12(d), the 

term ‘‘security interest’’ does not 

exclude (as it does for other Regulation 

Z purposes) interests in after-acquired 

property. Thus, a consensual security 

interest in deposit-account funds, 

including funds deposited after the 

granting of the security interest would 

constitute a permissible exception to the 

prohibition on offsets. 

3. Court order. If the card issuer 

obtains a judgment against the 

cardholder, and if State and other 

applicable law and the terms of the 

judgment do not so prohibit, the card 

issuer may offset the indebtedness 

against the cardholder’s deposit 

account. 

Paragraph 12(d)(3). 

1. Automatic payment plans—scope 

of exception. With regard to automatic 

debit plans under § 226.12(d)(3), the 

following rules apply: 

i. The cardholder’s authorization must 

be in writing and signed or initialed by 

the cardholder. 

ii. The authorizing language need not 

appear directly above or next to the 

cardholder’s signature or initials, 

provided it appears on the same 

document and that it clearly spells out 

the terms of the automatic debit plan. 

iii. If the cardholder has the option to 

accept or reject the automatic debit 

feature (such option may be required 

under section 913 of the Electronic 

Fund Transfer Act), the fact that the 

option exists should be clearly 

indicated. 

2. Automatic payment plans— 

additional exceptions. The following 

practices are not prohibited by 

§ 226.12(d)(1): 

i. Automatically deducting charges for 

participation in a program of banking 

services (one aspect of which may be a 

credit card plan). 

ii. Debiting the cardholder’s deposit 

account on the cardholder’s specific 

request rather than on an automatic 

periodic basis (for example, a 

cardholder might check a box on the 

credit card bill stub, requesting the 

issuer to debit the cardholder’s account 

to pay that bill). 

12(e) Prompt notification of returns 

and crediting of refunds. 

Paragraph 12(e)(1). 

1. Normal channels. The term normal 

channels refers to any network or 

interchange system used for the 

processing of the original charge slips 

(or equivalent information concerning 

the transaction). 

Paragraph 12(e)(2). 

1. Crediting account. The card issuer 

need not actually post the refund to the 

consumer’s account within three 

business days after receiving the credit 

statement, provided that it credits the 

account as of a date within that time 

period. 

§ 226.13 Billing Error Resolution. 

1. Creditor’s failure to comply with 

billing error provisions. Failure to 

comply with the error resolution 

procedures may result in the forfeiture 

of disputed amounts as prescribed in 

section 161(e) of the act. (Any failure to 

comply may also be a violation subject 

to the liability provisions of section 130 

of the act.) 

2. Charges for error resolution. If a 

billing error occurred, whether as 

alleged or in a different amount or 

manner, the creditor may not impose a 

charge related to any aspect of the error 

resolution process (including charges 

for documentation or investigation) and 

must credit the consumer’s account if 

such a charge was assessed pending 

resolution. Since the act grants the 

consumer error resolution rights, the 

creditor should avoid any chilling effect 


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on the good faith assertion of errors that 

might result if charges are assessed 

when no billing error has occurred. 

13(a) Definition of billing error. 

Paragraph 13(a)(1). 

1. Actual, implied, or apparent 

authority. Whether use of a credit card 

or open-end credit plan is authorized is 

determined by State or other applicable 

law. (See comment 12(b)(1)(ii)–1.) 

Paragraph 13(a)(3). 

1. Coverage. i. Section 226.13(a)(3) 

covers disputes about goods or services 

that are ‘‘not accepted’’ or ‘‘not 

delivered * * * as agreed’’; for 

example: 

A. The appearance on a periodic 

statement of a purchase, when the 

consumer refused to take delivery of 

goods because they did not comply with 

the contract. 

B. Delivery of property or services 

different from that agreed upon. 

C. Delivery of the wrong quantity. 

D. Late delivery. 

E. Delivery to the wrong location. 

ii. Section 226.13(a)(3) does not apply 

to a dispute relating to the quality of 

property or services that the consumer 

accepts. Whether acceptance occurred is 

determined by State or other applicable 

law. 

2. Application to purchases made 

using a third-party payment 

intermediary. Section 226.13(a)(3) 

generally applies to disputes about 

goods and services that are purchased 

using a third-party payment 

intermediary, such as a person-toperson Internet payment service, funded 

through use of a consumer’s open-end 

credit plan when the goods or services 

are not accepted by the consumer or not 

delivered to the consumer as agreed. 

However, the extension of credit must 

be made at the time the consumer 

purchases the good or service and match 

the amount of the transaction to 

purchase the good or service (including 

ancillary taxes and fees). Under these 

circumstances, the property or service 

for which the extension of credit is 

made is not the payment service, but 

rather the good or service that the 

consumer has purchased using the 

payment service. Thus, for example, 

§ 226.13(a)(3) would not apply to 

purchases using a third party payment 

intermediary that is funded through use 

of an open-end credit plan if: 

i. The extension of credit is made to 

fund the third-party payment 

intermediary ‘‘account,’’ but the 

consumer does not contemporaneously 

use those funds to purchase a good or 

service at that time. 

ii. The extension of credit is made to 

fund only a portion of the purchase 

amount, and the consumer uses other 

sources to fund the remaining amount. 

3. Notice to merchant not required. A 

consumer is not required to first notify 

the merchant or other payee from whom 

he or she has purchased goods or 

services and attempt to resolve a dispute 

regarding the good or service before 

providing a billing-error notice to the 

creditor under § 226.13(a)(3) asserting 

that the goods or services were not 

accepted or delivered as agreed. 

Paragraph 13(a)(5). 

1. Computational errors. In periodic 

statements that are combined with other 

information, the error resolution 

procedures are triggered only if the 

consumer asserts a computational 

billing error in the credit-related portion 

of the periodic statement. For example, 

if a bank combines a periodic statement 

reflecting the consumer’s credit card 

transactions with the consumer’s 

monthly checking statement, a 

computational error in the checking 

account portion of the combined 

statement is not a billing error. 

Paragraph 13(a)(6). 

1. Documentation requests. A request 

for documentation such as receipts or 

sales slips, unaccompanied by an 

allegation of an error under § 226.13(a) 

or a request for additional clarification 

under § 226.13(a)(6), does not trigger the 

error resolution procedures. For 

example, a request for documentation 

merely for purposes such as tax 

preparation or recordkeeping does not 

trigger the error resolution procedures. 

13(b) Billing error notice. 

1. Withdrawal of billing error notice 

by consumer. The creditor need not 

comply with the requirements of 

§ 226.13(c) through (g) of this section if 

the consumer concludes that no billing 

error occurred and voluntarily 

withdraws the billing error notice. The 

consumer’s withdrawal of a billing error 

notice may be oral, electronic or written. 

2. Form of written notice. The creditor 

may require that the written notice not 

be made on the payment medium or 

other material accompanying the 

periodic statement if the creditor so 

stipulates in the billing rights statement 

required by §§ 226.6(a)(5) or (b)(5)(iii), 

and 226.9(a). In addition, if the creditor 

stipulates in the billing rights statement 

that it accepts billing error notices 

submitted electronically, and states the 

means by which a consumer may 

electronically submit a billing error 

notice, a notice sent in such manner 

will be deemed to satisfy the written 

notice requirement for purposes of 

§ 226.13(b). 

Paragraph 13(b)(1). 

1. Failure to send periodic 

statement—timing. If the creditor has 

failed to send a periodic statement, the 

60-day period runs from the time the 

statement should have been sent. Once 

the statement is provided, the consumer 

has another 60 days to assert any billing 

errors reflected on it. 

2. Failure to reflect credit—timing. If 

the periodic statement fails to reflect a 

credit to the account, the 60-day period 

runs from transmittal of the statement 

on which the credit should have 

appeared. 

3. Transmittal. If a consumer has 

arranged for periodic statements to be 

held at the financial institution until 

called for, the statement is 

‘‘transmitted’’ when it is first made 

available to the consumer. 

Paragraph 13(b)(2). 

1. Identity of the consumer. The 

billing error notice need not specify 

both the name and the account number 

if the information supplied enables the 

creditor to identify the consumer’s name 

and account. 

13(c) Time for resolution; general 

procedures. 

1. Temporary or provisional 

corrections. A creditor may temporarily 

correct the consumer’s account in 

response to a billing error notice, but is 

not excused from complying with the 

remaining error resolution procedures 

within the time limits for resolution. 

2. Correction without investigation. A 

creditor may correct a billing error in 

the manner and amount asserted by the 

consumer without the investigation or 

the determination normally required. 

The creditor must comply, however, 

with all other applicable provisions. If 

a creditor follows this procedure, no 

presumption is created that a billing 

error occurred. 

3. Relationship with § 226.12. The 

consumer’s rights under the billing error 

provisions in § 226.13 are independent 

of the provisions set forth in § 226.12(b) 

and (c). (See comments 12(b)–4, 

12(b)(3)–3, and 12(c)–1.) 

Paragraph 13(c)(2). 

1. Time for resolution. The phrase two 

complete billing cycles means two 

actual billing cycles occurring after 

receipt of the billing error notice, not a 

measure of time equal to two billing 

cycles. For example, if a creditor on a 

monthly billing cycle receives a billing 

error notice mid-cycle, it has the 

remainder of that cycle plus the next 

two full billing cycles to resolve the 

error. 

2. Finality of error resolution 

procedure. A creditor must comply with 

the error resolution procedures and 

complete its investigation to determine 

whether an error occurred within two 

complete billing cycles as set forth in 

paragraph (c)(2) of this section. Thus, 


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for example, the creditor would be 

prohibited from reversing amounts 

previously credited for an alleged 

billing error even if the creditor obtains 

evidence after the error resolution time 

period has passed indicating that the 

billing error did not occur as asserted by 

the consumer. Similarly, if a creditor 

fails to mail or deliver a written 

explanation setting forth the reason why 

the billing error did not occur as 

asserted, or otherwise fails to comply 

with the error resolution procedures set 

forth in § 226.13(f), the creditor 

generally must credit the disputed 

amount and related finance or other 

charges, as applicable, to the consumer’s 

account. 

13(d) Rules pending resolution. 

1. Disputed amount. Disputed amount 

is the dollar amount alleged by the 

consumer to be in error. When the 

allegation concerns the description or 

identification of the transaction (such as 

the date or the seller’s name) rather than 

a dollar amount, the disputed amount is 

the amount of the transaction or charge 

that corresponds to the disputed 

transaction identification. If the 

consumer alleges a failure to send a 

periodic statement under § 226.13(a)(7), 

the disputed amount is the entire 

balance owing. 

13(d)(1) Consumer’s right to withhold 

disputed amount; collection action 

prohibited. 

1. Prohibited collection actions. 

During the error resolution period, the 

creditor is prohibited from trying to 

collect the disputed amount from the 

consumer. Prohibited collection actions 

include, for example, instituting court 

action, taking a lien, or instituting 

attachment proceedings. 

2. Right to withhold payment. If the 

creditor reflects any disputed amount or 

related finance or other charges on the 

periodic statement, and is therefore 

required to make the disclosure under 

§ 226.13(d)(4), the creditor may comply 

with that disclosure requirement by 

indicating that payment of any disputed 

amount is not required pending 

resolution. Making a disclosure that 

only refers to the disputed amount 

would, of course, in no way affect the 

consumer’s right under § 226.13(d)(1) to 

withhold related finance and other 

charges. The disclosure under 

§ 226.13(d)(4) need not appear in any 

specific place on the periodic statement, 

need not state the specific amount that 

the consumer may withhold, and may 

be preprinted on the periodic statement. 

3. Imposition of additional charges on 

undisputed amounts. The consumer’s 

withholding of a disputed amount from 

the total bill cannot subject undisputed 

balances (including new purchases or 

cash advances made during the present 

or subsequent cycles) to the imposition 

of finance or other charges. For 

example, if on an account with a grace 

period (that is, an account in which 

paying the new balance in full allows 

the consumer to avoid the imposition of 

additional finance charges), a consumer 

disputes a $2 item out of a total bill of 

$300 and pays $298 within the grace 

period, the consumer would not lose the 

grace period as to any undisputed 

amounts, even if the creditor determines 

later that no billing error occurred. 

Furthermore, finance or other charges 

may not be imposed on any new 

purchases or advances that, absent the 

unpaid disputed balance, would not 

have finance or other charges imposed 

on them. Finance or other charges that 

would have been incurred even if the 

consumer had paid the disputed amount 

would not be affected. 

4. Automatic payment plans— 

coverage. The coverage of this provision 

is limited to the card issuer’s automatic 

payment plans, whether or not the 

consumer’s asset account is held by the 

card issuer or by another financial 

institution. It does not apply to 

automatic or bill-payment plans offered 

by financial institutions other than the 

credit card issuer. 

5. Automatic payment plans—time of 

notice. While the card issuer does not 

have to restore or prevent the debiting 

of a disputed amount if the billing error 

notice arrives after the three businessday cut-off, the card issuer must, 

however, prevent the automatic debit of 

any part of the disputed amount that is 

still outstanding and unresolved at the 

time of the next scheduled debit date. 

13(d)(2) Adverse credit reports 

prohibited. 

1. Report of dispute. Although the 

creditor must not issue an adverse credit 

report because the consumer fails to pay 

the disputed amount or any related 

charges, the creditor may report that the 

amount or the account is in dispute. 

Also, the creditor may report the 

account as delinquent if undisputed 

amounts remain unpaid. 

2. Person. During the error resolution 

period, the creditor is prohibited from 

making an adverse credit report about 

the disputed amount to any person— 

including employers, insurance 

companies, other creditors, and credit 

bureaus. 

3. Creditor’s agent. Whether an 

agency relationship exists between a 

creditor and an issuer of an adverse 

credit report is determined by State or 

other applicable law. 

13(e) Procedures if billing error 

occurred as asserted. 

1. Correction of error. The phrase as 

applicable means that the necessary 

corrections vary with the type of billing 

error that occurred. For example, a 

misidentified transaction (or a 

transaction that is identified by one of 

the alternative methods in § 226.8) is 

cured by properly identifying the 

transaction and crediting related finance 

and any other charges imposed. The 

creditor is not required to cancel the 

amount of the underlying obligation 

incurred by the consumer. 

2. Form of correction notice. The 

written correction notice may take a 

variety of forms. It may be sent 

separately, or it may be included on or 

with a periodic statement that is mailed 

within the time for resolution. If the 

periodic statement is used, the amount 

of the billing error must be specifically 

identified. If a separate billing error 

correction notice is provided, the 

accompanying or subsequent periodic 

statement reflecting the corrected 

amount may simply identify it as credit. 

3. Discovery of information after 

investigation period. See comment 

13(c)(2)–2. 

13(f) Procedures if different billing 

error or no billing error occurred. 

1. Different billing error. Examples of 

a different billing error include: 

i. Differences in the amount of an 

error (for example, the customer asserts 

a $55.00 error but the error was only 

$53.00). 

ii. Differences in other particulars 

asserted by the consumer (such as when 

a consumer asserts that a particular 

transaction never occurred, but the 

creditor determines that only the seller’s 

name was disclosed incorrectly). 

2. Form of creditor’s explanation. The 

written explanation (which also may 

notify the consumer of corrections to the 

account) may take a variety of forms. It 

may be sent separately, or it may be 

included on or with a periodic 

statement that is mailed within the time 

for resolution. If the creditor uses the 

periodic statement for the explanation 

and correction(s), the corrections must 

be specifically identified. If a separate 

explanation, including the correction 

notice, is provided, the enclosed or 

subsequent periodic statement reflecting 

the corrected amount may simply 

identify it as a credit. The explanation 

may be combined with the creditor’s 

notice to the consumer of amounts still 

owing, which is required under 

§ 226.13(g)(1), provided it is sent within 

the time limit for resolution. (See 

commentary to § 226.13(e).) 

3. Reasonable investigation. A 

creditor must conduct a reasonable 

investigation before it determines that 

no billing error occurred or that a 


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different billing error occurred from that 

asserted. In conducting its investigation 

of an allegation of a billing error, the 

creditor may reasonably request the 

consumer’s cooperation. The creditor 

may not automatically deny a claim 

based solely on the consumer’s failure 

or refusal to comply with a particular 

request, including providing an affidavit 

or filing a police report. However, if the 

creditor otherwise has no knowledge of 

facts confirming the billing error, the 

lack of information resulting from the 

consumer’s failure or refusal to comply 

with a particular request may lead the 

creditor reasonably to terminate the 

investigation. The procedures involved 

in investigating alleged billing errors 

may differ depending on the billing 

error type. 

i. Unauthorized transaction. In 

conducting an investigation of a notice 

of billing error alleging an unauthorized 

transaction under § 226.13(a)(1), actions 

such as the following represent steps 

that a creditor may take, as appropriate, 

in conducting a reasonable 

investigation: 

A. Reviewing the types or amounts of 

purchases made in relation to the 

consumer’s previous purchasing 

pattern. 

B. Reviewing where the purchases 

were delivered in relation to the 

consumer’s residence or place of 

business. 

C. Reviewing where the purchases 

were made in relation to where the 

consumer resides or has normally 

shopped. 

D. Comparing any signature on credit 

slips for the purchases to the signature 

of the consumer (or an authorized user 

in the case of a credit card account) in 

the creditor’s records, including other 

credit slips. 

E. Requesting documentation to assist 

in the verification of the claim. 

F. Requesting a written, signed 

statement from the consumer (or 

authorized user, in the case of a credit 

card account). For example, the creditor 

may include a signature line on a billing 

rights form that the consumer may send 

in to provide notice of the claim. 

However, a creditor may not require the 

consumer to provide an affidavit or 

signed statement under penalty of 

perjury as a part of a reasonable 

investigation. 

G. Requesting a copy of a police 

report, if one was filed. 

H. Requesting information regarding 

the consumer’s knowledge of the person 

who allegedly obtained an extension of 

credit on the account or of that person’s 

authority to do so. 

ii. Nondelivery of property or services. 

In conducting an investigation of a 

billing error notice alleging the 

nondelivery of property or services 

under § 226.13(a)(3), the creditor shall 

not deny the assertion unless it 

conducts a reasonable investigation and 

determines that the property or services 

were actually delivered, mailed, or sent 

as agreed. 

iii. Incorrect information. In 

conducting an investigation of a billing 

error notice alleging that information 

appearing on a periodic statement is 

incorrect because a person honoring the 

consumer’s credit card or otherwise 

accepting an access device for an openend plan has made an incorrect report 

to the creditor, the creditor shall not 

deny the assertion unless it conducts a 

reasonable investigation and determines 

that the information was correct. 

13(g) Creditor’s rights and duties after 

resolution. 

Paragraph 13(g)(1). 

1. Amounts owed by consumer. 

Amounts the consumer still owes may 

include both minimum periodic 

payments and related finance and other 

charges that accrued during the 

resolution period. As explained in the 

commentary to § 226.13(d)(1), even if 

the creditor later determines that no 

billing error occurred, the creditor may 

not include finance or other charges that 

are imposed on undisputed balances 

solely as a result of a consumer’s 

withholding payment of a disputed 

amount. 

2. Time of notice. The creditor need 

not send the notice of amount owed 

within the time period for resolution, 

although it is under a duty to send the 

notice promptly after resolution of the 

alleged error. If the creditor combines 

the notice of the amount owed with the 

explanation required under 

§ 226.13(f)(1), the combined notice must 

be provided within the time limit for 

resolution. 

Paragraph 13(g)(2). 

1. Grace period if no error occurred. 

If the creditor determines, after a 

reasonable investigation, that a billing 

error did not occur as asserted, and the 

consumer was entitled to a grace period 

at the time the consumer provided the 

billing error notice, the consumer must 

be given a period of time equal to the 

grace period disclosed under 

§ 226.6(a)(1) or (b)(2) and § 226.7(a)(8) or 

(b)(8) to pay any disputed amounts due 

without incurring additional finance or 

other charges. However, the creditor 

need not allow a grace period disclosed 

under the above-mentioned sections to 

pay the amount due under § 226.13(g)(1) 

if no error occurred and the consumer 

was not entitled to a grace period at the 

time the consumer asserted the error. 

For example, assume that a creditor 

provides a consumer a grace period of 

20 days to pay a new balance to avoid 

finance charges, and that the consumer 

did not carry an outstanding balance 

from the prior month. If the consumer 

subsequently asserts a billing error for 

the current statement period within the 

20-day grace period, and the creditor 

determines that no billing error in fact 

occurred, the consumer must be given at 

least 20 days (i.e., the full disclosed 

grace period) to pay the amount due 

without incurring additional finance 

charges. Conversely, if the consumer 

was not entitled to a grace period at the 

time the consumer asserted the billing 

error, for example, if the consumer did 

not pay the previous monthly balance of 

undisputed charges in full, the creditor 

may assess finance charges on the 

disputed balance for the entire period 

the item was in dispute. 

Paragraph 13(g)(3). 

1. Time for payment. The consumer 

has a minimum of 10 days to pay 

(measured from the time the consumer 

could reasonably be expected to have 

received notice of the amount owed) 

before the creditor may issue an adverse 

credit report; if an initially disclosed 

grace period allows the consumer a 

longer time in which to pay, the 

consumer has the benefit of that longer 

period. 

Paragraph 13(g)(4). 

1. Credit reporting. Under 

§ 226.13(g)(4)(i) and (iii) the creditor’s 

additional credit reporting 

responsibilities must be accomplished 

promptly. The creditor need not 

establish costly procedures to fulfill this 

requirement. For example, a creditor 

that reports to a credit bureau on 

scheduled updates need not transmit 

corrective information by an 

unscheduled computer or magnetic 

tape; it may provide the credit bureau 

with the correct information by letter or 

other commercially reasonable means 

when using the scheduled update 

would not be ‘‘prompt.’’ The creditor is 

not responsible for ensuring that the 

credit bureau corrects its information 

immediately. 

2. Adverse report to credit bureau. If 

a creditor made an adverse report to a 

credit bureau that disseminated the 

information to other creditors, the 

creditor fulfills its § 226.13(g)(4)(ii) 

obligations by providing the consumer 

with the name and address of the credit 

bureau. 

13(i) Relation to Electronic Fund 

Transfer Act and Regulation E. 

1. Coverage. Credit extended directly 

from a non-overdraft credit line is 

governed solely by Regulation Z, even 

though a combined credit card/access 

device is used to obtain the extension. 


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2. Incidental credit under agreement. 

Credit extended incident to an 

electronic fund transfer under an 

agreement between the consumer and 

the financial institution is governed by 

§ 226.13(i), which provides that certain 

error resolution procedures in both this 

regulation and Regulation E apply. 

Incidental credit that is not extended 

under an agreement between the 

consumer and the financial institution 

is governed solely by the error 

resolution procedures in Regulation E. 

For example, credit inadvertently 

extended incident to an electronic fund 

transfer, such as under an overdraft 

service not subject to Regulation Z, is 

governed solely by the Regulation E 

error resolution procedures, if the bank 

and the consumer do not have an 

agreement to extend credit when the 

consumer’s account is overdrawn. 

3. Application to debit/credit 

transactions-examples. If a consumer 

withdraws money at an automated teller 

machine and activates an overdraft 

credit feature on the checking account: 

i. An error asserted with respect to the 

transaction is subject, for error 

resolution purposes, to the applicable 

Regulation E provisions (such as timing 

and notice) for the entire transaction. 

ii. The creditor need not provisionally 

credit the consumer’s account, under 

§ 205.11(c)(2)(i) of Regulation E, for any 

portion of the unpaid extension of 

credit. 

iii. The creditor must credit the 

consumer’s account under § 205.11(c) 

with any finance or other charges 

incurred as a result of the alleged error. 

iv. The provisions of §§ 226.13(d) and 

(g) apply only to the credit portion of 

the transaction. 

§ 226.14 Determination of Annual 

Percentage Rate. 

14(a) General rule. 

1. Tolerance. The tolerance of 1⁄8 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 

§§ 226.5a, 226.5b, 226.6, 226.7, 226.9, 

226.15, 226.16, 226.26, 226.55, and 

226.56. 

2. Rounding. The regulation does not 

require that the annual percentage rate 

be calculated to any particular number 

of decimal places; rounding is 

permissible within the 1⁄8 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 141⁄4%; but it could not be stated as 

14.2% or 14%, since each varies by 

more than the permitted tolerance. 

3. Periodic rates. No explicit tolerance 

exists for any periodic rate as such; a 

disclosed periodic rate may vary from 

precise accuracy (for example, due to 

rounding) only to the extent that its 

annualized equivalent is within the 

tolerance permitted by § 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, 226.26, 

226.55, and 226.56, the annual 

percentage rate is determined by 

multiplying the periodic rate by the 

number of periods in the year. This 

computation reflects the fact that, in 

such disclosures, the rate (known as the 

corresponding annual percentage rate) is 

prospective and does not involve any 

particular finance charge or periodic 

balance. 

14(c) Optional effective annual 

percentage rate for periodic statements 

for creditors offering open-end plans 

subject to the requirements of § 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 11⁄2 percent per month. 

5. Prior-cycle adjustments. i. The 

annual percentage rate reflects the 

finance charges imposed during the 

billing cycle. However, finance charges 

imposed during the billing cycle may 


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relate to activity in a prior cycle. 

Examples of circumstances when this 

may occur are: 

A. A cash advance occurs on the last 

day of a billing cycle on an account that 

uses the transaction date to figure 

finance charges, and it is impracticable 

to post the transaction until the 

following cycle. 

B. An adjustment to the finance 

charge is made following the resolution 

of a billing error dispute. 

C. A consumer fails to pay the 

purchase balance under a deferred 

payment feature by the payment due 

date, and finance charges are imposed 

from the date of purchase. 

ii. Finance charges relating to activity 

in prior cycles should be reflected on 

the periodic statement as follows: 

A. If a finance charge imposed in the 

current billing cycle is attributable to 

periodic rates applicable to prior billing 

cycles (such as when a deferred 

payment balance was not paid in full by 

the payment due date and finance 

charges from the date of purchase are 

now being debited to the account, or 

when a cash advance occurs on the last 

day of a billing cycle on an account that 

uses the transaction date to figure 

finance charges and it is impracticable 

to post the transaction until the 

following cycle), and the creditor uses 

the quotient method to calculate the 

annual percentage rate, the numerator 

would include the amount of any 

transaction charges plus any other 

finance charges posted during the 

billing cycle. At the creditor’s option, 

balances relating to the finance charge 

adjustment may be included in the 

denominator if permitted by the legal 

obligation, if it was impracticable to 

post the transaction in the previous 

cycle because of timing, or if the 

adjustment is covered by comment 

14(c)–5.ii.B. 

B. If a finance charge that is posted to 

the account relates to activity for which 

a finance charge was debited or credited 

to the account in a previous billing 

cycle (for example, if the finance charge 

relates to an adjustment such as the 

resolution of a billing error dispute, or 

an unintentional posting error, or a 

payment by check that was later 

returned unpaid for insufficient funds 

or other reasons), the creditor shall at its 

option: 

1. Calculate the annual percentage 

rate in accordance with ii.A. of this 

paragraph, or 

2. Disclose the finance charge 

adjustment on the periodic statement 

and calculate the annual percentage rate 

for the current billing cycle without 

including the finance charge adjustment 

in the numerator and balances 

associated with the finance charge 

adjustment in the denominator. 

14(c)(1) Solely periodic rates imposed. 

1. Periodic rates. Section 226.14(c)(1) 

applies if the only finance charge 

imposed is due to the application of a 

periodic rate to a balance. The creditor 

may compute the annual percentage rate 

either: 

i. By multiplying each periodic rate 

by the number of periods in the year; or 

ii. By the ‘‘quotient’’ method. This 

method refers to a composite annual 

percentage rate when different periodic 

rates apply to different balances. For 

example, a particular plan may involve 

a periodic rate of 11⁄2 percent on 

balances up to $500, and 1 percent on 

balances over $500. If, in a given cycle, 

the consumer has a balance of $800, the 

finance charge would consist of $7.50 

(500×.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. 

* * * * * 

§ 226.16 Advertising. 

1. Clear and conspicuous standard— 

general. Section 226.16 is subject to the 

general ‘‘clear and conspicuous’’ 

standard for subpart B (see § 226.5(a)(1)) 

but prescribes no specific rules for the 

format of the necessary disclosures, 

other than the format requirements 

related to the disclosure of a 


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promotional rate or payment under 

§ 226.16(d)(6), a promotional rate under 

§ 226.16(g), or a deferred interest or 

similar offer under § 226.16(h). Other 

than the disclosure of certain terms 

described in §§ 226.16(d)(6), (g), or (h), 

the credit terms need not be printed in 

a certain type size nor need they appear 

in any particular place in the 

advertisement. 

2. Clear and conspicuous standard— 

promotional rates or payments; deferred 

interest or similar offers. 

i. For purposes of § 226.16(d)(6), a 

clear and conspicuous disclosure means 

that the required information in 

§ 226.16(d)(6)(ii)(A)–(C) is disclosed 

with equal prominence and in close 

proximity to the promotional rate or 

payment to which it applies. If the 

information in § 226.16(d)(6)(ii)(A)–(C) 

is the same type size and is located 

immediately next to or directly above or 

below the promotional rate or payment 

to which it applies, without any 

intervening text or graphical displays, 

the disclosures would be deemed to be 

equally prominent and in close 

proximity. Notwithstanding the above, 

for electronic advertisements that 

disclose promotional rates or payments, 

compliance with the requirements of 

§ 226.16(c) is deemed to satisfy the clear 

and conspicuous standard. 

ii. For purposes of § 226.16(g)(4) as it 

applies to written or electronic 

advertisements only, a clear and 

conspicuous disclosure means the 

required information in § 226.16(g)(4)(i) 

and (g)(4)(ii) must be equally prominent 

to the promotional rate to which it 

applies. If the information in 

§ 226.16(g)(4)(i) and (g)(4)(ii) is the same 

type size as the promotional rate to 

which it applies, the disclosures would 

be deemed to be equally prominent. For 

purposes of § 226.16(h)(3) as it applies 

to written or electronic advertisements 

only, a clear and conspicuous disclosure 

means the required information in 

§ 226.16(h)(3) must be equally 

prominent to each statement of ‘‘no 

interest,’’ ‘‘no payments,’’ ‘‘deferred 

interest,’’ ‘‘same as cash,’’ or similar 

term regarding interest or payments 

during the deferred interest period. If 

the information required to be disclosed 

under § 226.16(h)(3) is the same type 

size as the statement of ‘‘no interest,’’ 

‘‘no payments,’’ ‘‘deferred interest,’’ 

‘‘same as cash,’’ or similar term 

regarding interest or payments during 

the deferred interest period, the 

disclosure would be deemed to be 

equally prominent. 

3. Clear and conspicuous standard— 

Internet advertisements for home-equity 

plans. For purposes of this section, a 

clear and conspicuous disclosure for 

visual text advertisements on the 

Internet for home-equity plans subject to 

the requirements of § 226.5b means that 

the required disclosures are not 

obscured by techniques such as 

graphical displays, shading, coloration, 

or other devices and comply with all 

other requirements for clear and 

conspicuous disclosures under 

§ 226.16(d). (See also comment 16(c)(1)– 

2.) 

4. Clear and conspicuous standard— 

televised advertisements for homeequity plans. For purposes of this 

section, including alternative 

disclosures as provided for by 

§ 226.16(e), a clear and conspicuous 

disclosure in the context of visual text 

advertisements on television for homeequity plans subject to the requirements 

of § 226.5b means that the required 

disclosures are not obscured by 

techniques such as graphical displays, 

shading, coloration, or other devices, are 

displayed in a manner that allows for a 

consumer to read the information 

required to be disclosed, and comply 

with all other requirements for clear and 

conspicuous disclosures under 

§ 226.16(d). For example, very fine print 

in a television advertisement would not 

meet the clear and conspicuous 

standard if consumers cannot see and 

read the information required to be 

disclosed. 

5. Clear and conspicuous standard— 

oral advertisements for home-equity 

plans. For purposes of this section, 

including alternative disclosures as 

provided for by § 226.16(e), a clear and 

conspicuous disclosure in the context of 

an oral advertisement for home-equity 

plans subject to the requirements of 

§ 226.5b, whether by radio, television, 

the Internet, or other medium, means 

that the required disclosures are given at 

a speed and volume sufficient for a 

consumer to hear and comprehend 

them. For example, information stated 

very rapidly at a low volume in a radio 

or television advertisement would not 

meet the clear and conspicuous 

standard if consumers cannot hear and 

comprehend the information required to 

be disclosed. 

6. Expressing the annual percentage 

rate in abbreviated form. Whenever the 

annual percentage rate is used in an 

advertisement for open-end credit, it 

may be expressed using a readily 

understandable abbreviation such as 

APR. 

7. Effective date. For guidance on the 

applicability of the Board’s revisions to 

§ 226.16 published on July 30, 2008, see 

comment 1(d)(5)–1. 

16(a) Actually available terms. 

1. General rule. To the extent that an 

advertisement mentions specific credit 

terms, it may state only those terms that 

the creditor is actually prepared to offer. 

For example, a creditor may not 

advertise a very low annual percentage 

rate that will not in fact be available at 

any time. Section 226.16(a) is not 

intended to inhibit the promotion of 

new credit programs, but to bar the 

advertising of terms that are not and 

will not be available. For example, a 

creditor may advertise terms that will be 

offered for only a limited period, or 

terms that will become available at a 

future date. 

2. Specific credit terms. Specific 

credit terms is not limited to the 

disclosures required by the regulation 

but would include any specific 

components of a credit plan, such as the 

minimum periodic payment amount or 

seller’s points in a plan secured by real 

estate. 

16(b) Advertisement of terms that 

require additional disclosures. 

Paragraph (b)(1). 

1. Triggering terms. Negative as well 

as affirmative references trigger the 

requirement for additional information. 

For example, if a creditor states no 

interest or no annual membership fee in 

an advertisement, additional 

information must be provided. Other 

examples of terms that trigger additional 

disclosures are: 

i. Small monthly service charge on the 

remaining balance, which describes 

how the amount of a finance charge will 

be determined. 

ii. 12 percent Annual Percentage Rate 

or A $15 annual membership fee buys 

you $2,000 in credit, which describe 

required disclosures under § 226.6. 

2. Implicit terms. Section 226.16(b) 

applies even if the triggering term is not 

stated explicitly, but may be readily 

determined from the advertisement. 

3. Membership fees. A membership 

fee is not a triggering term nor need it 

be disclosed under § 226.16(b)(3) if it is 

required for participation in the plan 

whether or not an open-end credit 

feature is attached. (See comment 

6(a)(2)–1 and § 226.6(b)(3)(iii)(B).) 

4. Deferred billing and deferred 

payment programs. Statements such as 

‘‘Charge it—you won’t be billed until 

May’’ or ‘‘You may skip your January 

payment’’ are not in themselves 

triggering terms, since the timing for 

initial billing or for monthly payments 

are not terms required to be disclosed 

under § 226.6. However, a statement 

such as ‘‘No interest charges until May’’ 

or any other statement regarding when 

interest or finance charges begin to 

accrue is a triggering term, whether 

appearing alone or in conjunction with 

a description of a deferred billing or 


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deferred payment program such as the 

examples above. 

5. Variable-rate plans. In disclosing 

the annual percentage rate in an 

advertisement for a variable-rate plan, as 

required by § 226.16(b)(1)(ii), the 

creditor may use an insert showing the 

current rate; or may give the rate as of 

a specified recent date. The additional 

requirement in § 226.16(b)(1)(ii) to 

disclose the variable-rate feature may be 

satisfied by disclosing that the annual 

percentage rate may vary or a similar 

statement, but the advertisement need 

not include the information required by 

§ 226.6(a)(1)(ii) or (b)(4)(ii). 

6. Membership fees for open-end (not 

home-secured) plans. For purposes of 

§ 226.16(b)(1)(iii), membership fees that 

may be imposed on open-end (not 

home-secured) plans shall have the 

same meaning as in § 226.5a(b)(2). 

Paragraph (b)(2). 

1. Assumptions. In stating the total of 

payments and the time period to repay 

the obligation, assuming that the 

consumer pays only the periodic 

payment amounts advertised, as 

required under § 226.16(b)(2), the 

following additional assumptions may 

be made: 

i. Payments are made timely so as not 

to be considered late by the creditor; 

ii. Payments are made each period, 

and no debt cancellation or suspension 

agreement, or skip payment feature 

applies to the account; 

iii. No interest rate changes will affect 

the account; 

iv. No other balances are currently 

carried or will be carried on the 

account; 

v. No taxes or ancillary charges are or 

will be added to the obligation; 

vi. Goods or services are delivered on 

a single date; and 

vii. The consumer is not currently and 

will not become delinquent on the 

account. 

2. Positive periodic payment amounts. 

Only positive periodic payment 

amounts trigger the additional 

disclosures under § 226.16(b)(2). 

Therefore, if the periodic payment 

amount advertised is not a positive 

amount (e.g., ‘‘No payments’’), the 

advertisement need not state the total of 

payments and the time period to repay 

the obligation. 

16(c) Catalogs or other multiple-page 

advertisements; electronic 

advertisements. 

1. Definition. The multiple-page 

advertisements to which § 226.16(c) 

refers are advertisements consisting of a 

series of sequentially numbered pages— 

for example, a supplement to a 

newspaper. A mailing consisting of 

several separate flyers or pieces of 

promotional material in a single 

envelope does not constitute a single 

multiple-page advertisement for 

purposes of § 226.16(c). 

Paragraph 16(c)(1). 

1. General. Section 226.16(c)(1) 

permits creditors to put credit 

information together in one place in a 

catalog or other multiple-page 

advertisement or an electronic 

advertisement (such as an advertisement 

appearing on an Internet Web site). The 

rule applies only if the advertisement 

contains one or more of the triggering 

terms from § 226.16(b). 

2. Electronic advertisement. If an 

electronic advertisement (such as an 

advertisement appearing on an Internet 

Web site) contains the table or schedule 

permitted under § 226.16(c)(1), any 

statement of terms set forth in § 226.6 

appearing anywhere else in the 

advertisement must clearly direct the 

consumer to the location where the 

table or schedule begins. For example, 

a term triggering additional disclosures 

may be accompanied by a link that 

directly takes the consumer to the 

additional information. 

Paragraph 16(c)(2). 

1. Table or schedule if credit terms 

depend on outstanding balance. If the 

credit terms of a plan vary depending on 

the amount of the balance outstanding, 

rather than the amount of any property 

purchased, a table or schedule complies 

with § 226.16(c)(2) if it includes the 

required disclosures for representative 

balances. For example, a creditor would 

disclose that a periodic rate of 1.5% is 

applied to balances of $500 or less, and 

a 1% rate is applied to balances greater 

than $500. 

16(d) Additional requirements for 

home-equity plans. 

1. Trigger terms. Negative as well as 

affirmative references trigger the 

requirement for additional information. 

For example, if a creditor states no 

annual fee, no points, or we waive 

closing costs in an advertisement, 

additional information must be 

provided. (See comment 16(d)–4 

regarding the use of a phrase such as no 

closing costs.) Inclusion of a statement 

such as low fees, however, would not 

trigger the need to state additional 

information. References to payment 

terms include references to the draw 

period or any repayment period, to the 

length of the plan, to how the minimum 

payments are determined and to the 

timing of such payments. 

2. Fees to open the plan. Section 

226.16(d)(1)(i) requires a disclosure of 

any fees imposed by the creditor or a 

third party to open the plan. In 

providing the fee information required 

under this paragraph, the corresponding 

rules for disclosure of this information 

apply. For example, fees to open the 

plan may be stated as a range. Similarly, 

if property insurance is required to open 

the plan, a creditor either may estimate 

the cost of the insurance or provide a 

statement that such insurance is 

required. (See the commentary to 

§ 226.5b(d)(7) and (d)(8).) 

3. Statements of tax deductibility. An 

advertisement that refers to 

deductibility for tax purposes is not 

misleading if it includes a statement 

such as ‘‘consult a tax advisor regarding 

the deductibility of interest.’’ An 

advertisement distributed in paper form 

or through the Internet (rather than by 

radio or television) that states that the 

advertised extension of credit may 

exceed the fair market value of the 

consumer’s dwelling is not misleading if 

it clearly and conspicuously states the 

required information in 

§§ 226.16(d)(4)(i) and (d)(4)(ii). 

4. Misleading terms prohibited. Under 

§ 226.16(d)(5), advertisements may not 

refer to home-equity plans as free money 

or use other misleading terms. For 

example, an advertisement could not 

state ‘‘no closing costs’’ or ‘‘we waive 

closing costs’’ if consumers may be 

required to pay any closing costs, such 

as recordation fees. In the case of 

property insurance, however, a creditor 

may state, for example, ‘‘no closing 

costs’’ even if property insurance may 

be required, as long as the creditor also 

provides a statement that such 

insurance may be required. (See the 

commentary to this section regarding 

fees to open a plan.) 

5. Promotional rates and payments in 

advertisements for home-equity plans. 

Section 226.16(d)(6) requires additional 

disclosures for promotional rates or 

payments. 

i. Variable-rate plans. In 

advertisements for variable-rate plans, if 

the advertised annual percentage rate is 

based on (or the advertised payment is 

derived from) the index and margin that 

will be used to make rate (or payment) 

adjustments over the term of the loan, 

then there is no promotional rate or 

promotional payment. If, however, the 

advertised annual percentage rate is not 

based on (or the advertised payment is 

not derived from) the index and margin 

that will be used to make rate (or 

payment) adjustments, and a reasonably 

current application of the index and 

margin would result in a higher annual 

percentage rate (or, given an assumed 

balance, a higher payment) then there is 

a promotional rate or promotional 

payment. 

ii. Equal prominence, close proximity. 

Information required to be disclosed in 

§ 226.16(d)(6)(ii) that is immediately 


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next to or directly above or below the 

promotional rate or payment (but not in 

a footnote) is deemed to be closely 

proximate to the listing. Information 

required to be disclosed in 

§ 226.16(d)(6)(ii) that is in the same type 

size as the promotional rate or payment 

is deemed to be equally prominent. 

iii. Amounts and time periods of 

payments. Section 226.16(d)(6)(ii)(C) 

requires disclosure of the amount and 

time periods of any payments that will 

apply under the plan. This section may 

require disclosure of several payment 

amounts, including any balloon 

payment. For example, if an 

advertisement for a home-equity plan 

offers a $100,000 five-year line of credit 

and assumes that the entire line is 

drawn resulting in a minimum payment 

of $800 per month for the first six 

months, increasing to $1,000 per month 

after month six, followed by a $50,000 

balloon payment after five years, the 

advertisement must disclose the amount 

and time period of each of the two 

monthly payment streams, as well as the 

amount and timing of the balloon 

payment, with equal prominence and in 

close proximity to the promotional 

payment. However, if the final payment 

could not be more than twice the 

amount of other minimum payments, 

the final payment need not be disclosed. 

iv. Plans other than variable-rate 

plans. For a plan other than a variablerate plan, if an advertised payment is 

calculated in the same way as other 

payments based on an assumed balance, 

the fact that the minimum payment 

could increase solely if the consumer 

made an additional draw does not make 

the payment a promotional payment. 

For example, if a payment of $500 

results from an assumed $10,000 draw, 

and the payment would increase to 

$1,000 if the consumer made an 

additional $10,000 draw, the payment is 

not a promotional payment. 

v. Conversion option. Some homeequity plans permit the consumer to 

repay all or part of the balance during 

the draw period at a fixed rate (rather 

than a variable rate) and over a specified 

time period. The fixed-rate conversion 

option does not, by itself, make the rate 

or payment that would apply if the 

consumer exercised the fixed-rate 

conversion option a promotional rate or 

payment. 

vi. Preferred-rate provisions. Some 

home-equity plans contain a preferredrate provision, where the rate will 

increase upon the occurrence of some 

event, such as the consumer-employee 

leaving the creditor’s employ, the 

consumer closing an existing deposit 

account with the creditor, or the 

consumer revoking an election to make 

automated payments. A preferred-rate 

provision does not, by itself, make the 

rate or payment under the preferred-rate 

provision a promotional rate or 

payment. 

6. Reasonably current index and 

margin. For the purposes of this section, 

an index and margin is considered 

reasonably current if: 

i. For direct mail advertisements, it 

was in effect within 60 days before 

mailing; 

ii. For advertisements in electronic 

form it was in effect within 30 days 

before the advertisement is sent to a 

consumer’s e-mail address, or in the 

case of an advertisement made on an 

Internet Web site, when viewed by the 

public; or 

iii. For printed advertisements made 

available to the general public, 

including ones contained in a catalog, 

magazine, or other generally available 

publication, it was in effect within 30 

days before printing. 

7. Relation to other sections. 

Advertisements for home-equity plans 

must comply with all provisions in 

§ 226.16, not solely the rules in 

§ 226.16(d). If an advertisement contains 

information (such as the payment terms) 

that triggers the duty under § 226.16(d) 

to state the annual percentage rate, the 

additional disclosures in § 226.16(b) 

must be provided in the advertisement. 

While § 226.16(d) does not require a 

statement of fees to use or maintain the 

plan (such as membership fees and 

transaction charges), such fees must be 

disclosed under § 226.16(b)(1)(i) and 

(b)(1)(iii). 

8. Inapplicability of closed-end rules. 

Advertisements for home-equity plans 

are governed solely by the requirements 

in § 226.16, except § 226.16(g), and not 

by the closed-end advertising rules in 

§ 226.24. Thus, if a creditor states 

payment information about the 

repayment phase, this will trigger the 

duty to provide additional information 

under § 226.16, but not under § 226.24. 

9. Balloon payment. See comment 

5b(d)(5)(ii)–3 for information not 

required to be stated in advertisements, 

and on situations in which the balloon 

payment requirement does not apply. 

16(e) Alternative disclosures— 

television or radio advertisements. 

1. Multi-purpose telephone number. 

When an advertised telephone number 

provides a recording, disclosures must 

be provided early in the sequence to 

ensure that the consumer receives the 

required disclosures. For example, in 

providing several options—such as 

providing directions to the advertiser’s 

place of business—the option allowing 

the consumer to request disclosures 

should be provided early in the 

telephone message to ensure that the 

option to request disclosures is not 

obscured by other information. 

2. Statement accompanying toll free 

number. Language must accompany a 

telephone number indicating that 

disclosures are available by calling the 

telephone number, such as ‘‘call 1–800– 

000–0000 for details about credit costs 

and terms.’’ 

16(g) Promotional rates. 

1. Rate in effect at the end of the 

promotional period. If the annual 

percentage rate that will be in effect at 

the end of the promotional period (i.e., 

the post-promotional rate) is a variable 

rate, the post-promotional rate for 

purposes of § 226.16(g)(2)(i) is the rate 

that would have applied at the time the 

promotional rate was advertised if the 

promotional rate was not offered, 

consistent with the accuracy 

requirements in § 226.5a(c)(2) and (e)(4), 

as applicable. 

2. Immediate proximity. For written 

or electronic advertisements, including 

the term ‘‘introductory’’ or ‘‘intro’’ in 

the same phrase as the listing of the 

introductory rate is deemed to be in 

immediate proximity of the listing. 

3. Prominent location closely 

proximate. For written or electronic 

advertisements, information required to 

be disclosed in § 226.16(g)(4)(i) and 

(g)(4)(ii) that is in the same paragraph as 

the first listing of the promotional rate 

is deemed to be in a prominent location 

closely proximate to the listing. 

Information disclosed in a footnote will 

not be considered in a prominent 

location closely proximate to the listing. 

4. First listing. For purposes of 

§ 226.16(g)(4) as it applies to written or 

electronic advertisements, the first 

listing of the promotional rate is the 

most prominent listing of the rate on the 

front side of the first page of the 

principal promotional document. The 

principal promotional document is the 

document designed to be seen first by 

the consumer in a mailing, such as a 

cover letter or solicitation letter. If the 

promotional rate does not appear on the 

front side of the first page of the 

principal promotional document, then 

the first listing of the promotional rate 

is the most prominent listing of the rate 

on the subsequent pages of the principal 

promotional document. If the 

promotional rate is not listed on the 

principal promotional document or 

there is no principal promotional 

document, the first listing is the most 

prominent listing of the rate on the front 

side of the first page of each document 

listing the promotional rate. If the 

promotional rate does not appear on the 

front side of the first page of a 

document, then the first listing of the 


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promotional rate is the most prominent 

listing of the rate on the subsequent 

pages of the document. If the listing of 

the promotional rate with the largest 

type size on the front side of the first 

page (or subsequent pages if the 

promotional rate is not listed on the 

front side of the first page) of the 

principal promotional document (or 

each document listing the promotional 

rate if the promotional rate is not listed 

on the principal promotional document 

or there is no principal promotional 

document,) is used as the most 

prominent listing, it will be deemed to 

be the first listing. Consistent with 

comment 16(c)–1, a catalog or multiplepage advertisement is considered one 

document for purposes of § 226.16(g)(4). 

5. Post-promotional rate depends on 

consumer’s creditworthiness. For 

purposes of disclosing the rate that may 

apply after the end of the promotional 

rate period, at the advertiser’s option, 

the advertisement may disclose the rates 

that may apply as either specific rates, 

or a range of rates. For example, if there 

are three rates that may apply (9.99%, 

12.99% or 17.99%), an issuer may 

disclose these three rates as specific 

rates (9.99%, 12.99% or 17.99%) or as 

a range of rates (9.99%–17.99%). 

16(h) Deferred interest or similar 

offers. 

1. Deferred interest or similar offers 

clarified. Deferred interest or similar 

offers do not include offers that allow a 

consumer to skip payments during a 

specified period of time, and under 

which the consumer is not obligated 

under any circumstances for any 

interest or other finance charges that 

could be attributable to that period. 

Deferred interest or similar offers also 

do not include 0% annual percentage 

rate offers where a consumer is not 

obligated under any circumstances for 

interest attributable to the time period 

the 0% annual percentage rate was in 

effect, though such offers may be 

considered promotional rates under 

§ 226.16(g)(2)(i). Deferred interest or 

similar offers also do not include skip 

payment programs that have no required 

minimum payment for one or more 

billing cycles but where interest 

continues to accrue and is imposed 

during that period. 

2. Deferred interest period clarified. 

Although the terms of an advertised 

deferred interest or similar offer may 

provide that a creditor may charge the 

accrued interest if the balance is not 

paid in full by a certain date, creditors 

sometimes have an informal policy or 

practice that delays charging the 

accrued interest for payment received a 

brief period of time after the date upon 

which a creditor has the contractual 

right to charge the accrued interest. The 

advertisement need not include the end 

of an informal ‘‘courtesy period’’ in 

disclosing the deferred interest period 

under § 226.16(h)(3). 

3. Immediate proximity. For written 

or electronic advertisements, including 

the deferred interest period in the same 

phrase as the statement of ‘‘no interest,’’ 

‘‘no payments,’’ ‘‘deferred interest,’’ or 

‘‘same as cash’’ or similar term 

regarding interest or payments during 

the deferred interest period is deemed to 

be in immediate proximity of the 

statement. 

4. Prominent location closely 

proximate. For written or electronic 

advertisements, information required to 

be disclosed in § 226.16(h)(4)(i) and (ii) 

that is in the same paragraph as the first 

statement of ‘‘no interest,’’ ‘‘no 

payments,’’ ‘‘deferred interest,’’ or 

‘‘same as cash’’ or similar term 

regarding interest or payments during 

the deferred interest period is deemed to 

be in a prominent location closely 

proximate to the statement. Information 

disclosed in a footnote is not considered 

in a prominent location closely 

proximate to the statement. 

5. First listing. For purposes of 

§ 226.16(h)(4) as it applies to written or 

electronic advertisements, the first 

statement of ‘‘no interest,’’ ‘‘no 

payments,’’ ‘‘deferred interest,’’ ‘‘same 

as cash,’’ or similar term regarding 

interest or payments during the deferred 

interest period is the most prominent 

listing of one of these statements on the 

front side of the first page of the 

principal promotional document. The 

principal promotional document is the 

document designed to be seen first by 

the consumer in a mailing, such as a 

cover letter or solicitation letter. If one 

of the statements does not appear on the 

front side of the first page of the 

principal promotional document, then 

the first listing of one of these 

statements is the most prominent listing 

of a statement on the subsequent pages 

of the principal promotional document. 

If one of the statements is not listed on 

the principal promotional document or 

there is no principal promotional 

document, the first listing of one of 

these statements is the most prominent 

listing of the statement on the front side 

of the first page of each document 

containing one of these statements. If 

one of the statements does not appear 

on the front side of the first page of a 

document, then the first listing of one of 

these statements is the most prominent 

listing of a statement on the subsequent 

pages of the document. If the listing of 

one of these statements with the largest 

type size on the front side of the first 

page (or subsequent pages if one of these 

statements is not listed on the front side 

of the first page) of the principal 

promotional document (or each 

document listing one of these 

statements if a statement is not listed on 

the principal promotional document or 

there is no principal promotional 

document) is used as the most 

prominent listing, it will be deemed to 

be the first listing. Consistent with 

comment 16(c)–1, a catalog or multiplepage advertisement is considered one 

document for purposes of § 226.16(h)(4). 

6. Additional information. Consistent 

with comment 5(a)–2, the information 

required under § 226.16(h)(4) need not 

be segregated from other information 

regarding the deferred interest or similar 

offer. Advertisements may also be 

required to provide additional 

information pursuant to § 226.16(b) 

though such information need not be 

integrated with the information required 

under § 226.16(h)(4). 

7. Examples. Examples of disclosures 

that could be used to comply with the 

requirements of § 226.16(h)(3) include: 

‘‘no interest if paid in full within 6 

months’’ and ‘‘no interest if paid in full 

by December 31, 2010.’’ 

* * * * * 

§ 226.26 Use of Annual Percentage Rate in 

Oral Disclosures. 

* * * * * 

26(a) Open-end credit. 

1. Information that may be given. The 

creditor may state periodic rates in 

addition to the required annual 

percentage rate, but it need not do so. 

If the annual percentage rate is 

unknown because transaction charges, 

loan fees, or similar finance charges may 

be imposed, the creditor must give the 

corresponding annual percentage rate 

(that is, the periodic rate multiplied by 

the number of periods in a year, as 

described in §§ 226.6(a)(1)(ii) and 

(b)(4)(i)(A) and 226.7(a)(4) and (b)(4)). In 

such cases, the creditor may, but need 

not, also give the consumer information 

about other finance charges and other 

charges. 

* * * * * 

§ 226.27 Language of Disclosures. 

1. Subsequent disclosures. If a 

creditor provides account-opening 

disclosures in a language other than 

English, subsequent disclosures need 

not be in that other language. For 

example, if the creditor gave Spanishlanguage account-opening disclosures, 

periodic statements and change-in-terms 

notices may be made in English. 

* * * * * 


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§ 226.28 Effect on State Laws. 

28(a) Inconsistent disclosure 

requirements. 

* * * * * 

6. Rules for other fair credit billing 

provisions. The second part of the 

criteria for fair credit billing relates to 

the other rules implementing chapter 4 

of the act (addressed in §§ 226.4(c)(8), 

226.5(b)(2)(ii), 226.6(a)(5) and (b)(5)(iii), 

226.7(a)(9) and (b)(9), 226.9(a), 226.10, 

226.11, 226.12(c) through (f), 226.13, 

and 226.21). Section 226.28(a)(2)(ii) 

provides that the test of inconsistency is 

whether the creditor can comply with 

State law without violating Federal law. 

For example: 

i. A State law that allows the card 

issuer to offset the consumer’s creditcard indebtedness against funds held by 

the card issuer would be preempted, 

since § 226.12(d) prohibits such action. 

ii. A State law that requires periodic 

statements to be sent more than 14 days 

before the end of a free-ride period 

would not be preempted. 

iii. A State law that permits 

consumers to assert claims and defenses 

against the card issuer without regard to 

the $50 and 100-mile limitations of 

§ 226.12(c)(3)(ii) would not be 

preempted. 

iv. In paragraphs ii. and iii. of this 

comment, compliance with State law 

would involve no violation of the 

Federal law. 

* * * * * 

§ 226.30 Limitation on Rates. 

* * * * * 

8. Manner of stating the maximum 

interest rate. The maximum interest rate 

must be stated in the credit contract 

either as a specific amount or in any 

other manner that would allow the 

consumer to easily ascertain, at the time 

of entering into the obligation, what the 

rate ceiling will be over the term of the 

obligation. 

i. For example, the following 

statements would be sufficiently 

specific: 

A. The maximum interest rate will not 

exceed X%. 

B. The interest rate will never be 

higher than X percentage points above 

the initial rate of Y%. 

C. The interest rate will not exceed 

X%, or X percentage points about [a rate 

to be determined at some future point in 

time], whichever is less. 

D. The maximum interest rate will not 

exceed X%, or the State usury ceiling, 

whichever is less. 

ii. The following statements would 

not comply with this section: 

A. The interest rate will never be 

higher than X percentage points over the 

prevailing market rate. 

B. The interest rate will never be 

higher than X percentage points above 

[a rate to be determined at some future 

point in time]. 

C. The interest rate will not exceed 

the State usury ceiling which is 

currently X%. 

iii. A creditor may state the maximum 

rate in terms of a maximum annual 

percentage rate that may be imposed. 

Under an open-end credit plan, this 

normally would be the corresponding 

annual percentage rate. (See generally 

§ 226.6(a)(1)(ii) and (b)(4)(i)(A).) 

* * * * * 

Subpart G—Special Rules Applicable 

to Credit Card Accounts and Open-End 

Credit Offered to College Students 

§ 226.51 Ability to pay. 

51(a) General rule. 

1. Consideration of additional factors. 

Section 226.51(a) requires a card issuer 

to consider a consumer’s ability to make 

the required minimum periodic 

payments under the terms of an account 

based on the consumer’s income or 

assets and the consumer’s current 

obligations. The card issuer may also 

consider credit reports, credit scores, 

and other factors, consistent with 

Regulation B (12 CFR part 202). 

2. Ability to pay as of application or 

consideration of increase. A card issuer 

complies with § 226.51(a) if it bases its 

determination regarding a consumer’s 

ability to make the required minimum 

periodic payments on the facts and 

circumstances known to the card issuer 

at the time the consumer applies to 

open the credit card account or when 

the card issuer considers increasing the 

credit line on an existing account. 

3. Credit line increase. When a card 

issuer considers increasing the credit 

line on an existing account, § 226.51(a) 

applies when the consideration is based 

upon a request of the consumer or is 

initiated by the card issuer. 

4. Income, assets, and employment. 

Any current or reasonably expected 

assets or income may be considered by 

the card issuer. For example, a card 

issuer may use information about 

current or expected salary, wages, bonus 

pay, tips and commissions. Employment 

may be full-time, part-time, seasonal, 

irregular, military, or self-employment. 

Other sources of income could include 

interest or dividends, retirement 

benefits, public assistance, alimony, 

child support, or separate maintenance 

payments. A card issuer may also take 

into account assets such as savings 

accounts or investments that the 

consumer can or will be able to use. 

5. Current obligations. A card issuer 

may consider the consumer’s current 

obligations based on information 

provided by the consumer or in a 

consumer report. 

51(b) Rules affecting young 

consumers. 

1. Age as of date of application or 

consideration of credit line increase. 

Sections 226.51(b)(1) and (b)(2) apply 

only to a consumer who has not attained 

the age of 21 as of the date of 

submission of the application under 

§ 226.51(b)(1) or the date the credit line 

increase is requested by the consumer 

(or if no request has been made, the date 

the credit line increase is considered by 

the card issuer) under § 226.51(b)(2). 

2. Liability of cosigner, guarantor, or 

joint accountholder. Sections 

226.51(b)(1)(i) and (b)(2) require the 

signature or written consent of a 

cosigner, guarantor, or joint 

accountholder agreeing either to be 

secondarily liable for any debt on the 

account incurred by the consumer 

before the consumer has attained the age 

of 21 in the event the consumer defaults 

on the account or to be jointly liable 

with the consumer for any debt on the 

account incurred by either party. 

Sections 226.51(b)(1)(i) and (b)(2) do not 

prohibit a card issuer from also 

requiring the cosigner, guarantor, or 

joint accountholder to assume liability 

for debts incurred after the consumer 

has attained the age of 21, consistent 

with any agreement made between the 

parties. 

3. Authorized users exempt. If a 

consumer who has not attained the age 

of 21 is being added to another person’s 

account as an authorized user and has 

no liability for debts incurred on the 

account, § 226.51(b)(1) and (b)(2) do not 

apply. 

4. Electronic application. Consistent 

with § 226.5(a)(1)(iii), an application 

may be provided to the consumer in 

electronic form without regard to the 

consumer consent or other provisions of 

the Electronic Signatures in Global and 

National Commerce Act (E-Sign Act) (15 

U.S.C. 7001 et seq.) in the circumstances 

set forth in § 226.5a. The electronic 

submission of an application from a 

consumer or a credit line increase 

approval from a consumer, cosigner, 

guarantor, or joint accountholder to a 

card issuer would constitute a written 

application or approval for purposes of 

§ 226.51(b) and would not be considered 

a consumer disclosure for purposes of 

the E-Sign Act. 

51(b)(1) Applications from young 

consumers. 

1. Relation to Regulation B. In 

considering an application or credit line 

increase on the credit card account of a 

consumer who is less than 21 years old, 

creditors must comply with the 


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applicable rules in Regulation B (12 CFR 

part 202). 

51(b)(2) Credit line increases for 

young consumers. 

1. Credit line request by joint 

accountholder aged 21 or older. The 

requirement under § 226.51(b)(2) that a 

cosigner, guarantor, or joint 

accountholder for a credit card account 

opened pursuant to § 226.51(b)(1)(i) 

must agree in writing to assume liability 

for the increase before a credit line is 

increased, does not apply if the 

cosigner, guarantor or joint 

accountholder who is at least 21 years 

old requests the increase. 

§ 226.52 Limitations on Fees. 

52(a) Limitations during first year 

after account opening. 

52(a)(1)(i) 25 percent limit. 

1. Example. Assume that, under the 

terms of a credit card account, a 

consumer is required to pay $120 in fees 

for the issuance or availability of credit 

at account opening. The consumer is 

also required to pay a cash advance fee 

that is equal to five percent of the cash 

advance and a late payment fee of $15 

if the required minimum periodic 

payment is not received by the payment 

due date (which is the twenty-fifth of 

the month). At account opening on 

January 1 of year one, the credit limit for 

the account is $500. Section 

226.52(a)(1)(i) permits the card issuer to 

charge to the account the $120 in fees 

for the issuance or availability of credit 

at account opening. On February 1 of 

year one, the consumer uses the account 

for a $100 cash advance. Section 

226.52(a)(1)(i) permits the card issuer to 

charge a $5 cash-advance fee to the 

account. On March 26 of year one, the 

card issuer has not received the 

consumer’s required minimum periodic 

payment. Section 226.52(a)(2)(i) permits 

the card issuer to charge a $15 late 

payment fee to the account. On July 15 

of year one, the consumer uses the 

account for a $50 cash advance. Section 

226.52(a)(1)(i) does not permit the card 

issuer to charge a $2.50 cash advance 

fee to the account. Furthermore, 

§ 225.52(a)(1)(ii) prohibits the card 

issuer from collecting the $2.50 cash 

advance fee from the consumer by other 

means. 

2. Fees that exceed 25 percent limit. 

A card issuer that charges a fee to a 

credit card account that exceeds the 25 

percent limit complies with 

§ 226.52(a)(1)(i) if the card issuer waives 

or removes the fee and any associated 

interest charges or credits the account 

for an amount equal to the fee and any 

associated interest charges at the end of 

the billing cycle during which the fee 

was charged. For example, assuming the 

facts in comment 52(a)(1)(i)–1 above, 

the card issuer complies with 

§ 226.52(a)(1)(i) if the card issuer 

charged the $2.50 cash advance fee to 

the account on July 15 of year one but 

waived or removed the fee or credited 

the account for $2.50 (plus any interest 

charges on that $2.50) at the end of the 

billing cycle. 

3. Increases in credit limit. Because 

the limitation in § 226.52(a)(1)(i) is 

based on the credit limit in effect when 

the account is opened, a subsequent 

increase in the credit limit during the 

first year does not permit the card issuer 

to charge to the account additional fees 

that would otherwise be prohibited 

(such as a fee for increasing the credit 

limit). For example, assume that, at 

account opening on January 1, the credit 

limit for a credit card account is $400 

and the consumer is required to pay 

$100 in fees for the issuance or 

availability of credit. On July 1, the card 

issuer increases the credit limit for the 

account to $600. Section 226.52(a)(1)(i) 

does not permit the card issuer to 

require the consumer to pay additional 

fees based on the increased credit limit. 

52(a)(1)(ii) Additional fees. 

1. Example. Section 226.52(a)(1)(ii) 

prohibits a card issuer that charges to a 

credit card account fees during the first 

year that total 25 percent of the initial 

credit limit from requiring the consumer 

to pay any additional fees through other 

means during the first year (such as 

through a payment from the consumer 

to the card issuer or from another credit 

account provided by the card issuer). 

For example, assume that, under the 

terms of a credit card account, a 

consumer is required to pay $125 in fees 

for the issuance or availability of credit 

during the first year after account 

opening. At account opening on January 

1 of year one, the credit limit for the 

account is $500. Section 226.52(a)(1)(i) 

permits the card issuer to charge the 

$125 in fees to the account. However, 

§ 226.52(a)(1)(ii) prohibits the card 

issuer from requiring the consumer to 

make payments to the card issuer for 

additional fees with respect to the 

account during the first year after 

account opening or requiring the 

consumer to open a separate credit 

account with the card issuer to fund the 

payment of additional fees during the 

first year. 

52(a)(2) Fees not subject to 

limitations. 

1. Covered fees. Except as provided in 

§ 226.52(a)(2), the limitations in 

§ 226.52(a)(1) apply to any fees that a 

card issuer will or may require the 

consumer to pay with respect to a credit 

card account under an open-end (not 

home-secured) consumer credit plan 

during the first year after account 

opening. For example, § 226.52(a) 

applies to: 

i. Fees that the consumer is required 

to pay for the issuance or availability of 

credit described in § 226.5a(b)(2), 

including any fee based on account 

activity or inactivity and any fee that a 

consumer is required to pay in order to 

receive a particular credit limit; 

ii. Fees for insurance described in 

§ 226.4(b)(7) or debt cancellation or debt 

suspension coverage described in 

§ 226.4(b)(10) written in connection 

with a credit transaction, if the 

insurance or debt cancellation or debt 

suspension coverage is required by the 

terms of the account; 

iii. Fees that the consumer is required 

to pay in order to engage in transactions 

using the account (such as cash advance 

fees, balance transfer fees, foreign 

transaction fees, and fees for using the 

account for purchases); and 

iv. Fees that the consumer is required 

to pay for violating the terms of the 

account (except to the extent 

specifically excluded by 

§ 226.52(a)(2)(i)). 

2. Fees the consumer is not required 

to pay. Section 226.52(a)(2)(ii) provides 

that § 226.52(a) does not apply to fees 

that the consumer is not required to pay 

with respect to the account. For 

example, the limitations in § 226.52(a) 

generally do not apply to fees for 

making an expedited payment (to the 

extent permitted by § 226.10(e)), fees for 

optional services (such as travel 

insurance), fees for reissuing a lost or 

stolen card, or statement reproduction 

fees. 

3. Security deposits. A security 

deposit that is charged to a credit card 

account is a fee for purposes of the 

limitations in § 226.52(a)(1). In contrast, 

however, a security deposit is not 

subject to the 25 percent limit in 

§ 226.52(a)(1)(i) if it is not charged to the 

account. Similarly, § 226.52(a)(1)(ii) 

does not prohibit a card issuer from 

requiring a consumer to provide a 

security deposit that exceeds 25 percent 

of the credit limit at account opening so 

long as the card issuer does not charge 

any portion of that security deposit to 

the account. 

52(a)(3) Rule of construction. 

1. Fees or charges otherwise 

prohibited by law. Section 226.52(a) 

does not authorize the imposition or 

payment of fees or charges otherwise 

prohibited by law. For example, see 16 

CFR 310.4(a)(4). 

§ 226.53 Allocation of Payments. 

1. Required minimum periodic 

payment. Section 226.53 addresses the 

allocation of amounts paid by the 


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consumer in excess of the minimum 

periodic payment required by the card 

issuer. Section 226.53 does not limit or 

otherwise address the card issuer’s 

ability to determine, consistent with 

applicable law and regulatory guidance, 

the amount of the required minimum 

periodic payment or how that payment 

is allocated. A card issuer may, but is 

not required to, allocate the required 

minimum periodic payment consistent 

with the requirements in § 226.53 to the 

extent consistent with other applicable 

law or regulatory guidance. 

2. Applicable rates and balances. 

Section 226.53 permits a card issuer to 

allocate an amount paid by the 

consumer in excess of the required 

minimum periodic payment based on 

the annual percentage rates and 

balances on the date the preceding 

billing cycle ends, on the date the 

payment is credited to the account, or 

on any day in between those two dates. 

For example: 

i. Assume that the billing cycles for a 

credit card account start on the first day 

of the month and end on the last day of 

the month. On the date the March 

billing cycle ends (March 31), the 

account has a purchase balance of $500 

at a promotional annual percentage rate 

of 5% and another purchase balance of 

$200 at a non-promotional annual 

percentage rate of 15%. On April 5, a 

$100 purchase to which the 15% rate 

applies is charged to the account. On 

April 15, the promotional rate expires 

and § 226.55(b)(1) permits the card 

issuer to increase the rate that applies to 

the $500 balance from 5% to 18%. On 

April 25, the card issuer credits to the 

account $400 paid by the consumer in 

excess of the required minimum 

periodic payment. Under § 226.53, the 

card issuer could, based on the rates and 

balances on March 31, allocate the $400 

payment to pay in full the $200 balance 

to which the 15% rate applied on March 

31 and then allocate the remaining $200 

to the $500 balance to which the 5% 

rate applied on March 31. In the 

alternative, the card issuer could, based 

on the rates and balances on April 25, 

allocate the $400 payment to the $500 

balance to which the 18% rate applied 

on April 25. 

ii. Same facts as above except that, on 

April 25, the card issuer credits to the 

account $750 paid by the consumer in 

excess of the required minimum 

periodic payment. Under § 226.53, the 

card issuer could, based on the rates and 

balances on March 31, allocate the $750 

payment to pay in full the $200 balance 

to which the 15% rate applied on March 

31 and the $500 balance to which the 

5% rate applied on March 31 and then 

allocate the remaining $50 to the $100 

purchase made on April 5. In the 

alternative, the card issuer could, based 

on the rates and balances on April 25, 

allocate the $750 payment to pay in full 

the $500 balance to which the 18% rate 

applied on April 25 and then allocate 

the remaining $250 to the $300 balance 

to which the 15% rate applied on April 

25. 

3. Claims or defenses under 

§ 226.12(c). When a consumer has 

asserted a claim or defense against the 

card issuer pursuant to § 226.12(c), the 

card issuer must apply the consumer’s 

payment in a manner that avoids or 

minimizes any reduction in the amount 

of that claim or defense. 

4. Balances with the same rate. When 

the same annual percentage rate applies 

to more than one balance on an account 

and a different annual percentage rate 

applies to at least one other balance on 

that account, § 226.53 generally does not 

require that any particular method be 

used when allocating among the 

balances with the same annual 

percentage rate. Under these 

circumstances, a card issuer may treat 

the balances with the same rate as a 

single balance or separate balances. See 

example in comment 53(a)–1.iv. 

However, when a balance on a credit 

card account is subject to a deferred 

interest or similar program that provides 

that a consumer will not be obligated to 

pay interest that accrues on the balance 

if the balance is paid in full prior to the 

expiration of a specified period of time, 

that balance must be treated as a balance 

with an annual percentage rate of zero 

for purposes of § 226.53 during that 

period of time. For example, if an 

account has a $1,000 purchase balance 

and a $2,000 balance that is subject to 

a deferred interest program that expires 

on July 1 and a 15% annual percentage 

rate applies to both, the balances must 

be treated as balances with different 

rates for purposes of § 226.53 until July 

1. In addition, for purposes of allocating 

pursuant to § 226.53, any amount paid 

by the consumer in excess of the 

required minimum periodic payment 

must be applied first to the $1,000 

purchase balance except during the last 

two billing cycles of the deferred 

interest period (when it must be applied 

first to any remaining portion of the 

$2,000 balance). See example in 

comment 53(a)–1.v. 

53(a) General rule. 

1. Examples. For purposes of the 

following examples, assume that none 

of the required minimum periodic 

payment is allocated to the balances 

discussed (unless otherwise stated). 

i. Assume that a credit card account 

has a cash advance balance of $500 at 

an annual percentage rate of 20% and a 

purchase balance of $1,500 at an annual 

percentage rate of 15% and that the 

consumer pays $800 in excess of the 

required minimum periodic payment. 

Under § 226.53(a), the card issuer must 

allocate $500 to pay off the cash 

advance balance and then allocate the 

remaining $300 to the purchase balance. 

ii. Assume that a credit card account 

has a cash advance balance of $500 at 

an annual percentage rate of 20% and a 

purchase balance of $1,500 at an annual 

percentage rate of 15% and that the 

consumer pays $400 in excess of the 

required minimum periodic payment. 

Under § 226.53(a), the card issuer must 

allocate the entire $400 to the cash 

advance balance. 

iii. Assume that a credit card account 

has a cash advance balance of $100 at 

an annual percentage rate of 20%, a 

purchase balance of $300 at an annual 

percentage rate of 18%, and a $600 

protected balance on which the 12% 

annual percentage rate cannot be 

increased pursuant to § 226.55. If the 

consumer pays $500 in excess of the 

required minimum periodic payment, 

§ 226.53(a) requires the card issuer to 

allocate $100 to pay off the cash 

advance balance, $300 to pay off the 

purchase balance, and $100 to the 

protected balance. 

iv. Assume that a credit card account 

has a cash advance balance of $500 at 

an annual percentage rate of 20%, a 

purchase balance of $1,000 at an annual 

percentage rate of 15%, and a 

transferred balance of $2,000 that was 

previously at a discounted annual 

percentage rate of 5% but is now at an 

annual percentage rate of 15%. Assume 

also that the consumer pays $800 in 

excess of the required minimum 

periodic payment. Under § 226.53(a), 

the card issuer must allocate $500 to 

pay off the cash advance balance and 

allocate the remaining $300 among the 

purchase balance and the transferred 

balance in the manner the card issuer 

deems appropriate. 

v. Assume that on January 1 a 

consumer uses a credit card account to 

make a $1,200 purchase subject to a 

deferred interest program under which 

interest accrues at an annual percentage 

rate of 15% but the consumer will not 

be obligated to pay that interest if the 

balance is paid in full on or before June 

30. The billing cycles for this account 

begin on the first day of the month and 

end on the last day of the month. Each 

month from January through June, the 

consumer uses the account to make 

$200 in purchases that are not subject to 

the deferred interest program but are 

subject to the 15% rate. Each month 

from February through June, the 

consumer pays $400 in excess of the 


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required minimum periodic payment on 

the payment due date, which is the 

twenty-fifth of the month. Any interest 

that accrues on the purchases not 

subject to the deferred interest program 

is paid by the required minimum 

periodic payment. Under § 226.53(a), 

the card issuer must allocate the $400 

excess payments received on February 

25, March 25, and April 25 as follows: 

$200 to pay off the balance not subject 

to the deferred interest program (which 

is subject to the 15% rate) and the 

remaining $200 to the deferred interest 

balance (which is treated as a balance 

with a rate of zero). Section 226.53(b), 

however, requires the card issuer to 

allocate the entire $400 excess payment 

received on May 25 to the deferred 

interest balance. Similarly, § 227.53(b) 

requires the card issuer to allocate the 

$400 excess payment received on June 

25 as follows: $200 to the deferred 

interest balance (which pays that 

balance in full) and the remaining $200 

to the balance not subject to the deferred 

interest program. 

53(b) Special rule for balances subject 

to deferred interest or similar programs. 

1. Expiration during billing cycle. For 

purposes of § 226.53(b), a billing cycle 

does not constitute one of the two 

billing cycles immediately preceding 

expiration of a deferred interest or 

similar program if the expiration date 

for the program precedes the payment 

due date in that billing cycle. For 

example, assume that a credit card 

account has a balance subject to a 

deferred interest program that expires 

on June 15. Assume also that the billing 

cycles for the account begin on the first 

day of the month and end on the last 

day of the month and that the required 

minimum periodic payment is due on 

the twenty-fifth day of the month. 

Because the expiration date for the 

deferred interest program (June 15) 

precedes the due date in the June billing 

cycle (June 25), § 226.53(b) requires the 

card issuer to allocate first to the 

deferred interest balance any amount 

paid by the consumer in excess of the 

required minimum periodic payment 

during the April and May billing cycles 

(as well as any amount paid by the 

consumer before June 15). However, if 

the deferred interest program expired on 

June 25 or on June 30 (or on any day in 

between), § 226.53(b) would apply only 

to the May and June billing cycles. 

2. Grace periods. Section 226.53(b) 

applies to deferred interest or similar 

programs under which the consumer is 

not obligated to pay interest that accrues 

on a balance if that balance is paid in 

full prior to the expiration of a specified 

period of time. A grace period during 

which any credit extended may be 

repaid without incurring a finance 

charge due to a periodic interest rate is 

not a deferred interest or similar 

program for purposes of § 226.53(b). 

§ 226.54 Limitations on the Imposition of 

Finance Charges. 

54(a) Limitations on imposing finance 

charges as a result of the loss of a grace 

period. 

54(a)(1) General rule. 

1. Grace period not mandated. 

Section 226.54 prohibits the imposition 

of finance charges as a result of the loss 

of a grace period in certain specified 

circumstances. Section 226.54 does not 

require the card issuer to provide a 

grace period or prohibit the card issuer 

from placing limitations and conditions 

on a grace period to the extent 

consistent with § 226.54. 

2. Charging accrued interest at 

expiration of deferred interest or similar 

promotional programs. When a card 

issuer offers a deferred interest or 

similar promotional program under 

which a consumer will not be obligated 

to pay interest that accrues on a balance 

if that balance is paid in full prior to the 

expiration of a specified period of time, 

§ 226.54 does not prohibit the card 

issuer from charging that accrued 

interest to the account if the balance is 

not paid in full prior to expiration of the 

period (to the extent consistent with 

§ 226.55 and other applicable law and 

regulatory guidance). 

3. Relationship to payment allocation 

requirements in § 226.53. Card issuers 

must comply with the payment 

allocation requirements in § 226.53 even 

if doing so will result in the loss of a 

grace period. 

4. Prohibition on two-cycle balance 

computation method. When a consumer 

ceases to be eligible for a grace period, 

§ 226.54(a)(1)(i) prohibits the card issuer 

from computing the finance charge 

using the two-cycle average daily 

balance computation method. This 

method calculates the finance charge 

using a balance that is the sum of the 

average daily balances for two billing 

cycles. The first balance is for the 

current billing cycle, and is calculated 

by adding the total balance (including or 

excluding new purchases and deducting 

payments and credits) for each day in 

the billing cycle, and then dividing by 

the number of days in the billing cycle. 

The second balance is for the preceding 

billing cycle. 

5. Prohibition on imposing finance 

charges on amounts paid within grace 

period. When a balance on a credit card 

account is subject to a grace period and 

the card issuer receives payment for 

some but not all of that balance prior to 

the expiration of the grace period, 

§ 226.54(a)(1)(ii) prohibits the card 

issuer from imposing finance charges on 

the portion of the balance paid. Card 

issuers are not required to use a 

particular method to comply with 

§ 226.54(a)(1)(ii). However, a card issuer 

complies with § 226.54(a)(1)(ii) if it 

applies the consumer’s payment to the 

balance subject to the grace period at the 

end of the prior billing cycle (in a 

manner consistent with the payment 

allocation requirements in § 226.53) and 

then calculates interest charges based on 

the amount of the balance that remains 

unpaid. 

6. Examples. Assume that the annual 

percentage rate for purchases on a credit 

card account is 15%. The billing cycle 

starts on the first day of the month and 

ends on the last day of the month. The 

payment due date for the account is the 

twenty-fifth day of the month. Under 

the terms of the account, the consumer 

will receive a grace period and not be 

charged interest on purchases if the 

purchase balance at the end of a billing 

cycle is paid in full by the following 

payment due date. For purposes of this 

example, assume that none of the 

required minimum periodic payment is 

allocated to the balances discussed. 

During the March billing cycle, the 

following transactions are charged to the 

account: a $100 purchase on March 10, 

a $200 purchase on March 15, and a 

$300 purchase on March 20. The 

balance for the February billing cycle is 

paid in full on March 25. At the end of 

the March billing cycle (March 31), the 

consumer’s total purchase balance is 

$600 and the consumer will not be 

charged interest on that balance if it is 

paid in full by the following due date 

(April 25). 

i. On April 10, a $150 purchase is 

charged to the account. On April 25, the 

card issuer receives $500 in excess of 

the required minimum periodic 

payment. Section 226.54(a)(1)(i) 

prohibits the card issuer from reaching 

back and charging interest on any of the 

March transactions from the date of the 

transaction through the end of the 

March billing cycle (March 31). In these 

circumstances, the card issuer may 

comply with § 226.54(a)(1)(ii) by 

applying the $500 excess payment to the 

$600 purchase balance and then 

charging interest only on the portion of 

the $600 purchase balance that remains 

unpaid ($100) from the start of the April 

billing cycle (April 1) through the end 

of the April billing cycle (April 30). In 

addition, the card issuer may charge 

interest on the $150 purchase from the 

date of the transaction (April 10) 

through the end of the April billing 

cycle (April 31). 


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ii. Same facts as in paragraph 6 above 

except that, on March 18, a $250 cash 

advance is charged to the account at an 

annual percentage rate of 25%. The 

grace period does not apply to cash 

advances, but the consumer retains the 

grace period on purchases. On April 25, 

the card issuer receives $600 in excess 

of the required minimum periodic 

payment. As required by § 226.53, the 

card issuer allocates the $600 excess 

payment first to the balance with the 

highest annual percentage rate (the $250 

cash advance balance). Although 

§ 226.54(a)(1)(i) prohibits the card issuer 

from charging interest on the March 

transactions based on days in the March 

billing cycle, the card issuer may charge 

interest on the $250 cash advance from 

the date of the transaction (March 18) 

through April 24. In these 

circumstances, the card issuer may 

comply with § 226.54(a)(1)(ii) by 

applying the remainder of the excess 

payment ($350) to the $600 purchase 

balance and then charging interest only 

on the portion of the $600 purchase 

balance that remains unpaid ($250) from 

the start of the April billing cycle (April 

1) through the end of the April billing 

cycle (April 30). 

iii. Same facts as in paragraph 6 above 

except that the consumer does not pay 

the balance for the February billing 

cycle in full on March 25 and therefore, 

under the terms of the account, is not 

eligible for a grace period on the March 

purchases. Under these circumstances, 

§ 226.54 does not apply and the card 

issuer may charge interest from the date 

of each transaction through April 24 and 

interest on the remaining $100 from 

April 25 through the end of the April 

billing cycle (April 25). 

§ 226.55 Limitations on Increasing Annual 

Percentage Rates, Fees, and Charges. 

55(a) General rule. 

1. Examples. Section 226.55(a) 

prohibits card issuers from increasing 

an annual percentage rate or any fee or 

charge required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

on a credit card account unless 

specifically permitted by one of the 

exceptions in § 226.55(b). The following 

examples illustrate the general 

application of § 226.55(a) and (b). 

Additional examples illustrating 

specific aspects of the exceptions in 

§ 226.55(b) are provided in the 

commentary to those exceptions. 

i. Account-opening disclosure of nonvariable rate for six months, then 

variable rate. Assume that, at account 

opening on January 1 of year one, a card 

issuer discloses that the annual 

percentage rate for purchases is a nonvariable rate of 15% and will apply for 

six months. The card issuer also 

discloses that, after six months, the 

annual percentage rate for purchases 

will be a variable rate that is currently 

18% and will be adjusted quarterly by 

adding a margin of 8 percentage points 

to a publicly-available index not under 

the card issuer’s control. Furthermore, 

the card issuer discloses that the annual 

percentage rate for cash advances is the 

same variable rate that will apply to 

purchases after six months. Finally, the 

card issuer discloses that, to the extent 

consistent with § 226.55 and other 

applicable law, a non-variable penalty 

rate of 30% may apply if the consumer 

makes a late payment. The payment due 

date for the account is the twenty-fifth 

day of the month and the required 

minimum periodic payments are 

applied to accrued interest and fees but 

do not reduce the purchase and cash 

advance balances. 

A. Change-in-terms rate increase for 

new transactions after first year. On 

January 15 of year one, the consumer 

uses the account to make a $2,000 

purchase and a $500 cash advance. No 

other transactions are made on the 

account. At the start of each quarter, the 

card issuer may adjust the variable rate 

that applies to the $500 cash advance 

consistent with changes in the index 

(pursuant to § 226.55(b)(2)). All required 

minimum periodic payments are 

received on or before the payment due 

date until May of year one, when the 

payment due on May 25 is received by 

the creditor on May 28. At this time, the 

card issuer is prohibited by § 226.55 

from increasing the rates that apply to 

the $2,000 purchase, the $500 cash 

advance, or future purchases and cash 

advances. Six months after account 

opening (July 1), the card issuer may 

begin to accrue interest on the $2,000 

purchase at the previously-disclosed 

variable rate determined using an 8- 

point margin (pursuant to 

§ 226.55(b)(1)). Because no other 

increases in rate were disclosed at 

account opening, the card issuer may 

not subsequently increase the variable 

rate that applies to the $2,000 purchase 

and the $500 cash advance (except due 

to increases in the index pursuant to 

§ 226.55(b)(2)). On November 16, the 

card issuer provides a notice pursuant 

to § 226.9(c) informing the consumer of 

a new variable rate that will apply on 

January 1 of year two (calculated using 

the same index and an increased margin 

of 12 percentage points). On December 

15, the consumer makes a $100 

purchase. On January 1 of year two, the 

card issuer may increase the margin 

used to determine the variable rate that 

applies to new purchases to 12 

percentage points (pursuant to 

§ 227.55(b)(3)). On January 15 of year 

two, the consumer makes a $300 

purchase. The card issuer may apply the 

variable rate determined using the 12- 

point margin to the $300 purchase but 

not the $2,000 purchase or the $100 

purchase. 

B. Account becomes more than 60 

days delinquent during first year. Same 

facts as above except that the required 

minimum periodic payment due on May 

25 of year one is not received by the 

card issuer until July 30 of year one. 

Because the card issuer received the 

required minimum periodic payment 

more than 60 days after the payment 

due date, § 226.55(b)(4) permits the card 

issuer to increase the annual percentage 

rate applicable to the $2,000 purchase, 

the $500 cash advance, and future 

purchases and cash advances. However, 

the card issuer must first comply with 

the notice requirements in § 226.9(g). 

Thus, if the card issuer provided a 

§ 226.9(g) notice on July 25 stating that 

all rates on the account would be 

increased to the 30% penalty rate, the 

card issuer could apply that rate 

beginning on September 8 to all 

balances and to future transactions. 

ii. Account-opening disclosure of nonvariable rate for six months, then 

increased non-variable rate for six 

months, then variable rate; change-interms rate increase for new transactions 

after first year. Assume that, at account 

opening on January 1 of year one, a card 

issuer discloses that the annual 

percentage rate for purchases will 

increase as follows: a non-variable rate 

of 5% for six months; a non-variable 

rate of 10% for an additional six 

months; and thereafter a variable rate 

that is currently 15% and will be 

adjusted monthly by adding a margin of 

5 percentage points to a publiclyavailable index not under the card 

issuer’s control. The payment due date 

for the account is the fifteenth day of the 

month and the required minimum 

periodic payments are applied to 

accrued interest and fees but do not 

reduce the purchase balance. On 

January 15 of year one, the consumer 

uses the account to make a $1,500 

purchase. Six months after account 

opening (July 1), the card issuer may 

begin to accrue interest on the $1,500 

purchase at the previously-disclosed 

10% non-variable rate (pursuant to 

§ 226.55(b)(1)). On September 15, the 

consumer uses the account for a $700 

purchase. On November 16, the card 

issuer provides a notice pursuant to 

§ 226.9(c) informing the consumer of a 

new variable rate that will apply on 

January 1 of year two (calculated using 

the same index and an increased margin 


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of 8 percentage points). One year after 

account opening (January 1 of year two), 

the card issuer may begin accruing 

interest on the $2,200 purchase balance 

at the previously-disclosed variable rate 

determined using a 5-point margin 

(pursuant to § 226.55(b)(1)). Because the 

variable rate determined using the 8- 

point margin was not disclosed at 

account opening, the card issuer may 

not apply that rate to the $2,200 

purchase balance. Furthermore, because 

no other increases in rate were disclosed 

at account opening, the card issuer may 

not subsequently increase the variable 

rate that applies to the $2,200 purchase 

balance (except due to increases in the 

index pursuant to § 226.55(b)(2)). The 

card issuer may, however, apply the 

variable rate determined using the 8- 

point margin to purchases made on or 

after January 1 of year two (pursuant to 

§ 226.55(b)(3)). 

iii. Change-in-terms rate increase for 

new transactions after first year; penalty 

rate increase after first year. Assume 

that, at account opening on January 1 of 

year one, a card issuer discloses that the 

annual percentage rate for purchases is 

a variable rate determined by adding a 

margin of 6 percentage points to a 

publicly-available index outside of the 

card issuer’s control. The card issuer 

also discloses that, to the extent 

consistent with § 226.55 and other 

applicable law, a non-variable penalty 

rate of 28% may apply if the consumer 

makes a late payment. The due date for 

the account is the fifteenth of the 

month. On May 30 of year two, the 

account has a purchase balance of 

$1,000. On May 31, the card issuer 

provides a notice pursuant to § 226.9(c) 

informing the consumer of a new 

variable rate that will apply on July 16 

for all purchases made on or after June 

15 (calculated by using the same index 

and an increased margin of 8 percentage 

points). On June 14, the consumer 

makes a $500 purchase. On June 15, the 

consumer makes a $200 purchase. On 

July 1, the card issuer has not received 

the payment due on June 15 and 

provides the consumer with a notice 

pursuant to § 226.9(g) stating that the 

28% penalty rate will apply as of 

August 15 to all transactions made on or 

after July 16 and that, if the consumer 

becomes more than 60 days late, the 

penalty rate will apply to all balances 

on the account. On July 17, the 

consumer makes a $300 purchase. 

A. Account does not become more 

than 60 days delinquent. The payment 

due on June 15 of year two is received 

on July 2. On July 16, § 226.55(b)(3) 

permits the card issuer to apply the 

variable rate determined using the 8- 

point margin disclosed in the § 226.9(c) 

notice to the $200 purchase made on 

June 15 but does not permit the card 

issuer to apply this rate to the $1,500 

purchase balance. On August 15, 

§ 226.55(b)(3) permits the card issuer to 

apply the 28% penalty rate disclosed at 

account opening and in the § 226.9(g) 

notice to the $300 purchase made on 

July 17 but does not permit the card 

issuer to apply this rate to the $1,500 

purchase balance (which remains at the 

variable rate determined using the 6- 

point margin) or the $200 purchase 

(which remains at the variable rate 

determined using the 8-point margin). 

B. Account becomes more than 60 

days delinquent after provision of 

§ 226.9(g) notice. Same facts as above 

except the payment due on June 15 of 

year two has not been received by 

August 15. Section 226.55(b)(4) permits 

the card issuer to apply the 28% penalty 

rate to the $1,500 purchase balance and 

the $200 purchase because it has not 

received the June 15 payment within 60 

days after the due date. However, in 

order to do so, the card issuer must 

provide an additional notice pursuant to 

§ 226.9(g). This notice must be sent no 

earlier than August 15, which is the first 

day the account became more than 60 

days’ delinquent. If the notice is sent on 

August 15, the card issuer may begin 

accruing interest on the $1,500 purchase 

balance and the $200 purchase at the 

28% penalty rate beginning on 

September 29. 

2. Relationship to grace period. 

Nothing in § 226.55 prohibits a card 

issuer from assessing interest due to the 

loss of a grace period to the extent 

consistent with § 226.54. In addition, a 

card issuer has not reduced an annual 

percentage rate on a credit card account 

for purposes of § 226.55 if the card 

issuer does not charge interest on a 

balance or a portion thereof based on a 

payment received prior to the expiration 

of a grace period. For example, if the 

annual percentage rate for purchases on 

an account is 15% but the card issuer 

does not charge any interest on a $500 

purchase balance because that balance 

was paid in full prior to the expiration 

of the grace period, the card issuer has 

not reduced the 15% purchase rate to 

0% for purposes of § 226.55. 

55(b) Exceptions. 

1. Exceptions not mutually exclusive. 

A card issuer may increase an annual 

percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

pursuant to an exception set forth in 

§ 226.55(b) even if that increase would 

not be permitted under a different 

exception. For example, although a card 

issuer cannot increase an annual 

percentage rate pursuant to 

§ 226.55(b)(1) unless that rate is 

provided for a specified period of at 

least six months, the card issuer may 

increase an annual percentage rate 

during a specified period due to an 

increase in an index consistent with 

§ 226.55(b)(2). Similarly, although 

§ 226.55(b)(3) does not permit a card 

issuer to increase an annual percentage 

rate during the first year after account 

opening, the card issuer may increase 

the rate during the first year after 

account opening pursuant to 

§ 226.55(b)(4) if the required minimum 

periodic payment is not received within 

60 days after the due date. 

2. Delayed implementation of 

increase. If § 226.55(b) permits a card 

issuer to apply an increased annual 

percentage rate, fee, or charge on a date 

that is not the first day of a billing cycle, 

the card issuer may delay application of 

the increased rate, fee, or charge until 

the first day of the following billing 

cycle without relinquishing the ability 

to apply that rate, fee, or charge. For 

example, assume that, at account 

opening on January 1, a card issuer 

discloses that a non-variable annual 

percentage rate of 10% will apply to 

purchases for six months and a nonvariable rate of 15% will apply 

thereafter. The first day of each billing 

cycle for the account is the fifteenth of 

the month. If the six-month period 

expires on July 1, the card issuer may 

delay application of the 15% rate until 

the start of the next billing cycle (July 

15) without relinquishing its ability to 

apply that rate under § 226.55(b)(1). 

3. Application of a lower rate, fee, or 

charge. Nothing in § 226.55 prohibits a 

card issuer from lowering an annual 

percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii). 

However, a card issuer that does so 

cannot subsequently increase the rate, 

fee, or charge unless permitted by one 

of the exceptions in § 226.55(b). The 

following examples illustrate the 

application of the rule: 

i. Application of lower rate during 

first year. Assume that a card issuer 

discloses at account opening on January 

1 of year one that a non-variable annual 

percentage rate of 15% will apply to 

purchases. The card issuer also 

discloses that, to the extent consistent 

with § 226.55 and other applicable law, 

a non-variable penalty rate of 30% may 

apply if the consumer’s required 

minimum periodic payment is received 

after the payment due date, which is the 

tenth of the month. The required 

minimum periodic payments are 

applied to accrued interest and fees but 

do not reduce the purchase balance. 


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A. Temporary rate returns to standard 

rate at expiration. On September 30 of 

year one, the account has a purchase 

balance of $1,400 at the 15% rate. On 

October 1, the card issuer provides a 

notice pursuant to § 226.9(c) informing 

the consumer that the rate for new 

purchases will decrease to a nonvariable rate of 5% for six months (from 

October 1 through March 31 of year two) 

and that, beginning on April 1 of year 

two, the rate for purchases will increase 

to the 15% non-variable rate disclosed 

at account opening. The card issuer 

does not apply the 5% rate to the $1,400 

purchase balance. On October 14 of year 

one, the consumer makes a $300 

purchase at the 5% rate. On January 15 

of year two, the consumer makes a $150 

purchase at the 5% rate. On April 1 of 

year two, the card issuer may begin 

accruing interest on the $300 purchase 

and the $150 purchase at 15% as 

disclosed in the § 226.9(c) notice 

(pursuant to § 226.55(b)(1)). 

B. Penalty rate increase. Same facts as 

above except that the required 

minimum periodic payment due on 

November 10 of year one is not received 

until November 15. Section 226.55 does 

not permit the card issuer to increase 

any annual percentage rate on the 

account at this time. The card issuer 

may apply the 30% penalty rate to new 

transactions beginning on April 1 of 

year two pursuant to § 226.55(b)(3) by 

providing a § 226.9(g) notice informing 

the consumer of this increase no later 

than February 14 of year two. The card 

issuer may not, however, apply the 30% 

penalty rate to the $1,400 purchase 

balance as of September 30 of year one, 

the $300 purchase on October 15 of year 

one, or the $150 purchase on January 15 

of year two. 

ii. Application of lower rate at end of 

first year. Assume that, at account 

opening on January 1 of year one, a card 

issuer discloses that a non-variable 

annual percentage rate of 15% will 

apply to purchases for one year and 

discloses that, after the first year, the 

card issuer will apply a variable rate 

that is currently 20% and is determined 

by adding a margin of 10 percentage 

points to a publicly-available index not 

under the card issuer’s control. On 

December 31 of year one, the account 

has a purchase balance of $3,000. 

A. Notice of temporary rate provided 

consistent with § 226.55(b)(1)(i). On 

November 16 of year one, the card 

issuer provides a notice pursuant to 

§ 226.9(c) informing the consumer of a 

new variable rate that will apply on 

January 1 of year two (which is 

calculated using the same index and a 

reduced margin of 8 percentage points). 

The notice further states that, on July 1 

of year two, the margin will increase to 

the margin disclosed at account opening 

(10 percentage points). On July 1 of year 

two, the card issuer may increase the 

margin used to determine the variable 

rate that applies to new purchases to 10 

percentage points and apply that rate to 

any remaining portion of the $3,000 

purchase balance (pursuant to 

§ 226.55(b)(1)). 

B. No notice provided. Same facts as 

above except that the card issuer does 

not send a notice on November 16 of 

year one. Instead, on January 1 of year 

two, the card issuer lowers the margin 

used to determine the variable rate to 8 

percentage points and applies that rate 

to the $3,000 purchase balance and to 

new purchases. Section 226.9 does not 

require advance notice in these 

circumstances. However, unless the 

account becomes more than 60 days’ 

delinquent, the card issuer may not 

subsequently increase the rate that 

applies to the $3,000 purchase balance 

except due to increases in the index 

(pursuant to § 226.55(b)(2)). 

iii. Application of lower rate after first 

year; effect of 14-day period. Assume 

that a card issuer discloses at account 

opening on January 1 of year one that 

a non-variable annual percentage rate of 

10% will apply to purchases for one 

year, after which that rate will increase 

to a non-variable rate of 15%. The card 

issuer also discloses that, to the extent 

consistent with § 226.55 and other 

applicable law, a non-variable penalty 

rate of 30% may apply if the consumer’s 

required minimum periodic payment is 

received after the payment due date, 

which is the tenth of the month. The 

required minimum periodic payments 

are applied to accrued interest and fees 

but do not reduce the purchase balance. 

On June 30 of year two, the account has 

a purchase balance of $1,000 at the 15% 

rate. On July 1, the card issuer provides 

a notice pursuant to § 226.9(c) informing 

the consumer that the rate for new 

purchases will decrease to a nonvariable rate of 5% for six months (from 

July 1 through December 31 of year two) 

and that, beginning on January 1 of year 

three, the rate for purchases will 

increase to a non-variable rate of 17%. 

On July 15 of year two, the consumer 

makes a $200 purchase. On July 16, the 

consumer makes a $100 purchase. On 

January 1 of year three, the card issuer 

may begin accruing interest on the $100 

purchase at 17% (pursuant to 

§ 226.55(b)(1)). However, 

§ 226.55(b)(1)(ii)(B) does not permit the 

card issuer to apply the 17% rate to the 

$200 purchase because that transaction 

occurred within 14 days after provision 

of the § 226.9(c) notice. Instead, the card 

issuer may apply the 15% rate that 

applied to purchases prior to provision 

of the § 226.9(c) notice. In addition, if 

the card issuer applied the 5% rate to 

the $1,000 purchase balance, 

§ 226.55(b)(ii)(A) would not permit the 

card issuer to increase the rate that 

applies to that balance on January 1 of 

year three to a rate that is higher than 

15% that previously applied to the 

balance. 

4. Date on which transaction 

occurred. When a transaction occurred 

for purposes of § 226.55 is generally 

determined by the date of the 

transaction. However, if a transaction 

that occurred within 14 days after 

provision of a § 226.9(c) or (g) notice is 

not charged to the account prior to the 

effective date of the change or increase, 

the card issuer may treat the transaction 

as occurring more than 14 days after 

provision of the notice for purposes of 

§ 226.55. See example in comment 

55(b)(3)–4.iii.B. In addition, when a 

merchant places a ‘‘hold’’ on the 

available credit on an account for an 

estimated transaction amount because 

the actual transaction amount will not 

be known until a later date, the date of 

the transaction for purposes of § 226.55 

is the date on which the card issuer 

receives the actual transaction amount 

from the merchant. See example in 

comment 55(b)(3)–4.iii.A. 

5. Category of transactions. For 

purposes of § 226.55, a ‘‘category of 

transactions’’ is a type or group of 

transactions to which an annual 

percentage rate applies that is different 

than the annual percentage rate that 

applies to other transactions. Similarly, 

a type or group of transactions is a 

‘‘category of transactions’’ for purposes 

of § 226.55 if a fee or charge required to 

be disclosed under § 226.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) applies to those 

transactions that is different than the fee 

or charge that applies to other 

transactions. For example, purchase 

transactions, cash advance transactions, 

and balance transfer transactions are 

separate categories of transactions for 

purposes of § 226.55 if a card issuer 

applies different annual percentage rates 

to each. Furthermore, if, for example, 

the card issuer applies different annual 

percentage rates to different types of 

purchase transactions (such as one rate 

for purchases of gasoline or purchases 

over $100 and a different rate for all 

other purchases), each type constitutes 

a separate category of transactions for 

purposes of § 226.55. 

6. Relationship between exceptions in 

§ 226.55(b) and 45-day advance notice 

requirements in § 226.9(c) and (g). 

Nothing in § 226.55 alters the 

requirements in § 226.9(c) and (g) that 

creditors provide written notice at least 


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45 days prior to the effective date of 

certain increases in annual percentage 

rates, fees, and charges. For example, 

although § 226.55(b)(3)(ii) permits a 

card issuer that discloses an increased 

rate pursuant to § 226.9(c) or (g) to apply 

that rate to transactions that occurred 

more than 14 days after provision of the 

notice, the card issuer cannot begin to 

accrue interest at the increased rate 

until that increase goes into effect, 

consistent with § 226.9(c) or (g). See 

examples in comment 55(b)(3)–4. 

Similarly, on or after the effective date, 

the card issuer cannot calculate interest 

charges for days before the effective date 

based on the increased rate. 

55(b)(1) Temporary rate exception. 

1. Relationship to § 226.9(c)(2)(v)(B). 

A card issuer that has complied with the 

disclosure requirements in 

§ 226.9(c)(2)(v)(B) has also complied 

with the disclosure requirements in 

§ 226.55(b)(1)(i). 

2. Period of six months or longer. A 

temporary annual percentage rate must 

apply to transactions for a specified 

period of six months or longer before a 

card issuer can increase that rate 

pursuant to § 226.55(b)(1). The specified 

period must expire no less than six 

months after the date on which the 

creditor provides the consumer with the 

disclosures required by § 226.55(b)(1)(i) 

or, if later, the date on which the 

account can be used for transactions to 

which the temporary rate applies. 

Section 226.55(b)(1) does not prohibit a 

card issuer from limiting the application 

of a temporary annual percentage rate to 

a particular category of transactions 

(such as balance transfers or purchases 

over $100). However, in circumstances 

where the card issuer limits application 

of the temporary rate to a particular 

transaction, the specified period must 

expire no less than six months after the 

date on which that transaction occurred. 

The following examples illustrate the 

application of § 226.55(b)(1): 

i. Assume that on January 1 a card 

issuer offers a consumer a 5% annual 

percentage rate on purchases made 

during the months of January through 

June. A 15% rate will apply thereafter. 

On February 15, a $500 purchase is 

charged to the account. On June 15, a 

$200 purchase is charged to the account. 

On July 1, the card issuer may begin 

accruing interest at the 15% rate on the 

$500 purchase and the $200 purchase 

(pursuant to § 226.55(b)(1)). 

ii. Same facts as above except that on 

January 1 the card issuer offered the 5% 

rate on purchases beginning in the 

month of February. Section 226.55(b)(1) 

would not permit the card issuer to 

begin accruing interest at the 15% rate 

on the $500 purchase and the $200 

purchase until August 1. 

iii. Assume that on October 31 of year 

one the annual percentage rate for 

purchases on a credit card account is 

17%. On November 1, the card issuer 

offers the consumer a 0% rate for six 

months on purchases made during the 

months of November and December. 

The 17% rate will apply thereafter. On 

November 15, a $500 purchase is 

charged to the account. On December 

15, a $300 purchase is charged to the 

account. On January 15 of year two, a 

$150 purchase is charged to the account. 

Section 226.55(b)(1) would not permit 

the card issuer to begin accruing interest 

at the 17% rate on the $500 purchase 

and the $300 purchase until May 1 of 

year two. However, the card issuer may 

accrue interest at the 17% rate on the 

$150 purchase beginning on January 15 

of year two. 

iv. Assume that on June 1 of year one 

a card issuer offers a consumer a 0% 

annual percentage rate for six months 

on the purchase of an appliance. An 

18% rate will apply thereafter. On 

September 1, a $5,000 transaction is 

charged to the account for the purchase 

of an appliance. Section 226.55(b)(1) 

would not permit the card issuer to 

begin accruing interest at the 18% rate 

on the $5,000 transaction until March 1 

of year two. 

v. Assume that on May 31 of year one 

the annual percentage rate for purchases 

on a credit card account is 15%. On 

June 1, the card issuer offers the 

consumer a 5% rate for six months on 

a balance transfer. The 15% rate will 

apply thereafter. On June 15, a $3,000 

balance is transferred to the account. On 

July 15, a $200 purchase is charged to 

the account. Section 226.55(b)(1) would 

not permit the card issuer to begin 

accruing interest the 15% rate on the 

$3,000 transferred balance until 

December 15. However, the card issuer 

may accrue interest at the 15% rate on 

the $200 purchase beginning on July 15. 

3. Deferred interest and similar 

promotional programs. 

i. Application of § 226.55. The general 

prohibition in § 226.55(a) applies to the 

imposition of accrued interest upon the 

expiration of a deferred interest or 

similar promotional program under 

which the consumer is not obligated to 

pay interest that accrues on a balance if 

that balance is paid in full prior to the 

expiration of a specified period of time. 

However, the exception in § 226.55(b)(1) 

also applies to these programs, provided 

that, prior to the commencement of the 

deferred interest period, the card issuer 

discloses the length of the period and 

the rate at which interest will accrue on 

the balance subject to the deferred 

interest program if that balance is not 

paid in full prior to expiration of the 

deferred interest period. See comment 

9(c)(2)(v)–7. 

ii. Examples. 

A. Deferred interest offer at account 

opening. Assume that, at account 

opening on January 1 of year one, the 

card issuer discloses the following with 

respect to a deferred interest program: 

‘‘No interest on purchases made in 

January of year one if paid in full by 

December 31 of year one. If the balance 

is not paid in full by that date, interest 

will be imposed from the transaction 

date at a rate of 20%.’’ On January 15 

of year one, the consumer makes a 

purchase of $2,000. No other 

transactions are made on the account. 

The payment due on April 1 is not 

received until April 10. Section 226.55 

does not permit the card issuer to charge 

to the account interest that has accrued 

on the $2,000 purchase at this time. 

Furthermore, if the consumer pays the 

$2,000 purchase in full on or before 

December 31 of year one, § 226.55 does 

not permit the card issuer to charge to 

the account any interest that has 

accrued on that purchase. If, however, 

the $2,000 purchase has not been paid 

in full by January 1 of year two, 

§ 226.55(b)(1) permits the card issuer to 

charge to the account the interest 

accrued on that purchase at the 20% 

rate during year one (to the extent 

consistent with other applicable law). 

B. Deferred interest offer after account 

opening. Assume that a card issuer 

discloses at account opening on January 

1 of year one that the rate that applies 

to purchases is a variable annual 

percentage rate that is currently 18% 

and will be adjusted quarterly by adding 

a margin of 8 percentage points to a 

publicly-available index not under the 

card issuer’s control. The card issuer 

also discloses that, to the extent 

consistent with § 226.55 and other 

applicable law, a non-variable penalty 

rate of 30% may apply if the consumer’s 

required minimum periodic payment is 

received after the payment due date, 

which is the first of the month. On June 

30 of year two, the consumer uses the 

account for a $1,000 purchase in 

response to an offer of a deferred 

interest program. Under the terms of 

this program, interest on the purchase 

will accrue at the variable rate for 

purchases but the consumer will not be 

obligated to pay that interest if the 

purchase is paid in full by December 31 

of year two. The payment due on 

September 1 of year two is not received 

until September 6. Section 226.55 does 

not permit the card issuer to charge to 

the account interest that has accrued on 

the $1,000 purchase at this time. 


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Furthermore, if the consumer pays the 

$1,000 purchase in full on or before 

December 31 of year two, § 226.55 does 

not permit the card issuer to charge to 

the account any interest that has 

accrued on that purchase. On December 

31 of year two, the $1,000 purchase has 

been paid in full. Under these 

circumstances, the card issuer may not 

charge any interest accrued on the 

$1,000 purchase. 

4. Contingent or discretionary rate 

increases. Section § 226.55(b)(1) permits 

a card issuer to increase a temporary 

annual percentage rate upon the 

expiration of a specified period of time. 

However, § 226.55(b)(1) does not permit 

a card issuer to apply an increased rate 

that is contingent on a particular event 

or occurrence or that may be applied at 

the card issuer’s discretion. The 

following examples illustrate rate 

increases that are not permitted by 

§ 226.55: 

i. Assume that a card issuer discloses 

at account opening on January 1 of year 

one that a non-variable annual 

percentage rate of 15% applies to 

purchases but that all rates on an 

account may be increased to a nonvariable penalty rate of 30% if a 

consumer’s required minimum periodic 

payment is received after the payment 

due date, which is the fifteenth of the 

month. On March 1, the account has a 

$2,000 purchase balance. The payment 

due on March 15 is not received until 

March 20. Section 226.55 does not 

permit the card issuer to apply the 30% 

penalty rate to the $2,000 purchase 

balance. However, pursuant to 

§ 226.55(b)(3), the card issuer could 

provide a § 226.9(c) or (g) notice on or 

before November 16 informing the 

consumer that, on January 1 of year two, 

the 30% rate (or a different rate) will 

apply to new transactions. 

ii. Assume that a card issuer discloses 

at account opening on January 1 of year 

one that a non-variable annual 

percentage rate of 5% applies to 

transferred balances but that this rate 

will increase to a non-variable rate of 

18% if the consumer does not use the 

account for at least $200 in purchases 

each billing cycle. On July 1, the 

consumer transfers a balance of $4,000 

to the account. During the October 

billing cycle, the consumer uses the 

account for $150 in purchases. Section 

226.55 does not permit the card issuer 

to apply the 18% rate to the $4,000 

transferred balance or the $150 in 

purchases. However, pursuant to 

§ 226.55(b)(3), the card issuer could 

provide a § 226.9(c) or (g) notice on or 

before November 16 informing the 

consumer that, on January 1 of year two, 

the 18% rate (or a different rate) will 

apply to new transactions. 

55(b)(2) Variable rate exception. 

1. Increases due to increase in index. 

Section 226.55(b)(2) provides that an 

annual percentage rate that varies 

according to an index that is not under 

the card issuer’s control and is available 

to the general public may be increased 

due to an increase in the index. This 

section does not permit a card issuer to 

increase the rate by changing the 

method used to determine a rate that 

varies with an index (such as by 

increasing the margin), even if that 

change will not result in an immediate 

increase. However, a card issuer may 

change the day of the month on which 

index values are measured to determine 

changes to the rate. 

2. External index. A card issuer may 

increase the annual percentage rate if 

the increase is based on an index or 

indices outside the card issuer’s control. 

A card issuer may not increase the rate 

based on its own prime rate or cost of 

funds. A card issuer is permitted, 

however, to use a published prime rate, 

such as that in the Wall Street Journal, 

even if the card issuer’s own prime rate 

is one of several rates used to establish 

the published rate. 

3. Publicly available. The index or 

indices must be available to the public. 

A publicly-available index need not be 

published in a newspaper, but it must 

be one the consumer can independently 

obtain (by telephone, for example) and 

use to verify the annual percentage rate 

applied to the credit card account. 

4. Changing a non-variable rate to a 

variable rate. Section 226.55 generally 

prohibits a card issuer from changing a 

non-variable annual percentage rate to a 

variable annual percentage rate because 

such a change can result in an increase. 

However, a card issuer may change a 

non-variable rate to a variable to the 

extent permitted by one of the 

exceptions in § 226.55(b). For example, 

§ 226.55(b)(1) permits a card issuer to 

change a non-variable rate to a variable 

rate upon expiration of a specified 

period of time. Similarly, following the 

first year after the account is opened, 

§ 226.55(b)(3) permits a card issuer to 

change a non-variable rate to a variable 

rate with respect to new transactions 

(after complying with the notice 

requirements in § 226.9(b), (c) or (g)). 

5. Changing a variable rate to a nonvariable rate. Nothing in § 226.55 

prohibits a card issuer from changing a 

variable annual percentage rate to an 

equal or lower non-variable rate. 

Whether the non-variable rate is equal 

to or lower than the variable rate is 

determined at the time the card issuer 

provides the notice required by 

§ 226.9(c). For example, assume that on 

March 1 a variable annual percentage 

rate that is currently 15% applies to a 

balance of $2,000 and the card issuer 

sends a notice pursuant to § 226.9(c) 

informing the consumer that the 

variable rate will be converted to a nonvariable rate of 14% effective April 15. 

On April 15, the card issuer may apply 

the 14% non-variable rate to the $2,000 

balance and to new transactions even if 

the variable rate on March 2 or a later 

date was less than 14%. 

6. Substitution of index. A card issuer 

may change the index and margin used 

to determine the annual percentage rate 

under § 226.55(b)(2) if the original index 

becomes unavailable, as long as 

historical fluctuations in the original 

and replacement indices were 

substantially similar, and as long as the 

replacement index and margin will 

produce a rate similar to the rate that 

was in effect at the time the original 

index became unavailable. If the 

replacement index is newly established 

and therefore does not have any rate 

history, it may be used if it produces a 

rate substantially similar to the rate in 

effect when the original index became 

unavailable. 

55(b)(3) Advance notice exception. 

1. Relationship to § 226.9(h). A card 

issuer may not increase a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

pursuant to § 226.55(b)(3) if the 

consumer has rejected the increased fee 

or charge pursuant to § 226.9(h). 

2. Notice provided pursuant to 

§ 226.9(b) and (c). If an increased annual 

percentage rate, fee, or charge is 

disclosed pursuant to both § 226.9(b) 

and (c), that rate, fee, or charge may 

only be applied to transactions that 

occur more than 14 days after provision 

of the § 226.9(c) notice. 

3. Account opening. 

i. Multiple accounts with same card 

issuer. When a consumer has a credit 

card account with a card issuer and the 

consumer opens a new credit card 

account with the same card issuer (or its 

affiliate or subsidiary), the opening of 

the new account constitutes the opening 

of a credit card account for purposes of 

§ 226.55(b)(3)(iii) if, more than 30 days 

after the new account is opened, the 

consumer has the option to obtain 

additional extensions of credit on each 

account. For example, assume that, on 

January 1 of year one, a consumer opens 

a credit card account with a card issuer. 

On July 1 of year one, the consumer 

opens a second credit card account with 

that card issuer. On July 15, a $1,000 

balance is transferred from the first 

account to the second account. The 

opening of the second account 


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constitutes the opening of a credit card 

account for purposes of 

§ 226.55(b)(3)(iii) so long as, on August 

1, the consumer has the option to 

engage in transactions using either 

account. Under these circumstances, the 

card issuer could not increase an annual 

percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

on the second account pursuant to 

§ 226.55(b)(3) until July 1 of year two 

(which is one year after the second 

account was opened). 

ii. Substitution, replacement or 

consolidation. 

A. Generally. A credit card account 

has not been opened for purposes of 

§ 226.55(b)(3)(iii) when a credit card 

account issued by a card issuer is 

substituted, replaced, or consolidated 

with another credit card account issued 

by the same card issuer (or its affiliate 

or subsidiary). Circumstances in which 

a credit card account has not been 

opened for purposes of 

§ 226.55(b)(3)(iii) include when: 

(1) A retail credit card is replaced 

with a cobranded general purpose card 

that can be used at a wider number of 

merchants; 

(2) A credit card account is replaced 

with another credit card account 

offering different features; 

(3) A credit card account is 

consolidated or combined with one or 

more other credit card accounts into a 

single credit card account; or 

(4) A credit card account acquired 

through merger or acquisition is 

replaced with a credit card account 

issued by the acquiring card issuer. 

B. Limitation. A card issuer that 

replaces or consolidates a credit card 

account with another credit card 

account issued by the card issuer (or its 

affiliate or subsidiary) may not increase 

an annual percentage rate or a fee or 

charge required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

in a manner otherwise prohibited by 

§ 226.55. For example, assume that, on 

January 1 of year one, a consumer opens 

a credit card account with an annual 

percentage rate of 15% for purchases. 

On July 1 of year one, the account is 

replaced with a credit card account that 

offers different features (such as rewards 

on purchases). Under these 

circumstances, the card issuer cannot 

increase the annual percentage rate for 

new purchases to a rate that is higher 

than 15% pursuant to § 226.55(b)(3) 

until January 1 of year two (which is 

one year after the first account was 

opened). 

4. Examples. 

i. Change-in-terms rate increase; 

temporary rate increase. Assume that a 

credit card account is opened on 

January 1 of year one. On March 14 of 

year two, the account has a purchase 

balance of $2,000 at a non-variable 

annual percentage rate of 15%. On 

March 15, the card issuer provides a 

notice pursuant to § 226.9(c) informing 

the consumer that the rate for new 

purchases will increase to a nonvariable rate of 18% on May 1. The 

notice further states that the 18% rate 

will apply for six months (until 

November 1) and that thereafter the card 

issuer will apply a variable rate that is 

currently 22% and is determined by 

adding a margin of 12 percentage points 

to a publicly-available index that is not 

under the card issuer’s control. The 

fourteenth day after provision of the 

notice is March 29 and, on that date, the 

consumer makes a $200 purchase. On 

March 30, the consumer makes a $1,000 

purchase. On May 1, the card issuer 

may begin accruing interest at 18% on 

the $1,000 purchase made on March 30 

(pursuant to § 226.55(b)(3)). Section 

226.55(b)(3)(i) and (ii) do not permit the 

card issuer to apply the 18% rate to the 

$2,200 purchase balance as of March 29 

because that balance reflects 

transactions that occurred prior to or 

within 14 days after the provision of the 

§ 226.9(c) notice. After six months 

(November 2), the card issuer may begin 

accruing interest on any remaining 

portion of the $1,000 purchase at the 

previously-disclosed variable rate 

determined using the 12-point margin 

(pursuant to § 226.55(b)(1)). 

ii. Checks that access a credit card 

account. Assume that a card issuer 

discloses at account opening on January 

1 of year one that the annual percentage 

rate that applies to cash advances is a 

variable rate that is currently 24% and 

will be adjusted quarterly by adding a 

margin of 14 percentage points to a 

publicly available index not under the 

card issuer’s control. On July 1 of year 

two, the card issuer provides checks 

that access the account and, pursuant to 

§ 226.9(b)(3)(i)(A), discloses that a 

promotional rate of 15% will apply to 

credit extended by use of the checks 

until January 1 of year three, after which 

the cash advance rate determined using 

the 14-point margin will apply. On July 

9 of year two, the consumer uses one of 

the checks to pay for a $500 transaction. 

Beginning on January 1 of year three, 

the card issuer may apply the cash 

advance rate determined using the 14- 

point margin to any remaining portion 

of the $500 transaction (pursuant to 

§ 226.55(b)(1) and (b)(3)). 

iii. Hold on available credit. Assume 

that a credit card account is opened on 

January 1 of year one. On September 14 

of year two, the account has a purchase 

balance of $2,000 at a non-variable 

annual percentage rate of 17%. On 

September 15, the card issuer provides 

a notice pursuant to § 226.9(c) informing 

the consumer that the rate for new 

purchases will increase to a nonvariable rate of 20% on October 30. The 

fourteenth day after provision of the 

notice is September 29. On September 

28, the consumer uses the credit card to 

check into a hotel and the hotel obtains 

authorization for a $1,000 hold on the 

account to ensure there is adequate 

available credit to cover the anticipated 

cost of the stay. 

A. The consumer checks out of the 

hotel on October 2. The actual cost of 

the stay is $1,100 because of additional 

incidental costs. On October 2, the hotel 

charges the $1,100 transaction to the 

account. For purposes of § 226.55(b)(3), 

the transaction occurred on October 2. 

Therefore, on October 30, § 226.55(b)(3) 

permits the card issuer to apply the 20% 

rate to new purchases and to the $1,100 

transaction. However, § 226.55(b)(3)(ii) 

does not permit the card issuer to apply 

the 20% rate to any remaining portion 

of the $2,000 purchase balance. 

B. Same facts as above except that the 

consumer checks out of the hotel on 

September 29. The actual cost of the 

stay is $250, but the hotel does not 

charge this amount to the account until 

November 1. For purposes of 

§ 226.55(b)(3), the card issuer may treat 

the transaction as occurring more than 

14 days after provision of the § 226.9(c) 

notice (i.e., after September 29). 

Accordingly, the card issuer may apply 

the 20% rate to the $250 transaction. 

5. Application of increased fees and 

charges. See comment 55(c)(1)–3. 

55(b)(4) Delinquency exception. 

1. Receipt of required minimum 

periodic payment within 60 days of due 

date. Section 226.55(b)(4) applies when 

a card issuer has not received the 

consumer’s required minimum periodic 

payment within 60 days after the due 

date for that payment. In order to satisfy 

this condition, a card issuer that 

requires monthly minimum payments 

generally must not have received two 

consecutive required minimum periodic 

payments. Whether a required 

minimum periodic payment has been 

received for purposes of § 226.55(b)(4) 

depends on whether the amount 

received is equal to or more than the 

first outstanding required minimum 

periodic payment. For example, assume 

that the required minimum periodic 

payments for a credit card account are 

due on the fifteenth day of the month. 

On May 13, the card issuer has not 

received the $50 required minimum 

periodic payment due on March 15 or 

the $150 required minimum periodic 


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payment due on April 15. If the card 

issuer receives a $50 payment on May 

14, § 226.55(b)(4) does not apply 

because the payment is equal to the 

required minimum periodic payment 

due on March 15 and therefore the 

account is not more than 60 days 

delinquent. However, if the card issuer 

instead received a $40 payment on May 

14, § 226.55(b)(4) would apply because 

the payment is less than the required 

minimum periodic payment due on 

March 15. Furthermore, if the card 

issuer received the $50 payment on May 

15, § 226.55(b)(4) would apply because 

the card issuer did not receive the 

required minimum periodic payment 

due on March 15 within 60 days after 

the due date for that payment. 

2. Relationship to § 226.9(g)(3)(i)(B). A 

card issuer that has complied with the 

disclosure requirements in 

§ 226.9(g)(3)(i)(B) has also complied 

with the disclosure requirements in 

§ 226.55(b)(4)(i). 

3. Reduction in rate pursuant to 

§ 226.55(b)(4)(ii). Section 226.55(b)(4)(ii) 

provides that, if the card issuer receives 

six consecutive required minimum 

periodic payments on or before the 

payment due date beginning with the 

first payment due following the effective 

date of the increase, the card issuer 

must reduce any annual percentage rate, 

fee, or charge increased pursuant to 

§ 226.55(b)(4) to the annual percentage 

rate, fee, or charge that applied prior to 

the increase with respect to transactions 

that occurred prior to or within 14 days 

after provision of the § 226.9(g) notice. 

i. Six consecutive payments 

immediately following effective date of 

increase. Section 226.55(b)(4)(ii) does 

not apply if the card issuer does not 

receive six consecutive required 

minimum periodic payments on or 

before the payment due date beginning 

with the payment due immediately 

following the effective date of the 

increase, even if, at some later point in 

time, the card issuer receives six 

consecutive required minimum periodic 

payments on or before the payment due 

date. 

ii. Rate, fee, or charge that does not 

exceed rate, fee, or charge that applied 

before increase. Although 

§ 226.55(b)(4)(ii) requires the card issuer 

to reduce an annual percentage rate, fee, 

or charge increased pursuant to 

§ 226.55(b)(4) to the annual percentage 

rate, fee, or charge that applied prior to 

the increase, this provision does not 

prohibit the card issuer from applying 

an increased annual percentage rate, fee, 

or charge consistent with any of the 

other exceptions in § 226.55(b). For 

example, if a temporary rate applied 

prior to the § 226.55(b)(4) increase and 

the temporary rate expired before a 

reduction in rate pursuant to 

§ 226.55(b)(4)(ii), the card issuer may 

apply an increased rate to the extent 

consistent with § 226.55(b)(1). Similarly, 

if a variable rate applied prior to the 

§ 226.55(b)(4) increase, the card issuer 

may apply any increase in that variable 

rate to the extent consistent with 

§ 226.55(b)(2). 

iii. Delayed implementation of 

reduction. If § 226.55(b)(4)(ii) requires a 

card issuer to reduce an annual 

percentage rate, fee, or charge on a date 

that is not the first day of a billing cycle, 

the card issuer may delay application of 

the reduced rate, fee, or charge until the 

first day of the following billing cycle. 

iv. Examples. The following examples 

illustrate the application of 

§ 226.55(b)(4)(ii): 

A. Assume that the billing cycles for 

a credit card account begin on the first 

day of the month and end on the last 

day of the month and that the required 

minimum periodic payments are due on 

the fifteenth day of the month. Assume 

also that the account has a $5,000 

purchase balance to which a nonvariable annual percentage rate of 15% 

applies. On May 16 of year one, the card 

issuer has not received the required 

minimum periodic payments due on the 

fifteenth day of March, April, or May 

and sends a § 226.9(g) notice stating that 

the annual percentage rate applicable to 

the $5,000 balance and to new 

transactions will increase to 28% 

effective July 1. On July 1, § 226.55(b)(4) 

permits the card issuer to apply the 28% 

rate to the $5,000 balance and to new 

transactions. The card issuer receives 

the required minimum periodic 

payments due on the fifteenth day of 

July, August, September, October, 

November, and December. On January 1 

of year two, § 226.55(b)(4)(ii) requires 

the card issuer to reduce the rate that 

applies to any remaining portion of the 

$5,000 balance to 15%. The card issuer 

is not required to reduce the rate that 

applies to any transactions that occurred 

on or after May 31 (which is the 

fifteenth day after provision of the 

§ 226.55(b)(4) notice). 

B. Same facts as paragraph iv.A. above 

except that the 15% rate that applied to 

the $5,000 balance prior to the 

§ 226.55(b)(4) increase was scheduled to 

increase to 20% on August 1 of year one 

(pursuant to § 226.55(b)(1)). On January 

1 of year two, § 226.55(b)(4)(ii) requires 

the card issuer to reduce the rate that 

applies to any remaining portion of the 

$5,000 balance to 20%. 

C. Same facts as paragraph iv.A. above 

except that the 15% rate that applied to 

the $5,000 balance prior to the 

§ 226.55(b)(4) increase was a variable 

rate that was determined by adding a 

margin of 10 percentage points to a 

publicly-available index not under the 

card issuer’s control (consistent with 

§ 226.55(b)(2)). On January 1 of year 

two, § 226.55(b)(4)(ii) requires the card 

issuer to reduce the rate that applies to 

any remaining portion of the $5,000 

balance to the variable rate determined 

using the 10-point margin. 

55(b)(5) Workout and temporary 

hardship arrangement exception. 

1. Scope of exception. Nothing in 

§ 226.55(b)(5) permits a card issuer to 

alter the requirements of § 226.55 

pursuant to a workout or temporary 

hardship arrangement. For example, a 

card issuer cannot increase an annual 

percentage rate or a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

pursuant to a workout or temporary 

hardship arrangement unless otherwise 

permitted by § 226.55. In addition, a 

card issuer cannot require the consumer 

to make payments with respect to a 

protected balance that exceed the 

payments permitted under § 226.55(c). 

2. Relationship to § 226.9(c)(2)(v)(D). 

A card issuer that has complied with the 

disclosure requirements in 

§ 226.9(c)(2)(v)(D) has also complied 

with the disclosure requirements in 

§ 226.55(b)(5)(i). See comment 

9(c)(2)(v)–8. 

3. Rate, fee, or charge that does not 

exceed rate, fee, or charge that applied 

before workout or temporary hardship 

arrangement. Upon the completion or 

failure of a workout or temporary 

hardship arrangement, § 226.55(b)(5)(ii) 

prohibits the card issuer from applying 

to any transactions that occurred prior 

to commencement of the arrangement 

an annual percentage rate, fee, or charge 

that exceeds the annual percentage rate, 

fee, or charge that applied to those 

transactions prior to commencement of 

the arrangement. However, this 

provision does not prohibit the card 

issuer from applying an increased 

annual percentage rate, fee, or charge 

upon completion or failure of the 

arrangement, to the extent consistent 

with any of the other exceptions in 

§ 226.55(b). For example, if a temporary 

rate applied prior to the arrangement 

and that rate expired during the 

arrangement, the card issuer may apply 

an increased rate upon completion or 

failure of the arrangement to the extent 

consistent with § 226.55(b)(1). Similarly, 

if a variable rate applied prior to the 

arrangement, the card issuer may apply 

any increase in that variable rate upon 

completion or failure of the arrangement 

to the extent consistent with 

§ 226.55(b)(2). 

4. Examples. 


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i. Assume that, consistent with 

§ 226.55(b)(4), the margin used to 

determine a variable annual percentage 

rate that applies to a $5,000 balance is 

increased from 5 percentage points to 15 

percentage points. Assume also that the 

card issuer and the consumer 

subsequently agree to a workout 

arrangement that reduces the margin 

back to 5 points on the condition that 

the consumer pay a specified amount by 

the payment due date each month. If the 

consumer does not pay the agreed-upon 

amount by the payment due date, the 

card issuer may increase the margin for 

the variable rate that applies to the 

$5,000 balance up to 15 percentage 

points. 

ii. Assume that a consumer fails to 

make four consecutive monthly 

minimum payments totaling $480 on a 

consumer credit card account with a 

balance of $6,000 and that, consistent 

with § 226.55(b)(4), the annual 

percentage rate that applies to that 

balance is increased from a non-variable 

rate of 15% to a non-variable penalty 

rate of 30%. Assume also that the card 

issuer and the consumer subsequently 

agree to a temporary hardship 

arrangement that reduces all rates on the 

account to 0% on the condition that the 

consumer pay an amount by the 

payment due date each month that is 

sufficient to cure the $480 delinquency 

within six months. If the consumer pays 

the agreed-upon amount by the payment 

due date during the six-month period 

and cures the delinquency, the card 

issuer may increase the rate that applies 

to any remaining portion of the $6,000 

balance to 15% or any other rate up to 

the 30% penalty rate. 

55(b)(6) Servicemembers Civil Relief 

Act exception. 

1. Rate that does not exceed rate that 

applied before decrease. Once 50 U.S.C. 

app. 527 no longer applies, 

§ 226.55(b)(6) prohibits a card issuer 

from applying an annual percentage rate 

to any transactions that occurred prior 

to a decrease in rate pursuant to 50 

U.S.C. app. 527 that exceeds the rate 

that applied to those transactions prior 

to the decrease. However, this provision 

does not prohibit the card issuer from 

applying an increased annual 

percentage rate once 50 U.S.C. app. 527 

no longer applies, to the extent 

consistent with any of the other 

exceptions in § 226.55(b). For example, 

if a temporary rate applied prior to the 

decrease and that rate expired during 

the period that 50 U.S.C. app. 527 

applied to the account, the card issuer 

may apply an increased rate once 50 

U.S.C. app. 527 no longer applies to the 

extent consistent with § 226.55(b)(1). 

Similarly, if a variable rate applied prior 

to the decrease, the card issuer may 

apply any increase in that variable rate 

once 50 U.S.C. app. 527 no longer 

applies to the extent consistent with 

§ 226.55(b)(2). 

2. Example. Assume that on 

December 31 of year one the annual 

percentage rate that applies to a $5,000 

balance on a credit card account is a 

variable rate that is determined by 

adding a margin of 10 percentage points 

to a publicly-available index that is not 

under the card issuer’s control. On 

January 1 of year two, the card issuer 

reduces the rate that applies to the 

$5,000 balance to a non-variable rate of 

6% pursuant to 50 U.S.C. app. 527. On 

January 1 of year three, 50 U.S.C. app. 

527 ceases to apply and the card issuer 

provides a notice pursuant to § 226.9 

informing the consumer that on 

February 15 of year three the variable 

rate determined using the 10-point 

margin will apply to any remaining 

portion of the $5,000 balance. On 

February 15 of year three, § 226.55(b)(6) 

permits the card issuer to begin accruing 

interest on any remaining portion of the 

$5,000 balance at the variable rate 

determined using the 10-point margin. 

55(c) Treatment of protected 

balances. 

55(c)(1) Definition of protected 

balance. 

1. Example of protected balance. 

Assume that, on March 15 of year two, 

an account has a purchase balance of 

$1,000 at a non-variable annual 

percentage rate of 12% and that, on 

March 16, the card issuer sends a notice 

pursuant to § 226.9(c) informing the 

consumer that the annual percentage 

rate for new purchases will increase to 

a non-variable rate of 15% on May 1. 

The fourteenth day after provision of the 

notice is March 29. On March 29, the 

consumer makes a $100 purchase. On 

March 30, the consumer makes a $150 

purchase. On May 1, § 226.55(b)(3) 

permits the card issuer to begin accruing 

interest at 15% on the $150 purchase 

made on March 30 but does not permit 

the card issuer to apply that 15% rate 

to the $1,100 purchase balance as of 

March 29. Accordingly, the protected 

balance for purposes of § 226.55(c) is the 

$1,100 purchase balance as of March 29. 

The $150 purchase made on March 30 

is not part of the protected balance. 

2. First year after account opening. 

Section 226.55(c) applies to amounts 

owed for a category of transactions to 

which an increased annual percentage 

rate or an increased fee or charge cannot 

be applied after the rate, fee, or charge 

for that category of transactions has 

been increased pursuant to 

§ 226.55(b)(3). Because § 226.55(b)(3)(iii) 

does not permit a card issuer to increase 

an annual percentage rate or a fee or 

charge required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

during the first year after account 

opening, § 226.55(c) does not apply to 

balances during the first year after 

account opening. 

3. Increased fees and charges. Once 

an account has been open for more than 

one year, § 226.55(b)(3) permits a card 

issuer to increase a fee or charge 

required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

after complying with the applicable 

notice requirements in § 226.9(b) or (c), 

provided that the increased fee or 

charge is not applied to a protected 

balance. A card issuer is not prohibited 

from increasing a fee or charge that 

applies to the account as a whole or to 

balances other than the protected 

balance. For example, after the first year 

following account opening, a card issuer 

may add a new annual or a monthly 

maintenance fee to an account or 

increase such a fee so long as the fee is 

not based solely on the protected 

balance. However, if the consumer 

rejects an increase in a fee or charge 

pursuant to § 226.9(h), the card issuer is 

prohibited from applying the increased 

fee or charge to the account and from 

imposing any other fee or charge solely 

as a result of the rejection. See 

§ 226.9(h)(2)(i) and (ii); comment 

9(h)(2)(ii)–2. 

55(c)(2) Repayment of protected 

balance. 

1. No less beneficial to the consumer. 

A card issuer may provide a method of 

repaying the protected balance that is 

different from the methods listed in 

§ 226.55(c)(2) so long as the method 

used is no less beneficial to the 

consumer than one of the listed 

methods. A method is no less beneficial 

to the consumer if the method results in 

a required minimum periodic payment 

that is equal to or less than a minimum 

payment calculated using the method 

for the account before the effective date 

of the increase. Similarly, a method is 

no less beneficial to the consumer if the 

method amortizes the balance in five 

years or longer or if the method results 

in a required minimum periodic 

payment that is equal to or less than a 

minimum payment calculated 

consistent with § 226.55(c)(2)(iii). For 

example: 

i. If at account opening the cardholder 

agreement stated that the required 

minimum periodic payment would be 

either the total of fees and interest 

charges plus 1% of the total amount 

owed or $20 (whichever is greater), the 

card issuer may require the consumer to 

make a minimum payment of $20 even 

if doing so would pay off the balance in 


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less than five years or constitute more 

than 2% of the balance plus fees and 

interest charges. 

ii. A card issuer could increase the 

percentage of the balance included in 

the required minimum periodic 

payment from 2% to 5% so long as 

doing so would not result in 

amortization of the balance in less than 

five years. 

iii. A card issuer could require the 

consumer to make a required minimum 

periodic payment that amortizes the 

balance in four years so long as doing 

so would not more than double the 

percentage of the balance included in 

the minimum payment prior to the date 

on which the increased annual 

percentage rate, fee, or charge became 

effective. 

55(c)(2)(ii) Five-year amortization 

period. 

1. Amortization period starting from 

effective date of increase. Section 

226.55(c)(2)(ii) provides for an 

amortization period for the protected 

balance of no less than five years, 

starting from the date on which the 

increased annual percentage rate or fee 

or charge required to be disclosed under 

§ 226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 

became effective. A card issuer is not 

required to recalculate the required 

minimum periodic payment for the 

protected balance if, during the 

amortization period, that balance is 

reduced as a result of the allocation of 

payments by the consumer in excess of 

that minimum payment consistent with 

§ 226.53 or any other practice permitted 

by these rules and other applicable law. 

2. Amortization when applicable rate 

is variable. If the annual percentage rate 

that applies to the protected balance 

varies with an index, the card issuer 

may adjust the interest charges included 

in the required minimum periodic 

payment for that balance accordingly in 

order to ensure that the balance is 

amortized in five years. For example, 

assume that a variable rate that is 

currently 15% applies to a protected 

balance and that, in order to amortize 

that balance in five years, the required 

minimum periodic payment must 

include a specific amount of principal 

plus all accrued interest charges. If the 

15% variable rate increases due to an 

increase in the index, the creditor may 

increase the required minimum periodic 

payment to include the additional 

interest charges. 

55(c)(2)(iii) Doubling repayment rate. 

1. Portion of required minimum 

periodic payment on other balances. 

Section 226.55(c)(2)(iii) addresses the 

portion of the required minimum 

periodic payment based on a the 

protected balance. Section 

226.55(c)(2)(iii) does not limit or 

otherwise address the card issuer’s 

ability to determine the portion of the 

required minimum periodic payment 

based on other balances on the account 

or the card issuer’s ability to apply that 

portion of the minimum payment to the 

balances on the account. 

2. Example. Assume that the method 

used by a card issuer to calculate the 

required minimum periodic payment for 

a credit card account requires the 

consumer to pay either the total of fees 

and accrued interest charges plus 2% of 

the total amount owed or $50, 

whichever is greater. Assume also that 

the account has a purchase balance of 

$2,000 at an annual percentage rate of 

15% and a cash advance balance of 

$500 at an annual percentage rate of 

20% and that the card issuer increases 

the rate for purchases to 18% but does 

not increase the rate for cash advances. 

Under § 226.55(c)(2)(iii), the card issuer 

may require the consumer to pay fees 

and interest plus 4% of the $2,000 

purchase balance. Section 

226.55(c)(2)(iii) does not limit the card 

issuer’s ability to increase the portion of 

the required minimum periodic 

payment that is based on the cash 

advance balance. 

55(d) Continuing application. 

1. Closed accounts. If a credit card 

account with a balance is closed, 

§ 226.55 continues to apply to that 

balance. For example, if a card issuer or 

a consumer closes a credit card account 

with a balance, § 226.55(d)(1) prohibits 

the card issuer from increasing the 

annual percentage rate that applies to 

that balance or imposing a periodic fee 

based solely on that balance that was 

not charged before the account was 

closed (such as a closed account fee) 

unless permitted by one of the 

exceptions in § 226.55(b). 

2. Acquired accounts. If, through 

merger or acquisition (for example), a 

card issuer acquires a credit card 

account with a balance, § 226.55 

continues to apply to that balance. For 

example, if a credit card account has a 

$1,000 purchase balance with an annual 

percentage rate of 15% and the card 

issuer that acquires that account applies 

an 18% rate to purchases, § 226.55(d)(1) 

prohibits the card issuer from applying 

the 18% rate to the $1,000 balance 

unless permitted by one of the 

exceptions in § 226.55(b). 

3. Balance transfers. 

i. Between accounts issued by the 

same creditor. If a balance is transferred 

from a credit card account issued by a 

creditor to another credit account issued 

by the same creditor or its affiliate or 

subsidiary, § 226.55 continues to apply 

to that balance. For example, if a credit 

card account has a $2,000 purchase 

balance with an annual percentage rate 

of 15% and that balance is transferred 

to another credit card account issued by 

the same creditor that applies an 18% 

rate to purchases, § 226.55(d)(2) 

prohibits the creditor from applying the 

18% rate to the $2,000 balance unless 

permitted by one of the exceptions in 

§ 226.55(b). However, the creditor 

would not generally be prohibited from 

charging a new periodic fee (such as an 

annual fee) on the second account so 

long as the fee is not based solely on the 

$2,000 balance and the creditor has 

notified the consumer of the fee either 

by providing written notice 45 days 

before imposing the fee pursuant to 

§ 226.9(c) or by providing accountopening disclosures pursuant to 

§ 226.6(b). See also § 226.55(b)(3)(iii); 

comment 55(b)(3)–3; comment 

5(b)(1)(i)–6. Additional circumstances 

in which a balance is considered 

transferred for purposes of 

§ 226.55(d)(2) include when: 

A. A retail credit card with a balance 

is replaced or substituted with a 

cobranded general purpose card that can 

be used with a broader merchant base; 

B. A credit card account with a 

balance is replaced or substituted with 

another credit card account offering 

different features; 

C. A credit card account with a 

balance is consolidated or combined 

with one or more other credit card 

accounts into a single credit card 

account; and 

D. A credit card account is replaced 

or substituted with a line of credit that 

can be accessed solely by an account 

number. 

ii. Between accounts issued by 

different creditors. If a balance is 

transferred to a credit card account 

issued by a creditor from a credit card 

account issued by a different creditor or 

an institution that is not an affiliate or 

subsidiary of the creditor that issued the 

credit card account, § 226.55(d)(2) does 

not prohibit the creditor to which the 

balance is transferred from applying its 

account terms to that balance, provided 

that those terms comply with this part. 

For example, if a credit card account 

issued by creditor A has a $1,000 

purchase balance at an annual 

percentage rate of 15% and the 

consumer transfers that balance to a 

credit card account with a purchase rate 

of 17% issued by creditor B, creditor B 

may apply the 17% rate to the $1,000 

balance. However, creditor B may not 

subsequently increase the rate on that 

balance unless permitted by one of the 

exceptions in § 226.55(b). 


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§ 226.56 Requirements for over-the-limit 

transactions. 

56(b) Opt-in requirement. 

1. Policy and practice of declining 

over-the-limit transactions. Section 

226.56 does not apply to any creditor 

that has a policy and practice of 

declining to pay any over-the-limit 

transactions for the consumer’s credit 

card account when the creditor has a 

reasonable belief that completing a 

transaction will cause the consumer to 

exceed the consumer’s credit limit for 

that account. For example, if a creditor 

generally declines any transaction that 

may exceed a consumer’s credit limit, it 

is not subject to the requirement to 

provide consumers notice and an 

opportunity to affirmatively consent to 

the creditor’s payment of over-the-limit 

transactions. 

2. Over-the-limit transactions not 

required to be paid or authorized. 

Section 226.56 does not require a 

creditor to pay or authorize an over-thelimit transaction even if the consumer 

has affirmatively consented to the 

creditor’s over-the-limit service. 

3. Periodic fees or charges. A creditor 

may not impose a periodic fee for 

paying over-the-limit transactions that is 

assessed whether or not the consumer 

has exceeded the credit limit during the 

billing cycle (for example, a monthly 

‘‘over-the-limit protection’’ service fee) 

unless the consumer has affirmatively 

consented to or opted in to the service. 

4. Examples of reasonable 

opportunity to provide affirmative 

consent. A creditor provides a 

reasonable opportunity for the 

consumer to affirmatively consent to the 

creditor’s payment of over-the-limit 

transactions if— 

i. On the application. The creditor 

provides the notice on the application 

form that the consumer can fill out to 

request the service as part of the 

application; 

ii. By mail. The creditor provides a 

form with the account-opening 

disclosures or the periodic statement for 

the consumer to fill out and mail to 

affirmatively request the service; 

iii. By telephone. The creditor 

provides a readily available telephone 

number that consumers may call to 

provide affirmative consent. 

iv. By electronic means. The creditor 

provides an electronic means for the 

consumer to affirmatively consent. For 

example, a creditor could provide a 

form that can be accessed and processed 

at its Web site, where the consumer can 

check a box to opt in and confirm that 

opt-in choice by clicking on a consent 

box. 

5. Separate consent required. A 

consumer’s affirmative consent, or optin, to a creditor’s payment of over-thelimit transactions must be separate from 

other consents or acknowledgments 

obtained by the creditor. For example, a 

consumer’s signature on a credit 

application to request a credit card 

would not by itself sufficiently evidence 

the consumer’s consent to the creditor’s 

payment of over-the-limit transactions. 

However, a creditor may comply with 

the requirement to obtain separate 

consent if the creditor also includes a 

check box or signature line on the 

application that the consumer can 

initial or sign to request the over-thelimit service, provided that the box or 

line is used solely to indicate the 

consumer’s opt-in decision and not for 

any other purpose, such as to also 

obtain consumer consents for other 

account services or features. 

56(b)(2) Completion of over-the-limit 

transactions without consumer consent. 

1. Examples of over-the-limit 

transactions paid without consumer 

consent. Section 226.56(b)(2) provides 

that a creditor may pay an over-the-limit 

transaction even if the consumer has not 

provided affirmative consent, so long as 

the creditor does not impose a fee or 

charge for paying the transaction. The 

prohibition on imposing fees for paying 

an over-the-limit transaction applies 

even in circumstances where the 

creditor is unable to avoid paying a 

transaction that exceeds the consumer’s 

credit limit. 

i. Transactions not submitted for 

authorization. A consumer has not 

affirmatively consented to a creditor’s 

payment of over-the-limit transactions. 

The consumer purchases a $3 cup of 

coffee using his debit card. Because of 

the small dollar amount of the 

transaction, the merchant does not 

submit the transaction to the creditor for 

authorization. The transaction causes 

the consumer to exceed the credit limit. 

Under these circumstances, the creditor 

is prohibited from imposing a fee or 

charge on the consumer’s credit card 

account for paying the over-the-limit 

transaction because the consumer has 

not opted in to the creditor’s over-thelimit service. 

ii. Settlement amount exceeds 

authorization amount. A consumer has 

not affirmatively consented to a 

creditor’s payment of over-the-limit 

transactions. The consumer uses his 

credit card at a pay-at-the-pump fuel 

dispenser to purchase $50 of fuel. 

Before permitting the consumer to use 

the fuel pump, the merchant verifies the 

validity of the card by requesting an 

authorization hold of $1. The 

subsequent $50 transaction amount 

causes the consumer to exceed his 

credit limit. Under these circumstances, 

the creditor is prohibited from imposing 

a fee or charge on the consumer’s credit 

card account for paying the over-thelimit transaction because the consumer 

has not opted in to the creditor’s overthe-limit service. 

2. Permissible fees or charges when a 

consumer has not consented. Section 

226.56(b)(2) does not preclude a creditor 

from assessing fees or charges other than 

over-the-limit fees when an over-thelimit transaction is completed. For 

example, if a consumer has not opted in, 

the creditor could assess a balance 

transfer fee in connection with a balance 

transfer, provided such a fee is assessed 

whether or not the transfer exceeds the 

credit limit. The creditor may also 

assess interest charges in connection 

with the over-the-limit transaction. 

56(c) Method of election. 

1. Creditor-determined methods. A 

creditor may determine the means 

available to consumers to affirmatively 

consent, or opt in, to the creditor’s 

payment over-the-limit transactions. For 

example, a creditor may decide to 

obtain consents in writing, 

electronically, or orally, or through 

some combination of these methods. 

Section 226.56(c) further requires, 

however, that such methods must be 

made equally available for consumers to 

revoke a prior consent. 

2. Electronic requests. A consumer 

consent or revocation request submitted 

electronically is not considered a 

consumer disclosure for purposes of the 

E-Sign Act. 

56(d) Timing of notices. 

1. Revocation notice on each 

statement. A creditor may, but is not 

required to, include the notice 

informing the consumer of the right to 

revoke the consumer’s prior consent to 

the creditor’s payment of over-the-limit 

transactions on each periodic statement 

sent to the consumer, even if the 

consumer has not incurred an over-thelimit fee during a particular billing 

cycle. 

56(e) Content. 

1. Range of fees. If the amount of an 

over-the-limit fee may vary, such as 

based on the amount of the over-thelimit transaction, the creditor may 

indicate that the consumer may be 

assessed a fee ‘‘up to’’ the maximum fee 

or provide the range of fees. 

2. Additional notice content. In 

addition to the content required under 

§ 226.56(e)(1), a creditor may briefly 

describe in its opt-in notice the benefits 

of the creditor’s payment of over-thelimit transactions. For example, the 

creditor may state that if the consumer 

consents, or opts in, to the payment of 

over-the-limit transactions, the 

consumer may avoid having 


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transactions declined when the issuer 

believes a transaction may cause the 

consumer to exceed the credit limit. 

Creditors may also indicate that there 

may be circumstances under which 

their creditor will decline an over-thelimit transaction even if the consumer 

has opted in or that the payment of 

over-the-limit transactions is at the 

discretion of the creditor. 

56(f) Joint relationships. 

1. Authorized users. Section 226.56(f) 

does not permit a creditor to treat a 

request to opt in to or to revoke a prior 

request for the creditor’s payment of 

over-the-limit transactions from an 

authorized user that is not jointly liable 

on a credit card account as a consent or 

revocation request for that account. 

56(g) Continuing right to opt in or 

revoke opt-in. 

1. Fees or charges for over-the-limit 

transactions incurred prior to 

revocation. Section 226.56(g) provides 

that a consumer may revoke his or her 

prior consent at any time. If a consumer 

does so, this provision does not require 

the creditor to waive or reverse any 

over-the-limit fees or charges assessed to 

the consumer’s account prior to the 

creditor’s implementation of the 

consumer’s revocation request. Nor does 

this requirement prevent the creditor 

from assessing over-the-limit fees in 

subsequent cycles if the consumer’s 

account balance continues to exceed the 

credit limit as a result of an over-thelimit transaction that was completed 

prior to the consumer’s revocation of 

consent. 

56(h) Duration of opt-in. 

1. Creditor ability to stop paying overthe-limit transactions after consumer 

consent. A creditor may cease paying 

over-the-limit transactions for 

consumers that have previously opted 

in at any time and for any reason. For 

example, a creditor may stop paying 

over-the-limit transactions for a 

consumer to respond to changes in the 

credit risk presented by the consumer. 

56(j) Prohibited practices. 

1. Examples of limits on fees or 

charges imposed per billing cycle. 

Section 226.56(j)(1) generally prohibits a 

creditor from assessing a fee or charge 

due to the same over-the-limit 

transaction for more than three billing 

cycles. The following examples 

illustrate the prohibition. 

i. Assume that a consumer has opted 

into a creditor’s payment of over-thelimit transactions. The consumer 

exceeds the credit limit during the 

December billing cycle and does not 

make sufficient payment to bring the 

account balance back under the limit for 

four consecutive cycles. The consumer 

does not engage in any additional 

transactions during this period. In this 

case, § 226.56(j)(1) would permit a 

creditor to charge a maximum of three 

over-the-limit fees for the December 

over-the-limit transaction. 

ii. Assume the same facts as above 

except that the consumer makes 

sufficient payment to reduce his 

account balance during the February 

billing cycle. The creditor may charge 

over-the-limit fees for the December and 

January billing cycles. However, 

because the consumer’s account balance 

was below the credit limit prior to the 

end of the February billing cycle, the 

creditor may not charge an over-thelimit fee for the February billing cycle. 

iii. Assume the same facts as in 

paragraph i, except that the consumer 

engages in another over-the-limit 

transaction during the February billing 

cycle. Because the consumer has 

obtained an additional extension of 

credit which causes the consumer to 

exceed his credit limit, the creditor may 

charge over-the-limit fees for the 

December transaction on the January, 

February and March billing statements, 

and additional over-the-limit fees for the 

February transaction on the April and 

May billing statements. The creditor 

may not charge an over-the-limit fee for 

each of the December and the February 

transactions on the March billing 

statement because it is prohibited from 

imposing more than one over-the-limit 

fee during a billing cycle. 

2. Replenishment of credit line. 

Section 226.56(j)(2) does not prevent a 

creditor from delaying replenishment of 

a consumer’s available credit where 

appropriate, for example, where the 

creditor may suspect fraud on the credit 

card account. However, a creditor may 

not assess an over-the-limit fee or charge 

if the over-the-limit transaction is 

caused by the creditor’s decision not to 

promptly replenish the available credit 

after the consumer’s payment is credited 

to the consumer’s account. 

3. Examples of conditioning. Section 

226.56(j)(3) prohibits a creditor from 

conditioning or otherwise tying the 

amount of a consumer’s credit limit on 

the consumer affirmatively consenting 

to the creditor’s payment of over-thelimit transactions where the creditor 

assesses an over-the-limit fee for the 

transaction. The following examples 

illustrate the prohibition. 

i. Amount of credit limit. Assume that 

a creditor offers a credit card with a 

credit limit of $1000. The consumer is 

informed that if the consumer opts in to 

the payment of the creditor’s payment of 

over-the-limit transactions, the initial 

credit limit would be increased to 

$1300. If the creditor would have 

offered the credit card with the $1300 

credit limit but for the fact that the 

consumer did not consent to the 

creditor’s payment of over-the-limit 

transactions, the creditor would not be 

in compliance with § 226.56(j)(3). 

Section 226.56(j)(3) prohibits the 

creditor from tying the consumer’s opt 

in to the creditor’s payment of over-thelimit transactions as a condition of 

obtaining the credit card with the $1300 

credit limit. 

ii. Access to credit. Assume the same 

facts as above, except that the creditor 

declines the consumer’s application 

altogether because the consumer has not 

affirmatively consented or opted in to 

the creditor’s payment of over-the-limit 

transactions. The creditor is not in 

compliance with § 226.56(j)(3) because 

the creditor has required the consumer’s 

consent as a condition of obtaining 

credit. 

§ 226.57 Special rules for marketing openend credit to college students. 

57(a) Definitions. 

57(a)(1) College student credit card. 

1. Definition. The definition of college 

student credit card excludes homeequity lines of credit accessed by credit 

cards and overdraft lines of credit 

accessed by debit cards. A college 

student credit card includes a college 

affinity card within the meaning of 

TILA Section 127(r)(1)(A). In addition, a 

card may fall within the scope of the 

definition regardless of the fact that it is 

not intentionally targeted at or marketed 

to college students. For example, an 

agreement between a college and a card 

issuer may provide for marketing of 

credit cards to alumni, faculty, staff, and 

other non-student consumers who have 

a relationship with the college, but also 

contain provisions that contemplate the 

issuance of cards to students. A credit 

card issued to a student at the college 

in connection with such an agreement 

qualifies as a college student credit card. 

57(a)(5) College credit card 

agreement. 

1. Definition. Section 226.57(a)(5) 

defines ‘‘college credit card agreement’’ 

to include any business, marketing or 

promotional agreement between a card 

issuer and a college or university (or an 

affiliated organization, such as an 

alumni club or a foundation) if the 

agreement provides for the issuance of 

credit cards to full-time or part-time 

students. Business, marketing or 

promotional agreements may include a 

broad range of arrangements between a 

card issuer and an institution of higher 

education or affiliated organization, 

including arrangements that do not meet 

the criteria to be considered college 

affinity card agreements as discussed in 

TILA Section 127(r)(1)(A). For example, 


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TILA Section 127(r)(1)(A) specifies that 

under a college affinity card agreement, 

the card issuer has agreed to make a 

donation to the institution or affiliated 

organization, the card issuer has agreed 

to offer discounted terms to the 

consumer, or the credit card will 

display pictures, symbols, or words 

identified with the institution or 

affiliated organization; even if these 

conditions are not met, an agreement 

may qualify as a college credit card 

agreement, if the agreement is a 

business, marketing or promotional 

agreement that contemplates the 

issuance of college student credit cards 

to college students currently enrolled 

(either full-time or part-time) at the 

institution. An agreement may qualify 

as a college credit card agreement even 

if marketing of cards under the 

agreement is targeted at alumni, faculty, 

staff, and other non-student consumers, 

as long as cards may also be issued to 

students in connection with the 

agreement. 

57(b) Public disclosure of agreements. 

1. Public disclosure. Section 226.57(b) 

requires an institution of higher 

education to publicly disclose any 

contract or other agreement made with 

a card issuer or creditor for the purpose 

of marketing a credit card. Examples of 

publicly disclosing such contracts or 

agreements include, but are not limited 

to, posting such contracts or agreements 

on the institution’s Web site or making 

such contracts or agreements available 

upon request, provided the procedures 

for requesting the documents are 

reasonable and free of cost to the 

requestor, and the requested contracts or 

agreements are provided within a 

reasonable time frame. 

2. Redaction prohibited. An 

institution of higher education must 

publicly disclose any contract or other 

agreement made with a card issuer for 

the purpose of marketing a credit card 

in its entirety and may not redact any 

portion of such contract or agreement. 

Any clause existing in such contracts or 

agreements, providing for the 

confidentiality of any portion of the 

contract or agreement, would be invalid 

to the extent it restricts the ability of the 

institution of higher education to 

publicly disclose the contract or 

agreement in its entirety. 

57(c) Prohibited inducements. 

1. Tangible item clarified. A tangible 

item includes any physical item, such as 

a gift card, a t-shirt, or a magazine 

subscription, that a card issuer or 

creditor offers to induce a college 

student to apply for or open an openend consumer credit plan offered by 

such card issuer or creditor. Tangible 

items do not include non-physical 

inducements such as discounts, rewards 

points, or promotional credit terms. 

2. Inducement clarified. If a tangible 

item is offered to a person whether or 

not that person applies for or opens an 

open-end consumer credit plan, the 

tangible item has not been offered to 

induce the person to apply for or open 

the plan. For example, refreshments 

offered to a college student on campus 

that are not conditioned on whether the 

student has applied for or agreed to 

open an open-end consumer credit plan 

would not violate § 226.57(c). 

3. Near campus clarified. A location 

that is within 1,000 feet of the border of 

the campus of an institution of higher 

education, as defined by the institution 

of higher education, is considered near 

the campus of an institution of higher 

education. 

4. Mailings included. The prohibition 

in § 226.57(c) on offering a tangible item 

to a college student to induce such 

student to apply for or open an openend consumer credit plan offered by 

such card issuer or creditor applies to 

any solicitation or application mailed to 

a college student at an address on or 

near the campus of an institution of 

higher education. 

5. Related event clarified. An event is 

related to an institution of higher 

education if the marketing of such event 

uses the name, emblem, mascot, or logo 

of an institution of higher education, or 

other words, pictures, symbols 

identified with an institution of higher 

education in a way that implies that the 

institution of higher education endorses 

or otherwise sponsors the event. 

6. Reasonable procedures for 

determining if applicant is a student. 

Section 226.57(c) applies solely to 

offering a tangible item to a college 

student. Therefore, a card issuer or 

creditor may offer any person who is not 

a college student a tangible item to 

induce such person to apply for or open 

an open-end consumer credit plan 

offered by such card issuer or creditor, 

on campus, near campus, or at an event 

sponsored by or related to an institution 

of higher education. The card issuer or 

creditor must have reasonable 

procedures for determining whether an 

applicant is a college student before 

giving the applicant the tangible item. 

For example, a card issuer or creditor 

may ask whether the applicant is a 

college student as part of the application 

process. The card issuer or creditor may 

rely on the representations made by the 

applicant. 

57(d) Annual report to the Board. 

57(d)(3) Contents of report. 

1. Memorandum of understanding. 

Section 226.57(d)(3) requires that the 

report to the Board include, among 

other items, a copy of any memorandum 

of understanding between the card 

issuer and the institution (or affiliated 

organization) that ‘‘directly or indirectly 

relates to the college credit card 

agreement or that controls or directs any 

obligations or distribution of benefits 

between any such entities.’’ Such a 

memorandum of understanding 

includes any document that amends the 

college credit card agreement, or that 

constitutes a further agreement between 

the parties as to the interpretation or 

administration of the agreement. For 

example, a memorandum of 

understanding required to be included 

in the report would include a document 

that provides details on the dollar 

amounts of payments from the card 

issuer to the university, to supplement 

the original agreement which only 

provided for payments in general terms 

(e.g., as a percentage). A memorandum 

of understanding for these purposes 

would not include e-mail (or other) 

messages that merely discuss matters 

such as the addresses to which 

payments should be sent or the names 

of contact persons for carrying out the 

agreement. 

§ 226.58 Internet posting of credit card 

agreements. 

58(b) Definitions. 

58(b)(1) Agreement. 

1. Material included. For purposes of 

this section, the agreement is deemed to 

include certain information, such as 

annual percentage rates and fees, even 

if the issuer does not otherwise include 

this information in the basic credit 

contract. This information is listed 

under the defined term ‘‘pricing 

information’’ in § 226.58(b)(4). For 

example, the basic credit contract may 

not specify rates, fees and other 

information that constitutes pricing 

information as defined in § 226.58(b)(4); 

instead, such information may be 

provided to the cardholder in a separate 

document sent along with the card. 

However, this information nevertheless 

constitutes part of the agreement for 

purposes of § 226.58. 

2. Material excluded. Documents that 

may be sent to the consumer along with 

the credit card or credit card agreement, 

but that are not deemed part of the 

agreement for purposes of this section, 

include items such as a cover letter, a 

validation sticker on the card, other 

information about card security, offers 

for credit insurance or other optional 

products, advertisements, and 

disclosures required under Federal or 

State law that are not incorporated into 

the agreement itself. 

58(b)(3) Offers. 


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1. Cards offered to limited groups. A 

card issuer is deemed to offer a credit 

card agreement to the public even if the 

issuer solicits, or accepts applications 

from, only a limited group of persons. 

For example, an issuer may market 

affinity cards to students and alumni of 

a particular educational institution, or 

may solicit only high-net-worth 

individuals for a particular card; in 

these cases, the card agreement would 

be considered to be offered to the 

public. 

2. Individualized agreements. A card 

issuer is deemed to offer a credit card 

agreement to the public even if the 

terms of the agreement are changed 

immediately upon opening of an 

account to terms not offered to the 

public. 

58(c) Registration with Board. 

1. Subsequent registration 

requirement. An issuer that is required 

to make a submission to the Board 

under § 226.58(d) that has not 

previously registered with the Board 

must register with the Board at least 21 

days before the quarterly submission 

deadline specified in § 226.58(d)(1) on 

which the card issuer’s first submission 

is due. This provision would apply, for 

example, if a new credit card issuer is 

organized or if an existing issuer that 

previously qualified for the de minimis 

exception under § 226.58(e) ceased to 

qualify. For example, a card issuer that 

previously qualified for the de minimis 

exception ceases to qualify as of 

September 30. That issuer’s first 

submission to the Board is due on 

October 31, the next quarterly 

submission deadline. The issuer must 

register with the Board no later than 

October 10, 21 days before October 31. 

2. Updates to registration information. 

Issuers that have registered with the 

Board under § 226.58(c)(1) or (c)(2) must 

provide updated registration 

information to the Board no later than 

the first quarterly submission deadline 

specified in § 226.58(d)(1) after the 

information changes. For example, a 

card issuer that has already registered 

with the Board changes its address on 

October 15. The issuer must submit 

revised registration information 

advising the Board of the address 

change no later than October 31, the 

next quarterly submission deadline 

specified in § 226.58(d)(1) after the 

change. 

58(d) Submission of agreements to 

Board. 

1. Quarterly submission requirement. 

Section 226.58(d)(1) requires card 

issuers to make quarterly submissions to 

the Board no later than the first business 

day on or after January 31, April 30, July 

31, and October 31 of each year. For 

example, a card issuer has already 

submitted three credit card agreements 

to the Board. On October 15, the issuer 

stops offering agreement A. On 

November 20, the issuer makes changes 

to the terms of agreement B. On 

December 1, the issuer starts offering a 

new agreement D. The issuer must 

submit to the Board no later than the 

first business day on or after January 31: 

(i) notification that the issuer is 

withdrawing agreement A, because it is 

no longer offered to the public; (ii) the 

revised version of agreement B; and (iii) 

agreement D. 

2. No quarterly submission required. 

Under § 226.58(d)(1), an issuer is not 

required to make any submission to the 

Board at a particular quarterly 

submission deadline if, during the 

previous calendar quarter, the issuer did 

not take any of the following actions: (i) 

offering a new credit card agreement 

that was not submitted to the Board 

previously; (ii) revising or amending an 

agreement previously submitted to the 

Board; and (iii) ceasing to offer an 

agreement previously submitted to the 

Board. For example, a card issuer offers 

five agreements to the public as of 

September 30 and submits these to the 

Board by October 31, as required by 

§ 226.58(d)(1). Between September 30 

and December 31, the issuer continues 

to offer all five of these agreements to 

the public without amending or revising 

them and does not begin offering any 

new agreements. The issuer is not 

required to make any submission to the 

Board by the following January 31. 

3. No requirement to resubmit 

unchanged agreements. Under 

§ 226.58(d)(3), if a credit card agreement 

has been submitted to the Board, no 

changes have been made to the 

agreement, and the card issuer 

continues to offer the agreement to the 

public, no additional submission of that 

agreement is required. For example, a 

credit card issuer begins offering an 

agreement in October and submits the 

agreement to the Board the following 

January 31, as required by 

§ 226.58(d)(1). As of March 31, the 

issuer has not revised or amended the 

agreement and is still offering the 

agreement to the public. The issuer is 

not required to submit anything to the 

Board regarding that agreement by April 

30. 

4. Submission of changed agreements. 

If an issuer makes changes to a credit 

card agreement previously submitted to 

the Board (including changes to the 

provisions of the agreement, the pricing 

information, or both), § 226.58(d)(3) 

requires the issuer to submit the entire 

revised agreement to the Board by the 

first quarterly submission deadline after 

the last day of the calendar quarter in 

which the change becomes effective. For 

example, an issuer submits an 

agreement to the Board on October 31. 

On November 15, the issuer changes the 

method used to calculate required 

minimum payments under the 

agreement. Because an element of the 

pricing information has changed, the 

issuer must submit the entire revised 

agreement to the Board no later than 

January 31 of the following year. 

5. Change-in-terms notices not 

permissible. Section 226.58(d)(3) 

requires that if a change is made to a 

credit card agreement previously 

submitted to the Board, the card issuer 

must submit the entire revised 

agreement to the Board. An issuer may 

not fulfill this requirement by 

submitting a change-in-terms or similar 

notice covering only the terms that have 

changed. In addition, amendments and 

revisions must be integrated into the 

text of the agreement (or the single 

addendum described in Appendix N, if 

applicable), not provided as separate 

riders. For example, an issuer changes 

the purchase APR associated with an 

agreement the issuer has previously 

submitted to the Board. The purchase 

APR for that agreement was included in 

an addendum of pricing information as 

described in Appendix N. The issuer 

may not submit a change-in-terms or 

similar notice reflecting the change in 

APR, either alone or accompanied by 

the original text of the agreement and 

original addendum of pricing 

information. Instead, the issuer must 

revise the addendum of pricing 

information to reflect the change in APR 

and submit to the Board the entire text 

of the agreement and the entire revised 

addendum, even though no changes 

have been made to the provisions of the 

agreement and only one item on the 

addendum has changed. 

6. Notice of withdrawal of agreement. 

Section 226.58(d)(4) requires an issuer 

to notify the Board if any agreement 

previously submitted to the Board by 

that issuer is no longer offered to the 

public by the first quarterly submission 

deadline after the last day of the 

calendar quarter in which the issuer 

ceased to offer the agreement. For 

example, on January 5 an issuer stops 

offering to the public an agreement it 

previously submitted to the Board. The 

issuer must notify the Board that the 

agreement is being withdrawn by April 

30, the first quarterly submission 

deadline after March 31, the last day of 

the calendar quarter in which the issuer 

stopped offering the agreement. 

58(e) De minimis exception. 

1. De minimis exception. Under 

§ 226.58(e)(1), an issuer is not required 


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to submit any credit card agreements to 

the Board under § 226.58(d) if the card 

issuer has fewer than 10,000 open credit 

card accounts under open-end (not 

home-secured) consumer credit plans, 

as of the last business day of the 

calendar quarter. For example, an issuer 

offers five credit card agreements to the 

public as of September 30. However, the 

issuer has only 2,000 open credit card 

accounts under open-end (not homesecured) consumer credit plans as of 

September 30. The issuer is not required 

to submit any agreements to the Board 

by October 31 because the issuer 

qualifies for the de minimis exception. 

2. Open accounts clarified. For 

purposes of the de minimis exception, a 

credit card account is considered to be 

open even if the account is inactive, as 

long as the account has not been closed 

by the cardholder or the card issuer and 

the cardholder can obtain extensions of 

credit on the account. If an account has 

been closed for new activity (for 

example, due to default by the 

cardholder), but the cardholder is still 

making payments to pay off the 

outstanding balance, it need not be 

considered open. If an account has only 

been suspended temporarily (for 

example, due to a report by the 

cardholder of unauthorized use of the 

card), the account is considered open. 

3. Date for determining whether issuer 

qualifies clarified. Whether an issuer 

qualifies for the de minimis exception is 

determined as of the last business day 

of each calendar quarter. For example, 

as of December 31, an issuer offers three 

agreements to the public and has 9,500 

credit card accounts under open-end 

(not home secured) consumer credit 

plans. As of January 30, the issuer still 

offers three agreements, but has 10,100 

open accounts. As of March 31, the 

issuer still offers three agreements, but 

has only 9,700 open accounts. Even 

though the issuer had 10,100 open 

accounts at one time during the 

calendar quarter, the issuer qualifies for 

the de minimis exception because the 

number of open accounts was less than 

10,000 as of March 31. The issuer 

therefore is not required to submit any 

agreements to the Board under 

§ 226.58(d) by April 30. 

4. Date for determining whether issuer 

ceases to qualify clarified. Whether an 

issuer has ceased to qualify for the de 

minimis exception under § 226.58(e)(2) 

is determined as of the last business day 

of the calendar quarter, as indicated in 

§ 226.58(e)(1). For example, as of June 

30, an issuer offers three agreements to 

the public and has 9,500 open credit 

card accounts under open-end (not 

home-secured) consumer credit plans. 

The issuer is not required to submit any 

agreements to the Board under 

§ 226.58(d) because the issuer qualifies 

for the de minimis exception. As of July 

15, the issuer still offers the same three 

agreements, but now has 10,000 open 

accounts. The issuer is not required to 

take any action at this time, because 

whether an issuer qualifies for the de 

minimis exception under § 226.58(e)(1) 

is determined as of the last business day 

of the calendar quarter. As of September 

30, the issuer still offers the same three 

agreements and still has 10,000 open 

accounts. Because the issuer had 10,000 

open accounts as of September 30, the 

issuer ceased to qualify for the de 

minimis exception and must submit the 

three agreements it offers to the Board 

by October 31, the next quarterly 

submission deadline. 

5. Option to withdraw agreements 

clarified. Section 226.58(e)(3) provides 

that if a card issuer that did not 

previously qualify comes within the de 

minimis exception, the card issuer may, 

but is not required to, notify the Board 

that the card issuer is withdrawing each 

agreement the card issuer previously 

submitted to the Board. Until the issuer 

notifies the Board that each agreement 

it previously submitted is being 

withdrawn, the issuer must continue to 

make quarterly submissions to the 

Board under § 226.58(d) and to provide 

updated registration information under 

§ 226.58(c)(3). For example, an issuer 

has 10,001 open accounts and offers 

three agreements to the public as of 

December 31. The issuer has registered 

with the Board and submitted each of 

the three agreements to the Board as 

required under § 226.58(c) and (d). As of 

March 31, the issuer has only 9,999 

open accounts. The issuer has two 

options. First, the issuer may notify the 

Board that the issuer is withdrawing 

each of the three agreements it 

previously submitted. Once the issuer 

has notified the Board, the issuer is no 

longer required to make quarterly 

submissions to the Board under 

§ 226.58(d) or to provide updated 

registration information to the Board 

under § 226.58(c)(3). Alternatively, the 

issuer may choose not to notify the 

Board that it is withdrawing its 

agreements. In this case, the issuer must 

continue making quarterly submissions 

to the Board under § 226.58(d) and 

providing updated registration 

information to the Board under 

§ 226.58(c)(3). The issuer might choose 

not to withdraw its agreements if, for 

example, the issuer believes that it will 

likely cease to qualify for the de 

minimis exception again in the near 

future. 

58(f)(2) Agreements for all open 

accounts. 

1. Credit card agreements provided 

upon request. Section 226.58(f)(2) states 

that card issuers may choose to make 

agreements available to cardholders 

upon request. Agreements provided 

upon request may be provided by the 

issuer in either electronic or paper form, 

regardless of the form of the 

cardholder’s request. 

2. Requirement applies to all open 

accounts. The requirement to provide 

access to credit card agreements under 

§ 226.58(f)(2) applies to all open credit 

card accounts under open-end (not 

home-secured) consumer credit plans, 

regardless of whether such agreements 

are required to be submitted to the 

Board pursuant to § 226.58(d). For 

example, an issuer that is not required 

to submit agreements to the Board 

because it qualifies for the de minimis 

exception under § 226.58(e) would still 

be required to provide cardholders with 

access to their specific agreements 

under § 226.58(f)(2). Similarly, an 

agreement that is no longer offered to 

the public would not be required to be 

submitted to the Board under 

§ 226.58(d), but would still need to be 

provided to the cardholder to whom it 

applies under § 226.58(f)(2). 

3. Deadline for providing requested 

agreements clarified. Section 

226.58(f)(2) requires that credit card 

agreements provided upon request must 

be sent to the cardholder or otherwise 

made available to the cardholder no 

later than 10 business days after the 

cardholder’s request is received. For 

example, if an issuer chooses to respond 

to a cardholder’s request by mailing a 

paper copy of the cardholder’s 

agreement, the issuer must mail the 

agreement no later than 10 business 

days after receipt of the cardholder’s 

request. Alternatively, if an issuer 

chooses to respond to a cardholder’s 

request by posting the cardholder’s 

agreement on the issuer’s Web site, the 

issuer must post the agreement on its 

Web site no later than 10 business days 

after receipt of the cardholder’s request. 

* * * * * 

Appendix F—Optional Annual 

Percentage Rate Computations for 

Creditors Offering Open-End Plans 

Subject to the Requirements of § 226.5b 

1. Daily rate with specific transaction 

charge. If the finance charge results from a 

charge relating to a specific transaction and 

the application of a daily periodic rate, see 

comment 14(c)(3)–2 for guidance on an 

appropriate calculation method. 

Appendices G and H—Open-end and 

Closed-end Model Forms and Clauses 

1. Permissible changes. Although use of the 

model forms and clauses is not required, 


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creditors using them properly will be deemed 

to be in compliance with the regulation with 

regard to those disclosures. Creditors may 

make certain changes in the format or content 

of the forms and clauses and may delete any 

disclosures that are inapplicable to a 

transaction or a plan without losing the act’s 

protection from liability, except formatting 

changes may not be made to model forms and 

samples in G–2(A), G–3(A), G–4(A), G– 

10(A)–(E), G–17(A)–(D), G–18(A) (except as 

permitted pursuant to § 226.7(b)(2)), G– 

18(B)–(C), G–19, G–20, and G–21. The 

rearrangement of the model forms and 

clauses may not be so extensive as to affect 

the substance, clarity, or meaningful 

sequence of the forms and clauses. Creditors 

making revisions with that effect will lose 

their protection from civil liability. Except as 

otherwise specifically required, acceptable 

changes include, for example: 

i. Using the first person, instead of the 

second person, in referring to the borrower. 

ii. Using ‘‘borrower’’ and ‘‘creditor’’ 

instead of pronouns. 

iii. Rearranging the sequences of the 

disclosures. 

iv. Not using bold type for headings. 

v. Incorporating certain State ‘‘plain 

English’’ requirements. 

vi. Deleting inapplicable disclosures by 

whiting out, blocking out, filling in ‘‘N/A’’ 

(not applicable) or ‘‘0,’’ crossing out, leaving 

blanks, checking a box for applicable items, 

or circling applicable items. (This should 

permit use of multipurpose standard forms.) 

vii. Using a vertical, rather than a 

horizontal, format for the boxes in the closedend disclosures. 

2. Debt-cancellation coverage. This 

regulation does not authorize creditors to 

characterize debt-cancellation fees as 

insurance premiums for purposes of this 

regulation. Creditors may provide a 

disclosure that refers to debt cancellation or 

debt suspension coverage whether or not the 

coverage is considered insurance. Creditors 

may use the model credit insurance 

disclosures only if the debt cancellation 

coverage constitutes insurance under State 

law. 

Appendix G—Open-end Model Forms 

and Clauses 

1. Models G–1 and G–1(A). The model 

disclosures in G–1 and G–1(A) (different 

balance computation methods) may be used 

in both the account-opening disclosures 

under § 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. Models G–2 and G–2(A). These models 

contain the notice of liability for 

unauthorized use of a credit card. For homeequity 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), 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. 

* * * * * 

5. Model G–10(A), samples G–10(B) and G– 

10(C), model G–10(D), sample G–10(E), 

model G–17(A), and samples G–17(B), 17(C) 

and 17(D). i. Model G–10(A) and Samples G– 

10(B) and G–10(C) illustrate, in the tabular 

format, the disclosures required under 

§ 226.5a for applications and solicitations for 

credit cards other than charge cards. Model 

G–10(D) and Sample G–10(E) illustrate the 

tabular format disclosure for charge card 

applications and solicitations and reflect the 

disclosures in the table. Model G–17(A) and 

Samples G–17(B), G–17(C) and G–17(D) 

illustrate, in the tabular format, the 

disclosures required under § 226.6(b)(2) for 

account-opening disclosures. 

ii. Except as otherwise permitted, 

disclosures must be substantially similar in 

sequence and format to Models G–10(A), G– 

10(D) and G–17(A). While proper use of the 

model forms will be deemed in compliance 

with the regulation, card issuers and other 

creditors offering open-end (not homesecured) plans are permitted to disclose the 

annual percentage rates for purchases, cash 

advances, or balance transfers in the same 

row in the table for any transaction types for 

which the issuer or creditor charges the same 

annual percentage rate. Similarly, card issuer 

and other creditors offering open-end (not 

home-secured) plans are permitted to 

disclose fees of the same amount in the same 

row if the fees are in the same category. Fees 

in different categories may not be disclosed 

in the same row. For example, a transaction 

fee and a penalty fee that are of the same 

amount may not be disclosed in the same 

row. Card issuers and other creditors offering 

open-end (not home-secured) plans are also 

permitted to use headings other than those in 

the forms if they are clear and concise and 

are substantially similar to the headings 

contained in model forms, with the following 

exceptions. The heading ‘‘penalty APR’’ must 

be used when describing rates that may 

increase due to default or delinquency or as 

a penalty, and in relation to required 

insurance, or debt cancellation or suspension 

coverage, the term ‘‘required’’ and the name 

of the product must be used. (See also 

§§ 226.5a(b)(5) and 226.6(b)(2)(v) for 

guidance on headings that must be used to 

describe the grace period, or lack of grace 

period, in the disclosures required under 

§ 226.5a for applications and solicitations for 

credit cards other than charge cards, and the 

disclosures required under § 226.6(b)(2) for 

account-opening disclosures, respectively.) 

iii. Models G–10(A) and G–17(A) contain 

two alternative headings (‘‘Minimum Interest 

Charge’’ and ‘‘Minimum Charge’’) for 

disclosing a minimum interest or fixed 

finance charge under §§ 226.5a(b)(3) and 

226.6(b)(2)(iii). If a creditor imposes a 

minimum charge in lieu of interest in those 

months where a consumer would otherwise 

incur an interest charge but that interest 

charge is less than the minimum charge, the 

creditor should disclose this charge under 

the heading ‘‘Minimum Interest Charge’’ or a 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
54332 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

substantially similar heading. Other 

minimum or fixed finance charges should be 

disclosed under the heading ‘‘Minimum 

Charge’’ or a substantially similar heading. 

iv. Models G–10(A), G–10(D) and G–17(A) 

contain two alternative headings (‘‘Annual 

Fees’’ and ‘‘Set-up and Maintenance Fees’’) 

for disclosing fees for issuance or availability 

of credit under § 226.5a(b)(2) or 

§ 226.6(b)(2)(ii). If the only fee for issuance or 

availability of credit disclosed under 

§ 226.5a(b)(2) or § 226.6(b)(2)(ii) is an annual 

fee, a creditor should use the heading 

‘‘Annual Fee’’ or a substantially similar 

heading to disclose this fee. If a creditor 

imposes fees for issuance or availability of 

credit disclosed under § 226.5a(b)(2) or 

§ 226.6(b)(2)(ii) other than, or in addition to, 

an annual fee, the creditor should use the 

heading ‘‘Set-up and Maintenance Fees’’ or a 

substantially similar heading to disclose fees 

for issuance or availability of credit, 

including the annual fee. 

v. Although creditors are not required to 

use a certain paper size in disclosing the 

§§ 226.5a or 226.6(b)(1) and (2) disclosures, 

samples G–10(B), G–10(C), G–17(B), G–17(C) 

and G–17(D) are designed to be printed on an 

8 c x 14 inch sheet of paper. A creditor may 

use a smaller sheet of paper, such as 8 c x 

11 inch sheet of paper. If the table is not 

provided on a single side of a sheet of paper, 

the creditor must include a reference or 

references, such as ‘‘SEE BACK OF PAGE for 

more important information about your 

account.’’ at the bottom of each page 

indicating that the table continues onto an 

additional page or pages. A creditor that 

splits the table onto two or more pages must 

disclose the table on consecutive pages and 

may not include any intervening information 

between portions of the table. In addition, the 

following formatting techniques were used in 

presenting the information in the sample 

tables to ensure that the information is 

readable: 

A. A readable font style and font size (10- 

point Arial font style, except for the purchase 

annual percentage rate which is shown in 16- 

point type). 

B. Sufficient spacing between lines of the 

text. 

C. Adequate spacing between paragraphs 

when several pieces of information were 

included in the same row of the table, as 

appropriate. For example, in the samples in 

the row of the tables with the heading ‘‘APR 

for Balance Transfers,’’ the forms disclose 

two components: the applicable balance 

transfer rate and a cross reference to the 

balance transfer fee. The samples show these 

two components on separate lines with 

adequate space between each component. On 

the other hand, in the samples, in the 

disclosure of the late payment fee, the forms 

disclose two components: the late payment 

fee, and the cross reference to the penalty 

rate. Because the disclosure of both these 

components is short, these components are 

disclosed on the same line in the tables. 

D. Standard spacing between words and 

characters. In other words, the text was not 

compressed to appear smaller than 10-point 

type. 

E. Sufficient white space around the text of 

the information in each row, by providing 

sufficient margins above, below and to the 

sides of the text. 

F. Sufficient contrast between the text and 

the background. Generally, black text was 

used on white paper. 

vi. While the Board is not requiring issuers 

to use the above formatting techniques in 

presenting information in the table (except 

for the 10-point and 16-point font 

requirement), the Board encourages issuers to 

consider these techniques when deciding 

how to disclose information in the table, to 

ensure that the information is presented in a 

readable format. 

vii. Creditors are allowed to use color, 

shading and similar graphic techniques with 

respect to the table, so long as the table 

remains substantially similar to the model 

and sample forms in appendix G. 

6. Model G–11. Model G–11 contains 

clauses that illustrate the general disclosures 

required under § 226.5a(e) in applications 

and solicitations made available to the 

general public. 

8. Samples G–18(A)–(D). For home-equity 

plans subject to the requirements of § 226.5b, 

if a creditor chooses to comply with the 

requirements in § 226.7(b), the creditor may 

use Samples G–18(A) through G–18(D) to 

comply with these requirements, as 

applicable. 

9. Samples G–18(D). Sample G–18(D) 

illustrates how credit card issuers may 

comply with proximity requirements for 

payment information on periodic statements. 

Creditors that offer card accounts with a 

charge card feature and a revolving feature 

may change the disclosure to make clear to 

which feature the disclosures apply. 

10. Forms G–18(F)–(G). Forms G–18(F) and 

G–18(G) are intended as a compliance aid to 

illustrate front sides of a periodic statement, 

and how a periodic statement for open-end 

(not home-secured) plans might be designed 

to comply with the requirements of § 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, Forms G–18(F) and G– 

18(G) are designed to be printed on an 8 x 

14 inch sheet of paper. 

ii. The due date for a payment, if a late 

payment fee or penalty rate may be imposed, 

must appear on the front of the first page of 

the statement. See Sample G–18(D) that 

illustrates how a creditor may comply with 

proximity requirements for other disclosures. 

The payment information disclosures appear 

in the upper right-hand corner on Samples 

G–18(F) and G–18(G), but may be located 

elsewhere, as long as they appear on the front 

of the first page of the periodic statement. 

The summary of account activity presented 

on Samples G–18(F) and G–18(G) is not itself 

a required disclosure, although the previous 

balance and the new balance, presented in 

the summary, must be disclosed in a clear 

and conspicuous manner on periodic 

statements. 

iii. Additional information not required by 

Regulation Z may be presented on the 

statement. The information need not be 

located in any particular place or be 

segregated from disclosures required by 

Regulation Z, although the effect of proximity 

requirements for required disclosures, such 

as the due date, may cause the additional 

information to be segregated from those 

disclosures required to be disclosed in close 

proximity to one another. Any additional 

information must be presented consistent 

with the creditor’s obligation to provide 

required disclosures in a clear and 

conspicuous manner. 

iv. Model Forms G–18(F) and G–18(G) 

demonstrate two examples of ways in which 

transactions could be presented on the 

periodic statement. Model Form G–18(G) 

presents transactions grouped by type and 

Model Form G–18(F) presents transactions in 

a list in chronological order. Neither of these 

approaches to presenting transactions is 

required; a creditor may present transactions 

differently, such as in a list grouped by 

authorized user or other means. 

11. Model Form G–19. See § 226.9(b)(3) 

regarding the headings required to be 

disclosed when describing in the tabular 

disclosure a grace period (or lack of a grace 

period) offered on check transactions that 

access a credit card account. 

12. Sample G–24. Sample G–24 includes 

two model clauses for use in complying with 

§ 226.16(h)(4). Model clause (a) is for use in 

connection with credit card accounts under 

an open-end (not home-secured) consumer 

credit plan. Model clause (b) is for use in 

connection with other open-end credit plans. 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, September 28, 2009. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. E9–23733 Filed 10–20–09; 8:45 am] 

BILLING CODE 6210–01–P 


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