[Federal Register Volume 65, Number 101 (Wednesday, May 24, 2000)]
[Proposed Rules]
[Pages 33499-33504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-12911]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / 
Proposed Rules

[[Page 33499]]



FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1070]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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

SUMMARY: The Board is proposing amendments to Regulation Z, which 
implements the Truth in Lending Act, to revise the disclosure 
requirements for credit and charge card solicitations and applications. 
The annual percentage rate (APR) and other cost information must be 
provided in direct mail and other applications and solicitations to 
open card accounts. The amendments are intended to enhance consumers' 
ability to notice and understand cost information that generally must 
be provided in the form of a table. The APR disclosed for purchase 
transactions would be subject to a type size requirement, and the 
requirement that disclosures be ``clear and conspicuous'' would be more 
strictly construed. Additional guidance would be given on the 
requirement that the table be prominently located, and on the level of 
detail about cost information required or permitted in the table.

DATES: Comments must be received on or before July 18, 2000.

ADDRESSES: Comments, which should refer to Docket No. R-1070, may be 
mailed to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC. 20551 or mailed electronically to 
<a href="/cdn-cgi/l/email-protection#1a687f7d6934797577777f746e695a7c7f7e7f687b76687f697f686c7f347d756c"><span class="__cf_email__" data-cfemail="5a283f3d2974393537373f342e291a3c3f3e3f283b36283f293f282c3f743d352c">[email protected]</span></a>. Comments addressed to Ms. Johnson may 
also be delivered to the Board's mail room between 8:45 a.m. and 5:15 
p.m. weekdays, and to the security control room at all other times. The 
mail room and the security control room, both in the Board's Eccles 
Building, are accessible from the courtyard entrance on 20th Street 
between Constitution Avenue and C Street, NW. Comments may be inspected 
in room MP-500 in the Board's Martin Building between 9 a.m. and 5 
p.m., pursuant to the Board's Rules Regarding the Availability of 
Information, 12 CFR part 261.

FOR FURTHER INFORMATION CONTACT: Natalie E. Taylor, Counsel, or Jane E. 
Ahrens, Senior Counsel, Division of Consumer and Community Affairs, 
Board of Governors of the Federal Reserve System, at (202) 452-3667 or 
452-2412; for users of Telecommunications Device for the Deaf (TDD) 
only, contact Janice Simms at (202) 872-4984.

SUPPLEMENTARY INFORMATION:

I. Background

    The purpose of the Truth in Lending Act (TILA), 15 U.S.C. 1601 et 
seq., is to promote the informed use of consumer credit by requiring 
disclosures about its terms and cost. The Board's Regulation Z (12 CFR 
part 226) implements the act. The act requires creditors to disclose 
the cost of credit as a dollar amount (the finance charge) and as an 
annual percentage rate (the APR). Uniformity in creditors' disclosures 
is intended to assist consumers in comparison shopping.
    The Fair Credit and Charge Card Disclosure Act of 1988 (1988 Act) 
amended TILA to require that the APR and certain other terms (primarily 
applicable to purchase transactions) be disclosed in certain direct 
mail and other solicitations and applications to open credit and charge 
card accounts. The purpose of the 1988 Act was to ensure that consumers 
receive key cost information about credit and charge cards early enough 
to have the opportunity to comparison shop for such cards. The 1988 Act 
generally requires that card application and solicitation disclosures 
be provided in the form of a table (commonly referred to as the 
``Schumer box'' after the law's chief sponsor) with headings for each 
item of information. The terms required to be in the table include: the 
name of the method used for calculating finance charges on an 
outstanding balance, any minimum finance charge per billing cycle, 
transaction fee, annual fee, grace period, and the APR for purchase 
transactions. The card issuer also must disclose any cash advance fee, 
late payment fee, or fee for exceeding a credit limit. These items may 
be either in the required table or clearly and conspicuously elsewhere. 
The applicable disclosures must also be provided for charge cards that 
do not use a periodic rate to compute a finance charge.
    As with all TILA disclosures, the table is subject to the ``clear 
and conspicuous'' standard. Currently, the table meets the ``clear and 
conspicuous'' standard if the disclosures are in a ``readily 
understandable form.'' There are no type size requirements associated 
with this standard. The table is also required to be in a ``prominent 
location'' on or with the application or solicitation. Under the 
existing rules, this requirement is met if the table is ``readily 
noticeable to the consumer.'' The table need not be in any particular 
location to satisfy the requirement.
    Over the years, the pricing of credit card programs has changed, 
and the cost disclosures accompanying card issuers' solicitations and 
applications have become more complex. Multiple APRs may apply to a 
single program. There may be a temporary introductory rate, a fixed or 
variable rate for all purchases after the introductory period expires, 
and one or more ``penalty rates'' that apply if, for example, the 
consumer makes late payments.
    As interest rates and other account features have become more 
complex, and disclosures longer, some card issuers have compensated by 
using reduced type sizes for the table instead of allocating additional 
space for the disclosures. In such cases, consumers may have difficulty 
in using the table to readily identify key costs and terms. In 
contrast, the promotional materials that accompany the credit card 
application or solicitation may highlight a low introductory APR in a 
large, easy to read type size; oftentimes without the expiration date 
in close proximity. The APR in effect after the introductory rate 
expires typically is disclosed much less prominently--in a smaller type 
size--and it may only appear in the disclosure table and not at all in 
the promotional materials. The table may be in a location that is less 
likely to capture the consumer's attention, for example, on the reverse 
side of an application or on the last page of a multi-page 
solicitation.
    Even with the format requirements, there is substantial flexibility 
in the current regulatory framework. While some card issuers' 
disclosures are fairly

[[Page 33500]]

straightforward, other card issuers have created disclosures that are 
difficult for consumers to use. Changes to the current regulatory 
scheme appear necessary to ensure that consumers receive meaningful 
disclosures on a more consistent basis, for comparison shopping.
    The 1988 Act authorizes the Board to require disclosure of 
additional information, or to modify the disclosures required by the 
statute if the Board determines that such action is necessary to carry 
out the purposes of, or prevent evasions of the 1988 Act. See 15 U.S.C. 
1637(c)(5). This is in addition to the Board's authority under section 
105(a) of TILA to prescribe regulations to effectuate the purposes of 
TILA, to prevent circumvention or evasion, or to facilitate compliance. 
See 15 U.S.C. 1604(a).

II. Summary of Proposed Revisions

    The Board is proposing amendments to Regulation Z in order to 
effectuate the purposes of the 1988 Act and promote more effective 
disclosure of the costs and terms in credit and charge card 
applications and solicitations.
    Under the proposal, the APR for purchase transactions is subject to 
a type-size requirement, to highlight this information. It would be in 
at least 18-point type and would appear under a separate heading from 
other APRs, such as penalty rates. The requirement that disclosures be 
``clear and conspicuous'' would be more strictly construed for purposes 
of the disclosure table required for credit and charge card 
applications and solicitations. These disclosures would have to be 
``readily noticeable,'' as well as in a ``reasonably understandable 
form.'' As to type size, disclosures in at least 12-point type would be 
deemed readily noticeable.
    Additional guidance is provided on satisfying the current 
requirement that the table be prominently located. The Staff Commentary 
would be revised to provide that the table is sufficiently prominent, 
for example, if it is on the same page as an application or 
solicitation reply form, or on a separate insert with a reference to 
the insert on the application or reply form.
    Guidance also would be issued on the level of detail required or 
permitted in the table. This is intended to reduce clutter and promote 
the use of more concise language. For example, the table must include 
any increased penalty APR that will apply upon the occurrence of one or 
more specific events, such as a late payment or an extension of credit 
exceeding the credit limit. The card issuer must also provide a 
description of the specific events that can trigger an increase. 
Currently, card issuers have the option of including this description 
inside the table or elsewhere. In order to simplify the table, the 
existing staff interpretations would be revised so that only the 
penalty rates could appear inside the table; the explanatory 
information would have to appear outside the table.

Legislation

    During 1999, bills were introduced in the Congress that also would 
add new disclosure requirements for credit card applications and 
solicitations. Some bills would require card issuers that offer 
temporary introductory rates to provide more conspicuous information in 
their promotional materials about the expiration date and the rate that 
will apply after that date. The provisions in these bills would address 
some of the same concerns that are the basis for the Board's regulatory 
proposal. In light of the pending legislation, however, the scope of 
the Board's regulatory proposal does not address the rates and terms 
disclosed in card issuer's promotional materials. Such matters may be 
the subject of future regulatory proposals once the Congress acts on 
the proposed legislation or otherwise clarifies its intent.

III. Section-by-Section Analysis

Subpart B--Open-End Credit

Section 226.5--General Disclosure Requirements

5(a) Form of Disclosures
    Section 226.5(a) states the general rule that TILA disclosures for 
open-end credit plans must be made clearly and conspicuously. Comment 
5(a)(1)-1 interprets this standard to require disclosures to be in a 
``reasonably understandable form.'' Under the proposal, this standard 
would be more strictly construed for purposes of the disclosures 
required under Sec. 226.5a for credit and charge card applications and 
solicitations. Accordingly, comment 5(a)(1)-1 would be revised to 
reflect this fact, and include a cross-reference to proposed comments 
5a(a)(2)-1 and 2 concerning the special format and location rules for 
Sec. 226.5a disclosures.

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

5a(a) General Rules
5a(a)(2) Form of Disclosures
    Disclosures required by Sec. 226.5a(a)(2) must be clear and 
conspicuous and prominently located on or with an application or 
solicitation, or other applicable document. Certain of these 
disclosures are also required to be in a tabular format. A new comment 
5a(a)(2)-1 would be added to establish a stricter standard for 
satisfying the ``clear and conspicuous'' standard with respect to the 
tabular disclosures. Proposed comment 5a(a)(2)-2 would provide 
additional interpretative guidance on the location of the table. 
Because the proposed interpretations differ from those currently 
provided, they are intended to have prospective application only.
    Currently, information provided in the table meets the ``clear and 
conspicuous'' requirement if the disclosures are reasonably 
understandable. Although the tabular format assists consumers by 
providing key cost information in a single location, consumers may have 
difficulty using the table due to the amount of information provided in 
the table and the small type size used by some card issuers to 
compensate for the amount of information. To ensure that consumers 
receive meaningful disclosures on a consistent basis, proposed comment 
5a(a)(2)-1 would provide that disclosures are clear and conspicuous if 
the disclosures are both reasonably understandable and readily 
noticeable. Comment 5a(a)(2)-1 would also provide that as to type size, 
disclosures in at least 12-point type would be deemed to be readily 
noticeable. Disclosures printed in less than 12-point type would not 
automatically violate the standard, but would be judged on a case-by-
case basis. For example, disclosures in 10- or 11-point type would 
probably satisfy the standard, but disclosures in 6-point type would 
likely be too small to satisfy the standard.
    Existing comment 5a(a)(2)-1 addresses the requirement that the 
table be prominently located. The comment would be redesignated as 
comment 5a(a)(2)-2, and would be revised to address concerns about the 
location of tabular disclosures. Currently, some card issuers locate 
the table on the reverse side of an application or reply form or on the 
last page of a multi-page solicitation. Consumers may see the 
promotional materials and fill out the application without being aware 
that there is additional cost information following the application, on 
the reverse side of the page or at the end of the promotional 
materials. Proposed comment 5a(a)(2)-2 would provide additional 
interpretative guidance; the table would be deemed to be prominently 
located, for example, if it appears on the same page as the application 
or solicitation reply form, or the first page of any other applicable 
document, or on an insert with a

[[Page 33501]]

reference to the insert on the application or reply form.
5a(b) Required Disclosures
    The table required under Sec. 226.5a provides consumers with key 
cost information, grouped together in one place to facilitate 
consumers' use of the information for comparison shopping. These 
disclosures are not intended to be as detailed as disclosures provided 
to consumers at account opening; at the time the 1988 Act was adopted, 
the primary focus was on cost disclosures for purchase transactions. 
For example, the APR and transaction fees for purchases must be 
disclosed in the table, but not the APR for cash advances.
    Because the services and features offered with credit and charge 
cards have evolved in recent years, the disclosures required by the 
1988 Act may not capture costs commonly assessed on such cards. For 
example, the periodic rate of interest assessed on a balance transfer 
(which the card issuer may characterize as a cash advance) is not 
disclosed in the table. The 1988 Act expressly authorizes the Board to 
add disclosures to the table, or modify the existing requirements. 
Accordingly, the Board solicits comment on whether consumers could be 
aided in comparison shopping by having additional rates and fees 
disclosed in the table. In particular, commenters should address 
whether the APR and transaction fees for balance transfers and the APR 
for cash advances should be included in the table; commenters are 
requested to specify why the benefits to consumers from the additional 
information would not outweigh the burden of compliance.
5a(b)(1) Annual Percentage Rate
    Section 226.5a(b)(1) requires card issuers to disclose in the table 
each periodic rate that may be used to compute the finance charge on an 
outstanding balance for purchases, expressed as an APR. This section 
would be revised to require the APR for purchases to be disclosed in 
the table in at least 18-point type. The type-size requirement would 
not apply to temporary initial rates that are lower than the APR that 
will apply after the temporary rate expires, or to penalty rates that 
may increase upon the occurrence of one or more specific events (such 
as a late payment or an extension of credit that exceeds the credit 
limit).
    The use of this larger type size is intended to highlight the 
significance of this information, particularly in light of the larger 
type sizes typically used by card issuers to promote introductory 
rates. Although the tabular format generally draws consumers' attention 
to the table, under existing rules the APR information is often 
obscured due to the amount of other information provided in the table 
and the small type size used by some card issuers. The APR for purchase 
transactions would also be highlighted by requiring that it be listed 
under a separate heading.
    In September 1999, the Board published a proposal that would amend 
Regulation Z to authorize creditors to use electronic communication to 
deliver required disclosures. 64 FR 49722 (September 14, 1999). 
Accordingly, comment is also requested on any specific guidance that 
may be needed for applying the type size requirements to disclosures 
made using electronic communication.
    Comment 226.5a(b)(1)-6 provides that where there is a temporary 
initial APR that is higher than the rate that will apply after the 
temporary rate expires, the card issuer must disclose the higher 
initial rate. The comment would be revised to clarify that in such 
cases, the initial rate must be disclosed in at least 18-point type, 
unless the card issuer also discloses the permanently applicable rate 
in the table, which would have to be in at least 18-point type.
    Comment 226.5a(b)(1)-7 requires card issuers to disclose ``penalty 
rates'' in the table, along with a description of the specific events 
that can trigger a rate increase and any index or margin used to 
determine the penalty rate. Currently, card issuers have the option of 
including this information inside the table or elsewhere. To simplify 
the table, the comment would be revised so that only the penalty rates 
would appear inside the table and the additional information would 
appear outside the table. Card issuers would be required to use an 
asterisk or other means to direct the consumer to the additional 
information.

Appendices G and H to Part 226--Open-End and Closed-End Model Forms and 
Clauses

    Comment App. G and H-1 would be revised to clarify that there are 
special rules for disclosures required under Sec. 226.5a for 
applications and solicitations for credit and charge cards.

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

    The Board provides three model forms to aid compliance with the 
disclosure requirements of Sec. 226.5a(b). See Appendix G-10(A)-(C). 
Under the proposal, Appendix G-10(A) would be revised, and a new sample 
form G-10(D) would be added to illustrate an account with a lower 
introductory rate and a penalty rate.
    Comment G-5 would be revised to clarify that there are format and 
sequence requirements for certain Sec. 226.5a disclosures.

IV. Form of Comment Letters

    Comment letters should refer to Docket No. R-1070, and, when 
possible, should use a standard typeface with a font size of 10 or 12. 
This will enable the Board to convert the text to machine-readable form 
through electronic scanning, and will facilitate automated retrieval of 
comments for review. Also, if accompanied by an original document in 
paper form, comments may be submitted on 3 \1/2\ inch computer 
diskettes in any IBM-compatible DOS- or Windows-based format.

V. Initial Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act, 
the Board has reviewed the proposed amendments to Regulation Z. 
Although the proposal would require creditors to use a specific type 
size for the APR; require creditors to provide supplemental information 
about penalty rates outside the table; and require that the table be 
located on the same page as the application or solicitation reply form, 
on the first page of any other applicable document, or on a separate 
insert with a reference to the insert on the application or reply form, 
the proposed amendments are not expected to have any significant impact 
on small entities beyond these initial revisions. A final regulatory 
flexibility analysis will be conducted after consideration of comments 
received during the public comment period.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule under the 
authority delegated to the Board by the Office of Management and 
Budget. The Federal Reserve may not conduct or sponsor, and an 
organization is not required to respond to, this information collection 
unless it displays a currently valid OMB control number. The OMB 
control number is 7100-0199.
    The collection of information that is revised by this rulemaking is 
found in 12 CFR part 226 and in Appendices F, G, H, J, K, and L. This 
information is mandatory (15 U.S.C. 1601 et seq.) to evidence 
compliance with the requirements of Regulation Z and the

[[Page 33502]]

Truth in Lending Act (TILA). The respondents/recordkeepers are for-
profit financial institutions, including small businesses. Institutions 
are required to retain records for twenty-four months. This regulation 
applies to all types of creditors, not just state member banks. 
However, under Paperwork Reduction Act regulations, the Federal Reserve 
accounts for the burden of the paperwork associated with the regulation 
only for state member banks. Other agencies account for the paperwork 
burden on their respective constituencies under this regulation.
    The proposed revisions would require creditors to revise 
disclosures for credit card solicitations and applications by: (1) 
Requiring the use of a specific type size for the APR, (2) requiring 
creditors to provide supplemental information about penalty rates 
outside the table, and (3) requiring that such table be located on the 
same page as the application or solicitation reply form, on the first 
page of any other applicable document, or on a separate insert with a 
reference to the insert on the application or reply form. Although the 
proposal adds these requirements, it is expected that these revisions 
would not significantly increase the paperwork burden of creditors. 
With respect to state member banks, it is estimated that there are 988 
respondent/recordkeepers and an average frequency of 136,294 responses 
per respondent each year. Therefore, the current amount of annual 
burden is estimated to be 1,863,754 hours. Because these proposed 
revisions modify preexisting tables, there is estimated to be no 
additional annual cost burden and no capital or start-up cost.
    Because the records would be maintained at state member banks and 
the notices are not provided to the Federal Reserve, no issue of 
confidentiality under the Freedom of Information Act arises; however, 
any information obtained by the Federal Reserve may be protected from 
disclosure under exemptions (b)(4), (6), and (8) of the Freedom of 
Information Act (5 U.S.C. 522 (b)(4), (6) and (8)). The disclosures and 
information about error allegations are confidential between creditors 
and the customer.
    The Federal Reserve requests comments from creditors, especially 
state member banks, that will help to estimate the number and burden of 
the various disclosures that would be made in the first year this 
proposed regulation would be effective. Comments are invited on: (a) 
The cost of compliance; (b) ways to enhance the quality, utility, and 
clarity of the information to be disclosed; and (c) ways to minimize 
the burden of disclosure on respondents, including through the use of 
automated disclosure techniques or other forms of information 
technology. Comments on the collection of information should be sent to 
the Office of Management and Budget, Paperwork Reduction Project (7100-
0199), Washington, DC 20503, with copies of such comments sent to Mary 
M. West, Federal Reserve Board Clearance Officer, Division of Research 
and Statistics, Mail Stop 97, Board of Governors of the Federal Reserve 
System, Washington, DC 20551.

List of Subjects in 12 CFR Part 226

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

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
revisions to the text of the staff commentary. New language is shown 
inside bold-faced arrows, while language that would be deleted is set 
off with bold-faced brackets.
    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 would continue to read as 
follows:

    Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).

    2. Section 226.5a would be amended by revising paragraph (b)(1) 
introductory text.

Subpart B--Open-End Credit

* * * * *


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

* * * * *
    (b) Required disclosures. * * *
    (1) Annual percentage rate. Each periodic rate that may be used to 
compute the finance charge on an outstanding balance for purchases, 
expressed as an annual percentage rate (as determined by 
Sec. 226.14(b)). When more than one rate applies, the range of balances 
to which each rate is applicable shall also be disclosed. <r-arrow>The 
annual percentage rate disclosed pursuant to this paragraph shall be in 
at least 18-point type, except for the following: a temporary initial 
rate that is lower than the rate that will apply after the temporary 
rate expires, and a penalty rate which is one that will apply upon the 
occurrence of one or more specific events.<l-arrow>
* * * * *
    3. Appendix G to Part 226 would be amended by:
    a. Revising the table of contents at the beginning of the appendix;
    b. Revising Model G-10(A); and
    c. Adding new Sample G-10(D).

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

G-1  Balance-Computation Methods Model Clauses (Secs. 226.6 and 226.7)
G-2  Liability for Unauthorized Use Model Clause (Sec. 226.12)
G-3  Long-Form Billing-Error Rights Model Form (Secs. 226.6 and 226.9)
G-4  Alternative Billing-Error Rights Model Form (Sec. 226.9)
G-5  Rescission Model Form (When Opening an Account) (Sec. 226.15)
G-6  Rescission Model Form (For Each Transaction) (Sec. 226.15)
G-7  Rescission Model Form (When Increasing the Credit Limit) 
(Sec. 226.15)
G-8  Rescission Model Form (When Adding a Security Interest) 
(Sec. 226.15)
G-9  Rescission Model Form (When Increasing the Security) (Sec. 226.15)
G-10 (A)-(B) Applications and Solicitations Model Forms (Credit Cards) 
(Sec. 226.5a(b))
G-10(C) Applications and Solicitations Model Form (Charge Cards) 
(Sec. 226.5a(b))
<r-arrow> G-10(D) Applications and Solicitations Sample (Credit Cards) 
(Sec. 226.5a(b)) <l-arrow>
G-11  Applications and Solicitations Made Available to General Public 
Model Clauses (Sec. 226.5a(e))
G-12 Charge Card Model Clause (When Access to Plan Offered by Another) 
(Sec. 226.5a(f))
G-13(A) Change in Insurance Provider Model Form (Combined Notice) 
(Sec. 226.9(f))
G-13(B) Change in Insurance Provider Model Form (Sec. 226.9(f)(2))
G-14A  Home Equity Sample
G-14B  Home Equity Sample
G-15  Home Equity Model Clauses
* * * * *

    G-10(A)--Applications and Solicitations Model Form (Credit Cards)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Annual percentage rate <r-arrow>(APR)<l- <r-arrow>________________%
 arrow> for purchases.                    until (expiration date) after
                                          that, <l-
                                          arrow>________________[%] <r-
                                          arrow>%<l-arrow>.

[[Page 33503]]

 
<r-arrow>Other APRs<l-arrow>...........  <r-arrow>Penalty rate:
                                          ________________%. See
                                          explanation below.*<l-arrow>
Variable-rate information..............  Your annual percentage rate may
                                          vary. The rate is determined
                                          by [(explanation).] <r-
                                          arrow>________. See
                                          explanation below.**<l-arrow>
Grace period for repayment of balances   You have [____ days] [until
 for purchases.                           ________________] [not less
                                          than ____ days] [between____
                                          and____ days] [____ days on
                                          average] to repay your balance
                                          [for purchases] before a
                                          finance charge on purchases
                                          will be imposed.
                                         [You have no grace period in
                                          which to repay your balance
                                          for purchases before a finance
                                          charge will be imposed.]
Method of computing the balance for
 purchases
Annual fees............................  [Annual] [Membership] fee:
                                          $____________ per year]
                                         [(type of fee): $____________
                                          per year]
                                         [(type of fee):
                                          $____________________]
Minimum finance charge.................  $____________
Transaction fee for purchases..........  [$____________] [______% of
                                          ______]
Transaction fee for cash advances: [$______] [____% of ______]
Late-payment fee: [$______] [______% of ______]
Over-the-credit-limit fee: $2
------------------------------------------------------------------------
<r-arrow>*Explanation of penalty.
**Explanation of variable rate.<l-arrow>

* * * * *

 <r-arrow>G-10(D)--Applications and Solicitations Sample (Credit Cards)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Annual percentage rate (APR) for         2.9% until October 1, 2000
 purchases.                               after that, 14.90%.
Other APRs.............................  Penalty rate: 23.90% See
                                          explanation below.*
Variable-rate information..............  Your annual percentage rate may
                                          vary. The rate is determined
                                          monthly by adding 5.9% to the
                                          Prime Rate. See explanation
                                          below.**
Grace period for repayment of balances   25 days on average.
 for purchases.
Method of computing the balance for      Average daily balance
 purchases.                               (excluding new purchases).
Annual fees............................  No annual fee.
Minimum finance charge.................  $.50.
Transaction fee for cash advances. 3% of the amount advanced.
Late-payment fee: $25.
Over-the-credit-limit fee: $ 25.
------------------------------------------------------------------------
* Explanation of penalty.
** The Prime Rate used to determine your APR is the rate published in
  ________ on the___day of the prior month.<l-arrow>

    4. In Supplement I to Part 226, the following amendments would be 
made:
    a. Under Section 226.5--General Disclosure Requirements, under 
Paragraph 5(a)(1), paragraph 1. introductory text would be revised;
    b. Under Section 226.5a--Credit and Charge Card Applications and 
Solicitations, under 5a(a)(2) Form of Disclosures, paragraph 1. through 
paragraph 6. would be redesignated as paragraph 2. through paragraph 7. 
respectively, a new paragraph 1. would be added, and newly designated 
paragraph 2. would be revised.
    c. Under Section 226.5a--Credit and Charge Card Applications and 
Solicitations, under 5a(b)(1) Annual Percentage Rate, paragraphs 6. and 
7. would be revised.
    d. Under Appendixes G and H--Open-End and Closed-End Model Forms 
and Clauses, a new sentence would be added after the second sentence in 
paragraph 1.
    e. Under Appendix G--Open-end Model Forms and Clauses, paragraph 5. 
would be revised.

Supplement I to Part 226--Official Staff Interpretations

* * * * *

Subpart B--Open-End Credit

Section 226.5--General Disclosure Requirements

    5(a) Form of disclosures.
    Paragraph 5(a)(1).
    1. Clear and conspicuous. The clear and conspicuous standard 
requires that disclosures be in a reasonably understandable form. 
<r-arrow>Except where otherwise provided, the standard<l-arrow> [It] 
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. <r-arrow>(See comments 5a(a)(2)-1 and -2 for special rules 
concerning Sec. 226.5a disclosures.)<l-arrow> The standard does not 
prohibit: * * *
* * * * *
    Section 226.5a--Credit and Charge Card Applications and 
Solicitations
* * * * *
    5a(a) General Rules.
    5a(a)(2) Form of Disclosures.
    1. <r-arrow>Clear and conspicuous standard. For purposes of 
Sec. 226.5a(a)(2) disclosures, ``clear and conspicuous'' means in a 
reasonably understandable form, and readily noticeable to the 
consumer. As to type size, disclosures in at least 12-point type are 
deemed to be readily noticeable for purposes of Sec. 226.5a(a)(2).
    2. <l-arrow>Prominent location. Certain of the required 
disclosures provided on or with an application or solicitation must 
be prominently located. Disclosures are deemed to be prominently 
located, for example, if the disclosures are on the same page as an 
application or solicitation reply form, on the first page of any 
other applicable document, or on a separate insert with a reference 
to the insert on the application or reply form. Disclosures in other 
than a tabular format need not begin and end on the same 
page.<l-arrow> that is, readily noticeable to the consumer. There 
are, however, no requirements that the disclosures be in any 
particular location or in any particular type size or typeface.]
* * * * *
    5a(b) Required Disclosures.
    5a(b)(1) Annual Percentage Rate.
* * * * *
    6. Introductory rates--premium rates. If the initial rate is 
temporary and is higher than the permanently applicable rate, the 
card

[[Page 33504]]

issuer must disclose <r-arrow>in the table<l-arrow> the initial 
rate. <r-arrow>The initial rate must be in at least 18-point type 
unless the issuer also discloses in the table the permanently 
applicable rate.<l-arrow> The issuer may disclose in the table 
the<r-arrow> permanently applicable<l-arrow> rate that would 
otherwise apply if the issuer also discloses the time period during 
which the initial rate will remain in effect. <r-arrow>In that case, 
the permanently applicable rate must be in at least 18-point 
type.<l-arrow>
    7. Increased penalty rates. If the initial rate may increase 
upon the occurrence of one or more specific events, such as a late 
payment or an extension of credit that exceeds the credit limit, the 
card issuer must disclose in the table the initial rate and the 
increased penalty rate that may apply. If the penalty rate is based 
on an index and an increased margin, the issuer must also disclose 
in the table the index and the margin. The issuer must also disclose 
the specific event or events that may result in imposing the 
increased rate, such as ``22% APR, if 60 days late.'' If the penalty 
rate cannot be determined at the time disclosures are given, the 
issuer must provide an explanation of the specific event or events 
that may result in imposing an increased rate. In describing the 
specific event or events that may result in an increased rate, 
issuers need not be as detailed as for the disclosures required 
under Sec. 226.6(a)(2). [Alternatively] For issuers using a tabular 
format, the specific event or events <r-arrow>must<l-arrow> [may] be 
located outside of the table<r-arrow> and an asterisk or other means 
shall be used to direct the consumer to the additional 
information.<l-arrow> [if the conditions are noted with an asterisk 
or other means that direct the consumer to the explanation.] At its 
option, the issuer may <r-arrow>include in the explanation of the 
penalty rate<l-arrow> [disclose] the period for which the increased 
rate will remain in effect, such as ``until you make three timely 
payments.'' The issuer need not disclose an increased rate that is 
imposed when credit privileges are permanently terminated.
* * * * *

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

    1. Permissible changes. * * * <r-arrow> (But see comment G-5 for 
special rules concerning certain disclosures required under 
Sec. 226.5a for credit and charge card applications and 
solicitations).<l-arrow> * * *

Appendix G--Open-End Model Forms and Clauses

* * * * *
    5. Models G-10(A) through G-10(C) <r-arrow> and Sample G-10(D) 
.<l-arrow> Models G-10(A) and G-10(B) illustrate the tabular format 
for providing the disclosures required under Sec. 226.5a for 
applications and solicitations for credit cards other than charge 
cards. Model G-10(A) illustrates the permissible inclusionin the 
tabular format of all of the disclosures. Model G-10(B) contains 
only the disclosures required to be included in the table, while the 
three additional disclosures are shown outside of the table. The two 
forms also illustrate two different levels of detail in disclosing 
the grace period, and different arrangements of the disclosures. 
Model G-10(C) illustrates the tabular format disclosure for charge 
card applications and solicitations and reflects all of the 
disclosures in the table. <r-arrow>Sample G-10(D) illustrates an 
account with a lower introductory rate and a penalty rate. Except as 
otherwise permitted, disclosures must be substantially similar in 
sequence and format to model forms G-10(A), (B), and (C). The 
disclosures may, however, be arranged vertically or horizontally and 
need not be highlighted aside from being included in the 
table.<l-arrow> [Disclosures may be arranged in an order different 
from that in model forms G-10(A), (B), and (C); may be arranged 
vertically or horizontally; need not be highlighted aside from being 
included in the table; and are not required to be in any particular 
type size]. Various features from different model forms may be 
combined; for example, the shorter grace period disclosure in model 
form G-10(B) may be used in any disclosure. While proper use of the 
model forms will be deemed in compliance with the regulation, card 
issuers are permitted to use headings and disclosures other than 
those in the forms (with an exception relating to the use of ``grace 
period'') if they are clear and concise and are substantially 
similar to the headings and disclosures contained in model forms. 
For further discussion of requirements relating to form, see the 
commentary to Sec. 226.5a(a)(2).
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, May 17, 2000.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 00-12911 Filed 5-23-00; 8:45 am]
BILLING CODE 6210-11-P


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