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24. 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. Revise appendix F and appendices G and H.

K. Amend appendix G by revising paragraphs 1. through 3. and 5. through 6., 

republishing paragraph 7., and adding paragraphs 8. through 11.

L. 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, 

appendix E and appendix F.
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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 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 
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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

Section 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. 
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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. 
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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. 

Section 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.
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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.
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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 
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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. Rescission rule. A more precise rule for what is a business day (all calendar 

days except Sundays and the federal legal holidays listed in 5 U.S.C. 6103(a)) applies 

when the right of rescission, the receipt of disclosures for certain mortgage transactions 

under § 226.19(a)(1)(ii), or mortgages subject to § 226.32 are involved. (See also 

comment 31(c)(1)-1.) 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). The observed holiday (in the example, July 3) 

is a business day for purposes of rescission, the receipt of disclosures for certain 

mortgage transactions under § 226.19(a)(1)(ii), or the delivery of disclosures for certain 

high-cost mortgages covered by § 226.32.

2(a)(7) Card issuer.
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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, 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 
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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 
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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.
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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 
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(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, 
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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 

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 “deferredpresentment 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.
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 B. A card that accesses both a credit and an asset account (that is, a debit-credit 

card).

 C. An identification card that permits the consumer to defer payment on a 

purchase.

 D. An identification card indicating loan approval that is presented to a merchant 

or to a lender, whether or not the consumer signs a separate promissory note for each 

credit extension.

 E. A card or device that can be activated upon receipt to access credit, even if the 

card has a substantive use other than credit, such as a purchase-price discount card. Such 

a card or device is a credit card notwithstanding the fact that the recipient must first 

contact the card issuer to access or activate the credit feature.

 ii. In contrast, credit card does not include, for example:

 A. A check-guarantee or debit card with no credit feature or agreement, even if 

the creditor occasionally honors an inadvertent overdraft.

 B. Any card, key, plate, or other device that is used in order to obtain petroleum 

products for business purposes from a wholesale distribution facility or to gain access to 

that facility, and that is required to be used without regard to payment terms.

 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), 
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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 credit-sale disclosures may be made. (See the commentary to 

§ 226.17(c)(1) for further discussion of this point.)
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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.
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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 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 
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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.
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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 pick-up payments, in a number of ways. If the pick-up 

payment is treated as part of the downpayment:
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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).
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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 
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creditors offer programs containing a number of different credit features. The consumer 

has a single 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 open-end 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 
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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 
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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 self-replenishing 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 
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preset credit limits, further extensions of credit need not be an absolute right in order for 

the plan to meet the self-replenishing 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, 11⁄2% 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.
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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).

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.
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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 

lump-sum 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. 
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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:
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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).
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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 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 
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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.
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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 closedend 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 
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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.

Section 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. 
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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 consumer-purpose 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:

A. A loan to expand a business, even if it is secured by the borrower’s residence 

or personal property.
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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 owneroccupied 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 

owner-occupied 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.
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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 consumer-purpose 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.
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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.
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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 
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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 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, 
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41

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 the Guaranteed Student Loan program 

(administered by the Federal government, State, and private non-profit agencies), the 

Auxiliary Loans to Assist Students (also known as PLUS) program, and the National 

Direct Student Loan program.

Section 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.
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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 construction-loan 

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 
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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 sellercreditor 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:
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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 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 
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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 card-issuing 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 
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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 government-managed 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 
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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.
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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 reverse-mortgage 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 
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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 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:
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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.
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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 
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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:
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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 open-end 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:

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. 
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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 
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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 open-end (not homesecured) 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.
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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 
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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 one-time, 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 
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from the finance charge even if they are passed on to the 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 
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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 
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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 

closed-end 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.
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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 unit-cost basis in openend 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-of-income 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 
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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 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 
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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-in-due-course insurance. These 

types of coverage do not constitute single-interest 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 
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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
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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 
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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.

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 yesor-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.
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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.
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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

Section 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)(iii)(B), 
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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 
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disclosures on checks that access a credit card account under § 226.9(b)(3), highlighted 

change-in-terms disclosures under § 226.9(c)(2)(iii)(B), and highlighted disclosures when 

a rate is increased due to delinquency, default or penalty pricing under § 226.9(g)(3)(ii) 

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 periodic-statement 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, 
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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 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:
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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 home-equity 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 
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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 
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is reported lost or stolen) and then is reactivated, no new account-opening 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 
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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.

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 
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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.
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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.
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Paragraph 5(b)(2)(i).

1. Periodic statements not required. Periodic statements need not be sent in the 

following cases:

i. If the creditor adjusts an account balance so that at the end of the cycle the 

balance is less than $1—so long as no finance charge has been imposed on the account 

for that cycle.

ii. If a statement was returned as undeliverable. If a new address is provided, 

however, within a reasonable time before the creditor must send a statement, the creditor 

must resume sending statements. Receiving the address at least 20 days before the end of 

a cycle would be a reasonable amount of time to prepare the statement for that cycle. For 

example, if an address is received 22 days before the end of the June cycle, the creditor 

must send the periodic statement for the June cycle. (See § 226.13(a)(7).)

2. Termination of draw privileges. When a consumer’s ability to draw on an 

open-end account is terminated without being converted to closed-end credit under a 

written agreement, the creditor must continue to provide periodic statements to those 

consumers entitled to receive them under § 226.5(b)(2)(i), for example, when the draw 

period of an open-end credit plan ends and consumers are paying off outstanding 

balances according to the account agreement or under the terms of a workout agreement 

that is not converted to a closed-end transaction. In addition, creditors must continue to 

follow all of the other open-end credit requirements and procedures in subpart B.

3. Uncollectible accounts. An account is deemed uncollectible for purposes of 

§ 226.5(b)(2)(i) when a creditor has ceased collection efforts, either directly or through a 

third party.
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4. Instituting collection proceedings. Creditors institute a delinquency collection 

proceeding by filing a court action or initiating an adjudicatory process with a third party. 

Assigning a debt to a debt collector or other third party would not constitute instituting a 

collection proceeding.

Paragraph 5(b)(2)(ii).

1. 14-day rule. The 14-day rule for mailing or delivering periodic statements 

does not apply if charges (for example, transaction or activity charges) are imposed 

regardless of the timing of a periodic statement. The 14-day rule does apply, for 

example:

i. If current debits retroactively become subject to finance charges when the 

balance is not paid in full by a specified date.

ii. For open-end plans not subject to 12 CFR part 227, subpart C; 12 CFR part 

535, subpart C; or 12 CFR part 706, subpart C, if charges other than finance charges will 

accrue when the consumer does not make timely payments (for example, late payment 

charges or charges for exceeding a credit limit). (For consumer credit card accounts 

subject to 12 CFR part 227, subpart C; 12 CFR part 535, subpart C; or 12 CFR part 706, 

subpart C, see 12 CFR § 227.22, 12 CFR § 535.22, or 12 CFR § 706.22, as applicable.)

2. Deferred interest transactions. See comment 7(b)-1.iv.

Paragraph 5(b)(2)(iii).

1. Computer malfunction. The exceptions identified in § 226.5(b)(2)(iii) of this 

section do not extend to the failure to provide a periodic statement because of computer 

malfunction.
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2. Calling for periodic statements. When the consumer initiates a request, the 

creditor may permit, but may not require, consumers to pick up their periodic statements. 

If the consumer wishes to pick up the statement and the plan has a grace period, the 

statement must be made available in accordance with the 14-day rule. 

5(c) Basis of disclosures and use of estimates.

1. Legal obligation. The disclosures should reflect the credit terms to which the 

parties are legally bound at the time of giving the disclosures.

i. The legal obligation is determined by applicable state or other law.

ii. The fact that a term or contract may later be deemed unenforceable by a court 

on the basis of equity or other grounds does not, by itself, mean that disclosures based on 

that term or contract did not reflect the legal obligation.

iii. The legal obligation normally is presumed to be contained in the contract that 

evidences the agreement. But this may be rebutted if another agreement between the 

parties legally modifies that contract.

2. Estimates—obtaining information. Disclosures may be estimated when the 

exact information is unknown at the time disclosures are made. Information is unknown 

if it is not reasonably available to the creditor at the time disclosures are made. The 

reasonably available standard requires that the creditor, acting in good faith, exercise due 

diligence in obtaining information. In using estimates, the creditor is not required to 

disclose the basis for the estimated figures, but may include such explanations as 

additional information. The creditor normally may rely on the representations of other 

parties in obtaining information. For example, the creditor might look to insurance 

companies for the cost of insurance.
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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 
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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.

Section 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.) 
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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 
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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.
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2. Multiple accounts. If a tabular format is required to be used, card issuers 

offering several types of accounts may disclose the various terms 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 
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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.
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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 
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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 variablerate 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 
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describing the index, the issuer may not include in the table details about the index. For 

example, if the issuer uses a prime rate, the issuer must disclose the rate as a “prime rate”

and may not disclose in the table other details about the prime rate, such as the fact that it 

is the highest prime rate published in the Wall Street Journal two business days before the 

closing date of the statement for each billing period. The issuer may not disclose in the 

table the current value of the index (such as that the prime rate is currently 7.5 percent) or 

the amount of the margin or spread added to the index or formula in setting the applicable 

rate. A card issuer may not disclose any applicable limitations on rate increases or 

decreases in the table, such as describing that the rate will not go below a certain rate or 

higher than a certain rate. (See Samples G-10(B) and G-10(C) for guidance on how to 

disclose the fact that the applicable rate varies and how it is determined.)

3. Discounted initial rates. i. Immediate proximity. If the term “introductory” is 

in the same phrase as the introductory rate, as that term is defined in § 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), 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 
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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. 

(However, issuers subject to 12 CFR § 227.24 or similar law are subject to certain 

limitations on such rate increases.)

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) (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)(iv)-3 and 9(c)(2)(iv)-4 for guidance on the notice 

requirements under § 226.9(c). (In addition, issuers subject to 12 CFR § 227.24 or 

similar law may be subject to certain limitations on such rate decreases.)
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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 
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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 only 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, if the issuer discloses the introductory rate in the table or in any written or 

electronic promotional materials accompanying applications or solicitations subject to 

§ 226.5a(c) or (e). 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 variable-rate account, the rate that would have applied at the 

end of the promotional period is a rate based on the applicable index or formula in 

accordance with the accuracy requirements set forth in § 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 
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may increase an introductory rate because the account is more than 30 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 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 – issuers subject to 12 CFR § 227.24 or similar law. 

Issuers that are disclosing an introductory rate subject to 12 CFR § 227.24 or similar law 

are prohibited from increasing or revoking the introductory rate before it expires unless

the consumer fails to make a required minimum periodic payment within 30 days after 

the due date for the payment. In making the required disclosure pursuant to 

§ 226.5a(b)(1)(iv)(B), any issuers subject to 12 CFR § 227.24 or similar law should 

describe this circumstance directly beneath the table as “make a late payment.” 
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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 
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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.

5a(b)(2) Fees for issuance or availability.
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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 cardregistration 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 non-periodic fees is limited to fees related to 

opening the account, such as one-time membership or participation fees, or an application 

fee that is excludable from the finance charge under § 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.
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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 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 
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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 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 
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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 or cover two billing cycles 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 or covers two billing cycles, respectively. 

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 
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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 
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§ 226.4(c)(2) for additional guidance on late-payment fees. See Samples G-10(B) and G10(C) for guidance on how to disclose clearly and conspicuously the late-payment fee.)

5a(b)(10) Over-the-limit fee.

1. Applicability. The disclosure of fees for exceeding a credit limit does not 

include fees for other types of default or for services related to exceeding the limit. For 

example, no disclosure is required of fees for reinstating credit privileges or fees for the 

dishonor of checks on an account that, if paid, would cause the credit limit to be 

exceeded. (See Samples G-10(B) and G-10(C) for guidance on how to disclose clearly 

and conspicuously the over-the-limit fee.)

5a(b)(13) Required insurance, debt cancellation, or debt suspension coverage.

1. Content. See Sample G-10(B) for guidance on how to comply with the 

requirements in § 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) 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 
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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 take-one—that is, 

by presenting the required § 226.5a disclosures in a tabular format. When used in a direct 
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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
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§ 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 account-opening 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 in-person 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 toll-free 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.
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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 
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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. 

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 
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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 inperson conversation not to issue the card.

5a(g) Balance computation methods defined.

1. Two-cycle average daily balance methods. 

i. In general. The two-cycle average daily balance methods described in 

§ 226.5a(g)(2)(i) and (g)(2)(ii) include those methods in which the average daily balances 

for two billing cycles may be added together to compute the finance charge. Such 

methods also include those in which a periodic rate is applied separately to the balance in 

each cycle, and the resulting finance charges are added together. The method is a twocycle average daily balance even if the finance charge is based on both the current and 

prior cycle balances only under certain circumstances, such as when purchases during a 

prior cycle were carried over into the current cycle and no finance charge was assessed 

during the prior cycle. Furthermore, the method is a two-cycle average daily balance 

method if the balances for both the current and prior cycles are average daily balances, 

even if those balances are figured differently. For example, the name two-cycle average 

daily balance (excluding new purchases) should be used to describe a method in which 

the finance charge for the current cycle, figured on an average daily balance excluding 
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new purchases, will be added to the finance charge for the prior cycle, figured on an 

average daily balance of only new purchases during that prior cycle. 

ii. Restrictions. Some issuers may be prohibited from using the two-cycle 

average daily balance methods described in § 226.5a(g)(2)(i) and (ii). See 12 CFR parts

227, 535, and 706.

Section 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 
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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.

* * * * *

Section 226.6—Account-opening Disclosures

6(a) Rules affecting home-equity plans.

6(a)(1) Finance charge.

Paragraph 6(a)(1)(i).

1. When finance charges accrue. Creditors are not required to disclose a specific 

date when finance charges will begin to accrue. Creditors may provide a general 

explanation such as that the consumer has 30 days from the closing date to pay the new 

balance before finance charges will accrue on the account.

2. Grace periods. In disclosing whether or not a grace period exists, the creditor 

need not use “free period,” “free-ride period,” “grace period” or any other particular 

descriptive phrase or term. For example, a statement that “the finance charge begins on 

the date the transaction is posted to your account” adequately discloses that no grace 
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period exists. In the same fashion, a statement that “finance charges will be imposed on 

any new purchases only if they are not paid in full within 25 days after the close of the 

billing cycle” indicates that a grace period exists in the interim.

Paragraph 6(a)(1)(ii).

1. Range of balances. The range of balances disclosure is inapplicable:

i. If only one periodic rate may be applied to the entire account balance.

ii. If only one periodic 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 rate on purchase balances of $0-$500, and 

a 1% monthly periodic rate for balances above $500). In this example, the creditor must 

give a range of balances disclosure for the purchase feature.

2. Variable-rate disclosures—coverage. 

i. Examples. This section covers open-end credit plans under which rate changes 

are specifically set forth in the account agreement and are tied to an index or formula. A 

creditor would use variable-rate disclosures for plans involving rate changes such as the 

following:

A. Rate changes that are tied to 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. An open-end credit plan in which the employee receives a lower rate 

contingent upon employment (that is, with the rate to be increased upon termination of 

employment) is not a variable-rate plan. 
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3. Variable-rate plan—rate(s) in effect. In disclosing the rate(s) in effect at the 

time of the account-opening disclosures (as is required by § 226.6(a)(1)(ii)), the creditor 

may use an insert showing the current rate; may give the rate as of a specified date and 

then update the disclosure from time to time, for example, each calendar month; or may 

disclose an estimated rate under § 226.5(c).

4. Variable-rate plan—additional disclosures required. In addition to disclosing 

the rates in effect at the time of the account-opening disclosures, the disclosures under 

§ 226.6(a)(1)(ii) also must be made.

5. Variable-rate plan—index. The index to be used must be clearly identified; the 

creditor need not give, however, an explanation of how the index is determined or 

provide instructions for obtaining it.

6. Variable-rate plan—circumstances for increase. 

i. Circumstances under which the rate(s) may increase include, for example:

A. An increase in the Treasury bill rate.

B. An increase in the Federal Reserve discount rate.

ii. The creditor must disclose when the increase will take effect; for example:

A. “An increase will take effect on the day that the Treasury bill rate increases,”

or

B. “An increase in the Federal Reserve discount rate will take effect on the first 

day of the creditor’s billing cycle.”

7. Variable-rate plan—limitations on increase. In disclosing any limitations on 

rate increases, limitations such as the maximum increase per year or the maximum 

increase over the duration of the plan must be disclosed. When there are no limitations, 
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the creditor may, but need not, disclose that fact. (A maximum interest rate must be 

included in dwelling-secured open-end credit plans under which the interest rate may be 

changed. See § 226.30 and the commentary to that section.) Legal limits such as usury 

or rate ceilings under state or federal statutes or regulations need not be disclosed. 

Examples of limitations that must be disclosed include:

i. “The rate on the plan will not exceed 25% annual percentage rate.”

ii. “Not more than 1⁄2% increase in the annual percentage rate per year will 

occur.”

8. Variable-rate plan—effects of increase. Examples of effects of rate increases 

that must be disclosed include:

i. Any requirement for additional collateral if the annual percentage rate increases 

beyond a specified rate.

ii. Any increase in the scheduled minimum periodic payment amount.

9. Variable-rate plan—change-in-terms notice not required. No notice of a 

change in terms is required for a rate increase under a variable-rate plan as defined in 

comment 6(a)(1)(ii)-2.

10. Discounted variable-rate plans. In some variable-rate plans, creditors may set 

an initial interest rate that is not determined by the index or formula used to make later 

interest rate adjustments. Typically, this initial rate is lower than the rate would be if it 

were calculated using the index or formula.

i. For example, a creditor may calculate interest rates according to a formula 

using the six-month Treasury bill rate plus a 2 percent margin. If the current Treasury 

bill rate is 10 percent, the creditor may forgo the 2 percent spread and charge only 10 
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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 use an initial rate that is not calculated using the index or 

formula for later rate adjustments, the account-opening disclosure statement should 

reflect: 

A. The initial rate (expressed as a periodic rate and a corresponding annual 

percentage rate), together with a statement of how long the initial rate will remain in 

effect; 

B. The current rate that would have been applied using the index or formula (also 

expressed as a periodic rate and a corresponding annual percentage rate); and 

C. The other variable-rate information required in § 226.6(a)(1)(ii).

iii. In disclosing the current periodic and annual percentage rates that would be 

applied using the index or formula, the creditor may use any of the disclosure options 

described in comment 6(a)(1)(ii)-3.

11. Increased penalty rates. If the initial rate may increase upon the occurrence 

of one or more specific events, such as a late payment or an extension of credit that 

exceeds the credit limit, the creditor must disclose the initial rate and the increased 

penalty rate that may apply. If the penalty rate is based on an index and an increased 

margin, the issuer must disclose the index and the margin. The creditor must also 

disclose the specific event or events that may result in the increased rate, such as “22% 

APR, if 60 days late.” If the penalty rate cannot be determined at the time disclosures are 

given, the creditor must provide an explanation of the specific event or events that may 

result in the increased rate. At the creditor’s option, the creditor may disclose the period 
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for which the increased rate will remain in effect, such as “until you make three timely 

payments.” The creditor need not disclose an increased rate that is imposed when credit 

privileges are permanently terminated.

Paragraph 6(a)(1)(iii).

1. Explanation of balance computation method. A shorthand phrase such as 

“previous balance method” does not suffice in explaining the balance computation 

method. (See Model Clauses G-1 and G-1(A) to part 226.) 

2. Allocation of payments. Creditors may, but need not, explain how payments 

and other credits are allocated to outstanding balances. For example, the creditor need 

not disclose that payments are applied to late charges, overdue balances, and finance 

charges before being applied to the principal balance; or in a multifeatured plan, that 

payments are applied first to finance charges, then to purchases, and then to cash 

advances. (See comment 7-1 for definition of multifeatured plan.)

Paragraph 6(a)(1)(iv).

1. Finance charges. In addition to disclosing the periodic rate(s) under 

§ 226.6(a)(1)(ii), creditors must disclose any other type of finance charge that may be 

imposed, such as minimum, fixed, transaction, and activity charges; required insurance; 

or appraisal or credit report fees (unless excluded from the finance charge under 

§ 226.4(c)(7)). Creditors are not required to disclose the fact that no finance charge is 

imposed when the outstanding balance is less than a certain amount or the balance below 

which no finance charge will be imposed.

6(a)(2) Other charges.
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1. General; examples of other charges. Under § 226.6(a)(2), significant charges 

related to the plan (that are not finance charges) must also be disclosed. For example:

i. Late-payment and over-the-credit-limit charges.

ii. Fees for providing documentary evidence of transactions requested under 

§ 226.13 (billing error resolution).

iii. Charges imposed in connection with residential mortgage transactions or real 

estate transactions such as title, appraisal, and credit-report fees (see § 226.4(c)(7)).

iv. A tax imposed on the credit transaction by a state or other governmental body, 

such as a documentary stamp tax on cash advances (See the commentary to § 226.4(a)).

v. A membership or participation fee for a package of services that includes an 

open-end credit feature, unless the fee is required whether or not the open-end credit 

feature is included. For example, a membership fee to join a credit union is not an “other 

charge,” even if membership is required to apply for credit. For example, if the primary 

benefit of membership in an organization is the opportunity to apply for a credit card, and 

the other benefits offered (such as a newsletter or a member information hotline) are 

merely incidental to the credit feature, the membership fee would be disclosed as an 

“other charge.”

vi. Charges imposed for the termination of an open-end credit plan.

2. Exclusions. The following are examples of charges that are not “other 

charges”

i. Fees charged for documentary evidence of transactions for income tax 

purposes.
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ii. Amounts payable by a consumer for collection activity after default; attorney’s 

fees, whether or not automatically imposed; foreclosure costs; post-judgment interest 

rates imposed by law; and reinstatement or reissuance fees.

iii. Premiums for voluntary credit life or disability insurance, or for property 

insurance, that are not part of the finance charge.

iv. Application fees under § 226.4(c)(1).

v. A monthly service charge for a checking account with overdraft protection that 

is applied to all checking accounts, whether or not a credit feature is attached.

vi. Charges for submitting as payment a check that is later returned unpaid (See 

commentary to § 226.4(c)(2)).

vii. Charges imposed on a cardholder by an institution other than the card issuer 

for the use of the other institution’s ATM in a shared or interchange system. (See also 

comment 7(a)(2)-2.)

viii. Taxes and filing or notary fees excluded from the finance charge under 

§ 226.4(e).

ix. A fee to expedite delivery of a credit card, either at account opening or during 

the life of the account, provided delivery of the card is also available by standard mail 

service (or other means at least as fast) without paying a fee for delivery.

x. A fee charged for arranging a single payment on the credit account, upon the 

consumer’s request (regardless of how frequently the consumer requests the service), if 

the credit plan provides that the consumer may make payments on the account by another 

reasonable means, such as by standard mail service, without paying a fee to the creditor.

6(a)(3) Home-equity plan information. 
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1. Additional disclosures required. For home-equity plans, creditors must 

provide several of the disclosures set forth in § 226.5b(d) along with the disclosures 

required under § 226.6. Creditors also must disclose a list of the conditions that permit 

the creditor to terminate the plan, freeze or reduce the credit limit, and implement 

specified modifications to the original terms. (See comment 5b(d)(4)(iii)-1.)

2. Form of disclosures. The home-equity disclosures provided under this section 

must be in a form the consumer can keep, and are governed by § 226.5(a)(1). The 

segregation standard set forth in § 226.5b(a) does not apply to home-equity disclosures 

provided under § 226.6.

3. Disclosure of payment and variable-rate examples. 

i. The payment-example disclosure in § 226.5b(d)(5)(iii) and the variable-rate 

information in § 226.5b(d)(12)(viii), (d)(12)(x), (d)(12)(xi), and (d)(12)(xii) need not be 

provided with the disclosures under § 226.6 if the disclosures under § 226.5b(d) were 

provided in a form the consumer could keep; and the disclosures of the payment example 

under § 226.5b(d)(5)(iii), the maximum-payment example under § 226.5b(d)(12)(x) and 

the historical table under § 226.5b(d)(12)(xi) included a representative payment example 

for the category of payment options the consumer has chosen.

ii. For example, if a creditor offers three payment options (one for each of the 

categories described in the commentary to § 226.5b(d)(5)), describes all three options in 

its early disclosures, and provides all of the disclosures in a retainable form, that creditor 

need not provide the § 226.5b(d)(5)(iii) or (d)(12) disclosures again when the account is 

opened. If the creditor showed only one of the three options in the early disclosures 

(which would be the case with a separate disclosure form rather than a combined form, as 
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discussed under § 226.5b(a)), the disclosures under § 226.5b(d)(5)(iii), (d)(12)(viii), 

(d)(12)(x), (d)(12)(xi) and (d)(12)(xii) must be given to any consumer who chooses one 

of the other two options. If the § 226.5b(d)(5)(iii) and (d)(12) disclosures are provided 

with the second set of disclosures, they need not be transaction-specific, but may be 

based on a representative example of the category of payment option chosen.

4. Disclosures for the repayment period. The creditor must provide disclosures 

about both the draw and repayment phases when giving the disclosures under § 226.6. 

Specifically, the creditor must make the disclosures in § 226.6(a)(3), state the 

corresponding annual percentage rate, and provide the variable-rate information required 

in § 226.6(a)(1)(ii) for the repayment phase. To the extent the corresponding annual 

percentage rate, the information in § 226.6(a)(1)(ii), and any other required disclosures 

are the same for the draw and repayment phase, the creditor need not repeat such 

information, as long as it is clear that the information applies to both phases.

6(a)(4) Security interests.

1. General. Creditors are not required to use specific terms to describe a security 

interest, or to explain the type of security or the creditor’s rights with respect to the 

collateral.

2. Identification of property. Creditors sufficiently identify collateral by type by 

stating, for example, 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.)
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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 accountopening disclosures. For example, if the creditor knows that a security interest will be 

taken in household goods if the consumer’s balance exceeds $1,000, the creditor should 

disclose accordingly. If the creditor knows that security will be required if the 

consumer’s balance exceeds $1,000, but the creditor does not know what security will be 

required, the creditor must disclose on the initial disclosure statement that security will be 

required if the balance exceeds $1,000, and the creditor must provide a change-in-terms 

notice under § 226.9(c) at the time the security is taken. (See comment 6(a)(4)-2.)

5. Collateral from third party. Security interests taken in connection with the 

plan must be disclosed, whether the collateral is owned by the consumer or a third party.

6(a)(5) Statement of billing rights.

1. See the commentary to Model Forms G-3, G-3(A), G-4, and G-4(A).

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.
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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 account-opening 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 account-opening disclosures.

v. Creditors must state that consumers’ billing rights are provided in the accountopening disclosures.
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vi. If fees 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 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 account-opening 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 only if the introductory rate is disclosed pursuant to 

§ 226.6(b)(2)(i)(B) in the account-opening table. Creditors subject to 12 CFR § 227.24 

or similar law 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 creditor subject to 

12 CFR § 227.24 or similar law 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.
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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 homesecured) 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 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.”
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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).
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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 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 
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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 open-end (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.)
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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.”
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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.
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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 accountopening 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 
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not making the required minimum payment when due, or the termination of an employee 

preferred rate when the employment relationship is terminated.

2. Rate that will apply after initial rate changes. 

i. Increased margins. If the initial rate is based on an index and the rate may 

increase due to a change in the margin applied to the index, the creditor must disclose the 

increased margin. If more than one margin could apply, the creditor may disclose the 

highest margin.

ii. Risk-based pricing. In some plans, the amount of the rate change depends on 

how the creditor weighs the occurrence of events specified in the account agreement that 

authorize the creditor to change rates, as well as other factors. 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. Creditors that are subject to 12 CFR 

§ 227.24 or similar law 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.
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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.
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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 accountopening 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).

Section 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.

7(a)(1) Previous balance.
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1. Credit balances. If the previous balance is a credit balance, it must be 

disclosed in such a way so as to inform the consumer that it is a credit balance, rather 

than a debit balance.

2. Multifeatured plans. In a multifeatured plan, the previous balance may be 

disclosed either as an aggregate balance for the account or as separate balances for each 

feature (for example, a previous balance for purchases and a previous balance for cash 

advances). If separate balances are disclosed, a total previous balance is optional.

3. Accrued finance charges allocated from payments. Some open-end credit 

plans provide that the amount of the finance charge that has accrued since the consumer’s 

last payment is directly deducted from each new payment, rather than being separately 

added to each statement and reflected as an increase in the obligation. In such a plan, the 

previous balance need not reflect finance charges accrued since the last payment.

7(a)(2) Identification of transactions.

1. Multifeatured plans. In identifying transactions under § 226.7(a)(2) for 

multifeatured plans, creditors may, for example, choose to arrange transactions by feature 

(such as disclosing sale transactions separately from cash advance transactions) or in 

some other clear manner, such as by arranging the transactions in general chronological 

order.

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.
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7(a)(3) Credits.

1. Identification—sufficiency. The creditor need not describe each credit by type 

(returned merchandise, rebate of finance charge, etc.)—“credit” would suffice—except if 

the creditor is using the periodic statement to satisfy the billing-error correction notice 

requirement. (See the commentary to § 226.13(e) and (f).)

2. Format. A creditor may list credits relating to credit extensions (payments, 

rebates, etc.) together with other types of credits (such as deposits to a checking account), 

as long as the entries are identified so as to inform the consumer which type of credit 

each entry represents.

3. Date. If only one date is disclosed (that is, the crediting date as required by the 

regulation), no further identification of that date is necessary. More than one date may be 

disclosed for a single entry, as long as it is clear which date represents the date on which 

credit was given.

4. Totals. A total of amounts credited during the billing cycle is not required.

7(a)(4) Periodic rates.

1. Disclosure of periodic rates—whether or not actually applied. Except as 

provided in § 226.7(a)(4)(ii), any periodic rate that may be used to compute finance 

charges (and its corresponding 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 rate for each, even if the consumer only makes 

purchases on the account during the billing cycle.
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ii. If the rate varies (such as when it is tied to a particular index), the creditor 

must disclose each rate in effect during the cycle for which the statement was issued.

2. Disclosure of periodic rates required only if imposition possible. With regard 

to the periodic 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 rates effective during the next billing cycle (because 

of a variable-rate plan), the rates required to be disclosed under § 226.7(a)(4) are only 

those in effect during the billing cycle reflected on the periodic statement. For example, 

if the monthly rate applied during May was 1.5%, but the creditor will increase the rate to 

1.8% effective June 1, 1.5% (and its corresponding annual percentage rate) is the only 

required disclosure under § 226.7(a)(4) for the periodic statement reflecting the May 

account activity.

ii. If rates applicable to a particular type of transaction changed after a certain 

date and the old rate is only being applied to transactions that took place prior to that 

date, the creditor need not continue to disclose the old rate for those consumers that have 

no outstanding balances to which that rate could be applied.

3. Multiple rates—same transaction. If two or more periodic rates are applied to 

the same balance for the same type of transaction (for example, if the finance charge 

consists of a monthly periodic 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), the creditor may do either of the following:
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i. Disclose each periodic rate, the range of balances to which it is applicable, and 

the corresponding annual percentage rate for each. (For example, 1.5% monthly, 18% 

annual percentage rate; 0.1% monthly, 1.2% annual percentage rate.)

ii. Disclose one composite periodic rate (that is, 1.6% per month) along with the 

applicable range of balances and the corresponding annual percentage rate.

4. Corresponding annual percentage rate. In disclosing the annual percentage 

rate that corresponds to each periodic rate, the creditor may use “corresponding annual 

percentage rate,” “nominal annual percentage rate,” “corresponding nominal annual 

percentage rate,” or similar phrases.

5. Rate same as actual annual percentage rate. When the corresponding rate is 

the same as the annual percentage rate disclosed under § 226.7(a)(7), the creditor need 

disclose only one annual percentage rate, but must use the phrase “annual percentage 

rate.”

6. Range of balances. See comment 6(a)(1)(ii)-1. A creditor is not required to 

adjust the range of balances disclosure to reflect the balance below which only a 

minimum charge applies.

7(a)(5) Balance on which finance charge computed.

1. Limitation to periodic rates. Section 226.7(a)(5) only requires disclosure of 

the balance(s) to which a periodic rate was applied and does not apply to balances on 

which other kinds of finance charges (such as transaction charges) were imposed. For 

example, if a consumer obtains a $1,500 cash advance subject to both a 1% transaction 

fee and a 1% monthly periodic rate, the creditor need only disclose the balance subject to 
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the monthly rate (which might include portions of earlier cash advances not paid off in 

previous cycles).

2. Split rates applied to balance ranges. If split rates were applied to a balance 

because different portions of the balance fall within two or more balance ranges, the 

creditor need not separately disclose the portions of the balance subject to such different 

rates since the range of balances to which the rates apply has been separately disclosed. 

For example, a creditor could disclose a balance of $700 for purchases even though a 

monthly periodic rate of 1.5% applied to the first $500, and a monthly periodic rate of 1% 

to the remainder. This option to disclose a combined balance does not apply when the 

finance charge is computed by applying the split rates to each day’s balance (in contrast, 

for example, to applying the rates to the average daily balance). In that case, the balances 

must be disclosed using any of the options that are available if two or more daily rates are 

imposed. (See comment 7(a)(5)-5.)

3. Monthly rate on average daily balance. Creditors may apply a monthly 

periodic rate to an average daily balance.

4. Multifeatured plans. In a multifeatured plan, the creditor must disclose a 

separate balance (or balances, as applicable) to which a periodic rate was applied for each 

feature or group of features subject to different periodic rates or different balance 

computation methods. Separate balances are not required, however, merely because a 

grace period is available for some features but not others. A total balance for the entire 

plan is optional. This does not affect how many balances the creditor must disclose—or 

may disclose—within each feature. (See, for example, comment 7(a)(5)-5.)
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5. Daily rate on daily balances. i. If the finance charge is computed on the 

balance each day by application of one or more daily periodic rates, the balance on which 

the finance charge was computed may be disclosed in any of the following ways for each 

feature:

ii. If a single daily periodic 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

shall explain that the average daily balance is or can be multiplied by the number of days 

in the billing cycle and the periodic rate applied to the product to determine the amount of 

the finance charge.

iii. If two or more daily periodic 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 

rates imposed for the time that those rates were in effect, as long as the creditor explains

that the finance charge 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 
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cycle, by multiplying by the number of days the applicable rate was in effect), 

(2) multiplying each of the results by the applicable daily periodic rate, and (3) adding 

these products together.

6. Explanation of balance computation method. See the commentary to 

6(a)(1)(iii).

7. Information to compute balance. In connection with disclosing the finance 

charge balance, the creditor need not give the consumer all of the information necessary 

to compute the balance if that information is not otherwise required to be disclosed. For 

example, if current purchases are included from the date they are posted to the account, 

the posting date need not be disclosed.

8. Non-deduction of credits. The creditor need not specifically identify the total 

dollar amount of credits not deducted in computing the finance charge balance. 

Disclosure of the amount of credits not deducted is accomplished by listing the 

credits (§ 226.7(a)(3)) and indicating which credits will not be deducted in determining 

the balance (for example, “credits after the 15th of the month are not deducted in 

computing the finance charge.”).

9. 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 of the balance computation method is sufficient. 
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Sometimes the creditor separately discloses the portions of the balance that are subject to 

different rates because different portions of the balance fall within two or more balance 

ranges, even when a combined balance disclosure would be permitted under comment 

7(a)(5)-2. In these cases, one explanation of the balance computation method is also 

sufficient (assuming, of course, that all portions of the balance were computed using the 

same method).

7(a)(6) Amount of finance charge and other charges.

Paragraph 7(a)(6)(i).

1. Total. A total finance charge amount for the plan is not required.

2. Itemization—types of finance charges. Each type of finance charge (such as 

periodic rates, transaction charges, and minimum charges) imposed during the cycle must 

be separately itemized; for example, disclosure of only a combined finance charge 

attributable to both a minimum charge and transaction charges would not be permissible. 

Finance charges of the same type may be disclosed, however, individually or as a total. 

For example, five transaction charges of $1 may be listed separately or as $5.

3. Itemization—different periodic rates. Whether different periodic rates are 

applicable to different types of transactions or to different balance ranges, the creditor 

may give the finance charge attributable to each rate or may give a total finance charge 

amount. For example, if a creditor charges 1.5% per month on the first $500 of a balance 

and 1% per month on amounts over $500, the creditor may itemize the two components 

($7.50 and $1.00) of the $8.50 charge, or may disclose $8.50.
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4. Multifeatured plans. In a multifeatured plan, in disclosing the amount of the 

finance charge attributable to the application of periodic rates no total periodic rate 

disclosure for the entire plan need be given.

5. Finance charges not added to account. A finance charge that is not included in 

the new balance because it is payable to a third party (such as required life insurance) 

must still be shown on the periodic statement as a finance charge.

6. Finance charges other than periodic rates. See comment 6(a)(1)(iv)-1 for 

examples.

7. Accrued finance charges allocated from payments. Some plans provide that 

the amount of the finance charge that has accrued since the consumer’s last payment is 

directly deducted from each new payment, rather than being separately added to each 

statement and therefore reflected as an increase in the obligation. In such a plan, no 

disclosure is required of finance charges that have accrued since the last payment.

8. Start-up fees. Points, loan fees, and similar finance charges relating to the 

opening of the account that are paid prior to the issuance of the first periodic statement 

need not be disclosed on the periodic statement. If, however, these charges are financed 

as part of the plan, including charges that are paid out of the first advance, the charges 

must be disclosed as part of the finance charge on the first periodic statement. However, 

they need not be factored into the annual percentage rate. (See § 226.14(c)(3).)

Paragraph 7(a)(6)(ii).

1. Identification. In identifying any other charges actually imposed during the 

billing cycle, the type is adequately described as late charge or membership fee, for 

example. Similarly, closing costs or settlement costs, for example, may be used to 
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describe charges imposed in connection with real estate transactions that are excluded 

from the finance charge under § 226.4(c)(7), if the same term (such as closing costs) was 

used in the initial disclosures and if the creditor chose to itemize and individually disclose 

the costs included in that term. Even though the taxes and filing or notary fees excluded 

from the finance charge under § 226.4(e) are not required to be disclosed as other charges

under § 226.6(a)(2), these charges may be included in the amount shown as closing costs

or settlement costs on the periodic statement, if the charges were itemized and disclosed 

as part of the closing costs or settlement costs on the initial disclosure statement. (See 

comment 6(a)(2)-1 for examples of other charges.)

2. Date. The date of imposing or debiting other charges need not be disclosed.

3. Total. Disclosure of the total amount of other charges is optional.

4. Itemization—types of other charges. Each type of other charge (such as latepayment charges, over-the-credit-limit charges, and membership fees) imposed during 

the cycle must be separately itemized; for example, disclosure of only a total of other

charges attributable to both an over-the-credit-limit charge and a late-payment charge 

would not be permissible. Other charges of the same type may be disclosed, however, 

individually or as a total. For example, three fees of $3 for providing copies related to 

the resolution of a billing error could be listed separately or as $9.

7(a)(7) Annual percentage rate.

1. Plans subject to the requirements of § 226.5b. For home-equity plans subject 

to the requirements of § 226.5b, creditors are not required to disclose an effective annual 

percentage rate. Creditors that state an annualized rate in addition to the corresponding 
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annual percentage rate required by § 226.7(a)(4) must calculate that rate in accordance 

with § 226.14(c).

2. Labels. Creditors that choose to disclose an annual percentage rate calculated 

under § 226.14(c) and label the figure as “annual percentage rate” must label the periodic 

rate expressed as an annualized rate as the “corresponding APR,” “nominal APR,” or a 

similar phrase as provided in comment 7(a)(4)-4. Creditors also comply with the label 

requirement if the rate calculated under § 226.14(c) is described as the “effective APR”

or something similar. For those creditors, the periodic rate expressed as an annualized 

rate could be labeled “annual percentage rate,” consistent with the requirement under 

§ 226.7(b)(4). If the two rates represent different values, creditors must label the rates 

differently to meet the clear and conspicuous standard under § 226.5(a)(1). 

7(a)(8) Grace period.

1. Terminology. Although the creditor is required to indicate any time period the 

consumer may have to pay the balance outstanding without incurring additional finance 

charges, no specific wording is required, so long as the language used is consistent with 

that used on the account-opening disclosure statement. For example, “To avoid 

additional finance charges, pay the new balance before _______” would suffice.

7(a)(9) Address for notice of billing errors.

1. Terminology. The periodic statement should indicate the general purpose for 

the address for billing-error inquiries, although a detailed explanation or particular 

wording is not required.

2. Telephone number. A telephone number, e-mail address, or Web site location 

may be included, but the mailing address for billing-error inquiries, which is the required 
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disclosure, must be clear and conspicuous. The address is deemed to be clear and 

conspicuous if a precautionary instruction is included that telephoning or notifying the 

creditor by e-mail or Web site will not preserve the consumer’s billing rights, unless the 

creditor has agreed to treat billing error notices provided by electronic means as written 

notices, in which case the precautionary instruction is required only for telephoning.

7(a)(10) Closing date of billing cycle; new balance.

1. Credit balances. See comment 7(a)(1)-1.

2. Multifeatured plans. In a multifeatured plan, the new balance may be 

disclosed for each feature or for the plan as a whole. If separate new balances are 

disclosed, a total new balance is optional.

3. Accrued finance charges allocated from payments. Some plans provide that 

the amount of the finance charge that has accrued since the consumer’s last payment is 

directly deducted from each new payment, rather than being separately added to each 

statement and therefore reflected as an increase in the obligation. In such a plan, the new 

balance need not reflect finance charges accrued since the last payment.

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

1. Deferred interest 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 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. The following guidance does not apply to card 

issuers that are subject to 12 CFR § 227.24 or similar law which does not permit the 

assessment of deferred interest.
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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 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). At the creditor’s option, this amount may be separately disclosed on 

periodic statements provided it is 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.
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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. At the creditor’s option, this amount may be 

separately disclosed on periodic statements provided it is 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. Grace period. Assuming monthly billing cycles ending at month-end and a 

grace period ending on the 25th of the following month, the following are four examples 

illustrating how a creditor may comply with the requirement to disclose the grace period 

applicable to a deferred interest balance ($500 in this example) and with the 14-day rule 

for mailing or delivering periodic statements before imposing finance charges (see 

§ 226.5):

A. The creditor could include the $500 purchase on the periodic statement 

reflecting account activity for February and sent on March 1 and identify March 31 as the 
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payment-due date for the $500 purchase. (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. The creditor could include the $500 purchase on the periodic statement 

reflecting activity for March and sent on April 1 and identify April 25 as the payment-due 

date for the $500 purchase, permitting the consumer to avoid finance charges if the $500 

is paid in full by April 25.

C. The creditor could include the $500 purchase and its due date on each periodic 

statement sent during the deferred interest period (January, February, and March in this 

example).

D. If the due date for the deferred interest balance is March 7 (instead of March 

31), the creditor could include the $500 purchase and its due date on the periodic 

statement reflecting activity for January and sent on February 1, the most recent 

statement sent at least 14 days prior to the due date.

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 
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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 
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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 variable-rate 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 
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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 
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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.

7(b)(5) Balance on which finance charge computed.

1. Split rates applied to balance ranges. If split rates were applied to a balance 

because different portions of the balance fall within two or more balance ranges, the 

creditor need not separately disclose the portions of the balance subject to such different 

rates since the range of balances to which the rates apply has been separately disclosed. 

For example, a creditor could disclose a balance of $700 for purchases even though a 

monthly periodic rate of 1.5% applied to the first $500, and a monthly periodic rate of 1% 

to the remainder. This option to disclose a combined balance does not apply when the 

interest charge is computed by applying the split rates to each day’s balance (in contrast, 

for example, to applying the rates to the average daily balance). In that case, the balances 

must be disclosed using any of the options that are available if two or more daily rates are 

imposed. (See comment 7(b)(5)-4.)

2. Monthly rate on average daily balance. Creditors may apply a monthly 

periodic rate to an average daily balance.

3. Multifeatured plans. In a multifeatured plan, the creditor must disclose a 

separate balance (or balances, as applicable) to which a periodic rate was applied for each 

feature. Separate balances are not required, however, merely because a grace period is 
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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.
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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, 
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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.

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. 
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A. A creditor may disclose a calendar-year-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 calendar-year-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-to-date totals on quarterly statements. 

4. Minimum charge in lieu of interest. A minimum charge imposed if a charge 

would otherwise have been determined by applying a periodic rate to a balance except for 

the fact that such charge is smaller than the minimum must be disclosed as a fee. For 

example, assume a creditor imposes a minimum charge of $1.50 in lieu of interest if the 

calculated interest for a billing period is less than that minimum charge. If the interest 

calculated on a consumer’s account for a particular billing period is 50 cents, the 
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minimum charge of $1.50 would apply. In this case, the entire $1.50 would be disclosed 

as a fee; the periodic statement would reflect the $1.50 as a fee, and $0 in interest.

5. Adjustments to year-to-date totals. In some cases, a creditor may provide a 

statement for the current period reflecting that fees or interest charges imposed during a 

previous period were waived or reversed and credited to the account. Creditors may, but 

are not required to, reflect the adjustment in the year-to-date totals, nor, if an adjustment 

is made, to provide an explanation about the reason for the adjustment. Such adjustments 

should not affect the total fees or interest charges imposed for the current statement 

period.

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)(i) 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.

7(b)(9) Address for notice of billing errors.
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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 creditor may assess a late-payment fee if a payment is not 
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received by a certain date, creditors sometimes 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 creditor has the contractual right to impose the fee. 

Creditors 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 

paragraph 7(b)(11) of this section.

2. Laws affecting 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 latepayment 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. 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 required 

by state or other law to delay for a specified period imposing a late-payment fee when a 

payment is received after the specified period following the due date (March 21 in this 

example). Consumers’ rights under the 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), 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 creditor 

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 
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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. Creditors that impose a range of latepayment fees or rates on an open-end (not home-secured) 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 creditor may, but is not required to, delete the amount of the penalty 

rate and the warning that the rate may be imposed for an untimely payment, as not 

applicable. Alternatively, the creditor 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).

7(b)(12) Minimum payment.

1. Third parties. At their option, card issuers and the Federal Trade Commission 

(FTC) may use a third party to establish and maintain a toll-free telephone number for 

use by the issuer or the FTC to provide the generic repayment estimates or actual 

repayment disclosures, as applicable.

2. Automated response systems or devices. At their option, card issuers and the 

FTC 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 
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generic repayment estimates or actual repayment disclosures described in appendix M1 

or M2 to part 226, as applicable, by inputting information using a touch-tone telephone or 

similar device. However, consumers whose telephones are not equipped to use such 

automated devices must be provided the opportunity to be connected to an individual 

from whom the information may be obtained.

3. Toll-free telephone number. An issuer may provide a toll-free telephone 

number that is designed to handle customer service calls generally, so long as the option 

to select to receive the generic repayment estimate or actual repayment disclosure, as 

applicable, through that toll-free telephone number is prominently disclosed to the 

consumer. For automated systems, the option to select to receive the generic repayment 

estimate or actual repayment disclosure 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 an estimate of how long it will take you to repay your 

balance if you make only the minimum payment each month.” 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 the generic repayment estimate or actual repayment disclosure.

4. Web site address. When making the minimum payment disclosure on the 

periodic statement pursuant to § 226.7(b)(12)(ii) or (b)(12)(iii), an 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 generic repayment estimates or actual 

repayment disclosures, so long as the information provided on the Web site complies 

with § 226.7(b)(12), and appendix M1 or M2 to part 226 as applicable. The Web site link 
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disclosed must take consumers directly to the Web page where generic repayment 

estimates or actual repayment disclosures may be obtained.

5. Advertising or marketing information. If a consumer requests the generic 

repayment estimate or the actual repayment disclosure, as applicable, 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 or permitted by 

appendix M1 or M2 to part 226, as applicable. 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)-3, an issuer 

may provide a toll-free telephone number that is designed to handle customer service 

calls generally, so long as the option to select to receive the generic repayment estimate 

or actual repayment disclosure, as applicable, through that toll-free telephone number is 

prominently disclosed to the consumer. Once the consumer selects the option to receive 

the generic repayment estimate or the actual repayment disclosure, the 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 or permitted by appendix 

M1 or M2 to part 226, as applicable.

ii. Web page. If the issuer discloses a link to a Web site as part of the minimum 

payment disclosure pursuant to comment 7(b)(12)-4, the issuer may not provide 

advertisements or marketing materials (except for providing the name of the issuer) on 

the Web page accessed by the link, including pop-up marketing materials or banner 
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marketing materials, prior to providing the information required or permitted by appendix 

M1 or M2 to part 226, as applicable. 

7(b)(12)(ii)(A)(3) Small depository institution issuers.

1. Small depository institution issuers regulated by the Federal Trade 

Commission. Small depository institution issuers, as defined in § 226.7(b)(12)(ii)(A)(3), 

that are subject to the Federal Trade Commission’s authority to enforce the act and this 

regulation must comply with § 226.7(b)(12)(ii)(B), instead of § 226.7(b)(12)(ii)(A)(3).

7(b)(12)(v) Exemptions.

1. Exemption for credit card accounts with a fixed repayment period. The 

exemption in § 226.7(b)(12)(v)(E) applies only if the account agreement specifies a fixed 

repayment period for the entire account, such as requiring a minimum payment that will 

pay off the entire balance on the account in one year. This exemption would apply, for

example, to accounts that have been closed due to delinquency and where 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. This 

exemption would not apply where a feature of a credit card may have a fixed repayment 

period, but the account as a whole does not. For example, assume a retail credit card has 

several features. One feature is a general revolving feature, where the required minimum 

payment for this feature does not pay off the balance in a fixed period of time. Another 

feature allows consumers to make specific types of purchases (such as furniture 

purchases, or other large purchases), with a required minimum payment that will pay off 

the purchase within a fixed period of time, such as one year. This exemption would not 

apply because the retail card account as a whole does not have a fixed repayment period. 
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Nonetheless, these types of retail cards may qualify for the exemption in 

§ 226.7(b)(12)(v)(F).

2. Exemption for certain credit card accounts with fixed repayment period 

feature. The exemption in § 226.7(b)(12)(v)(F) applies if the entire outstanding balance 

for a particular billing cycle falls within a feature with a fixed repayment period that is 

specified in the account agreement, such as requiring a minimum payment that will pay 

off the entire balance on that feature in one year. For example, assume a retail card has 

several features. One feature is a general revolving feature, where the required minimum 

payment for this feature does not pay off the balance in a fixed period of time. Another 

feature allows consumers to make specific types of purchases (such as furniture 

purchases, or other large purchases), with a required minimum payment that will pay off 

the purchase within a fixed period of time, such as one year. This exemption applies if 

the entire outstanding balance for a particular billing cycle relates to the feature with the 

fixed repayment period. In that case, the issuer would not need to provide the minimum 

payment disclosures for that billing cycle. If the consumer used a general revolving 

feature during a billing period, this exemption would not apply.

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.

Section 226.8—Identifying Transactions on Periodic Statements
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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 three-party situation) or other appropriate identifying information relating the 
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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.
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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)(2)(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 
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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.
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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.

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. 

Section 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:
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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 long-form 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, payee-designated 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:
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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 account-opening 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.
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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.

1. Changes initially disclosed. 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, a rate increase that occurs when an employee has been under a 

preferential rate agreement and terminates employment, or an increase that occurs when 

the consumer has been under an agreement to maintain a certain balance in a savings 

account in order to keep a particular rate and the account balance falls below the 

specified minimum. The rules in § 226.5b(f) relating to home-equity plans limit the 

ability of a creditor to change the terms of such plans.

2. State law issues. Examples of issues not addressed by § 226.9(c) because they 

are controlled by state or other applicable law include:

i. The types of changes a creditor may make. (But see § 226.5b(f))

ii. How changed terms affect existing balances, such as when a periodic rate is 

changed and the consumer does not pay off the entire existing balance before the new 

rate takes effect.
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3. Change in billing cycle. Whenever the creditor changes the consumer’s billing 

cycle, it must give a change-in-terms notice if the change either affects any of the terms 

required to be disclosed under § 226.6(a) or increases the minimum payment, unless an 

exception under § 226.9(c)(1)(ii) applies; for example, the creditor must give advance 

notice if the creditor initially disclosed a 25-day grace period on purchases and the 

consumer will have fewer days during the billing cycle change.

9(c)(1)(i) Written notice required.

1. Affected consumers. Change-in-terms notices need only go to those 

consumers who may be affected by the change. For example, a change in the periodic 

rate for check overdraft credit need not be disclosed to consumers who do not have that 

feature on their accounts.

2. Timing—effective date of change. The rule that the notice of the change in 

terms be provided at least 15 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 15 days prior to the billing cycle in which the change is to be 

implemented.

3. Timing—advance notice not required. Advance notice of 15 days is not 

necessary—that is, a notice of change in terms is required, but it may be mailed or 

delivered as late as the effective date of the change—in two circumstances:

i. If there is an increased periodic rate or any other finance charge attributable to 

the consumer’s delinquency or default.
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ii. If the consumer agrees to the particular change. This provision is 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)(1)(i): The consumer’s general acceptance of 

the creditor’s contract reservation of the right to change terms; the consumer’s use of the

account (which might imply acceptance of its terms under state law); and the consumer’s 

acceptance of a unilateral term change that is not particular to that consumer, but rather is 

of general applicability to consumers with that type of account.

4. Form of change-in-terms notice. A complete new set of the initial disclosures 

containing the changed term complies with § 226.9(c)(1)(i) if the change is highlighted in 

some way on the disclosure statement, or if the disclosure statement is accompanied by a 

letter or some other insert that indicates or draws attention to the term change.

5. Security interest change—form of notice. A copy of the security agreement 

that describes the collateral securing the consumer’s account may be used as the notice, 

when the term change is the addition of a security interest or the addition or substitution 

of collateral.

6. Changes to home-equity plans entered into on or after November 7, 1989. 

Section 226.9(c)(1) applies when, by written agreement under § 226.5b(f)(3)(iii), a 

creditor changes the terms of a home-equity plan—entered into on or after November 7, 

1989—at or before its scheduled expiration, for example, by renewing a plan on terms 

different from those of the original plan. In disclosing the change:
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i. If the index is changed, the maximum annual percentage rate is increased (to 

the limited extent permitted by § 226.30), or a variable-rate feature is added to a fixedrate plan, the creditor must include the disclosures required by § 226.5b(d)(12)(x) and 

(d)(12)(xi), unless these disclosures are unchanged from those given earlier.

ii. If the minimum payment requirement is changed, the creditor must include the 

disclosures required by § 226.5b(d)(5)(iii) (and, in variable-rate plans, the disclosures 

required by § 226.5b(d)(12)(x) and (d)(12)(xi)) unless the disclosures given earlier 

contained representative examples covering the new minimum payment requirement. 

(See the commentary to § 226.5b(d)(5)(iii), (d)(12)(x) and (d)(12)(xi) for a discussion of 

representative examples.)

iii. When the terms are changed pursuant to a written agreement as described in 

§ 226.5b(f)(3)(iii), the advance-notice requirement does not apply.

9(c)(1)(ii) Notice not required.

1. Changes not requiring notice. The following are examples of changes that do 

not require a change-in-terms notice:

i. A change in the consumer’s credit limit.

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. (But see § 226.5b(f).)

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.
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2. Skip features. If a credit program allows consumers to skip or reduce one or 

more payments during the year, or involves temporary reductions in finance charges, no 

notice of the change in terms is required either prior to the reduction or upon resumption 

of the higher rates or payments if these features are explained on the initial disclosure 

statement (including an explanation of the terms upon resumption). For example, a 

merchant may allow consumers to skip the December payment to encourage holiday 

shopping, or a teachers’ credit union may not require payments during summer vacation. 

Otherwise, the creditor must give notice prior to resuming the original schedule or rate, 

even though no notice is required prior to the reduction. The change-in-terms notice may

be combined with the notice offering the reduction. For example, the periodic statement 

reflecting the reduction or skip feature may also be used to notify the consumer of the 

resumption of the original schedule or rate, either by stating explicitly when the higher 

payment or charges resume, or by indicating the duration of the skip option. Language 

such as “You may skip your October payment,” or “We will waive your finance charges 

for January,” may serve as the change-in-terms notice.

9(c)(1)(iii) Notice to restrict credit.

1. Written request for reinstatement. If a creditor requires the request for 

reinstatement of credit privileges to be in writing, the notice under § 226.9(c)(1)(iii) must 

state that fact.

2. Notice not required. A creditor need not provide a notice under this paragraph 

if, pursuant to the commentary to § 226.5b(f)(2), a creditor freezes a line or reduces a 

credit line rather than terminating a plan and accelerating the balance.

9(c)(2) Rules affecting open-end (not home-secured) plans. 
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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 a rate 

increases under a properly disclosed variable-rate plan. In contrast, notice must be given 

if the contract allows the creditor to increase the rate at its discretion. 

2. State law issues. Some issues are not addressed by § 226.9(c)(2) because they 

are controlled by state or other applicable law, such as 12 CFR § 227.24. These issues

include:

i. The types of changes a creditor may make.

ii. How changed terms affect existing balances, such as when a periodic rate is 

changed and the consumer does not pay off the entire existing balance before the new 

rate takes effect.

3. Change in billing cycle. Whenever the creditor changes the consumer’s billing 

cycle, it must give a change-in-terms notice if the change either affects any of the terms 

described in § 226.9(c)(2)(i), unless an exception under § 226.9(c)(2)(ii) or (c)(2)(iv)

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. 

9(c)(2)(i) Changes where written advance notice is required.

1. Affected consumers. Change-in-terms notices need only go to those 

consumers who may be affected by the change. For example, a change in the periodic 

rate for check overdraft credit need not be disclosed to consumers who do not have that 

feature on their accounts. If a single credit account involves multiple consumers that may 
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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 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); and the consumer’s acceptance of a 

unilateral term change that is not particular to that consumer, but rather is of general 

applicability to consumers with that type of account.

4. Form of change-in-terms notice. Except if § 226.9(c)(2)(iii) applies, a

complete new set of the initial disclosures containing the changed term complies with 
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§ 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 9(g)-1.ii for examples of how an issuer that is subject 

to 12 CFR § 227.24 or similar law may comply with the timing requirements for notices 

required by § 226.9(c)(2)(i).

9(c)(2)(ii) 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 
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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)(iii) Disclosure requirements.

9(c)(2)(iii)(A) Changes to terms in § 226.6(b)(1). 

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)(iii), 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 
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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 non-variable 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 
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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)(iii) with a notice described in 

§ 226.9(g)(3). If a creditor is required to provide a notice described in § 226.9(c)(2)(iii) 

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. See appendix G-10 to part 226 for 

format requirements.

8. Content. Sample G-20 contains an example of how to comply with the 

requirements in § 226.9(c)(2)(iii) when the following terms are being changed: (i) a 

variable rate is being changed to a non-variable rate; and (ii) the late payment fee is being 

increased in accordance with a formula that depends on the outstanding balance on the 

account. The sample explains when the new rate will apply to new transactions and to 

which balances the current rate will continue to apply.

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)(iii)(A)(1).

10. Terminology. See § 226.5(a)(2) for terminology requirements applicable to 

disclosures required under § 226.9(c)(2)(iii)(A)(1).

9(c)(2)(iv) Notice not required.

1. Changes not requiring notice. The following are examples of changes that do 

not require a change-in-terms notice:
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i. A change in the consumer’s credit limit except as otherwise required by

§ 226.9(c)(2)(v).

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. If a credit program allows consumers to skip or reduce one or 

more payments during the year, or involves temporary reductions in finance charges, no 

notice of the change in terms is required either prior to the reduction or upon resumption 

of the higher rates or payments if these features are explained on the 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 rate, even though no notice is required prior to the reduction. The change-in-terms 

notice may be combined with the notice offering the reduction. For example, the periodic 

statement reflecting the reduction or skip feature may also be used to notify the consumer 

of the resumption of the original schedule or rate, either by stating explicitly when the 

higher payment or charges resume or by indicating the duration of the skip option.

Language such as “You may skip your October payment,” or “We will waive your 

interest charges for January” may serve as the change-in-terms notice.
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3. Changing from a variable rate to a non-variable rate. If a creditor is changing 

a rate applicable to a consumer’s account from a variable rate to a non-variable rate, the 

creditor 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)(iii)(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 nonvariable rate is higher than the variable rate at the time of the change. (See comment 

9(c)(2)(iii)(A)-4.)

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, 
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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 
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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 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. 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. When notice is given under § 226.9(e)(2), a cardholder 

has 30 days from mailing or delivery to decide 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 
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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)(3) 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 balancecalculation 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. An example of a sufficient reference 

for creditors using the delayed notice method is: “Your annual fee of [$ amount] is billed 

on this statement. Please see [other side/inserts] for important information about the 

terms that apply to the renewal of your account and how to close your account to avoid 

paying the annual fee.” 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, 

using the advance-notice option under § 226.9(e)(1), 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 
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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.)
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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 Regulation Z, 12 CFR § 226.9(c) and (g), and 

Regulation AA, 12 CFR § 227.24 or similar law – examples. Issuers subject to 12 CFR 

§ 227.24 or similar law 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 those rules. The following examples illustrate the 

relationship between the notice requirements of § 226.9(c) and (g) and 12 CFR § 227.24

or similar law:

i. Assume that, at account opening on January 1 of year one, an issuer discloses, 

in accordance with the applicable notice requirements of § 226.6, that that the annual 

percentage rate for purchases is a non-variable rate of 15% and will apply for six months. 
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The 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 issuer’s control. 

Finally, the issuer discloses that the annual percentage rate for cash advances is the same 

variable rate that will apply to purchases after six months. 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. On January 15, 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 issuer adjusts the variable rate that applies to the $500 cash advance 

consistent with changes in the index, as permitted under 12 CFR § 227.24 or similar law. 

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 issuer on May

28. The issuer is prohibited by 12 CFR § 227.24 or similar law 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 issuer begins accruing interest 

on the $2,000 purchase at the previously-disclosed variable rate determined using an 8-

point margin as permitted by 12 CFR § 227.24 or similar law. Because no other 

increases in rate were disclosed at account opening, the issuer may not under 12 CFR 

§ 227.24 or similar law subsequently increase the variable rate that applies to the $2,000 

purchase and the $500 cash advance (except due to increases in the index). On 

November 16, the issuer provides a notice pursuant to § 226.9(c) informing the consumer 
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of a new variable rate that will apply on January 1 of year two (calculated by using the 

same index and an increased margin of 12 percentage points). On January 1 of year two, 

the issuer increases the margin used to determine the variable rate that applies to new 

purchases to 12 percentage points, as permitted by 12 CFR § 227.24 or similar law. On 

January 15 of year two, the consumer makes a $300 purchase. The issuer applies the 

variable rate determined using the 12-point margin to the $300 purchase but not the 

outstanding $2,000 balance for purchases. 

B. Same facts as above except that the required minimum periodic payment due 

on May 25 of year one is not received by the issuer until June 30 of year one. Because 

the issuer received the required minimum periodic payment more than 30 days after the 

payment due date, 12 CFR § 227.24 or similar law permits the 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 issuer must first comply with the 

notice requirements in § 226.9(g). Thus, if the issuer provided a notice pursuant to 

§ 226.9(g) on June 25 stating that all rates on the account would be increased to a nonvariable penalty rate of 30%, the issuer could apply that 30% rate beginning on August 9 

to all outstanding balances and future transactions.

ii. Assume that, at account opening on January 1 of year one, a issuer discloses in 

accordance with the applicable notice requirements of § 226.6 that 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 the following six months; and thereafter a variable 

rate that is currently 15% that will be adjusted monthly by adding a margin of 

5 percentage points to a publicly-available index not under the issuer’s control. The 
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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, the consumer uses the account to make a $1,500 

purchase. Six months after account opening (July 1), the issuer begins accruing interest 

on the $1,500 purchase at the previously-disclosed 10% non-variable rate (as permitted 

under 12 CFR § 227.24 or similar law). On September 15, the consumer uses the account 

to make a $700 purchase. On November 16, the issuer provides a notice pursuant to 

§ 226.9(c) disclosing a new variable rate that will apply on January 1 of year two 

(calculated by using the same index and an increased margin of 8 percentage points). 

One year after account opening (January 1 of year two), pursuant to 12 CFR § 227.24 or 

similar law the issuer begins accruing interest on the $2,200 purchase balance at the 

previously-disclosed variable rate determined using a 5-point margin. Because the 

variable rate determined using the 8-point margin was not disclosed at account opening, 

the issuer may not under 12 CFR § 227.24 or similar law apply that rate to the $2,200 

purchase balance. Furthermore, because no other increases in rate were disclosed at 

account opening, the issuer may not under 12 CFR § 227.24 or similar law subsequently 

increase the variable rate that applies to the $2,200 purchase balance (except due to 

increases in the index). The issuer may, however, under 12 CFR § 227.24 or similar law

apply the variable rate determined using the 8-point margin to purchases made on or after 

January 1 of year two.

iii. Assume that, at account opening on January 1 of year one, a issuer discloses 

in accordance with the applicable notice requirements in § 226.6 that the annual 

percentage rate for purchases is a variable rate determined by adding a margin of 6 
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percentage points to a publicly-available index outside of the issuer’s control. The issuer 

also discloses that 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 an outstanding purchase balance of $1,000. On May 31, the 

creditor provides a notice pursuant to § 226.9(c) informing the consumer of a new 

variable rate that will apply effective July 16 for all purchases made on or after June 8 

(calculated by using the same index and an increased margin of 8 percentage points). On 

June 7, the consumer makes a $500 purchase. On June 8, the consumer makes a $200 

purchase. On June 25, the 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 penalty rate of 

28% will apply as of August 9 to all transactions made on or after July 3 that includes the 

content required by § 226.9(g)(3)(i). On July 4, the consumer makes a $300 purchase.

A. The payment due on June 15 of year two is received on June 26. On July 16, 

12 CFR § 227.24 or similar law permits the issuer to apply the variable rate determined 

using the 8-point margin to the $200 purchase made on June 8 but does not permit the 

issuer to apply this rate to the $1,500 purchase balance. On August 9, 12 CFR § 227.24

or similar law permits the issuer to apply the 28% penalty rate to the $300 purchase made 

on July 4 but does not permit the 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. Same facts as above except the payment due on September 15 of year two is 

received on October 20. The issuer is permitted under 12 CFR § 227.24 or similar law to 

apply the 28% penalty rate to all balances on the account and to future transactions 
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because it has not received payment within 30 days after the due date. However, in order 

to apply the 28% penalty rate to the entire $2,000 purchase balance, the issuer must 

provide an additional notice pursuant to § 226.9(g). This notice must be sent no earlier 

than October 16, which is the first day the account became more than 30 days’ 

delinquent.

C. Same facts as paragraph A. above except the payment due on June 15 of year 

two is received on July 20. The issuer is permitted under 12 CFR § 227.24 or similar law 

to apply the 28% penalty rate to all balances on the account and to future transactions 

because it has not received payment within 30 days after the due date. Because the issuer

provided a notice pursuant to § 226.9(g) on June 24 disclosing the 28% penalty rate, the 

issuer may apply the 28% penalty rate to all balances on the account as well as any future 

transactions on August 9 without providing an additional notice pursuant to § 226.9(g).

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)(iii). If a creditor is required to provide notices pursuant to both 

§ 226.9(c)(2)(iii) 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. See appendix G-10 to part 226 for format 

requirements. 
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4. Content. Model Clause G-21 contains an example of how to comply with the 

requirements in § 226.9(g)(3)(i) when the rate on a consumer’s account is being increased 

to a penalty rate as described in § 226.9(g)(1)(ii).

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) Exceptions.

9(g)(4)(ii) Decrease in credit limit.

The following illustrates the requirements of § 226.9(g)(4)(ii). Assume that a 

creditor decreased the credit limit applicable to a consumer’s account and sent a notice 

pursuant to § 226.9(g)(4)(ii) 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 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).
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Section 226.10—Prompt Crediting of 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 
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payment immediately, but the consumer’s instruction is received after any 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 at a branch office, when it had specified 

that payment be sent to headquarters), 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.
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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. 

Section 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 periodic statement) that decrease or eliminate the credit balance.

Paragraph 11(a)(2).
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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).

Section 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. 
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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.
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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; 
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a credit feature may be added to a previously issued 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:
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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 
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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:
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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.
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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 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.
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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. Requesting 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.
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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.
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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 
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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)(1)-4.)

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.
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 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 then 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 

non-delivery 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.
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 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 
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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 
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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.

 Paragraph 12(c)(3)(ii).
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 1. Merchant honoring card. The exceptions (stated in § 226.13(c)(3)(ii)) to the 

amount and geographic limitations in § 226.13(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 
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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 initial 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.
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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.
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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.
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Section 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 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 openend credit plan is authorized is determined by state or other applicable law. See 

comments 12(b)(1)-1 and -2.

 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.
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 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-to-person 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.
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 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 
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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).
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 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)(1)-4, 12(b)(4)-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.
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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, 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 the reason why the billing error did not occur as 

asserted, or otherwise fails to comply with the error resolution procedures set forth in 

paragraph (f) of this section, 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 
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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.
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 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 business-day 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
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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
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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 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.
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 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.
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 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 
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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).
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 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.

 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 protection plan not 
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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.

Section 226.14—Determination of Annual Percentage Rate 

14(a) General rule.

1. Tolerance. The tolerance of 1⁄8th 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, and 226.26.

2. Rounding. The regulation does not require that the annual percentage rate be 

calculated to any particular number of decimal places; rounding is permissible within the 
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1⁄8th 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 
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§§ 226.5a, 226.5b, 226.6, 226.7(a)(4) or (b)(4), 226.9, 226.15, 226.16, and 226.26, 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 
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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 relate to activity in a prior cycle. Examples of circumstances when this 

may occur are:
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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)-10.ii.B.
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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 
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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 
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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) or (b)(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 
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comment 14(c)(3)-2 for guidance on an appropriate calculation method.

Section 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 promotional rate or payment under 

§ 226.16(d)(6) or a promotional rate under § 226.16(g). Other than the disclosure of 

certain terms described in §§ 226.16(d)(6) or (g), 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. 

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 
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size as the promotional rate to which it applies, the disclosures 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 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 visual text 

advertisements on television 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, 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 
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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.
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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)-2 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 
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with a description of a deferred billing or 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)(2), 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 homesecured) 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;
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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 
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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 
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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 
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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 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.
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iv. Plans other than variable-rate plans. For a plan other than a variable-rate 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 $1000 if the consumer made an additional $10,000 draw, the 

payment is not a promotional payment.

v. Conversion option. Some home-equity 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 preferred-rate 

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;
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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) and (b)(3). 

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 (h), 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. 
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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 
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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 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 multiple-page advertisement is considered one document 

for purposes of § 226.16(g)(4).
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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%).

* * * * *

Section 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.

* * * * *

Section 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. 
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For example, if the creditor gave Spanish-language account-opening disclosures, periodic 

statements and change-in-terms notices may be made in English.

* * * * *

Section 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 credit-card 

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.

* * * * *
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Section 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 
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be the corresponding annual percentage rate. (See generally § 226.6(a)(1)(ii) and 

(b)(4)(i)(A).)

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, 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)-(E), 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.
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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 
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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 openend 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 home-equity plans subject to the requirements of 

§ 226.5b, at the creditor’s option, a creditor either may use G-2 or G-2(A). For open-end 

plans not subject to the requirements of § 226.5b, creditors properly use G-2(A). 

3. Models G-3, G-3(A), 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 G3(A), and for creditors that use the short form, G-4 or G-4(A). For open-end (not home-
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secured) plans that not subject to the requirements of § 226.5b, creditors properly use G3(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 
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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 G10(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 home-secured) 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 homesecured) 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 
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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 

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 
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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), G17(C) and G-17(D) are designed to be printed on an 8 1⁄2 x 14 inch sheet of paper. A 

creditor may use a smaller sheet of paper, such as 8 1⁄2 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 
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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. 

7. Models G-13(A) and G-13(B). These model forms illustrate the disclosures 

required under § 226.9(f) when the card issuer changes the entity providing insurance on 
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a credit card account. Model G-13(A) contains the items set forth in § 226.9(f)(3) as 

examples of significant terms of coverage that may be affected by the change in 

insurance provider. The card issuer may either list all of these potential changes in 

coverage and place a check mark by the applicable changes, or list only the actual 

changes in coverage. Under either approach, the card issuer must either explain the 

changes or refer to an accompanying copy of the policy or group certificate for details of 

the new terms of coverage. Model G-13(A) also illustrates the permissible combination 

of the two notices required by § 226.9(f)—the notice required for a planned change in 

provider and the notice required once a change has occurred. This form may be modified 

for use in providing only the disclosures required before the change if the card issuer 

chooses to send two separate notices. Thus, for example, the references to the attached 

policy or certificate would not be required in a separate notice prior to a change in the 

insurance provider since the policy or certificate need not be provided at that time. 

Model G-13(B) illustrates the disclosures required under § 226.9(f)(2) when the 

insurance provider is changed.

8. Samples G-18(A)-(E). 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(E) to comply with these requirements, as 

applicable.

9. Samples G-18(D) and (E). Samples G-18(D) and G-18(E) illustrate how 

creditors 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.
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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 Samples G18(D) and G-18(E) that illustrate 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 
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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.

* * * * *
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By order of the Board of Governors of the Federal Reserve System, December __, 2008.

Jennifer J. Johnson

Secretary of the Board