26

transaction. However, these costs may be excluded from the finance charge and APR 

(for both open-end and closed-end credit transactions), if creditors disclose the cost and 

the fact that the coverage is not required to obtain credit, and the consumer signs or 

initials an affirmative written request for the insurance. Since 1996, the same rules have 

applied to creditors’ “debt cancellation” agreements, in which a creditor agrees to cancel 

the debt, or part of it, on the occurrence of specified events. 

Under the proposal, the existing rules for debt cancellation coverage would also 

be applied to “debt suspension” coverage (for both open-end credit and closed-end 

transactions). “Debt suspension” products are related to, but different from, debt 

cancellation. Debt suspension products merely defer consumers’ obligation to make the 

minimum payment for some period after the occurrence of a specified event. During the 

suspension period, interest may continue to accrue, or it may be suspended as well. 

Under the proposal, to exclude the cost of debt suspension coverage from the finance 

charge and APR, creditors must inform consumers that the coverage suspends, but does 

not cancel, the debt. 

Under the current rules, charges for credit insurance and debt cancellation 

coverage are deemed not to be finance charges if a consumer requests coverage after an 

open-end credit account is opened or after a closed-end credit transaction is consummated 

(the coverage is deemed not to be “written in connection” with the credit transaction). 

Because in such cases the charges are defined as non-finance charges, Regulation Z does 

not require a disclosure or written evidence of consent to exclude them from the finance 

charge. The proposed revisions to Regulation Z would implement a broader 

interpretation of “written in connection” with a credit transaction and require creditors to 

provide disclosures, and obtain evidence of consent, on sales of credit insurance or debt 

cancellation or suspension coverage during the life of an open-end account. If a 

consumer requests the coverage by telephone, creditors may provide the disclosures 

orally, but in that case they must mail written disclosures within three days of the call.5

VI. Section-by-section Analysis

In reviewing the rules affecting open-end credit, the Board has reorganized some 

provisions to make the regulation easier to use. Rules affecting home-equity lines of 

credit (HELOCs) subject to § 226.5b are separately delineated in § 226.6 (accountopening disclosures), § 226.7 (periodic statements), and § 226.9 (subsequent disclosures) 

Footnotes have been moved to the text of the regulation or commentary, as appropriate. 

These proposed revisions are identified in a table below. See IX. Redesignation Table. 

 

5

 The proposed revisions to Regulation Z requiring disclosures to be mailed within three days of a 

telephone request for these products are consistent with the rules of the federal banking agencies governing 

insured depository institutions’ sales of insurance and with guidance published by the Office of the 

Comptroller of the Currency (OCC) concerning national banks’ sales of debt cancellation and debt 

suspension products.
27

Introduction

The official staff commentary to Regulation Z begins with an Introduction. 

Comment I-6 discusses reference materials published at the end of each section of the 

commentary adopted in 1981. 46 FR 50,288; October 9, 1981. The references were 

intended as a compliance aid during the transition to the 1981 revisions to Regulation Z. 

The Board would delete these references and comment I-6, as obsolete. Comment I-3, 

I-4(b), and I-7, which address 1981 rules of transition, also would be deleted as obsolete. 

Section 226.1 Authority, Purpose, Coverage, Organization, Enforcement, and 

Liability

Section 226.1(c) generally outlines the persons and transactions covered by 

Regulation Z. Comment 1(c)-1 provides, in part, that the regulation applies to consumer 

credit extended to residents (including resident aliens) of a state. Technical revisions are 

proposed for clarity. Comment is requested if further guidance on the scope of coverage 

would be helpful. 

Section 226.1(d)(2), which summarizes the organization of the regulation’s openend credit rules (Subpart B), would be amended to reinsert text inadvertently deleted in a 

previous rulemaking. See 54 FR 24,670; June 9, 1989. Section 226.1(d)(4), which 

summarizes miscellaneous provisions in the regulation (Subpart D), would be updated to 

describe amendments made in 2001 to Subpart D relating to disclosures made in 

languages other than English. See 66 FR 17,339; March 30, 2001. The substance of 

Footnote 1 would be deleted as unnecessary. 

Section 226.2 Definitions and Rules of Construction

2(a) Definitions

2(a)(2) Advertisement

For clarity, the Board proposes technical revisions to the commentary to 

§ 226.2(a)(2), with no intended change in substance or meaning. No changes are 

proposed for the text of § 226.2(a)(2). 

2(a)(4) Billing Cycle

TILA Section 127(b) provides that, for an open-end credit plan, the creditor shall 

send the consumer a periodic statement for each billing cycle at the end of which there is 

an outstanding balance or with respect to which a finance charge is imposed. 15 U.S.C. 

1637(b). “Billing cycle” is not defined in the statute, but is defined in § 226.2(a)(4) of 

Regulation Z as “the interval between the days or dates of regular periodic statements.” 

In addition, § 226.2(a)(4) requires that billing cycles be equal and no longer than a 

quarter of a year, and allows a variance of up to four days from the regular day or date of 

the statement. Comment 2(a)(4)-3 provides an exception to the requirement for equal 

cycles: the “transitional billing cycle that can occur when the creditor occasionally 

changes its billing cycles so as to establish a new statement day or date.” Under the 
28

proposal, the Board would clarify that creditors may also vary the length of the first cycle 

on an open-end account in certain situations. 

Questions have sometimes arisen about the first cycle that occurs when a 

consumer opens an open-end credit account, and specifically, about whether the first 

cycle may vary by more than four days from the regular cycle interval without violating 

the equal-cycle requirement. For example, in order to establish the consumer’s account 

on the creditor’s billing system, the first cycle may need to be longer or shorter than a 

monthly period by more than four days, depending upon the date the account is opened. 

The Board believes that such a variance for a first cycle, within reason, would not harm 

consumers and would facilitate compliance. Comment 2(a)(4)-3 would be revised to 

clarify this point. 

2(a)(15) Credit Card

TILA defines “credit card” as “any card, plate, coupon book or other credit device 

existing for the purpose of obtaining money, property, labor, or services on credit.” 

TILA Section 103(k); 15 U.S.C. 1602(k). In addition, Regulation Z provides that a credit 

card is a “single credit device that may be usable from time to time to obtain credit.” 

See § 226.2(a)(15). The definition of “credit card” in the regulation would remain largely 

unchanged; however, the current reference to a “coupon book” in the definition would be 

deleted as obsolete. 

Checks that access credit card accounts. Credit card issuers sometimes provide 

cardholders with checks that access a credit card account, which can be used to obtain 

cash, purchase goods or services, or pay the outstanding balance on another account. 

These checks are often mailed to consumers unsolicited, sometimes with consumers’ 

monthly statements. When a consumer uses such a check, the amount of the check will 

be billed to the cardholder’s account. 

Historically, checks that access credit card accounts have not been treated as 

“credit cards” under TILA because each check can be used only once and not “from time 

to time.” See comment 2(a)(15)-1. As a result, TILA’s protections involving merchant 

disputes, unauthorized use of the account, and the prohibition against unsolicited 

issuance, which apply only to “credit cards,” do not apply to these checks. See § 226.12. 

However, other protections do apply to such checks. See § 226.13. In the December 

2004 ANPR, the Board solicited comment as to whether it should extend TILA’s 

protections for credit cards to other extensions on credit card accounts, in particular 

checks that access credit card accounts. Q45. The Board also asked whether the industry 

is developing open-end credit plans that would allow consumers to conduct transactions 

using only account numbers and that do not involve the issuance of physical devices 

traditionally considered to be credit cards. Q44. 

In response to the December 2004 ANPR, several consumer commenters urged 

the Board to expand the definition of “credit card” to include checks that access a credit 

card account, in particular to address the risk of increased fraud and heightened identity 

theft stemming from the unrestricted issuance of such checks. Specifically, these 
29

commenters cited concerns that these checks could be sent to a consumer at any time 

without the consumer’s request. Alternatively, some consumer commenters suggested 

that if these checks continued to be issued on an unsolicited basis, consumers should at 

least be able to opt out from receiving them. In addition, one consumer group 

commented that the Board could address non-physical credit cards by clarifying that the 

term “device” as it appears in the definition of “credit card” can include any physical 

object or a method or process. 

Industry commenters opposed expanding the definition of “credit card” to cover 

checks that access credit card accounts, for various reasons. In general, industry 

commenters stated that they were aware of few complaints regarding such checks, and 

that in their experience, most consumers find the checks useful and convenient, as 

demonstrated by their frequent use. In addressing unsolicited issuance concerns 

specifically, industry commenters noted that upon a consumer’s request, most issuers will 

discontinue sending checks that access a credit card account. 

Industry commenters also stated that it was unnecessary to extend the 

unauthorized use protections to convenience checks because convenience check 

transactions are generally subject to the Uniform Commercial Code (UCC) provisions 

governing checks, and thus a consumer generally would not have any liability for a 

forged check, provided the consumer complies with certain timing requirements. 

Industry commenters also opposed applying the merchant dispute provisions (in 

§ 226.12) to checks that access a credit card account, stating that these checks are not 

processed through the payment card associations’ networks. Because card issuers may 

have no connection to or relationship with merchants that accept these checks, industry 

commenters stated that issuers do not have the ability to charge back to that merchant 

transactions conducted with these checks. Accordingly, industry commenters believed 

that the consumer was in the best position to contact the merchant in the event of a 

dispute involving a transaction using one of these checks. 

In the proposal, the definition of “credit card” would remain unchanged. The 

Board believes it may be unnecessary to address unauthorized use concerns by treating 

checks that access credit card accounts as credit cards, to the extent existing law or 

agreements provide protections to these transactions. Moreover, under Regulation Z, a 

consumer is currently able to assert billing error claims for transactions involving checks 

that access a credit card account because the billing error provisions in § 226.13 apply to 

any extension of credit under an open-end plan, and are not limited to credit cards. The 

Board also does not believe that it is necessary to require issuers to provide consumers 

with the ability to opt out of receiving checks that access credit card accounts. The Board 

understands that in many instances, issuers will honor consumer requests to opt out of 

receiving such checks, and the Board encourages creditors to continue the practice. In 

addition, as noted above, consumers would be able to assert a billing error claim with 

respect to any unauthorized transactions involving such checks and is not liable for 

unauthorized transactions, as provided for under § 226.13. 
30

Plans in which no physical device is issued. The proposal does not address 

circumstances where a consumer may conduct a transaction on an open-end plan that 

does not have a physical device. The Board had solicited comment on such plans 

because it has received anecdotal information about limited cases in which consumers 

obtained credit by providing an account number (for example, to obtain food and services 

at a resort) and where a physical device was not issued to the consumer. Industry 

commenters stated that, in general, they were unaware of any plans to provide open-end 

accounts that did not involve the issuance of a card or other physical device. In 

particular, industry commenters noted that creditors will continue to issue physical 

devices because transactions where a card or other physical device is present are 

generally far more secure and less likely to involve fraud compared to those in which 

only the account number, along with other information, is used to verify the identity of 

the user. Moreover, industry commenters noted that consumers still need a tangible 

device bearing account information that they can easily carry with them. As a result, 

industry commenters generally believed that issuers would be unlikely to abandon the 

issuance of a physical card or device. 

The Board believes that it is not necessary at this time to address this issue, but it 

will continue to monitor developments in the marketplace. Of course, to the extent a 

creditor has issued a device that meets the definition of a “credit card” for an account, 

transactions on that account are subject to the provisions that apply to transactions 

involving the use of a “credit card,” even if the particular transaction itself is not 

conducted using the device (for example, in the case of phone or Internet transactions). 

Coupon books. As noted above, the definition of “credit card” under both TILA 

and Regulation Z includes a reference to a “coupon book.” Neither the statute nor the 

regulation provides any guidance on the types of devices that would constitute a “coupon 

book” so as to qualify as a “credit card” under the definition. Comment 2(a)(15)-1, as 

discussed above, states that checks and similar instruments that can be used only once to 

obtain a single credit extension are not “credit cards,” and, logically such instruments, 

even if issued in a separate booklet or in conjunction with a periodic statement, also 

would not be considered to be coupon books. Thus, as the Board is not aware of devices 

existing today that would qualify as a coupon book under the statute and regulation, the 

Board is proposing to delete the reference to such devices in the definition of “credit 

card” as obsolete. Comment is requested as to whether removal of the reference to 

“coupon book” in § 226.2(a)(15) would help clarify the definition of “credit card” 

without inadvertently limiting the availability of Regulation Z protections. 

Charge cards. Comment 2(a)(15)-3 discusses charge cards and identifies 

provisions in Regulation Z in which a charge card is distinguished from a credit card. As 

discussed in detail in the section-by-section analysis to § 226.7(b)(11) and 

§ 226.7(b)(12), the new late payment and minimum payment disclosure requirements 

contained in the Bankruptcy Act do not apply to charge card issuers. Thus, comment 

2(a)(15)-3 is updated to reflect those changes. 
31

2(a)(17) Creditor

For reasons explained in the section-by-section analysis to § 226.3, the Board is 

proposing to exempt from TILA coverage credit extended under employee-sponsored 

retirement plans. Comment 2(a)(17)(i)-8, which provides guidance on whether such a 

plan is a creditor for purposes of TILA, would be deleted. The guidance would no longer 

be necessary because loans granted under such plans would be exempt from TILA and, as 

such, the definition of “creditor” would not need to be clarified. 

In addition, the substance of footnote 3 would be moved to a new 

§ 226.2(a)(17)(v), and references revised, accordingly. The dates used to illustrate 

numerical tests for determining whether a creditor “regularly” extends consumer credit 

are updated in comments 2(a)(17)-3 through -6. 

2(a)(20) Open-end Credit

Under TILA Section 103(i), as implemented by § 226.2(a)(20) of Regulation Z, 

“open-end credit” is consumer credit extended by a creditor under a plan in which (1) the 

creditor reasonably contemplates repeated transactions, (2) the creditor may impose a 

finance charge from time to time on an outstanding unpaid balance, and (3) the amount of 

credit that may be extended to the consumer during the term of the plan, up to any limit 

set by the creditor, generally is made available to the extent that any outstanding balance 

is repaid. Comment 2(a)(20)-1 reiterates that consumer credit must meet all three of 

these criteria to be open-end credit. Comment 2(a)(20)-5 currently states, with respect to 

replenishment of the credit line, that a creditor need not establish a specific credit limit 

for the line of credit and that the line need not always be replenished to its original 

amount. 

“Spurious” open-end credit. The Board has received comments from time to time 

from state attorneys general and consumer groups voicing concern that the definition of 

open-end credit permits creditors to treat as open-end plans certain credit transactions that 

would be more properly characterized as closed-end credit. These commenters note that 

as a practical matter, such “spurious” open-end credit is unlikely to be used for repeated 

transactions and the credit line does not replenish to the extent that the consumer pays 

down his or her balance. Furthermore, these open-end plans may be established 

primarily to finance an infrequently purchased product or service, the credit limits for 

many of the creditor’s customers may be close to the cost of that product or service, and 

the creditor may have no reasonable grounds for expecting that there will be repeated 

transactions by many of its customers. When open-end disclosures are given for such 

products, the concern voiced by state attorneys general and consumer groups is that those 

disclosures fail to adequately disclose the period of time that it will take to repay the 

balance, the total of the payments that a consumer will be required to make (assuming in 

both cases that the consumer makes only the minimum required payments). 

In an effort to address these concerns, in 1997 the Board proposed adding two sets 

of factors to the commentary, one set that creditors should consider when determining 

whether they “reasonably contemplate repeated transactions,” and another set to provide 
32

guidance on whether a credit line is “reusable.”6 The Board received many comments 

from industry in response to this proposal, most of which criticized the factors on the 

grounds that they would result in excluding from the definition of “open-end credit” 

legitimate open-end credit products. In particular, commenters were concerned about the 

status of private label credit cards that offer an incentive to the consumer to make a large 

initial purchase. In response to these concerns, the two sets of factors were not adopted 

in the final commentary revisions. 

As discussed further in the section-by-section analysis to § 226.16, the Board 

proposes to address potential “spurious” open-end credit transactions through improved 

advertising disclosures. The Board believes this to be a more targeted and effective 

approach than revising the definition of open-end credit. One of the major problems with 

“spurious” open-end credit highlighted by commenters is that creditors advertise a low 

minimum monthly payment which can mislead consumers, who may not be aware of the 

total amount of payments they would be required to make, or the term over which they 

would be obligated to make those payments. As discussed below in the section-bysection analysis to § 226.16(b), the proposed rule would require a creditor that states a 

minimum monthly payment in an advertisement also to state the term that it will take to 

repay the debt at that minimum payment level, as well as the total amount of the 

payments. The proposed rule would require that disclosure of the term and total amount 

of payments be equally prominent to the advertisement of the minimum payment. The 

Board believes that disclosure of the term and total of payments in advertisements will 

help to improve consumer understanding about the cost of credit products for which a 

low monthly payment is advertised, addressing one of the major concerns regarding 

“spurious” open-end credit. 

“Open-end” plans comprised of closed-end features. The Board also is concerned 

that, under current guidance in the commentary, some credit products are treated as openend plans, with open-end disclosures given to consumers, when such products would 

more appropriately be treated as closed-end transactions. Closed-end disclosures are 

more appropriate than open-end disclosures when the credit being extended is individual 

loans that are individually approved and underwritten. The Board is particularly 

concerned about certain credit plans, where each individual credit transaction is 

separately evaluated. 

For example, under certain so-called multifeatured open-end plans, creditors may 

offer loans to be used for the purchase of an automobile. These automobile loan 

 

6

 The factors that were proposed regarding the “repeated transactions” portion of the definition were: 

(1) whether the product is something that consumers would most likely not purchase in multiples, (2) 

whether the line of credit is established for the purpose of purchasing a designated item, (3) the amount of 

the initial purchase relative to the credit limit, (4) the extent to which the creditor reasonably solicits 

customers to make additional purchases, and (5) whether the creditor has information on consumers with 

the credit line showing that they have made repeat purchases. The proposed revisions also would have 

provided that a line of credit generally is not self-replenishing if the initial line of credit is less than, or not 

much more than, the amount of the item purchased to open the credit line (or the minimum monthly 

payments are so low that the credit line is not reusable for an extended period of time). See 62 FR 64,769, 

December 9, 1997. 
33

transactions are approved and underwritten separately from other credit made available 

on the plan. (In addition, the consumer typically has no right to borrow additional 

amounts on the automobile loan “feature” as the loan is repaid.) If the consumer repays 

the entire automobile loan, he or she may have no right to take further advances on that 

“feature,” and must separately reapply if he or she wishes to obtain another automobile 

loan, or use that aspect of the plan for similar purchases. Typically, while the consumer 

may be able to obtain additional advances under the plan as a whole, the creditor 

separately evaluates each request. 

Currently, some creditors may be treating such plans as open-end credit, in light 

of several sections in the current commentary. Current comment 2(a)(20)-2 provides that 

if a program as a whole meets the definition of open-end credit, such a program may be 

considered a single multifeatured plan, notwithstanding the fact that certain features 

might be used infrequently. In addition, current comment 2(a)(20)-3 indicates that, for a 

multifeatured open-end plan, a creditor need not believe a consumer will reuse a 

particular feature of the plan. Also, current comment 2(a)(20)-5 indicates that a creditor 

may verify credit information such as a consumer’s continued income and employment 

status or information for security purposes. 

The Board believes that in certain circumstances treating such credit as open-end 

is inappropriate under Regulation Z, and accordingly proposes a number of revisions to 

§ 226.2(a)(20) and the accompanying commentary. Closed-end disclosures are more 

appropriate than open-end disclosures unless the consumer’s credit line generally 

replenishes to the extent that he or she repays outstanding balances so that the consumer 

may continue to borrow and take advances under the plan without having to obtain 

separate approval for each subsequent advance. Replenishment of the amount of credit 

available to a consumer in good standing without the need for separate underwriting or 

approval of each advance distinguishes open-end credit from a series of advances made 

pursuant to separate closed-end loan commitments, such as the automobile loan described 

above. For example, if a consumer makes two payments of $500 that reduce the 

outstanding principal balance on the line of credit, the consumer generally should be able 

to obtain an additional $1,000 of credit under the open-end plan without having a creditor 

separately underwriting or evaluating whether the consumer can borrow the $1,000. 

The Board proposes to revise comment 2(a)(20)-2 to clarify that while a 

consumer’s account may contain different sub-accounts, each with different minimum 

payment or other payment options, each sub-account must meet the self-replenishing 

criterion. In particular, proposed comment 2(a)(20)-2 would provide that repayments of 

an advance for any sub-account must generally replenish a single credit line for that subaccount so that the consumer may continue to borrow and take advances under the plan to 

the extent that he or she repays outstanding balances without having to obtain separate 

approval for each subsequent advance. 

Due to the concerns noted above regarding closed-end automobile loans being 

characterized as features of so-called open-end plans, the Board proposes to delete 

comment 2(a)(20)-3.ii.. While there may be circumstances under which it would be more 
34

reasonable for a financial institution to make advances from an open-end line of credit for 

the purchase of an automobile than for an automobile dealer to sell a car under an openend plan, the Board believes that the current example places inappropriate emphasis on 

the identity of the creditor rather than the type of credit being extended by that creditor. 

TILA Section 103(i) provides that a plan can be an open-end credit plan even if 

the creditor verifies credit information from time to time. 15 U.S.C. 1602(i). The Board 

believes this provision is not intended to permit a creditor to separately underwrite each 

advance made to a consumer under an open-end plan or account. Such a process could 

result in closed-end credit being deemed open-end credit. The Board proposes to clarify 

in comment 2(a)(20)-5 that in general, a credit line is self-replenishing if a consumer can 

obtain further advances or funds without being required to separately apply for those 

additional advances, and without undergoing a separate review by the creditor of that 

consumer’s credit information, in order to obtain approval for each such additional 

advance. 

Notwithstanding this proposed change, a creditor could verify credit information 

to ensure that the consumer’s creditworthiness has not deteriorated (and could revise the 

consumer’s credit limit or account terms accordingly). However, to perform such an 

inquiry for each specific credit request would go beyond verification and would more 

closely resemble underwriting of closed-end credit. The Board recognizes that a creditor 

may need to review, and as appropriate, decrease the amount of credit available to a 

consumer from time to time to address safety and soundness and other concerns. Such a 

review would not be affected by the proposed changes, as explained in proposed 

comment 2(a)(20)-5. 

These revisions are not intended to impact home-equity lines of credit (HELOCs), 

which may have a fixed draw period (during which time a consumer may continue to take 

advances to the extent that he or she repays the outstanding balance) followed by a 

repayment period where the consumer may no longer draw against the line, as closed-end 

credit. The Board seeks comment regarding the proposed rule’s impact on HELOCs. 

Comment 2(a)(20)-5.ii. currently notes that a creditor may reduce a credit limit or 

refuse to extend new credit due to changes in the economy, the creditor’s financial 

condition, or the consumer’s creditworthiness. The Board’s proposal would delete the 

reference to changes in the economy to simplify this provision. 

The Board also proposes a technical update to comment 2(a)(20)-4 to delete a 

reference to “china club plans,” which may no longer be very common. No substantive 

change is intended. 

2(a)(24) Residential Mortgage Transaction

Comment 2(a)(24)-1, which identifies key provisions affected by the term 

“residential mortgage transaction,” is revised to include a reference to § 226.32, 

correcting an inadvertent omission. 
35

Section 226.3 Exempt Transactions

Section 226.3 implements TILA Section 104 and provides exemptions for certain 

classes of transactions specified in the statute. 15 U.S.C. 1603. 

The Board proposes a number of substantive and technical revisions to § 226.3 as 

described below. The substance of footnote 4 is moved to the commentary. See

comment 3-1. 

3(a) Business, Commercial, Agricultural, or Organizational Credit

Section 226.3(a) provides, in part, that the regulation does not apply to extensions 

of credit primarily for business, commercial or agricultural purposes. The Board received 

no comments regarding this exemption in regard to the December 2004 ANPR. 

Questions have arisen from time to time, however, regarding whether transactions made 

for business purposes on a consumer purpose credit card are exempt from TILA. The 

Board seeks to provide clarification regarding this question. The determination as to 

whether a credit card account is primarily for consumer purposes or business purposes is 

best made when the account is opened, rather than on a transaction-by-transaction basis, 

and thus the Board is proposing to add a new comment 3(a)-2 to clarify that transactions 

made for business purposes on a consumer-purpose credit card are covered by TILA 

(and, conversely, that purchases made for consumer purposes on a business-purpose 

credit card are exempt from TILA). Other sections of the commentary regarding 

§ 226.3(a) would be renumbered accordingly. A new comment 3(a)-7 would provide 

guidance on card renewals, consistent with proposed comment 3(a)-2. 

3(b) Credit Over $25,000 Not Secured by Real Property or a Dwelling 

Section 226.3(b) exempts from Regulation Z extensions of credit not secured by 

real property or a dwelling, in which the amount financed exceeds $25,000 or in which 

there is an express written commitment to extend credit in excess of $25,000. The 

$25,000 threshold in § 226.3(b) is the same as the statutory threshold set in TILA Section 

104(3). 15 U.S.C. 1603(3). 

In the December 2004 ANPR, the Board solicited comment as to whether the 

rules implementing TILA Section 104 needed to be updated. Q58. The Board received 

several comments regarding the $25,000 threshold. One consumer group noted that the 

$25,000 figure is outdated due to inflation and should be increased. One bank noted that 

the threshold remains appropriate for unsecured credit but suggested that the Board might 

consider at a later stage of the Regulation Z review whether the $25,000 figure should be 

raised for secured credit, such as automobile loans. The Board agrees that the § 226.3(b) 

threshold would be more appropriately considered in connection with its planned review 

of the closed-end credit provisions of Regulation Z and is not proposing to take any 

action at the present time. In delaying consideration of the $25,000 threshold to the 

closed-end Regulation Z review, the Board expresses no view on whether the $25,000 

threshold is appropriate for open-end (not home-secured) credit. Rather, the Board 

proposes to review the threshold for all credit covered by TILA at the same time. 
36

3(c) Public Utility Credit

Section 226.3(c) exempts from Regulation Z extensions of credit involving public 

utility services provided through pipe, wire, other connected facilities, or radio or similar 

transmission, if the charges for service, delayed payment, or any discounts for prompt 

payment are filed with or regulated by any government unit. 15 U.S.C. 1603(4). 

The Board received no comments on the December 2004 ANPR regarding the 

applicability and scope of § 226.3(c). However, the Board has received inquiries from 

time to time regarding the applicability of Regulation Z to service plans for cellular 

telephones. In addition, in light of the deregulation in recent years by some states of 

utilities such as gas and electric services, the Board believes that it may be appropriate to 

reconsider the scope of the public utility credit exemption more generally. The Board 

also notes that due to technological advances, there may be additional types of services, 

such as certain Internet services, for which exemption from Regulation Z may be 

appropriate. The Board is not proposing to take any action at the present time, however, 

because these issues would be better considered in the context of the Board’s upcoming 

rulemaking regarding the closed-end credit provisions of Regulation Z. 

3(g) Employer-Sponsored Retirement Plans

The Board has received questions from time to time regarding the applicability of 

TILA to loans taken against employer-sponsored retirement plans. Pursuant to TILA 

Section 104(5), the Board has the authority to exempt transactions for which it 

determines that coverage is not necessary in order to carry out the purposes of TILA. 

15 U.S.C. 1603(5). The Board also has the authority pursuant to TILA Section 105(a) to 

provide adjustments and exceptions for any class of transactions, as in the judgment of 

the Board are necessary or proper to effectuate the purposes of TILA. 15 U.S.C. 1604(a). 

The Board proposes to add to the regulation a new § 226.3(g), which would exempt loans 

taken by employees against their employer-sponsored retirement plans qualified under 

Section 401(a) of the Internal Revenue Code and tax-sheltered annuities under Section 

403(b) of the Internal Revenue Code, provided that the extension of credit is comprised 

of fully-vested funds from such participant’s account and is made in compliance with the 

Internal Revenue Code. 26 U.S.C. 1 et seq.; 26 U.S.C. 401(a); 26 U.S.C. 403(b). 

The Board believes that an exemption for loans taken against funds invested in 

such types of employer-sponsored retirement plans is appropriate for the following 

reasons. The consumer’s interest and principal payments on such a loan are reinvested in 

the consumer’s own account, and there is no third-party creditor imposing finance 

charges on the consumer. Also, TILA disclosures would be of very limited, if any, value. 

The costs of a loan taken against assets invested in a 401(k) plan, for example, are not 

comparable to the costs of a third party loan product, because a consumer pays the 

interest on a 401(k) loan to himself or herself rather than to a third party. Moreover, plan 

administration fees must be disclosed under Department of Labor regulations. 

See 29 CFR part 2520.1023(1). 
37

Family Trusts

 The Board also has from time to time received inquiries regarding TILA coverage 

of family trusts created for estate planning purposes. Because most of these questions 

pertain to real-estate secured loans, the applicability of the exemptions in § 226.3 to these 

types of estate planning arrangements would be better considered in the context of the 

Board’s upcoming closed-end Regulation Z review. 

Section 226.4 Finance Charge

Various provisions of TILA and Regulation Z specify how and when the cost of 

consumer credit as a dollar amount, the “finance charge,” is to be disclosed. The rules 

for determining which charges make up the finance charge are set forth in TILA 

Section 106 and Regulation Z § 226.4. 15 U.S.C. 1605. Some rules apply only to openend credit and others apply only to closed-end credit, while some apply to both. With 

limited exceptions discussed below, the Board is not proposing to change § 226.4 for 

either closed-end credit or open-end credit. 

The Board is aware of longstanding criticisms that the definition of the “finance 

charge” in § 226.4, as interpreted in the regulation and the related commentary, is too 

narrow, too broad, or too vague. In a 1998 report to Congress, the Board discussed these 

concerns, and proposed solutions, in the context of closed-end mortgage loans.7

 In this 

proposal, the Board addresses concerns about the definition of the “finance charge” in the 

context of open-end (not home-secured) plans through changes to § 226.5, § 226.6, and 

§ 226.7 to simplify disclosure of charges on such plans. The Board is not proposing to 

address these concerns through changes to § 226.4, with limited exceptions. The Board 

proposes to revise § 226.4 and related commentary to address (1) transaction charges 

imposed by credit card issuers, such as charges for obtaining cash advances from ATMs 

and for making purchases in foreign currencies, and (2) charges for credit insurance, debt 

cancellation coverage, and debt suspension coverage. 

4(a) Definition

 Under the definition of “finance charge” in TILA Section 106 and Regulation Z 

§ 226.4(a), a charge specific to a credit transaction is ordinarily a finance charge. 

15 U.S.C. 1605. See also § 226.4(b)(2). However, also under Section 106 and 

§ 226.4(a), the finance charge does not include any charge of a type payable in a 

“comparable cash transaction.” Under the staff commentary to § 226.4(a), in determining 

whether a charge associated with a credit transaction is a finance charge, the creditor 

should compare the credit transaction in question with a “similar” cash transaction, if one 

exists. See comment 4(a)-1. The commentary states a general principle for applying this 

rule in the case of credit that finances the sale of property or services: the creditor should 

compare charges with those that would be payable if the services or property were 

purchased using cash rather than a loan. Thus, for example, if an escrow agent charges 

 

7

 Board of Governors of the Federal Reserve System and Department of Housing and Urban Development, 

Joint Report to the Congress Concerning Reform to the Truth in Lending Act and the Real Estate 

Settlement Procedures Act, July 1998. 
38

the same fee regardless of whether real estate is bought in cash or with a mortgage loan, 

then the agent’s fee is not a finance charge. 

In other cases, however, particularly in cases involving credit cards, determining 

which, if any, transaction is a “similar” or “comparable” cash transaction for purposes of 

§ 226.4(a) can be difficult. For example, when consumers became able to take cash 

advances on credit card accounts using ATMs, a question arose as to whether a fee 

charged by a card issuer for the transaction was a finance charge if the issuer charged the 

same fee for using a debit card to withdraw cash from an asset account. The Board 

solicited comment on this question in 1983 and adopted staff comment 4(a)-4 in 1984. 

48 FR 54,642; December 6, 1983 and 49 FR 40,560; October 17, 1984. That comment 

indicates that the fee is not a finance charge to the extent that it does not exceed the 

charge imposed by the card issuer on its cardholders for using the ATM to withdraw cash 

from a consumer asset account, such as a checking or savings account. Another comment 

indicates that the fee is an “other charge.” See current comment 6(b)-1(vi). Accordingly, 

the fee must be disclosed at account opening and on the periodic statement, but it is not 

labeled as a “finance charge” nor included in the effective APR. 

Since comment 4(a)-4 was adopted, questions have been raised about its scope 

and application. For example, the comment does not address whether it applies when an 

affiliate of the card issuer, but not the card issuer itself, issues a debit card. Even in the 

seemingly simple case where the credit card issuer itself issues a debit card, a variety of 

complexities arise. The issuer may assess an ATM fee for one kind of deposit account 

(for example, an account with a low minimum balance) but not for another. The 

comment does not indicate which account is the proper basis for comparison. 

Questions have also been raised about whether disclosure of the charge pursuant 

to comments 4(a)-4 and 6(b)-1.iv. is meaningful to consumers. Under the comment, the 

disclosure a consumer receives after incurring a fee for taking a cash advance through an 

ATM depends on the structure of the institution that issued the credit card. If the credit 

card issuer does not provide asset accounts and is not affiliated with an institution that 

does, then it must disclose the charge as a finance charge. If the credit card issuer 

provides asset accounts and offers debit cards on those accounts, then, depending on the 

circumstances, the issuer must not disclose the charge as a finance charge. It is not clear 

that the distinction is meaningful to consumers. 

Recently, a question has arisen about the proper disclosure of another kind of 

transaction fee imposed on credit cards. The question is whether fees that credit 

cardholders are assessed for making purchases in a foreign currency or outside the United 

States – for example, when the cardholder travels abroad – are finance charges. The 

question has arisen in litigation between consumers and major card issuers.8

 Some card 

issuers have argued by analogy to comment 4(a)-4 that a foreign transaction fee is not a 

finance charge if the fee does not exceed the issuer’s fee for using a debit card for the 

 

8

 See Third Consolidated Amended Class Action Complaint at 47-48, In re Currency Conversion Fee 

Antitrust Litigation, MDL Docket No. 1409 (S.D.N.Y.). The court approved a settlement on a preliminary 

basis on November 8, 2006.
39

same purchase. Some card issuers disclose the foreign transaction fee as a finance charge 

and include it in the effective APR, but others do not. 

The uncertainty about proper disclosure of charges for foreign transactions and 

for cash advances from ATMs reflects the inherent complexity of seeking to distinguish 

transactions that are “comparable cash transactions” to credit card transactions from 

transactions that are not. The Board believes that clearer guidance may result from a new 

and simpler approach that treats as a finance charge any fee charged by credit card issuers 

for transactions on their credit card plans. This guidance may be helpful to creditors in 

determining which charges must be included in the computation of the effective APR, if 

the Board retains the effective APR. See section-by-section analysis to § 226.7(b)(7). 

Such an approach would also provide more meaningful disclosures to consumers by 

assuring a consistent approach to the disclosure of transaction fees. 

The current approach of providing guidance on a case-by-case (fee-by-fee) basis, 

such as for ATM fees, has not provided sufficient certainty for many creditors about how 

to disclose transaction charges on credit cards. Moreover, to the extent creditors have 

adopted different disclosure practices in the face of regulatory uncertainty, consumers 

may have had difficulty understanding the disclosures, since, for example, one creditor 

might disclose an ATM fee as a finance charge while another creditor may disclose the 

fee as an “other” charge. Thus, while the Board could adopt guidance specific to fees as 

they arise, such as the Board did in 1984 for the ATM fee and could do for the foreign 

transaction fee, it is not clear that fee-by-fee guidance is sufficient to both facilitate 

compliance by credit card issuers and promote understanding by consumers. 

It is also not clear that an attempt to adopt general rules for distinguishing 

comparable transactions from non-comparable transactions, in the case of credit cards, 

would adequately facilitate compliance by credit card issuers and promote understanding 

by cardholders. One major difficulty in formulating such rules would be deciding 

whether to adopt the perspective of the card issuer or that of the cardholder. For 

example, a transaction on an asset account with a card issuer may be comparable to a 

credit card transaction from the perspective of the card issuer, but not from the 

perspective of a cardholder who does not have an asset account with the issuer. A rule 

based on the issuer’s perspective may confuse consumers; it may not be reasonable to 

expect a consumer to understand that one transaction fee is a finance charge and the other 

is not because one card issuer issues a debit card and the other does not. Yet a rule based 

on the cardholder’s perspective may not be practicable for the issuer to implement; the 

issuer may not be able to determine whether a particular consumer has an asset account 

with another institution and, if so, the amount of the fee charged on the account. As 

explained above in the context of the fee for cash advances from ATMs, even when a rule 

is based on the card issuer’s perspective, the card issuer may have difficulty determining 

which asset account, precisely, is the relevant basis for comparison. The difficulty of 

determining which perspective to adopt increases in a case such as a fee for a purchase 

conducted in a foreign currency. From the perspective of the consumer, the debit card is 

not the only alternative to the credit card; the consumer may also pay in cash. 
40

Thus, having considered alternative approaches, the Board is proposing to adopt a 

simple interpretive rule that any transaction fee on a credit card plan is a finance charge, 

regardless of whether the issuer in its capacity as a depository institution imposes the 

same or lesser charge on withdrawals of funds from an asset account such as a checking 

or savings account. This proposal would be implemented by removing staff comment 

4(a)-4 and replacing it with a new comment of the same number reflecting this rule. The 

comment would give as examples of such finance charges a fee imposed by the issuer for 

foreign transactions and a fee imposed by the issuer for taking a cash advance at an 

ATM.9

 Such guidance would be consistent with TILA Section 106, 15 U.S.C. 1605, 

which gives the Board discretion to determine whether a given credit transaction has a 

comparable cash transaction within the meaning of the statute. This guidance would also 

facilitate compliance and promote consumer understanding. See TILA Section 105(a), 

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

The Board seeks comment on whether this new approach would facilitate 

compliance and improve consumer understanding without causing unintended 

consequences. 

Comment 4(a)-1 provides examples of charges in comparable cash transactions 

that are not finance charges. Among the examples are 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 institution. The Board solicits comment 

on whether the example is still useful, or should be deleted as unnecessary or obsolete. 

4(b) Examples of Finance Charges

Charges for credit insurance or debt cancellation or suspension coverage. 

Premiums or other charges for credit life, accident, health, or loss-of-income insurance 

are finance charges if the insurance or coverage is “written in connection with” a credit 

transaction. 15 U.S.C. 1605(b); § 226.4(b)(7). Creditors may exclude from the finance 

charge premiums for credit insurance if they disclose the cost of the insurance and the 

fact that the insurance is not required to obtain credit. In addition, the statute requires 

creditors to obtain an affirmative written indication of the consumer’s desire to obtain the 

insurance, which, as implemented in § 226.4(d)(1)(iii), requires creditors to obtain the 

consumer’s initials or signature. 15 U.S.C. 1605(b). In 1996, the Board expanded the 

scope of the rule to include plans involving charges or premiums for debt cancellation 

coverage. See § 226.4(b)(10), § 226.4(d)(3). See also 61 FR 49,237; September 19, 

1996. Currently, however, insurance or coverage sold after consummation of a closedend credit transaction or after the opening of an open-end plan and upon a consumer’s 

request is considered not to be “written in connection with the credit transaction,” and, 

therefore, a charge for such insurance or coverage is not a finance charge. See comment 

4(b)(7) and (8)-2. 

The Board is proposing a number of revisions to these rules: 

 

9

 The proposed change to comment 4(a)-4 would not affect disclosure of ATM fees assessed by institutions 

other than the credit card issuer. See proposed § 226.6(b)(1)(ii)(A).
41

(1) The same rules that apply to debt cancellation coverage would be applied 

explicitly to debt suspension coverage. However, to exclude the cost of debt suspension 

coverage from the finance charge, creditors would be required to inform consumers, as 

applicable, that the obligation to pay loan principal and interest is only suspended, and 

that interest will continue to accrue during the period of suspension. These proposed 

revisions would apply to all open-end plans and closed-end credit transactions. 

(2) Creditors could exclude from the finance charge the cost of debt cancellation 

and suspension coverage for events beyond those permitted today, namely, life, accident, 

health, or loss-of-income. This proposed revision would also apply to all open-end plans 

and closed-end credit transactions. 

(3) The meaning of insurance or coverage “written in connection with” an openend plan would be expanded to cover sales made throughout the life of an open-end (not 

home-secured) plans. Under the proposal, for example, consumers solicited for the 

purchase of optional insurance or debt cancellation or suspension coverage for existing 

credit card accounts would receive disclosures about the cost and optional nature of the 

product at the time of the consumer’s request to purchase the insurance or coverage. 

Home-equity lines of credit (HELOCs) subject to § 226.5b and closed-end transactions 

would not be affected by this proposed revision. 

(4) For telephone sales, creditors offering open-end (not home-secured) plans 

would be provided with flexibility in evidencing consumers’ requests for optional 

insurance or debt cancellation or suspension coverage, consistent with rules published by 

federal banking agencies to implement Section 305 of the Gramm-Leach-Bliley Act 

regarding the sale of insurance products by depository institutions and guidance 

published by the Office of the Comptroller of the Currency (OCC) regarding the sale of 

debt cancellation and suspension products. See 12 CFR part 208.81 et seq. regarding 

insurance sales; 12 CFR part 37 regarding debt cancellation and debt suspension 

products. For telephone sales, creditors could provide disclosures orally, and consumers 

could request the insurance or coverage orally, if the creditor maintains evidence of 

compliance with the requirements, and mails written information within 3 days after the 

sale. HELOCs subject to § 226.5b and closed-end transactions would not be affected by 

this proposed revision. 

All of these products serve similar functions but some are considered insurance 

under state law and others are not. Taken together, the proposed revisions would provide 

consistency in how creditors deliver, and consumers receive, information about the cost 

and optional nature of similar products. 

4(b)(7) and (8) Insurance Written in Connection with Credit Transaction

Premiums or other charges for insurance for credit life, accident, health, or 

loss-of-income, loss of or damage to property or against liability arising out of the 

ownership or use of property are finance charges if the insurance or coverage is written in 

connection with a credit transaction. 15 U.S.C. 1605(b) and (c); § 226.4(b)(7) and (8). 

Comment 4(b)(7) and (8)-2 provides that insurance is not written in connection with a 
42

credit transaction if the insurance is sold after consummation on a closed-end transaction 

or after an open-end plan is opened and the consumer requests the insurance. The Board 

believes this approach remains sound for closed-end transactions, which typically consist 

of a single transaction with a single advance of funds. Consumers with open-end plans, 

however, retain the ability to obtain advances of funds long after account opening, so 

long as they pay down the principal balance. That is, a consumer can engage in credit 

transactions throughout the life of a plan. 

Accordingly, under proposed revisions to comment 4(b)(7) and (8)-2, insurance 

purchased after an open-end (not home-secured) plan was opened would be considered to 

be written “in connection with a credit transaction.” Proposed new comment 4(b)(10)-2 

would give the same treatment to purchases of debt cancellation or suspension coverage. 

As proposed, therefore, purchases of voluntary insurance or coverage after account 

opening would trigger disclosure and consent requirements. For purchases by telephone, 

creditors would be permitted to provide disclosures and obtain consent orally, so long as 

they meet requirements intended to ensure the purchase is voluntary. See proposed 

§ 226.4(d)(4). 

4(b)(9) Discounts 

Comment 4(b)(9)-2, which addresses cash discounts to induce consumers to use 

cash or other payment means instead of credit cards or open-end plans is revised for 

clarity. No substantive change is intended. 

4(b)(10) Debt Cancellation and Debt Suspension Fees

As discussed above, premiums or other charges for credit life, accident, health, or 

loss-of-income insurance are finance charges if the insurance or coverage is written in 

connection with a credit transaction. In 1996, the Board amended § 226.4 to make clear 

that the term “finance charge” includes charges or premiums paid for debt cancellation 

coverage. See § 226.4(b)(10). Although debt cancellation fees meet the definition of 

“finance charge,” they may be excluded from the finance charge on the same conditions 

as credit insurance premiums. See § 226.4(d)(3). 

Recent years have seen two developments in the market for coverage of this type. 

First, creditors have been selling a related, but different, product called debt suspension. 

Debt suspension is essentially the creditor’s agreement to suspend, on the occurrence of a 

specified event, the consumer’s obligation to make the minimum payment(s) that would 

otherwise be due. During the suspension period, interest may continue to accrue or it 

may be suspended as well, depending on the plan. The borrower may be prohibited from 

using the credit plan during the suspension period. In a second development, creditors 

have been selling debt suspension coverage for events other than loss of life, health, or 

income, such as a wedding, a divorce, the birth of child, a medical emergency, and 

military deployment. 

The Board is proposing to revise § 226.4(b)(10) to make it explicit that charges 

for debt suspension coverage are finance charges. In the proposed commentary, debt 

suspension coverage would be defined as coverage that suspends the consumer’s 
43

obligation to make one or more payments on the date(s) otherwise required by the credit 

agreement, when a specified event occurs. The commentary would clarify that the term 

debt suspension coverage as used in § 226.4(b)(10) does not include “skip payment” 

arrangements in which the triggering event is the borrower’s unilateral election to defer 

repayment, or the bank’s unilateral decision to allow a deferral of payment. (A skip 

payment fee, although a finance charge, would not be factored into the effective APR 

under the proposal. See proposed § 226.14(e).) These revisions would apply to closedend as well as open-end credit transactions. It appears appropriate to consider charges for 

debt suspension products to be finance charges, because these products operate in a 

similar manner to debt cancellation, and re-allocate the risk of non-payment between the 

borrower and the creditor. The conditions under which debt cancellation and debt 

suspension charges may be excluded from the finance charge are discussed under 

§ 226.4(d)(3), below. 

4(c) Charges Excluded from the Finance Charge

4(c)(1)

Section 226.4(c)(1) excludes from the finance charge application fees charged to 

all applicants for credit, whether or not credit is actually extended. Application fees are 

charged for both closed-end and open-end credit transactions, and represent an additional 

cost to consumers who obtain credit. Because application fees are more prevalent for 

home-secured credit, the Board will consider whether to revise § 226.4(c)(1) in its 

upcoming review of rules for home-secured credit. 

As discussed below in the section-by-section analysis to § 226.6, the Board 

proposes to require for open-end (not home-secured) plans, the disclosure of charges 

imposed as part of the plan, which include fees that must be paid to receive access to the 

plan, without regard to whether the fees are or are not finance charges. Application fees 

charged to all applicants for credit, whether or not credit is actually extended, would be 

considered charges imposed as part of the plan, and would be included in the 

account-summary table given at account opening. See proposed § 226.6(b)(1)(i). This 

would provide useful information to consumers about the total cost of obtaining credit. 

The fee, if financed, would also be included among the fees required to be grouped on 

periodic statements. See proposed § 226.7(b)(6). 

4(d) Insurance and Debt Cancellation Coverage

4(d)(3) Voluntary Debt Cancellation or Debt Suspension Fees

As explained under § 226.4(b)(10), debt cancellation fees and, as clarified in this 

proposal, debt suspension fees meet the definition of “finance charge.” Under current 

§ 226.4(d)(3), debt cancellation fees may be excluded from the finance charge on the 

same conditions as credit insurance premiums. These conditions are: the coverage is not 

required and this fact is disclosed in writing, and the consumer affirmatively indicates in 

writing a desire to obtain the coverage after written disclosure to the consumer of the 

cost. Debt cancellation coverage that may be excluded from the finance charge is limited 

to coverage that provides for cancellation of all or part of a debtor’s liability (1) in case of 

accident or loss of life, health, or income; or (2) for amounts exceeding the value of 
44

collateral securing the debt (commonly referred to as “gap” coverage, frequently sold in 

connection with motor vehicle loans). See current § 226.4(d)(3)(ii). 

To address the development of debt cancellation and debt suspension coverage 

discussed earlier, the OCC adopted, for national banks, substantive limitations and 

procedures for disclosure and affirmative election on the sale of such coverage. See

12 CFR part 37. Some states have also adopted regulations that address these products, 

or incorporate the OCC regulations under parity laws. 

The Board solicited comment in 2003 on whether and how to address disclosure 

of these kinds of coverage under TILA. 68 FR 68,793; December 10, 2003. About 

30 commenters responded, the vast majority of them creditors or vendors. Several 

creditors and vendors urged the Board to expressly permit creditors to exclude from the 

finance charge fees for products that cover any event to which a creditor and borrower 

agree, not just the events listed in the regulation, and fees for agreements that suspend, 

rather than cancel, debt repayment. Some commenters disagreed. A major consumer 

group urged the Board to include even voluntary credit insurance premiums and debt 

cancellation fees in the finance charge. The Board deferred a decision on these issues 

until this review. 

The December 2004 ANPR did not specifically seek comment again on these 

issues. Nonetheless, a coalition of companies that issue or administer debt cancellation 

and debt suspension agreements submitted two comments in response to the 

December 2004 ANPR reiterating the 2003 request by industry commenters that the 

Board modify § 226.4(d)(3) to cover any triggering event and explicitly recognize that 

debt suspension agreements are also covered by that provision. These companies also 

requested that the Board revise § 226.4(d)(3) to provide that the disclosures and 

consumer affirmative request required as conditions to excluding the fee from the finance 

charge may be provided orally. 

Debt cancellation coverage and debt suspension coverage are fundamentally 

similar to the extent they offer a consumer the ability to pay in advance for the right to 

reduce the consumer’s obligations under the plan on the occurrence of specified events 

that could impair the consumer’s ability to satisfy those obligations. The two types of 

coverage are, however, different in a key respect. One cancels debt, at least up to a 

certain agreed limit, while the other merely suspends the payment obligation while the 

debt remains constant or increases, depending on coverage terms. 

The Board proposes to revise § 226.4(d)(3) to expressly permit creditors to 

exclude charges for voluntary debt suspension coverage from the finance charge when, 

after receiving certain disclosures, the consumer affirmatively requests such a product. 

The Board also proposes to add a disclosure, to be provided as applicable, that the 

obligation to pay loan principal and interest is only suspended, and that interest will 

continue to accrue during the period of suspension. These revisions would apply to 

closed-end as well as open-end credit transactions. Model Clauses and Samples are 

proposed at Appendix G-16(A) and G-16(B) and H-17(A) and H-17(B). 
45

The same industry coalition has also requested that charges for debt cancellation 

or debt suspension coverage be excludable from the finance charge when the coverage 

applies to events other than the events covered by the product lines identified in current 

§ 226.4(d)(3)(ii), namely, accident or loss of life, health, or income. The identification of 

those events in § 226.4(d)(3)(ii) is based on TILA Section 106(b), which addresses credit 

insurance for accident or loss of life or health. 15 U.S.C. 1605(b). That statutory 

provision reflects the regulation of credit insurance by the states, which may limit the 

types of insurance that insurers may sell. Many states, however, do not restrict debt 

cancellation or debt suspension coverage to a select few events, and regulations of the 

OCC expressly permit national banks to sell debt cancellation and debt suspension 

coverage for any event. 

The Board proposes to continue to limit the exclusion permitted by § 226.4(d)(3) 

to charges for coverage for accident or loss of life, health, or income. The Board also 

proposes, however, to add comment 4(d)(3)-3 to clarify that, if debt cancellation or debt 

suspension coverage for two or more events is sold 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. This approach would recognize that debt cancellation and 

suspension coverage often are not limited by applicable law to the events allowed for 

insurance and it also would be consistent with the purpose of Section 106(b). 

15 U.S.C. 1605(b). 

The regulation provides guidance on how to disclose the cost of debt cancellation 

coverage. See proposed § 226.4(d)(3)(ii). The Board seeks comment on whether 

additional guidance is needed for debt suspension coverage, particularly for closed-end 

loans. 

For the reasons discussed below, § 226.4(d)(4) would be added to provide 

flexibility in telephone sales to obtain consumers’ requests for voluntary debt 

cancellation and debt suspension coverage on open-end (not home-secured) plans. 

In a technical revision, the substance of footnotes 5 and 6 would be moved to the 

text. 

4(d)(4) Telephone Purchases

As discussed above, TILA Section 106(b), 15 U.S.C. 1605(b), permits creditors to 

exclude from the finance charge premiums for credit insurance if, among other 

conditions, the creditor obtains a specific written indication of the consumer’s desire to 

obtain the insurance. This requirement is implemented in § 226.4(d)(1) by requiring 

written initials or a signature. The Board expanded in 1996 the types of products covered 

by the exclusion to include debt cancellation agreements, and now proposes to extend the 

exclusion to debt suspension products. As mentioned, an industry coalition has requested 

that the Board permit the disclosures and affirmative consumer request, which are 

conditions to this exclusion, to be provided orally. 
46

Congress has recognized the practice of telephone sales for the purchase of 

insurance products. 12 U.S.C. 1831x(c)(1)(E). Similarly, the OCC has issued telephone 

sales guidelines for national banks that sell debt cancellation and debt suspension 

coverage. 12 CFR part 37.6(c)(3), 37.7(b). Accordingly, the Board is proposing an 

exception to the requirement to obtain a written signature or initials for telephone 

purchases of credit insurance or debt cancellation and debt suspension coverage on an 

open-end (not home-secured) plan. Under new § 226.4(d)(4), for telephone purchases the 

creditor may make the disclosures orally and the consumer may affirmatively request the 

insurance or coverage orally, provided that the creditor (1) maintains reasonable 

procedures to provide the consumer with the oral disclosures and maintains evidence that 

demonstrates the consumer then affirmatively elected to purchase the insurance or 

coverage; and (2) mails the disclosures under § 226.4(d)(1) or § 226.4(d)(3) within three 

business days after the telephone purchase. Comment 4(d)(4)-1 would provide that a 

creditor does not satisfy the requirement to obtain an affirmative request if the creditor 

uses a script with leading questions or negative consent. 

Requiring a consumer’s written signature or initials is intended to evidence that 

the consumer is purchasing the product voluntarily; the proposal contains safeguards 

intended to insure that oral purchases are voluntary. Under the proposal, creditors must 

maintain tapes or other evidence that the consumer received required disclosures orally 

and affirmatively requested the product. Comment 4(d)(4)-1 indicates that a creditor 

does not satisfy the requirement to obtain an affirmative request if the creditor uses a 

script with leading questions or negative consent. In addition to oral disclosures, under 

the proposal consumers will receive written disclosures shortly after the transaction. The 

fee will also appear on the first monthly periodic statement after the purchase, and, as 

applicable, thereafter. Consumer testing conducted for the Board suggests that 

consumers review the transactions on their statements carefully. Moreover, the Board 

proposes to better highlight fees, including insurance and coverage fees, on statements. 

Consumers who are billed for insurance or coverage they did not purchase may dispute 

the charge as a billing error. These safeguards are expected to ensure that purchases of 

credit insurance or debt cancellation or suspension coverage by telephone are voluntary. 

The Board proposes this approach pursuant to its exception and exemption 

authorities under TILA Section 105. Section 105(a) authorizes the Board to make 

exceptions to TILA to effectuate the statute’s purposes, which include facilitating 

consumers’ ability to compare credit terms and helping consumers avoid the uniformed 

use of credit. 15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes the Board to exempt 

any class of transactions (with an exception not relevant here) from coverage under any 

part of TILA if the Board determines that coverage under that part does not provide a 

meaningful benefit to consumers in the form of useful information or protection. 

15 U.S.C. 1604(f)(1). Section 105(f) directs the Board to make this determination in light 

of specific factors. 15 U.S.C. 1604(f)(2). These factors are (1) the amount of the loan 

and whether the disclosure provides a benefit to consumers who are parties to the 

transaction involving a loan of such amount; (2) the extent to which the requirement 

complicates, hinders, or makes more expensive the credit process; (3) the status of the 

borrower, including any related financial arrangements of the borrower, the financial 
47

sophistication of the borrower relative to the type of transaction, and the importance to 

the borrower of the credit, related supporting property, and coverage under TILA; 

(4) whether the loan is secured by the principal residence of the borrower; and 

(5) whether the exemption would undermine the goal of consumer protection. 

The Board has considered each of these factors carefully, and based on that 

review, believes it is appropriate to exempt, for open-end (not home-secured) plans, 

telephone sales of credit insurance or debt cancellation or debt suspension plans from the 

requirement to obtain a written signature or initials from the consumer. As noted above, 

the consumer would continue to be protected by a variety of safeguards to assure that the 

purchase is voluntary, including a requirement that the creditor maintain tapes or other 

evidence of the transaction, the receipt of written disclosures shortly after the transaction, 

and inclusion of fees on periodic statements, for which consumers may dispute billing 

errors. At the same time, the proposal should facilitate the convenience to both 

consumers and creditors of conducting transactions by telephone. The proposal, 

therefore, has the potential to better inform consumers and further the goals of consumer 

protection and the informed use of credit for open-end (not home-secured) credit. The 

Board welcomes comment on this matter. 

Section 226.5 General Disclosure Requirements

Section 226.5 contains format and timing requirements for open-end credit 

disclosures. Under the current rules, a creditor must disclose a charge that is a “finance 

charge” or “other charge” before the account is opened, before the charge is added to the 

plan after account opening and before the charge is increased. These disclosures must be 

in writing. As discussed below, the proposal seeks to reform the rules governing 

disclosure of charges before they are imposed. Under the proposal: (1) all charges 

imposed as part of the plan would be disclosed before they are imposed; (2) specified 

charges would continue to be disclosed in writing at account opening, and before being 

increased or newly introduced; and (3) other charges imposed as part of the plan could be 

disclosed orally at any relevant time before the consumer becomes obligated to pay the 

charge. The proposed reform is intended to assure that all charges imposed as part of the 

plan are disclosed before they are imposed, simplify the rules for identifying such 

charges, and better match the timing and method of disclosure with reasonable industry 

practices and consumer expectations. The proposal responds to comments received on 

the December 2004 ANPR that criticize current rules (1) as unduly vague and 

inconsistent in identifying charges covered by TILA, and (2) as failing to recognize that 

some transactions on the plan between the consumer and the creditor are appropriately, or 

even necessarily, conducted by telephone. 

5(a) Form of Disclosures

The Board is proposing substantive changes to § 226.5(a) and the associated 

commentary regarding the standard to provide “clear and conspicuous” disclosures. In 

addition, creditors would be required to use consistent terminology in all open-end TILArequired disclosures. In technical revisions, the Board proposes to rearrange certain 

provisions in § 226.5(a) for clarity. 
48

5(a)(1) General

Clear and conspicuous standard. TILA Section 122(a) mandates that all TILArequired disclosures be made clearly and conspicuously. 15 U.S.C. 1632(a). The Board 

has implemented this requirement for open-end credit plans in § 226.5(a)(1). Under 

current comment 5(a)(1)-1, the Board has interpreted clear and conspicuous to mean that 

the disclosure must be in a reasonably understandable form. In most cases, this standard 

does not require that disclosures be segregated from other material or located in any 

particular place on the disclosure statement, nor that numerical amounts or percentages 

be in any particular type size. 

However, the Board has previously determined that certain disclosures in Subpart 

B of Regulation Z are subject to a higher standard in meeting the clear and conspicuous 

requirement due to the importance of the disclosures and the context in which they are 

given. Specifically, disclosures in credit and charge card applications and solicitations 

subject to § 226.5a must be both in a reasonably understandable form and readily 

noticeable to the consumer. See current comment 5a(a)(2)-1, which the Board is 

proposing to amend as discussed below. 

1. Readily noticeable standard. The Board is proposing to highlight certain 

information in a tabular format in the account-opening disclosures pursuant to 

§ 226.6(b)(4); on checks that access a credit card account pursuant to § 226.9(b)(3); in 

change-in-terms notices pursuant to § 226.9(c)(2)(iii)(B); and in disclosures when a rate 

is increased due to delinquency, default or as a penalty pursuant to § 226.9(g)(3)(ii). As 

discussed in further detail in the section-by-section analysis to §§ 226.6(b), 226.9(b), 

226.9(c), and 226.9(g), consumer testing conducted for the Board suggests that 

highlighting important information in a tabular format helps consumers locate the 

information disclosed in these tables much more easily. Because these disclosures would 

be highlighted in a tabular format similar to the table required with respect to credit card 

applications and solicitations under § 226.5a, the Board is proposing that these 

disclosures also be in a reasonably understandable form and readily noticeable to the 

consumer. The Board is proposing to amend comment 5(a)(1)-1 accordingly. The Board 

also is proposing to move the guidance on the meaning of “reasonably understandable 

form” to comment 5(a)(1)-2. Current comment 5(a)(1)-2, which provides guidance on 

what constitutes an “integrated document,” is moved to comment 5(a)(1)-4. 

The Board also proposes to add comment 5(a)(1)-3 to provide guidance on the 

meaning of the readily noticeable standard. Specifically, new comment 5(a)(1)-3 

provides that to meet the readily noticeable standard, disclosures for credit card 

applications and solicitations under § 226.5a, highlighted account-opening disclosures 

under § 226.6(b)(4), highlighted 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 as a 

penalty under § 226.9(g)(3)(ii) must be given in a minimum of 10-point font. The Board 

believes that with respect to these disclosures, special formatting requirements, such as a 

tabular format and font size requirements, are needed to highlight for consumers the 

importance and significance of the disclosures. The Board notes that this approach of 
49

requiring a minimum of 10-point font for certain disclosures is consistent with the 

approach taken recently by eight federal agencies (including the Board) in issuing a 

proposed model form that financial institutions may use to comply with the privacy 

notice requirements under Section 503 of the Gramm-Leach-Bliley Act. 15 U.S.C. 

6803(e); 72 FR 14,940; Mar. 29, 2007. In the privacy proposal, the eight federal agencies 

indicate that financial institutions that use the privacy model form must use an easily 

readable type font; easily readable type font includes a minimum of 10-point font and 

sufficient spacing between the lines of type. 

2. Disclosures subject to the clear and conspicuous standard. The Board has 

received questions on the types of communications that are subject to the clear and 

conspicuous standard. Thus, the Board proposes comment 5(a)(1)-5 to make clear that 

all required disclosures and other communications under Subpart B of Regulation Z are 

considered disclosures required to be clear and conspicuous. This would include, for 

example, the disclosure by a person other than the creditor of a finance charge imposed at 

the time of honoring a consumer’s credit card under § 226.9(d) and the correction notice 

required to be sent to the consumer under § 226.13(e). 

Oral disclosure. In order to give guidance about the meaning of clear and 

conspicuous for oral disclosures, the Board proposes to amend the guidance on what 

constitutes a “reasonably understandable form,” in proposed comment 5(a)(1)-2. This 

amendment is based in part on the Federal Trade Commission’s (FTC) guidance on oral 

disclosure in its publication Complying with the Telemarketing Sales Rule (available at 

the FTC’s web site). Oral disclosures would be considered to be in a reasonably 

understandable form when they are given at a volume and speed sufficient for a consumer 

to hear and comprehend the disclosures. 

5(a)(1)(ii)

Section 226.5(a)(1)(ii) provides that in general, disclosures for open-end plans 

must be provided in writing and in a retainable form. 

Oral disclosures. The Board is proposing that certain charges may be disclosed 

after account opening. See proposed § 226.5(b)(1)(ii). The goal of this proposal is to 

better ensure that consumers receive disclosures at relevant times; some charges may not 

be relevant to a consumer at account opening but may become relevant later. The Board 

is also proposing to permit creditors to make the form of disclosure more relevant to 

consumers. A written form of disclosure has obvious merit at account opening, when a 

consumer must assimilate a lot of information that may influence major decisions by the 

consumer about how, or even whether, to use the account. During the life of the account, 

in contrast, a consumer will sometimes need to decide whether to purchase a single 

service from the creditor, a service that may not be central to the consumer’s use of the 

account (for example, the service of providing documentary evidence of transactions). 

Moreover, during the life of the account, the consumer may become accustomed to 

purchasing such services by telephone. The consumer and the creditor may find it 

convenient to conduct the transaction by telephone, and will, accordingly, expect to 

receive a disclosure of the charge for the service during the same telephone call. For 
50

these reasons, the Board is proposing to permit creditors to disclose orally charges not 

specifically identified by the proposed regulation in § 226.6(b)(4) as critical to disclose in 

writing at account opening. Further, the Board proposes that creditors be provided with 

the same flexibility when the cost of such a charge changes or is newly introduced, as 

discussed in the section-by-section analysis to § 226.9(c). The proposal, set forth 

in§ 226.5(a)(1)(ii)(A), is intended to be consistent with consumers’ expectations and 

with the business practices of card issuers. 

Under the proposal, creditors may continue to comply with TILA by providing 

written disclosures at account-opening for all fees. In proposing to permit creditors to 

disclose certain costs orally for purposes of TILA, the Board anticipates that creditors 

will continue to identify fees in the account agreement for contract and other reasons, 

although the proposal would not require creditors to do so. For example, some creditors 

identify the types of fees that could be assessed on the account in the account agreement. 

The Board anticipates that such practices will continue. 

Creditors are permitted to provide in electronic form any TILA disclosure that is 

required to be provided or made available to consumers in writing if the consumer 

affirmatively consents to receipt of electronic disclosures in a prescribed manner. 

Electronic Signatures in Global and National Commerce Act (the E-Sign Act), 

15 U.S.C. 7001 et seq. The Board requests comment on whether there are circumstances 

in which creditors should be permitted to provide cost disclosures in electronic form to 

consumers who have not affirmatively consented to receive electronic disclosures for the 

account, such as when a consumer seeks to make a payment online, and the creditor 

imposes a fee for the service. 

In technical revisions, the Board proposes to move to proposed 

§ 226.5(a)(1)(ii)(A) the current exemption that disclosures required by § 226.9(d) need 

not be in writing. (This exemption currently is in footnote 7 under § 226.5(a)(1).) 

Section 226.9(d) requires disclosure when a finance charge is imposed by a person other 

than the card issuer at the time of a transaction. 

In another technical revision, the substance of footnote 8, regarding disclosures 

that do not need to be in a retainable form the consumer may keep, is moved to proposed 

§ 226.5(a)(1)(ii)(B). 

Electronic communication. In April 2007, the Board issued for public comment a 

proposal on electronic communication which would withdraw portions of the interim 

final rules issued in 2001 and to implement certain provisions of the Bankruptcy Act 

(“2007 Electronic Disclosure Proposal”). See 72 FR 21,141; April 30, 2007. Proposed 

§ 226.5(a)(1)(iii) and the proposal to delete current § 226.5(a)(5) is also proposed in the 

2007 Electronic Disclosure Proposal. The language in proposed § 226.5(a)(1)(iii) 

clarifies that creditors may provide open-end disclosures to consumers in electronic form, 

subject to compliance with the consumer consent and other applicable provisions of the 

E-Sign Act. 15 U.S.C. 1001, et seq. The language also provides that the open-end 

disclosures required by §§ 226.5a, 226.5b, and 226.16 may be provided to the consumer 
51

in electronic form, under the circumstances set forth in those sections, without regard to 

the consumer consent or other provisions in the E-Sign Act. 

5(a)(2) Terminology

Consistent terminology. Currently, disclosures given pursuant to §§ 226.5a(b), 

226.6, and 226.7 must use consistent terminology. See current § 226.5a(a)(2)(iv), 

comment 5a(a)(2)-6, and comment 6-1. The Board proposes to expand this requirement 

more generally in new § 226.5(a)(2)(i) to include other disclosures required by the 

open-end provisions of the regulation (Subpart B), such as subsequent disclosures under 

§ 226.9. A new comment 5(a)(2)-4 would clarify that terms do not need to be identical 

but must be close enough in meaning to enable the consumer to relate the disclosures to 

one another, which is consistent with current guidance in current comment 5a(a)(2)-6 and 

current comment 6-1. The Board believes that the use of consistent terminology should 

be applied to all open-end TILA-required disclosures to allow consumers to better 

identify the terms across all disclosures. 

As discussed above, the Board is proposing to highlight certain information in a 

tabular format in the account-opening disclosures pursuant to § 226.6(b)(4); on checks 

that access a credit card account pursuant to § 226.9(b)(3); in change-in-terms notices 

pursuant to § 226.9(c)(2)(iii)(B); and in disclosures when a rate is increased due to 

delinquency, default or as a penalty pursuant to § 226.9(g)(3)(ii). These disclosures are 

meant to be highlighted in a tabular format similar to the table currently required with 

respect to credit card applications and solicitations under § 226.5a. 

Currently, disclosures required for credit card applications and solicitation under 

§ 226.5a must use the term “grace period” to describe the date by which or the period 

within which any credit extended for purchases may be repaid without incurring a finance 

charge. The Board proposes in new § 226.5(a)(2)(iii) to extend this requirement to use 

the term “grace period” to all references to such a term for the disclosures required to be 

in the form of a table as discussed above. In addition, proposed § 226.5(a)(2)(iii) 

provides that if disclosures are required to be presented in a tabular format, the term 

“penalty APR” shall be used to describe an increased rate that may result because of the 

occurrence of one or more specific events specified in the account agreement, such as a 

late payment or an extension of credit that exceeds the credit limit. For example, 

creditors would be required to provide information about penalty rates in the table given 

with credit card applications and solicitations under § 226.5a; in the summary table given 

at account opening under § 226.6(b)(4); if the penalty rate is changing, in the summary 

table given on or with the change-in-terms notice under § 226.9(c)(2)(iii)(B), or if a 

penalty rate is triggered, in the table given under § 226.9(g)(3)(ii). 

Requiring card issuers to use a uniform term to describe the grace period and 

disallowing variants like “free-ride period” may improve consumers’ understanding of 

the concept. Similarly, requiring card issuers to use a uniform term to describe the 

increased rate may improve consumers’ understanding of the rate and when it applies. In 

the consumer testing conducted for the Board, many participants believed the term 

“Penalty APR” as opposed to “Default APR” or “Highest Possible APR” more clearly 
52

conveyed the increased rate. In testing the term “Default APR,” some participants said 

that the word “default” indicated to them that it would only apply when the account was 

closed due to delinquent payments. Some other participants said that the word “default” 

seemed like the “normal” rate, not something that occurs because a cardholder does 

something wrong. Some participants also were confused by the term “Highest Possible 

APR;” one participant, for example, assumed that this was the highest point to which 

variable rates could increase. 

Moreover, if credit insurance or debt cancellation or debt suspension coverage is 

required as part of the plan and information about that coverage is required to be 

disclosed in a tabular format, proposed § 226.5(a)(2)(iii) requires that in describing the 

coverage, the term “required” shall be used and the program shall be identified by its 

name. For example, creditors would be required to provide information about the 

required coverage in the table given with credit card applications and solicitations under 

§ 226.5a, in the summary table given at account opening under § 226.6(b)(4), and if 

certain information about the coverage is changing, in the summary table given in 

change-in-terms notice under § 226.9(c)(2)(iii)(B). In consumer testing conducted for the 

Board, the Board tested disclosing information about the required debt suspension 

coverage in the disclosure table given with a mock credit card solicitation. The Board 

found that describing the coverage by its name allowed participants to link disclosures 

that were provided in the table to other information about the coverage that was provided 

elsewhere in the solicitation materials given to the participants. 

Furthermore, the Board proposes in § 226.5(a)(2)(iii) that if required to be 

disclosed in a tabular format, APRs may be described as “fixed” or any similar term only 

if that rate will remain in effect unconditionally until the expiration of a specified time 

period. If no time period is specified, then the term “fixed” or any similar term may not 

be used unless the rate remains in effect unconditionally until the plan is closed. As 

further discussed in the section-by-section analysis to proposed § 226.16(g) below, the 

Board is proposing these rules in order to avoid consumer confusion and the uninformed 

use of credit. 

Terms required to be more conspicuous than others. TILA Section 122(a) 

requires that the terms “annual percentage rate” and “finance charge” be disclosed more 

conspicuously than other terms, data, or information. 15 U.S.C. 1632(a). The Board has 

implemented this provision in current § 226.5(a)(2)(iii) by requiring that the terms 

“finance charge” and “annual percentage rate,” when disclosed with a corresponding 

amount or percentage rate, be disclosed more conspicuously than any other required 

disclosure. Under current footnote 9, however, the terms do not need to be more 

conspicuous when used under §§ 226.5a, 226.7(d), 226.9(e), and 226.16. 

In September 2006, the United States Government Accountability Office (GAO) 

issued a report that analyzed current credit card disclosures and recommended 

improvements to these disclosures (GAO Report on Credit Card Rates and Fees).10 The 

 

10 United States Government Accountability Office, Credit Cards: Increased Complexity in Rates and 

Fees Heightens Need for More Effective Disclosures to Consumers, 06-929 (September 2006).
53

GAO criticized credit card disclosure documents that “unnecessarily emphasized specific 

terms.” GAO Report on Credit Card Rates and Fees, p. 43. As an illustration of this 

point, the GAO reprinted a paragraph of text from a creditor’s credit card disclosure 

documents where the phrase “periodic finance charge” was singled out for emphasis each 

time the phrase was used, even when such term was not disclosed with a corresponding 

amount or percentage rate. The usability consultant used by the GAO commented that 

this type of emphasis potentially required readers to work harder to understand the 

passage’s message. 

The Board agrees that overemphasis of these terms may make disclosures more 

difficult for consumers to read. In order to address this problem, the Board considered a 

proposal to prohibit the terms “finance charge” and “annual percentage rate” from being 

disclosed more conspicuously than other required disclosures except when the regulation 

so requires. However, this proposal could produce unintended consequences. For 

example, in a change-in-terms notice, the term “annual percentage rate” may appear as a 

heading, and thus be disclosed more conspicuously than other disclosures in the notice 

even though the term is not disclosed with a rate figure. It appears, therefore, that a rule 

prohibiting more conspicuous terms in certain cases would need to include detailed safe 

harbors or exceptions, which might make it unworkable. Therefore, the Board seeks 

comment on how to address this issue. 

Furthermore, the Board is proposing to amend the regulation to expand the list of 

disclosures where the terms “finance charge” and “annual percentage rate” need not be 

more conspicuous to include the account-opening disclosures that would be highlighted 

under proposed § 226.6(b)(4), the disclosure of the effective APR under proposed 

§ 226.7(b)(7), disclosures on checks that access a credit card account under proposed 

§ 226.9(b)(3), the information on change-in-terms notices that would be highlighted 

under proposed § 226.9(c)(2)(iii)(B), the disclosures given when a rate is increased due to 

delinquency, default or as a penalty under proposed § 226.9(g)(3)(ii). Currently, the 

requirement that the terms “finance charge” and “annual percentage rate” be more 

conspicuous than other disclosures does not apply to disclosures highlighted in the 

tabular format used for credit card application and solicitations under § 226.5a. All of the 

disclosures discussed above must be highlighted in a tabular format similar to the table 

required for credit card applications and solicitations under § 226.5a. The Board believes 

the rule should be consistent across these disclosures. Moreover, the Board believes that 

the tabular format sufficiently highlights the disclosures, so that the “more conspicuous” 

rule is not needed. Finally, for organizational purposes, the Board proposes to 

consolidate current § 226.5(a)(2) and current footnote 9 into § 226.5(a)(2)(ii). 

5(a)(3) Specific Formats

There are special rules regarding the specific format for disclosures under 

§ 226.5a for credit and charge card applications and solicitations and § 226.5b for homeequity plans, as noted in current § 226.5(a)(3) and current § 226.5(a)(4), respectively. 

These rules would be consolidated in proposed § 226.5(a)(3), for clarity. In addition, as 

discussed below, the Board is proposing that certain account-opening disclosures, 

periodic statement disclosures and subsequent disclosures, such as change-in-terms 
54

disclosures, must be provided in specific formats under proposed § 226.6(b)(4); 

§§ 226.7(b)(6), (b)(7) and (b)(13); and §§ 226.9(b), (c) and (g) and these special format 

rules are noted in proposed § 226.5(a)(3). 

5(b) Time of Disclosures

5(b)(1) Account-opening Disclosures

TILA Section 127(a) requires creditors to provide disclosures “before opening 

any account.” 15 U.S.C. 1637(a). Section 226.5(b)(1) requires these disclosures 

(identified in § 226.6) to be furnished “before the first transaction is made under the 

plan,” which is interpreted as “before the consumer becomes obligated on the plan.” 

Comment 5(b)(1)-1. Also under the existing commentary, creditors may provide the 

disclosures required by § 226.6 after the first transaction only in limited circumstances. 

This guidance would be moved from the commentary to the regulation. See proposed 

§ 226.5(b)(1)(iii)-(v). In addition, the Board is proposing revisions to the timing rules for 

disclosing certain costs imposed on an open-end (not home-secured) plan, and in 

connection with certain transactions conducted by telephone, as discussed below. 

Additional guidance is proposed on providing timely disclosures when the first 

transaction is a balance transfer. Technical revisions would change references from 

“initial” disclosures required by § 226.6 to “account-opening” disclosures, without any 

intended substantive change. In today’s marketplace, there are few open-end products for 

which consumers receive the disclosures required under § 226.6 as their “initial” Truth in 

Lending disclosure. See §§ 226.5a, 226.5b, which require creditors to provide 

disclosures before consumers apply for a credit or charge card, or for a HELOC. 

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

Section 226.5(b)(1)(i), as renumbered, would state the general timing rule for 

furnishing account-opening disclosures. Specifically, creditors generally must provide 

the account-opening disclosures before the first transaction is made under the plan. 

Balance transfers. Creditors commonly extend credit to consumers for the 

purpose of paying off consumers’ existing credit balances with other creditors. Requests 

for these “balance transfers” are often part of an offer to open a credit card account, and 

consumers may request transfers as part of the application for the new account. 

Comment 5(b)(1)(i)-5, as renumbered, provides that creditors must provide accountopening disclosures before the balance transfer occurs. 

The Board proposes to update this comment to reflect current business practices. 

Some creditors provide account-opening disclosures, including APRs, along with the 

balance transfer offer and account application, and these creditors would not be affected 

by the proposal. Other creditors offer balance transfers for which the APRs rate that may 

apply are disclosed as a range, depending on the consumer’s creditworthiness. 

Consumers who respond to such an offer and apply for the transfer later receive accountopening disclosures, including the APR that will apply to the transferred balance. The 

proposed change would clarify that the creditor must provide disclosures sufficiently in 

advance of the transfer to allow the consumer to respond to the terms that will apply to 
55

the transfer, including to contact the creditor before the balance is transferred and decline 

the transfer. 

Guidance in current comment 5(b)(1)-1 regarding account-opening disclosures 

provided with cash advance checks would be deleted as unnecessary. 

Assessing fees on an account as acceptance of the account. Comment 5(b)(1)(i)-

1(i), as renumbered, currently provides that if after receiving the account-opening 

disclosures, the consumer uses the account, pays a fee or negotiates a cash advance 

check, the creditor may consider the account not rejected. The comment would be 

amended to clarify that if the only activity on account is the creditors’ assessment of fees 

(such as start-up fees), the consumer is not considered to have accepted the account until 

the consumer is provided with a billing statement and makes a payment. The 

clarification addresses concerns about some subprime card accounts that assess a large 

number of fees at account opening. Consumers who have not made purchases or 

otherwise obtained credit on the account would have an opportunity to review their 

account-opening disclosures and decide whether to reject the account and decline to pay 

the fees. 

5(b)(1)(ii) Charges Imposed as Part of an Open-end (not Home-secured) Plan

Currently, charges imposed on an open-end plan that are a “finance charge” or an 

“other charge” must be disclosed before the first transaction. 15 U.S.C. 1637(a); current 

§ 226.5(b)(1) and § 226.6(a) and (b). When a new service (and associated charge) is 

introduced or an existing charge is increased, creditors must provide a change-in-terms 

notice to update account-opening disclosures for all accountholders if the new charge is a 

finance charge or an other charge. See current § 226.9(c). 

For the reasons discussed in the section-by-section analysis to § 226.6, the Board 

is proposing revisions to the rules identifying charges required to be disclosed under 

open-end (not home-secured) plans. The current rule requiring the disclosure of costs 

before the first transaction (in writing and in a retainable form) would continue to apply 

to specified costs. See proposed § 226.6(b)(4)(iii) for the charges, and § 226.9(c)(2) 

where such charges are changing or newly introduced. These costs are fees of which 

consumers should be aware before using the account such as annual or late payment fees, 

or fees that the creditor would not otherwise have an opportunity to disclose before the 

fee is triggered, such as a fee for using a cash advance check during the first billing cycle. 

The Board proposes to except charges imposed as part of an open-end (not homesecured) plan, other than those specified in proposed § 226.6(b)(4)(iii), from the 

requirement to disclose charges before the first transaction. Creditors would be 

permitted, at their option, to disclose those charges either before the first transaction or 

later, though before the cost is imposed. Examples of these charges would be fees to 

obtain documentary evidence or to expedite payments or delivery of a credit card. 

Creditors may, of course, continue to disclose any charge imposed as part of an open-end 

(not home-secured) plan at account opening (or when increased or newly introduced 

under § 226.9(c)(2)). 
56

The charges covered by the proposed exception are triggered by events or 

transactions that may take place months, or even years, into the life of the account, when 

the consumer may not reasonably be expected to recall the amount of the charge from the 

account-opening disclosure, nor readily to find or obtain a copy of the account-opening 

disclosure or most recent change-in-term notice. Requiring such charges to be disclosed 

before account opening may not provide a meaningful benefit to consumers in the form 

of useful information or protection. Consumers would benefit, however, from a rule that 

permits creditors to disclose charges when consumers reasonably expect to receive the 

disclosures, and, thus, are most likely to notice and use the disclosures. The proposal 

assures that consumers continue to receive disclosure of charges imposed as part of the 

plan before they become obligated to pay them. 

Examples of the charges to which the proposed exception would apply are fees to 

expedite payments or delivery of a card. Fees to expedite payments or card delivery are 

now excluded from TILA coverage. In a 2003 rulemaking concerning those two charges, 

the Board determined that neither was required to be disclosed under TILA. 

68 FR 16,185; April 3, 2003. In the supplementary information accompanying the final 

rule, the Board noted some commenters’ views that requiring a written disclosure of a 

charge for a service long before the consumer might consider purchasing the service did 

not provide the consumer material benefit. The Board also noted creditors’ practice of 

disclosing the charge when the service is requested, and encouraged them to continue that 

practice. The Board believes that flexible disclosure of such charges may better serve 

TILA’s purposes than the present exclusion of the charges from TILA’s coverage 

altogether. 

The Board also believes the proposed exception may facilitate compliance by 

creditors. As stated earlier, it can be challenging under the current rule to determine 

whether charges are a finance charge or an other charge or not covered by TILA, and thus 

whether advance notice is required if a charge is increased or newly introduced. The 

proposal reduces these uncertainties and risks. Under the proposal, the creditor could 

disclose a new or increased charge only to those consumers for whom it is relevant 

because they are considering at the time of disclosure whether to take the action that 

would trigger the charge. Moreover, the creditor would not have to determine whether a 

charge was a finance charge or other charge or not covered by TILA so long as the 

creditor disclosed the charge, orally or in writing, before the consumer became obligated 

to pay it, which creditors, in general, already do for business and other legal reasons. 

The proposal would allow flexibility in the timing of certain cost disclosures. In 

proposing to permit creditors to disclose certain charges—orally or in writing—before 

the fee is imposed, the Board would require creditors to disclose a charge at a time 

consumers would likely notice the charge when the consumer decides whether to take the 

action that would trigger the charge, such as purchasing a service. Proposed comment 

5(b)(1)(ii)-1 would provide an example that illustrates the standard. 

The limited exception to TILA’s requirement to disclose charges imposed as part 

of the plan before the first transaction is proposed pursuant to TILA Section 105(a). 
57

Specifically, the Board has authority under TILA Section 105(a) to adopt “such 

adjustments and exceptions for any class of transactions, as in the judgment of the Board 

are necessary or proper to effectuate the purposes of the title, to prevent circumvention or 

evasion thereof, or to facilitate compliance therewith.” 15 U.S.C. 1604(a). The class of 

transactions that would be affected is transactions on open-end plans not secured by a 

dwelling, though only with respect to certain charges. On the basis of the information 

currently available to the Board, a narrow adjustment and exception appears necessary 

and proper to effectuate TILA’s purpose to assure meaningful disclosure and informed 

credit use, and to facilitate compliance. 

5(b)(1)(iii) Telephone Purchases

Consumers who call a retailer to order goods by telephone commonly use an 

existing credit card account to finance the purchase. Some retailers, however, offer 

discounted purchase prices or promotional payment plans to consumer who finance the 

purchase by establishing a new open-end credit plan with the retailer. Under the current 

timing rule, retailers must provide TILA account-opening disclosures before the first 

transaction. This means retailers must delay the shipment of goods until a consumer has 

received the disclosures. Consumers who want goods shipped immediately may use 

another credit card to finance the purchase but they lose any discount or promotion that 

may be associated with opening a new plan. The Board proposes to provide additional 

flexibility to retailers and consumers for such transactions. 

Under proposed § 226.5(b)(1)(iii), retailers that establish an open-end plan in 

connection with a telephone purchase of goods or services initiated by the consumer may 

provide account-opening disclosures as soon as reasonably practicable after the first 

transaction if the retailer (1) permits consumers to return any goods financed under the 

plan at the time the plan is opened and provides the consumer sufficient time to reject the 

plan and return the items free of cost after receiving the written disclosures required by 

§ 226.6, and (2) informs the consumer about the return policy as a part of the offer to 

finance the purchase. Alternatively, the retailer may delay shipping the goods until after 

the account disclosures have been provided. 

Proposed commentary provisions would clarify that creditors may provide 

disclosures with the goods, or for creditors that have separate distribution systems for 

credit documents and for goods, by establishing procedures reasonably designed to have 

the disclosures sent within the same time period after the purchase as when the goods will 

be sent. A return policy would be of sufficient duration if the consumer is likely to 

receive the disclosures and have sufficient time to decide about the financing plan. A 

return policy would include returns via the United States Postal Service for goods 

delivered by private couriers. The commentary would also clarify that retailers’ policies 

regarding the return of merchandise need not provide a right to return goods if the 

consumer consumes or damages the goods. The proposal does not affect merchandise 

purchased after the plan was initially established, or purchased by other means such as a 

credit card issued by another creditor. See proposed comments 5(b)(1)(iii)-1. 
58

5(b)(2) Periodic Statements

TILA Sections 127(b) and 163 provide the timing requirements for providing 

periodic statements for open-end credit accounts. 15 U.S.C. 1637(b) and 15 U.S.C. 

1666b. The Board proposes to retain the existing regulation and commentary, with a few 

changes discussed below. 

5(b)(2)(i)

TILA Section 127(b) establishes that creditors generally must send periodic 

statements at the end of billing cycles in which there is an outstanding balance or a 

finance charge is imposed. Section 226.5(b)(2)(i) provides for a number of exceptions to 

a creditor’s duty to send periodic statements. 

De minimis amounts. Creditors need not send periodic statements if an account 

balance (debit or credit) is $1 or less (and no finance charge is imposed). In the 

December 2004 ANPR, the Board requested comment on whether the de minimis amount 

should be adjusted. Q53. Few commented on this issue; there was little support for an 

adjustment. One major credit card issuer stated that the cost to reprogram systems would 

exceed the benefit. Thus, the Board proposes to retain the $1 threshold. 

Uncollectible accounts. Creditors are not required to send periodic statements on 

accounts the creditor has deemed “uncollectible.” That term is not defined. The Board 

understands that creditors typically send statements on past-due accounts until the 

account is charged-off for purposes of loan-loss provisions, which is typically after 180 

days of nonpayment. The Board is not proposing regulatory or commentary provisions 

on when an account is deemed “uncollectible” but seeks comment on whether additional 

guidance would be helpful. 

Instituting collection proceedings. Creditors need not send statements if 

“delinquency collection proceedings have been instituted.” Over the years, the Board’s 

staff has been asked for guidance on what actions a creditor must take to be covered by 

the exception. The Board proposes to add comment 5(b)(2)(i)-3 to clarify that a 

collection proceeding entails a filing of a court action or other adjudicatory process with a 

third party, and not merely assigning the debt to a debt collector. 

Workout arrangements. Comment 5(b)(2)(i)-2 provides that creditors must 

continue to comply with all the rules for open-end credit, including sending a periodic 

statement, when credit privileges end, such as when a consumer stops taking draws and 

pays off the outstanding balance over time. Another comment provides that “if an openend credit account is converted to a closed-end transaction under a written agreement 

with the consumer, the creditor must provide a set of closed-end credit disclosures before 

consummation of the closed-end transaction.” See comment 17(b)-2. 

Over the years, the Board’s staff has received requests for guidance on the effect 

of certain work-out arrangements for past-due open-end accounts. For example, a 

borrower with a delinquent credit card account may agree by telephone to a workout plan 

to reduce or extinguish the debt and the conversation is later memorialized in a writing. 
59

The Board proposes to clarify that creditors entering into workout agreements for 

delinquent open-end plans without converting the debt to a closed-end transaction 

comply with the regulation if creditors continue to follow the regulations and procedures 

under Subpart B during the work-out period. The Board’s proposal is intended to provide 

flexibility and reduce burden and uncertainty. The Board seeks comment on whether 

further guidance would be helpful, such as by establishing a safe harbor for when an 

open-end plan is deemed to be satisfied and replaced by a new closed-end obligation. 

5(b)(2)(ii)

Credit card issuers commonly offer consumers a “grace period” or “free-ride 

period” during which consumers can avoid finance charges on purchases by paying the 

balance in full. TILA does not require creditors to provide a grace period, but if creditors 

provide one, TILA Section 163(a) requires them to send statements at least 14 days 

before the grace period ends. 15 U.S.C. 1666c(a). The rule is a “mailbox” rule; that is, 

the 14-day period runs from the date creditors mail their statements, not from the end of 

the statement period nor from the date consumers receive their statements. 

The Board is aware of anecdotal evidence of consumers receiving statements 

relatively close to the payment due date, with little time remaining before the payment 

must be mailed to meet the due date. This may be due to the fact that at the end of a 

billing cycle, it may take several days for a consumer to receive a statement. In addition, 

for consumers who mail their payments, they may need to mail their payments several 

days before the due date to ensure that the payment is receive by the creditor by the due 

date. Although the Board notes that using the Internet to make payments is increasingly 

common, the Board requests comment on (1) whether it should recommend to Congress 

that the 14-day period be increased to a longer time period, so that consumer will have 

additional time to receive their statements and mail their payments to ensure that 

payments will be received by the due date, and (2) if so, what time period the Board 

should recommend to Congress. 

5(b)(2)(iii)

In a technical revision, the substance of footnote 10 is moved to the regulatory 

text. 

5(c) through 5(e)

Sections 226.5(c), (d), and (e) address, respectively: the basis of disclosures and 

the use of estimates; multiple creditors and multiple consumers; and the effect of 

subsequent events. The Board does not propose any changes to these provisions, except 

that the Board proposes to add new comment 5(d)-3, referencing the statutory provisions 

pertaining to charge cards with plans that allow access to an open-end credit plan 

maintained by a person other than the charge card issuer. TILA 127(c)(4)(D); 15 U.S.C. 

1637(c)(4)(D. (See the section-by-section analysis to § 226.5a(f).) 
60

Section 226.5a Credit and Charge Card Applications and Solicitations

TILA Section 127(c), implemented by § 226.5a, requires card issuers to provide 

certain cost disclosures on or with an application or solicitation to open a credit or charge 

card account.11 15 U.S.C. 1637(c). The format and content requirements differ for cost 

disclosures in card applications or solicitations, depending on whether the applications or 

solicitations are given through direct mail, provided electronically, provided orally, or 

made available to the general public such as in “take-one” applications and in catalogs or 

magazines. Disclosures in applications and solicitations provided by direct mail or 

electronically must be presented in a table. For oral applications and solicitations, certain 

cost disclosures must be provided orally, except that issuers in some cases are allowed to 

provide the disclosures later in a written form. Applications and solicitations made 

available to the general public, such as in a take-one application, must contain one of the 

following: (1) the same disclosures as for direct mail presented in a table; (2) a narrative 

description of how finance charges and other charges are assessed, or (3) a statement that 

costs are involved, along with a toll-free telephone number to call for further information. 

The Board proposes a number of substantive and technical revisions to § 226.5a 

and the accompanying commentary, as described in more detail below. For example, the 

proposal contains a number of revisions to the format and content of application and 

solicitation disclosures, to make the disclosures more meaningful and easier to 

understand. Format changes would affect type size, placement of information within the 

table, use of cross-references to related information, and use of boldface type for certain 

key terms. Information concerning penalty APRs and the reasons they may be triggered 

would be more noticeable, and information would be added about how long penalty 

APRs may apply. The existing disclosures about how variable rates are determined 

would be shortened and simplified. Creditors that allocate payments to transferred 

balances that carry low rates would be required to disclose to consumers that they will 

pay interest on their (higher rate) purchases until (lower rate) transferred balances are 

paid in full. Creditors also would be required to include a reference to the Board’s web 

site where additional information about shopping for credit cards is available. 

To address concerns about subprime credit cards programs that have high fees 

with low credit limits, additional disclosures would be required if the fees or security 

deposits required to receive the card are 25 percent or more of the minimum credit limit 

that the consumer may receive. For example, the initial fees on an account with a $250 

credit limit may reduce the available credit to less than $100. 

Under the proposal, the disclosure of the balance computation method, which now 

appears in the table, would be required to be outside the table so that the table emphasizes 

information that is more useful to consumers when they are shopping for a card. 

With respect to take-one applications and solicitations, under the proposal, card 

issuers that provide cost disclosures in take-one applications and solicitations would be 

 

11 Charge cards are a type of credit card for which full payment is typically expected upon receipt of the 

billing statement. To ease discussion, this memorandum will refer simply to “credit cards.” 
61

required to provide the disclosures in the form of a table, and would no longer be allowed 

to meet the requirements of § 226.5a by providing a narrative description of accountopening disclosures. This proposed revision is consistent with other revisions contained 

in the proposal that would require certain account-opening information (such as 

information about key rates and fees) to be given in the form of a table. See section-bysection analysis to § 226.6(b)(4). 

5a(a) General Rules

Combining disclosures. Currently, comment 5a-2 states that account-opening 

disclosures required by § 226.6 do not substitute for the disclosures required by § 226.5a; 

however, a card issuer may establish procedures so that a single disclosure document 

meets the requirements of both sections. The Board proposes to retain this comment, but 

to revise it to account for proposed revisions to § 226.6. Specifically, the Board is 

proposing to require that certain information given at account opening must be disclosed 

in the form of a table. See proposed § 226.6(b)(4). The account-opening table would be 

substantially similar to the table required by § 226.5a, but the content required would not 

be identical. The account-opening table would require information that would not be 

required in the § 226.5a table, such as a reference to billing error rights. The Board 

proposes to revise comment 5a-2 to provide that a card issuer may satisfy § 226.5a by 

providing the account-opening summary table on or with a card application or 

solicitation, in lieu of the § 226.5a table. For various reasons, card issuers may want to 

provide the account-opening disclosures with the card application or solicitation. When 

issuers do so, this comment allows them to provide the account-opening summary table 

in lieu of the table containing the § 226.5a disclosures. 

Clear and conspicuous standard. Section 226.5(a) requires that disclosures made 

under subpart B (including disclosures required by § 226.5a) must be clear and 

conspicuous. Currently, comment 5a(a)(2)-1 provides guidance on the clear and 

conspicuous standard as applied to the § 226.5a disclosures. The Board proposes to 

provide guidance on applying the clear and conspicuous standard to the § 226.5a 

disclosures in comment 5(a)(1)-1. Thus, guidance currently in comment 5a(a)(2)-1 

would be deleted as unnecessary. The Board proposed to add comment 5a-3 to cross 

reference the clear and conspicuous guidance in comment 5a(a)(1)-1. 

5a(a)(1) Definition of Solicitation 

Firm offers of credit. The term “solicitation” is defined in § 226.5a(a)(1) of 

Regulation Z to mean “an offer by the card issuer to open a credit card account that does 

not require the consumer to complete an application.” 15 U.S.C. 1637(c). Board staff 

has received questions about whether card issuers making “firm offers of credit” as 

defined in the Fair Credit Reporting Act (FCRA) are considered to be making 

solicitations for purposes of § 226.5a. 15 U.S.C. 1681 et seq. The Board proposes to 

amend the definition of “solicitation” to clarify that such “firm offers of credit” for credit 

cards are solicitations for purposes of § 226.5a, as discussed below. 

The definition “solicitation” was adopted in 1989 to implement part of the Fair 

Credit and Charge Card Disclosure Act of 1988. It captures situations where an issuer 
62

has preapproved a consumer to receive a card, and thus, no application is required. In 

1996, the FCRA was amended to allow creditors to use consumer report information in 

connection with pre-selecting consumers to receive “firm offers of credit.” 

15 U.S.C. 1681a(l), 1681b(c). A “firm offer of credit” is an offer that must be honored 

by a creditor if a consumer continues to meet the specific criteria used to select the 

consumer for the offer. 15 U.S.C. 1681a(l). Creditors may obtain additional credit 

information from consumers, such as income information, when the consumer responds 

to the offer. However, creditors may decline to extend credit to the consumer based on 

this additional information only where the consumer does not meet specific criteria 

established by the creditor before selecting the consumer for the offer. Thus, because 

consumers who receive “firm offers of credit” have been preapproved to receive a credit 

card and may be turned down for credit only under limited circumstances, the Board 

believes that these preapproved offers are of the type intended to be captured as a 

“solicitation,” even though consumers are asked to provide some additional information 

in connection with accepting the offer. 

Invitations to apply. The Board also proposes to add comment 5a(a)(1)-1 to 

distinguish solicitations from “invitations to apply,” which are not covered by § 226.5a. 

An “invitation to apply” occurs when a card issuer contacts a consumer who has not been 

preapproved for a card account about opening an account (whether by direct mail, 

telephone, or other means) and invites the consumer to complete an application, but the 

contact itself does not include an application. The Board believes that these “invitations 

to apply” do not meet the definition of “solicitation” because the consumer must still 

submit an application in order to obtain the offered card. Thus, proposed comment 

5a(a)(1)-1 would clarify that this “invitation to apply” is not covered by § 226.5a 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 and Tabular Format 

Fees for late payment, over-the-credit-limit, balance transfers and cash advances. 

Currently, § 226.5a(a)(2)(ii) and comment 5a(a)(2)-5, which implement TILA Section 

127(c)(1)(B), provide that card issuers may disclose late payment fees, over-the-creditlimit fees, balance transfer fees, and cash advance fees in the table or outside the table. 

15 U.S.C. 1637(c)(1)(B). In the December 2004 ANPR, the Board requested comment 

on whether these fees should be required to be in the table. Q8. Many commenters 

indicated that the Board should require these fees to be in the table, because these are 

core fees, and uniformity in the placement of the fees would make the disclosures more 

familiar and predictable for consumers. Some commenters, however, urged the Board to 

retain the flexibility for card issuers to place the fee disclosures either in the table or 

immediately outside the table. 

 

The Board proposes to require that these fees be disclosed in the table. In the 

consumer testing conducted for the Board, participants consistently identified these fees 

as among the most important pieces of information they consider as part of the credit card 

offer. With respect to the disclosure of these fees, the Board tested placement of these 
63

fees in the table and immediately below the table. Participants who were shown forms 

where the fees were disclosed below the table tended not to notice these fees compared to 

participants who were shown forms where the fees were presented in the table. The 

Board proposes to amend § 226.5a(a)(2)(i) to require these fees to be disclosed in the 

table, so that consumers can easily identify them. Current § 226.5a(a)(2)(ii) and 

comment 5a(a)(2)-5, which currently allow issuers to place the fees outside the table, 

would be deleted. These proposed revisions are based in part on TILA Section 127(c)(5), 

which authorizes the Board to add or modify § 226.5a disclosures. 15 U.S.C. 1637(c)(5). 

Highlighting APRs and fee amounts in the table. Section 226.5a generally 

requires that certain information about rates and fees applicable to the card offer be 

disclosed to the consumer in card applications and solicitations. This information 

includes not only the annual percentage rates and fee amounts that will apply, but also 

explanatory information that gives context to these figures. The Board seeks to enable 

consumers to identify easily the rates and fees disclosed in the table. Thus, the Board 

proposes to add § 226.5a(a)(2)(iv) to require that when a tabular format is required, 

issuers must disclose in bold text any APRs required to be disclosed, any discounted 

initial rate permitted to be disclosed, and any fee amounts or percentages required to be 

disclosed, except for any maximum limits on fee amounts disclosed in the table. 

Proposed Samples G-10(B) and G-10(C) provide guidance on how to show the rates and 

fees described in bold text. Proposed Samples G-10(B) and G-10(C) also provide 

guidance to issuers on how to disclose the percentages and fees described above in a clear 

and conspicuous manner, by including these percentages 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 consumer testing conducted for the Board, participants who saw a 

table with the APRs and fees in bold and generally before any text in the table were more 

likely to identify the APRs and fees quickly and accurately than participants who saw 

other forms in which the APRs and fees were not highlighted in such a fashion. 

Electronic applications and solicitations. Section 1304 of the Bankruptcy Act 

amends TILA Section 127(c) to require solicitations to open a card account using the 

Internet or other interactive computer service to contain the same disclosures as those 

made for applications or solicitations sent by direct mail. Regarding format, the 

Bankruptcy Act specifies that disclosures provided using the Internet or other interactive 

computer service must be “readily accessible to consumers in close proximity” to the 

solicitation. 15 U.S.C. 1637(c)(7). 

In September 2000, the Board revised § 226.5a, and as part of these revisions, 

provided guidance on how card issuers using electronic disclosures may comply with the 

§ 226.5a requirement that certain disclosures be “prominently located” on or with the 

application or solicitation. 65 FR 58,903; October 3, 2000. In March 2001, the Board 

issued interim final rules, which are not mandatory, containing additional guidance for 

the electronic delivery of disclosures under Regulation Z, consistent with the 

requirements of the E-Sign Act. 66 FR 17,329; March 30, 2001. As discussed above, in 

April 2007, the Board issued for public comment the 2007 Electronic Disclosure 

Proposal. See section-by-section analysis to § 226.5(a)(1). 
64

The Bankruptcy Act provision applies to solicitations to open a card account 

“using the Internet or other interactive computer service.” The term “Internet” is defined 

as the international computer network of both Federal and non-Federal interoperable 

packet-switched data networks. The term “interactive computer service” is defined as 

any information service, system or access software provider that provides or enables 

computer access by multiple users to a computer server, including specifically a service 

or system that provides access to the Internet and such systems operated or services 

offered by libraries or educational institutions. 15 U.S.C. 1637(c)(7). Based on the 

definitions of “Internet” and “interactive computer service,” the Board believes that 

Congress intended to cover card offers that are provided to consumers in electronic form, 

such as via e-mail or an Internet web site. 

 

In addition, although this Bankruptcy Act provision refers to credit card 

solicitations (where no application is required), the Board requested comment in the 

October 2005 ANPR on whether the provision should be interpreted also to include 

applications. Q93. Almost all commenters on this issue stated that there is no reason to 

treat electronic applications differently from electronic solicitations. With respect to both 

electronic applications and solicitations, it is important for consumers who are shopping 

for credit to receive accurate cost information before submitting an electronic application 

or responding to an electronic solicitation. The Board proposes to apply the Bankruptcy 

Act provision relating to electronic offers to both electronic solicitations and applications 

to promote the informed use of credit and avoid circumvention of TILA. 

15 U.S.C. 1601(a), 1604(a). Thus, in implementing the Bankruptcy Act provision, the 

Board proposes to amend § 226.5a(c) to require that applications and solicitations that 

are provided in electronic form contain the same disclosures as applications and 

solicitations sent by direct mail. The same proposal is included in the Board’s 2007 

Electronic Disclosure Proposal. 

 

With respect to the form of disclosures required under § 226.5a, the Board 

proposes to amend § 226.5a(a)(2) by adding a new paragraph (v) to provide that if a 

consumer accesses an application or solicitation for a credit card in electronic form, the 

disclosures required on or with an application or solicitation for a credit card must be 

provided to the consumer in electronic form on or with the application or solicitation. A 

consumer accesses an application or solicitation in electronic form when, for example, 

the consumer views the application or solicitation on his or her personal computer. On 

the other hand, if a consumer receives an application or solicitation in the mail, the 

creditor would not satisfy its obligation to provide § 226.5a disclosures at that time by 

including a reference in the application or solicitation to the web site where the 

disclosures are located. See proposed comment 5a(a)(2)-6. The same proposal is 

included in the Board’s 2007 Electronic Disclosure Proposal. See § 226.5a(a)(2)(v) and 

comment 5a(a)(2)-9 in the 2007 Electronic Disclosure Proposal. 

The Board also proposes to revise existing comment 5a(a)(2)-8 added by the 2001 

interim final rule, which states that a consumer must be able to access the electronic 

disclosures at the time the application form or solicitation reply form is made available by 

electronic communication. The Board proposes to revise this comment to describe 
65

alternative methods for presenting electronic disclosures. This comment is intended to 

provide examples of the methods rather than an exhaustive list. The same proposal was 

included in the Board’s 2007 Electronic Disclosure Proposal. 

The Board also proposes to provide guidance on a Bankruptcy Act provision 

requiring that the § 226.5a disclosures must be “readily accessible to consumers in close 

proximity” to an application or solicitation that is made electronically. In the October 

2005 ANPR, the Board asked whether additional or different guidance is needed from the 

guidance previously issued by the Board in 2000 regarding how card issuers using 

electronic disclosures may comply with the § 226.5a requirement that certain disclosures 

be “prominently located” on or with the application or solicitation. Q95. 

In particular, the 2000 guidance states that the disclosures required by § 226.5a 

must be prominently located on or with electronic applications and solicitations. 

65 FR 58,903; October 3, 2000. The guidance provides flexibility for satisfying this 

requirement. For example, a card issuer could provide on the application or reply form a 

link to disclosures provided elsewhere, as long as consumers cannot bypass the 

disclosures before submitting the application or reply form. Alternatively, if a link to the 

disclosures is not used, the electronic application or reply form could clearly and 

conspicuously indicate where the fact that rate, fee or other cost information could be 

found. Or the disclosures could automatically appear on the screen when the application 

or reply form appears. (See current comment 5a(a)(2)-2, which would be renumbered as 

5a(a)(2)-1 under the proposal.) 

Most commenters stated that the Board should retain this existing guidance to 

interpret the “close proximity” standard. A few industry commenters stated that the 

existing guidance should not apply, and that, for example, it should suffice to provide a 

link to the disclosures that the consumer could choose to access or not. Some 

commenters urged the Board generally to allow maximum flexibility to creditors 

regarding the display of electronic disclosures, and stated that no guidance or specific 

rules were necessary. 

The Board proposes to revise the existing guidance to interpret the “close 

proximity” standard. The existing guidance would be revised to be consistent with 

proposed changes to comment 5a(a)(2)-8, that provides guidance to issuers on providing 

access to electronic disclosures at the time the application form or solicitation reply form 

is made available by electronic communication. Specifically, the Board proposes to 

provide that electronic disclosures are deemed to be closely proximate to an application 

or solicitation if, for example, (1) they automatically appear on the screen when the 

application or reply form appears, (2) they are located on the same web “page” as the 

application or reply form without necessarily appearing 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, or (3) they are posted on a web site and the application or solicitation reply 

form is linked to the disclosures in a manner that prevents the consumer from by-passing 
66

the disclosures before submitting the application or reply form. See proposed comment 

5a(a)(2)-1.ii. 

The Board proposes to retain the requirement that if an electronic link to the 

disclosures is used, the consumer must not be able to bypass the link before submitting an 

application or a reply form. The Board believes that the “close proximity” standard is 

designed to ensure that the disclosures are easily noticeable to consumers, and this 

standard is not met when consumers are only given a link to the disclosures, but not to the 

disclosures themselves. The Board proposes to incorporate the “close proximity” 

standard for electronic applications and solicitations in § 226.5a(a)(2)(vi)(B), and the 

guidance regarding the location of the § 226.5a disclosures in electronic applications and 

solicitations in comment 5a(a)(2)-1.ii. 

Terminology. Section 226.5a currently requires terminology in describing the 

disclosures required by § 226.5a must be consistent with terminology describing the 

account-opening disclosures (§ 226.6) and for the periodic statement disclosures 

(§ 226.7). TILA and § 226.5a also require that the term “grace period” be used to 

describe the date by which or the period within which any credit extended for purchases 

may be repaid without incurring a finance charge. 15 U.S.C. 1632(c)(2)(C). The Board 

proposes that all guidance for terminology requirements with respect to § 226.5a 

disclosures be placed in proposed § 226.5(a)(2)(iii). The Board proposes to add comment 

5a(a)(2)-7 to cross-reference the guidance in § 226.5(a)(2). 

5a(a)(4) Certain Fees That Vary By State 

Currently, under § 226.5a, if the amount of a late-payment fee, over-the-creditlimit fee, cash advance fee or balance transfer fee varies from state to state, a card issuer 

may disclose the range of the fees instead of the amount for each state, if the disclosure 

includes a statement that the amount of the fee varies from state to state. See existing 

§ 226.5a(a)(5), renumbered as new § 226.5a(a)(4). As discussed below, the Board 

proposes to require card issuers to disclose in the table any fee imposed when a payment 

is returned. See proposed § 226.5a(b)(12). The Board proposes to amend new 

§ 226.5a(a)(4) to add returned payment fees to the list of fees for which an issuer may 

disclose a range of fees. The Board requests comment on whether other fees required to 

be disclosed under § 226.5a should be added to the list of fees for which the issuer may 

disclose a range of fees, such as fees for required insurance or debt cancellation or 

suspension coverage under proposed § 226.5a(b)(14).

5a(a)(5) Exceptions

 Section 226.5a currently contains several exceptions to the disclosure 

requirements. Some of these exceptions are in the regulation itself, while others are 

contained in the commentary. For clarity, all exceptions would be placed together in new 

§ 226.5a(a)(5), as indicated in the redesignation table below. 

5a(b) Required Disclosures

 Section 226.5a(b) specifies the disclosures that are required to be included on or 

with certain applications and solicitations. 
67

5a(b)(1) Annual Percentage Rate

 Section 226.5a requires card issuers to disclose the rates applicable to the account, 

such as rates applicable to purchases, cash advances, and balance transfers. 

15 U.S.C. 1637(c)(1)(A)(i)(I). 

16-point font for disclosure of purchase APRs. Currently, under § 226.5a(b)(1), 

the purchase rate must be disclosed in the table in at least 18-point font. This font 

requirement does not apply to (1) a temporary initial rate for purchases that is lower than 

the rate that will apply after the temporary rate expires; or (2) a penalty rate that will 

apply upon the occurrence of one or more specified events. In response to the December 

2004 ANPR, several industry commenters suggested that the Board delete this 18-point 

font requirement. These commenters indicated that disclosing the purchase rate in 18-

point font size might distract consumers from other important terms being disclosed, and 

that disclosing the purchase rate in the table in large font size is not necessary because 

simply disclosing the purchase rate in the table provides consumers meaningful and 

comparable disclosure of that term. 

The Board is proposing to reduce the 18-point font requirement to a 16-point font. 

The purchase rate is one of the most important terms disclosed in the table, and it is 

essential that consumers be able to identify that rate easily. A 16-point font size 

requirement for the purchase APR appears to be sufficient to highlight the purchase APR. 

(The Board is proposing that other disclosures in the table are required to be in 10-point 

type. See proposed comment 5(a)(1)-3.) In consumer testing conducted for the Board, 

versions of the table in which the purchase rate was the same font as other rates included 

in the table were reviewed. In other versions, the purchase rate was in 16-point type 

while other disclosures were in 10-point type. Participants tended to notice the purchase 

rate more often when it was in a font bigger than the font used for other rates. 

Nonetheless, there was no evidence from consumer testing that it was necessary to use a 

font size of 18-point in order for the purchase APR to be noticeable to participants. 

Given that the proposal is requiring a minimum of 10-point type for the disclosure of 

other terms in the table, based on document design principles, the Board believes that a 

16-point font size for the purchase APR would be effective in highlighting the purchase 

APR in the table. 

 

Periodic rate. Currently, comment 5a(b)(1)-1 allows card issuers to disclose the 

periodic rate in the table in addition to the required disclosure of the corresponding APR. 

The Board proposes to delete comment 5a(b)(1)-1, and thus, prohibit disclosure of the 

periodic rate in the table. Based on consumer testing conducted for the Board, consumers 

do not appear to shop using the periodic rate, nor is it clear that this information is 

important to understanding a credit card offer. Allowing the periodic rate to be disclosed 

in the table may distract from more important information in the table, and contribute to 

“information overload.” Thus, in an effort to streamline the information that appears in 

the table, the Board proposes to prohibit disclosure of the periodic rate in the table. 

Nonetheless, card issuers may disclose this information outside of the table. 
68

Variable rate information. Section 226.5a(b)(1)(i), which implements TILA 

Section 127(c)(1)(A)(i)(II), currently requires for variable-rate accounts, that the card 

issuer must disclose the fact that the rate may vary and how the rate is determined. 

15 U.S.C. 1637(c)(1)(A)(i)(II). In disclosing how the applicable rate will be determined, 

the card issuer is required to provide the index or formula used and disclose any margin 

or spread added to the index or formula in setting the rate. The card issuer may disclose 

the margin or spread as a range of the highest and lowest margins that may be applicable 

to the account. A disclosure of any applicable limitations on rate increases or decreases 

may also be included in the table. See current comment 5a(b)(1)-3. 

1. Index and margins. Currently, the variable rate information is required to be 

disclosed separately from the applicable APR, in a row of the table with the heading 

“Variable Rate Information.” Some card issuers will include the phrase “variable rate” 

with the disclosure of the applicable APR and include the details about the index and 

margin under the “Variable Rate Information” heading. In the consumer testing 

conducted for the Board, many participants who saw the variable rate information 

presented as described above understood that the label “variable” meant that a rate could 

change, but could not locate information on the tested form regarding how or why these 

rates could change. This was true even if the index and margin information was taken 

out of the row of the table with the heading “Variable Rate Information” and placed in a 

footnote to the phrase “variable rate.” Many participants who did find the variable rate 

information were confused by the variable-rate margins, often interpreting them 

erroneously as the actual rate being charged. In addition, very few participants indicated 

that they would use the margins in shopping for a credit card account. 

Accordingly, the Board proposes to amend § 226.5a(b)(1)(i) to specify that 

issuers may not disclose the amount of the index or margins in the table. Specifically, 

card issuers would not be allowed to disclose in the table the current value of the index 

(for example, that the prime rate currently is 7.5 percent) or the amount of the margin that 

is used to calculate the variable rate. Card issuers would be allowed to indicate only that 

the rate varies and the type of index used to determine the rate (such as the “prime rate,” 

for example.) In describing the type of index, the issuer may not include details about 

the index in the table. For example, if the issuer uses a prime rate, the issuer must just 

describe the rate as tied to a “prime rate” and may not disclose in the table that the prime 

rate used 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. See proposed comment 

5a(b)(1)-2. Also, the Board would require that the disclosure about a variable rate (the 

fact that the rate varies and the type of index used to determine the rate) must be 

disclosed with the applicable APRs, so that consumers can more easily locate this 

information. See proposed Model Form G-10(A), Samples G-10(B) and G-10(C). 

Proposed Samples G-10(B) and G-10(C) provide guidance to issuers on how to disclose 

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

2. Rate floors and ceilings. Currently, card issuers may disclose in the table, at 

their option, any limitations on how high (i.e., a rate ceiling) or low (i.e., a rate floor) a 

particular rate may go. For example, assume that the purchase rate on an account could 
69

not go below 12 percent or above 24 percent. An issuer would be required to disclose in 

the table the current rate offered on the credit card (for example, 18 percent), and would 

be permitted to disclose in the table that the rate would not go below 12 percent and 

above 24 percent. See current comment 5a(b)(1)-4. The Board proposes to revise the 

commentary to prohibit the disclosure of the rate floors and ceilings in the table. Based 

on consumer testing conducted for the Board, consumers do not appear to shop based on 

these rate floors and ceilings, and allowing them to be disclosed in the table may distract 

from more important information in the table, and contribute to “information overload.” 

Thus, in an effort to streamline the information that may appear in the table, the Board 

proposes to prohibit disclosure of the rate floors and ceilings in the table. Nonetheless, 

card issuers may disclose this information outside of the table. 

Discounted initial rates. Currently, comment 5a(b)(1)-5 specifies that if the initial 

rate is temporary and is lower than the rate that will apply after the temporary rate 

expires, a card issuer must disclose the rate that will otherwise apply to the account. A 

discounted initial rate may be provided in the table along with the rate required to be 

disclosed if the card issuer also discloses the time period during which the introductory 

rate will remain in effect. The Board proposes to move comment 5a(b)(1)-5 to new 

§ 226.5a(b)(1)(ii). The Board also proposes to add new comment 5a(b)(1)-3 to specify 

that if a card issuer discloses the discounted initial rate and expiration date in the table, 

the issuer is deemed to comply with the standard to provide this information clearly and 

conspicuously if the issuer uses the format specified in proposed Samples G-10(B) and 

G-10(C) to present this information. 

In addition, under TILA Section 127(c)(6)(A), as added by Section 1303(a) of the 

Bankruptcy Act, the term “introductory” must be used in immediate proximity to each 

listing of a discounted initial rate in the application, solicitation, or promotional materials 

accompanying such application or solicitation. Thus, the Board proposes to revise new 

§ 226.5a(b)(1)(ii) to specify that if an issuer provides a discounted initial rate in the table 

along with the rate required to be disclosed, the card issuer must use the term 

“introductory” in immediate proximity to the listing of the initial discounted rate. 

In the October 2005 ANPR, commenters asked the Board to consider permitting 

creditors to use the term “intro” as an alternative to the word “introductory.” Because 

“intro” is a commonly understood abbreviation of the term “introductory,” and consumer 

testing indicates that consumers understand this term, the Board proposes to allow 

creditors to use “intro” as an alternative to the requirement to use the term “introductory” 

and is proposing to clarify this approach in new § 226.5a(b)(1)(ii). Also, to give card 

issuers guidance on the meaning of “immediate proximity,” the Board is proposing to 

provide guidance for creditors that place the word “introductory” or “intro” within the 

same phrase as each listing of the discounted initial rate. This guidance is set forth in 

proposed comment 5a(b)(1)-3. The Board believes that interpreting “immediate 

proximity” to mean adjacent to the rate may be too restrictive. Moreover, the Board has 

proposed the “within the same phrase” standard as a safe harbor instead of requiring this 

placement, recognizing that even if the term “introductory” is not “within the same 

phrase” as the rate it may still meet the “immediate proximity” standard. 
70

Penalty rates. Currently, comment 5a(b)(1)-7 requires that if a rate may increase 

upon the occurrence of one or more specific events, such as a late payment or an 

extension of credit that exceeds the credit limit, the card issuer must disclose the 

increased penalty rate that may apply and the specific event or events that may result in 

the increased rate. If a tabular format is required, the issuer must disclose the penalty rate 

in the table under the heading “Other APRs,” along with any balance transfer or cash 

advance rates. 

The specific event or events must be described outside the table with an asterisk 

or other means to direct the consumer to the additional information. At its option, the 

issuer may include outside the table with the explanation of the penalty rate the period for 

which the increased rate will remain in effect, such as “until you make three timely 

payments.” The issuer need not disclose an increased rate that is imposed if credit 

privileges are permanently terminated. 

In the December 2004 ANPR, the Board solicited comment on whether the table 

was effective as currently designed. Q7. In response to this question, many commenters 

suggested that the specific event or events that may result in the penalty rate should be 

disclosed in the table along with the penalty rate, because this would enhance comparison 

shopping and consumer understanding by highlighting penalty pricing and its effect on 

the other rates for the account. 

In the consumer testing conducted for the Board, when reviewing forms in which 

the specific events that trigger the penalty rate were disclosed outside the table, many 

participants did not readily notice the penalty rate triggers when they initially read 

through the document or when asked follow-up questions. In addition, many participants 

did not readily notice the penalty rate when it was included in the row “Other APRs” 

along with other rates. The GAO also found that consumers had difficulty identifying the 

default rate and circumstances that would trigger rate increases. See GAO Report on 

Credit Card Rates and Fees, at page 49. In the testing conducted for the Board, when the 

penalty rate was placed in a separate row in the table, participants tended to notice the 

rate more often. Moreover, participants tended to notice the specific events that result in 

the penalty rate more often when these events were included with the penalty rate in a 

single row in the table. For example, two types of forms related to placement of the 

events that could trigger the penalty rate were tested – several versions showed the 

penalty rate in one row of the table and the description of the events that could trigger the 

penalty rate in another row of the table. Several other versions showed the penalty rate 

and the triggering events in the same row. Participants who saw the versions of the table 

with the penalty rate in a separate row from the description of the triggering events 

tended to skip over the row that specified the triggering events when reading the table. 

Nonetheless, participants who saw the versions of the table in which the penalty rate and 

the triggering events were in the same row tended to notice the triggering events when 

they reviewed the table. 

As a result, the Board proposes to add § 226.5a(b)(1)(iv) and amend new 

comment 5a(b)(1)-4 (previously comment 5a(b)(1)-7) to require card issuers to briefly 
71

disclose in the table the specific event or events that may result in the penalty rate. In 

addition, the Board is proposing that the penalty rate and the specific events that cause 

the penalty rate to be imposed must be disclosed in the same row of the table. See

proposed Model Form G-10(A). In describing the specific event or events that may result 

in an increased rate, new comment 5a(b)(1)-4 provides that the descriptions of the 

triggering events in the table should be brief. For example, if an issuer may increase a 

rate to the penalty rate if 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.” Proposed Samples G-10(B) and G-10(C) provide 

additional guidance on the level of detail that issuers should use in describing the specific 

events that result in the penalty rate. 

 

The Board also proposes to specify in new § 226.5a(b)(1)(iv) that in disclosing a 

penalty rate, a card issuer also must specify the balances to which the increased rate will 

apply. Typically, card issuers apply the increased rate to all balances on the account. 

The Board believes that this information helps consumers better understand the 

consequences of triggering the penalty rate. 

In addition, the Board proposes to specify in new § 226.5a(b)(1)(iv) that in 

disclosing the penalty rate, a card issuer must describe how long the increased rate will 

apply. Proposed comment 5a(b)(1)-4 provides that in describing how long the increased 

rate will remain in effect, the description should be brief, and refers issuers to Samples G10(B) and G-10(C) for guidance on the level of detail that issuer should use to describe 

how long the increased rate will remain in effect. Also, proposed comment 5a(b)(1)-4 

provides that if a card issuer reserves the right to apply the increased rate indefinitely, 

that fact should be stated. The Board believes that this information may help consumers 

better understand the consequences of triggering the penalty rate. 

Also, the Board proposes to add language to new § 226.5a(b)(1)(iv) to specify 

that in disclosing a penalty rate, card issuers must include a brief description of the 

circumstances under which any discounted initial rates may be revoked and the rate that 

will apply after the discounted initial rate is revoked. Section 1303(a) of the Bankruptcy 

Act requires that a credit card application or solicitation must contain in a prominent 

location on or with the application or solicitation a clear and conspicuous disclosure of a 

general description of the circumstances that may result in revocation of a discounted 

initial rate offered with the card, and the rate that will apply after the discounted initial 

rate is revoked. 15 U.S.C. 1637(c)(6)(C). The Board is proposing that this information 

be disclosed in the table along with other penalty rate information. Often, the same 

events that trigger a loss of a discounted initial rate and an increase to the penalty rate 

also trigger an increase in other rates on the account. 

Rates that depend on consumers’ creditworthiness. Credit card issuers often 

engage in risk-based pricing such that the rates offered on a credit card will depend on 

later determinations of a consumer’s creditworthiness. For example, an issuer may use 

information collected in a consumer’s application or solicitation reply form (e.g., income 

information) or obtained through a credit report from a consumer reporting agency to 
72

determine the rate for which a consumer qualifies. For preapproved solicitations, issuers 

that engage in risk-based pricing typically will disclose the specific rates offered to the 

consumer, because for these offers, issuers typically will have some indication of a 

consumer’s creditworthiness based on the prescreening process done through a consumer 

reporting agency. For applications not involving prescreens, however, issuers that use 

risk-based pricing may not be able to disclose the specific rate that would apply to a 

consumer, because issuers may not have sufficient information about a consumer’s 

creditworthiness at the time the application is given. 

In response to the December 2004 ANPR, industry commenters asked for 

guidance on how rates should be disclosed under § 226.5a when an issuer does not know 

the specific rate for which the consumer will qualify at the time the disclosures are made 

because the specific rate depends on a later determination of the consumer’s 

creditworthiness. Some industry commenters asked the Board to clarify that issuers may 

disclose the range of possible rates, with an explanation that the rate obtained by the 

consumer is based on the consumer’s creditworthiness. Another industry commenter 

suggested that the Board should allow issuers to disclose a recent APR or the median rate 

within the range of possible rates, with an explanation that the rate could be higher or 

lower depending on the consumer’s creditworthiness. Several consumer group 

commenters suggested that the Board should not allow issuers to disclose a range of 

possible rates. Instead, issuers should be required to disclose the actual APR that the 

creditor is offering, because otherwise, consumers do not know the rate for which they 

are applying. 

The Board proposes to add § 226.5(b)(1)(v) and comment 5a(b)(1)-5 to clarify 

that in circumstances in which an issuer cannot state a single specific rate being offered at 

the time disclosures are given because the rate will depend on a later determination of the 

consumer’s creditworthiness, issuers must disclose the possible rates that might apply, 

and a statement that the rate for which the consumer may qualify at account opening 

depends on the consumer’s creditworthiness. A card issuer may disclose the possible 

rates as either specific rates or a range of rates. For example, if there are three possible 

rates that may apply (e.g., 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). Proposed 

Samples G-10(B) and G-10(C) provide guidance for issuers on how to meet these 

requirements. In addition, the Board solicits comment on whether card issuer should 

alternatively be permitted to list only the highest possible rate that may apply instead of a 

range of rates (e.g., up to 17.99 percent). 

As discussed above, one industry commenter suggested that the Board should 

allow issuers to disclose a recent APR or the median rate within the range of possible 

rates, with an explanation that the APR could be higher or lower depending on the 

consumer’s creditworthiness. The Board believes that requiring card issuers to disclose 

all the possible rates (as either specific rates, or as a range of rates) provides more useful 

information to consumers than allowing issuers to disclose a median APR within the 

range. If only one rate is disclosed in the table, consumers may mistake the rate disclosed 

as the specific rate offered on the account, and not understand that it is a median rate 
73

within a certain range, even if there is an explanation that the rate could be higher or 

lower. If a consumer sees a range or several specific rates, the consumer may be better 

able to determine that more than one rate is being disclosed. 

Transactions with both rate and fee. When a consumer initiates a balance transfer 

or cash advance, card issuers typically charge consumers both interest on the outstanding 

balance of the transaction, and a fee to complete the transaction. It is important that 

consumers understand when both a rate and a fee apply to specific transactions. In the 

consumer testing conducted for the Board, several ways of presenting rate and fee 

information were reviewed. In some tests, the cash advance and balance transfer rates 

were included in a section with other rates, and cash advance and balance transfer fees 

were included in a section with other fees. In other tests, cash advance and balance 

transfer fees were not included with other fees, but instead were included with the cash 

advance and balance transfer rates. Participants in the first test (the one where balance 

transfer and cash advance fees were grouped with other fees) were more likely to notice 

the balance transfer and cash advance fees than participants in the other tests. 

Participants tended to notice rates more easily when they were grouped together, and fees 

more easily when they are grouped together. Thus, the Board is proposing to group 

APRs together in the table and fees together in the table, rather than grouping APRs and 

fees related to cash advances together and APRs and fees related to balance transfers 

together. 

Nonetheless, because the rates and the fees related to cash advances and balance 

transfers are not grouped together, a cross reference from the cash advance and balance 

transfer rates to the applicable fees may help consumers notice both the rate and the fee. 

In consumer testing conducted for the Board, some participants were more aware that an 

interest rate applies to cash advances and balance transfers than they were aware of the 

fee component, so a cross reference between the rate and the fee may help those 

consumers notice both the rate and the fee components. Therefore, the Board proposes to 

add new § 226.5a(b)(1)(vi) to require that if a rate and fee both apply to a balance transfer 

or cash advance transaction, a card issuer must disclose that a fee also applies when 

disclosing the rate, and a cross-reference to the fee. 15 U.S.C. 1637(c)(5). 

Typical APR. In response to the December 2004 ANPR, several consumer 

groups indicated that the current disclosure requirements in § 226.5a allow card issuers to 

promote low APRs, that include interest but not fees, while charging high penalty fees 

and penalty rates when consumers, for example, pay late or exceed the credit limit. As a 

result, these consumer groups suggested that the Board require credit card issuers to 

disclose in the table a “typical rate” that would include fees and charges that consumers 

pay for a particular open-end credit products. This rate would be calculated as the 

average effective rate disclosed on periodic statements over the last three years for 

customers with the same or similar credit card product. These consumer groups believe 

that this “typical rate” would reflect the real rate that consumers pay for the credit card 

product. 
74

The Board is not proposing that card issuers disclose the “typical rate” as part of 

the § 226.5a disclosures. Although a single cost figure (like the APR on closed-end 

credit) is a laudable objective, the Board does not believe that the proposed typical APR 

would be helpful to consumers that seek credit cards. There are many different ways 

consumers may use their credit cards, such as the features they use, what fees they incur, 

and whether a balance is carried from month to month. For example, some consumers 

use their cards only for purchases, always pay off the bill in full, and never pay fees. 

Other consumers may use their cards for purchases, balance transfers or cash advances, 

but never pay late-payment fees, over-the-credit-limit fees or other penalty fees. Still 

others may pay penalty fees and incur penalty rates. A “typical rate,” however, would be 

based on average fees and average balances that may not be typical for many consumers. 

Moreover, such a rate may confuse consumers about the actual rate that may apply to 

their account. 

Nonetheless, the Board believes it is important that consumers understand the 

penalty rates and penalty fees that apply to a credit card account. Thus, the Board is 

proposing to make penalty rates more prominent in the table and require card issuers to 

describe in the table the reasons why a penalty rate may apply and how long the penalty 

rate will apply. See proposed § 226.5a(b)(1)(iv). Likewise, the Board is proposing to 

highlight penalty fees by requiring that late payment fees, over-the-credit-limit fees, and 

returned-payment fees be disclosed in the table. See proposed § 226.5a(a)(2)(i). 

5a(b)(2) Fees for Issuance or Availability 

 Section 226.5a(b)(2), which implements TILA Section 127(c)(1)(A)(ii)(I), 

requires card issuers to disclose any annual or other periodic fee, expressed as an 

annualized amount, that is imposed for the issuance or availability of a credit card, 

including any fee based on account activity or inactivity. 15 U.S.C. 1637(c)(1)(A)(ii)(I). 

In 1989, the Board used its authority under TILA Section 127(c)(5) to require that issuers 

also disclose non-periodic fees related to opening the account, such as one-time 

membership or participation fees. 15 U.S.C. 1637(c)(5); 54 FR 13,855, April 6, 1989. 

Fees for issuance or availability of credit card products targeted to subprime 

borrowers. Often, subprime credit cards will have substantial fees related to the issuance 

and availability of credit. For example, these cards may impose an annual fee, and a 

monthly maintenance fee for the card. In addition, these cards may impose multiple onetime fees when the consumer opens the card account, such as an application fee and a 

program fee. The Board believes that these fees should be clearly explained to 

consumers at the time of the offer so that consumers better understand when these fees 

will be imposed. 

The Board proposes to amend § 226.5a(b)(2) to require additional information 

about periodic fees. 15 U.S.C. 1637(c)(5). Currently, issuers are required to disclose 

only the annualized amount of the fee. The Board proposes to amend § 226.5a(b)(2) to 

require issuers also to disclose the amount of the periodic fee, and how frequently it will 

be imposed. For example, if an issuer imposes a $10 monthly maintenance fee for a card, 
75

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 addition, the Board proposes to amend § 226.5a(b)(2) to require additional 

information about non-periodic fees related to opening the account. Currently, issuers are 

required to disclose the amount of the non-periodic fee, but not that it is a one-time fee. 

The Board proposes to amend § 226.5a(b)(2) to require card issuers to disclose the 

amount of the fee and that it is a one-time fee. This additional information will allow 

consumers to better understand set-up and maintenance fees that are often imposed in 

connection with subprime credit cards. For example, the proposed changes would 

provide consumers with additional information about when the fees will be imposed by 

identifying which fees are one-time fees, which fees are periodic fees (such as monthly 

fees), and which fees are annual fees. 

In addition, application fees that are charged regardless of whether the consumer 

receives credit currently are not considered fees as imposed for the issuance or 

availability of a credit card, and thus are not disclosed in the table. See current 

comment 5a(b)(2)-3 and § 226.4(c)(1). The Board proposes to delete the exception for 

these application fees and require that they be disclosed in the table as fees imposed for 

the issuance or availability of a credit card. The Board believes that consumers should be 

aware of these fees when they are shopping for a credit card. 

5a(b)(3) Minimum Finance Charge

 Currently, § 226.5a(b)(3), which implements TILA Section 127(c)(1)(A)(ii)(II), 

requires that card issuers must disclose any minimum or fixed finance charge that could 

be imposed during a billing cycle. Card issuers typically impose a minimum charge (e.g., 

$.50) in lieu of interest in those months where a consumer would otherwise incur an 

interest charge that is less than the minimum charge (a so-called “minimum interest 

charge”). In response to the December 2004 ANPR, one industry commenter suggested 

that the Board no longer require that the minimum finance charge be disclosed in the 

table because these fees are typically small (e.g., $.50) and consumers do not shop on 

them. Another industry commenter suggested that the Board only require that the 

minimum finance charge be included in the table if the charge is a significant amount. 

On the other hand, several consumer groups urged the Board to continue to include the 

minimum finance charge in the table because this charge can have a significant effect on 

the cost of credit. 

The Board proposes to retain the minimum finance charge disclosure in the table. 

Although minimum charges currently may be small, card issuers may increase these 

charges in the future. Also, Board is aware of at least one credit card product for which 

no APR is charged, but each month a fixed charge is imposed based on the outstanding 

balance (for example, $6 charge per $1,000 balance). If the minimum finance charge 

disclosure was eliminated from the table, card issuers that offer this type of pricing would 

no longer be required to disclose the fixed charge in the table. The Board is not 

proposing to require the minimum finance charge only if it is a significant amount. This 

approach could undercut the uniformity of the table, and could be misleading to 
76

consumers. If consumers do not see a minimum finance charge disclosed in the table, the 

Board is concerned that most consumers might assume that there is not a minimum 

finance charge on the card, when the charge was below a certain threshold. 

Under § 226.5a(b)(3), card issuers are only required to disclose the amount of any 

minimum or fixed finance charge that could be imposed during a billing cycle. Card 

issuers currently are not required to provide a description of when this charge may be 

imposed. In consumer testing conducted for the Board, model forms were tested that 

only included the amount of the minimum interest charge in the table. In viewing these 

forms, some participants misunderstood that they would pay the minimum interest charge 

every month, not just those months where they otherwise would incur interest that was 

less than the minimum charge. Thus, the Board proposes to amend § 226.5a(b)(3) to 

require card issuers to disclose in the table a brief description of the minimum finance 

charge, to give consumers context for when this charge will be imposed. 

15 U.S.C. 1637(c)(5). Proposed Samples G-10(B) and G-10(C) provide guidance 

regarding how to disclose a minimum interest charge. 

5a(b)(4) Transaction Charges 

 Section 226.5a(b)(4), which implements TILA Section 127(c)(1)(A)(ii)(III), 

requires that card issuers disclose any transaction charge imposed on purchases. The 

current commentary to this provision clarifies that only transaction fees on purchases 

imposed by the issuer must be disclosed. (See comment 5a(b)(4)-1.) For clarity, the 

Board would amend § 226.5a(b)(4) to incorporate this commentary provision. 

In addition, the Board proposes to amend § 226.5a(b)(4) to specify that fees 

charged for transactions in a foreign currency or that take place in a foreign country may 

not be disclosed in the table. In an effort to streamline the contents of the table, the 

Board proposes to highlight only those fees that may be important for a significant 

number of consumers. In consumer testing for the Board, participants did not tend to 

mention foreign transaction fees as important fees they use to shop. There are few 

consumers who may pay these fees with any frequency. Thus, the Board proposes to 

except foreign transaction fees from disclosure of transaction fees. The Board proposes 

to include foreign transaction fees in the account-opening summary table that is required 

under § 226.6(b)(4), so that interested consumers can learn of the fees before using the 

card. 

5a(b)(5) Grace Period

 Section 226.5a(b)(5), which implements TILA Section 127(c)(A)(iii)(I), requires 

that card issuers disclose in the table the date by which or the period within which any 

credit extended for purchases may be repaid without incurring a finance charge. If no 

grace period is provided, that fact must be disclosed. Comment 5a(b)(5)-1 provides that a 

card issuer may, but need not, refer to the beginning or ending point of any grace period 

and briefly state any conditions on the applicability of the grace period. For example, the 

grace period disclosure might read “30 days” or “30 days from the date of the periodic 

statement (provided you have paid your previous balance in full by the due date).” 
77

The consumer testing conducted for the Board indicated that some participants 

misunderstood the word “grace period” to mean the time after the payment due date that 

an issuer may give the consumer to pay the bill without charging a late-payment fee. The 

GAO found similar misunderstandings by consumers in its consumer testing. 

Furthermore, many participants in the GAO testing incorrectly indicated that the grace 

period was the period of time promotional interest rates applied. See GAO Report On 

Credit Card Rates and Fees, at page 50. 

In consumer testing conducted for the Board, participants tended to understand 

the grace period more clearly when additional context was added, such as describing that 

if the consumer paid the bill in full each month, the consumer would have some period of 

time (e.g., 25 days) to pay the new purchase balance in full to avoid interest. Thus, the 

Board proposes to amend § 226.5a(b)(5) to require card issuers to disclose briefly any 

conditions on the applicability of the grace period. 15 U.S.C. 1637(c)(5). The Board also 

proposes to amend comment 5a(b)(5)-1 to provide guidance for how issuers may meet 

the requirements in proposed § 226.5a(b)(5). 

5a(b)(6) Balance Computation Method

 TILA Section 127(c)(1)(A)(iv) calls for the Board to name not more than five of 

the most common balance computation methods used by credit card issuers to calculate 

the balance on which finance charges are computed. 15 U.S.C. 1637(c)(1)(A)(iv). If 

issuers use one of the balance computation methods named by the Board, § 226.5a(b)(6) 

requires that issuers must disclose the name of that balance computation method in the 

table as part of the disclosures required by § 226.5a, and issuers are not required to 

provide a description of the balance computation method. If the issuer uses a balance 

computation method that is not named by the Board, the issuer must disclose a detailed 

explanation of the balance computation method. See current § 226.5a(b)(6); 

§ 226.5a(a)(2)(i). 

In response to the December 2004 ANPR, several commenters suggested that the 

Board delete the description of the balance computation method from the table. These 

commenters believed that the implications of the balance computation method on the 

actual cost of credit are simply too complex and too contingent on future purchasing 

patterns to be of any use to consumers in shopping for credit. 

The Board agrees that balance computation methods are too complex to explain in 

a simple fashion in the table. Most card issuers use one of two methods – either the 

“average daily balance method (including new purchases)” or the “two-cycle average 

daily balance method (including new purchases).” For consumers that carry a balance on 

their credit card every month or for consumers that pay off their balance in full every 

month, there essentially is no difference between these two methods. There is a 

difference between the two methods only in those months where a consumer paid off 

their previous balance in full, but did not pay off their current balance in full. In those 

months, the consumer will pay more interest under the “two-cycle average daily balance 

method” than under the “average daily balance method.” How much more interest the 

consumer pays depends on the amount of the purchases in the previous billing cycle, 
78

when those purchases were made, the amount of any payments made in that billing cycle, 

and when those payments were made. 

In consumer testing conducted for the Board, virtually no participants understood 

the two balance computation methods most used by card issuers – the average daily 

balance method and the two-cycle average daily balance method – when those methods 

were just described by name. The GAO found similar results in its consumer testing. 

See GAO Report On Credit Card Rates and Fees, at pages 50-51. In the consumer testing 

conducted for the Board, a version of the table was used which attempted to explain 

briefly that the “two-cycle average daily balance method” would be more expensive than 

the “average daily balance method” for those consumers that sometimes pay their bill in 

full and sometimes do not. Participants’ answers suggested they did not understand this 

disclosure. They appeared to need more information about how balances are calculated. 

Nonetheless, the addition of more information would likely add too much detail to the 

disclosures and result in “information overload.” In addition, it is unclear whether most 

consumers would consider the balance computation method when shopping for a credit 

card. 

As a result, the Board proposes to retain a brief reference to the balance 

computation method, but move the disclosure from the table to directly below the table. 

See § 226.5a(a)(2)(iii). TILA Section 122(c)(2) states that for certain disclosures set 

forth in Section TILA 127(c)(1)(A), including the balance computation method, the 

Board shall require that the disclosure of such information shall, to the extent the Board 

determines to be practicable and appropriate, be in the form of a table. 

15 U.S.C. 1632(c)(2). The Board believes that it is no longer appropriate to continue to 

disclose the balance computation method in the table, because the name of the balance 

computation method used by issuers does not appear to be meaningful to consumers 

without additional context and may distract from more important information contained 

in the table. The Board proposes to continue to require that issuers disclose the name of 

the balance computation method beneath the table, so that consumers and others will 

have access to this information if they find it useful. 

5a(b)(8) Cash Advance Fee

Currently, comment 5a(b)(8)-1 provides that a card issuer must disclose only 

those fees it imposes for a cash advance that are finance charges under § 226.4. For 

example, a charge for a cash advance at an automated teller machine (ATM) would be 

disclosed under § 226.5a(b)(8) if no similar charge is imposed for ATM transactions not 

involving an extension of credit. As discussed in the section-by-section analysis to 

§ 226.4, the Board proposes to provide that all transaction fees on credit cards would be 

considered finance charges. Thus, the Board proposes to delete the current guidance 

discussed in comment 5a(b)(8)-1 as obsolete.

5a(b)(12) Returned Payment Fee

 Currently, § 226.5a does not require a card issuer to disclose a fee imposed when 

a payment is returned. The Board proposes to add § 226.5a(b)(12) to require issuers to 

disclose this fee in the table. Typically, card issuers will impose a fee and a penalty rate 
79

if a cardholder’s payment is returned. As discussed above, the Board proposes to require 

card issuers to disclose in the table the reasons that a penalty rate may be imposed. See

proposed § 226.5a(b)(1)(iv). The Board proposes that the returned payment fee be 

disclosed too, so that consumers are told both consequences of returned payments. 

5a(b)(13) Cross References from Fees to Penalty Rate

 Card issuers often impose both a fee and penalty rate for the same behavior – such 

as a consumer paying late, exceeding the credit limit, or having a payment returned. In 

consumer testing conducted for the Board, participants tended to associate paying penalty 

fees with certain behaviors (such as paying late or going over the credit limit), but they 

did not tend to associate rate increases with these same behaviors. By linking the penalty 

fees with the penalty rate, participants more easily understood that if they engage in 

certain behaviors, such as paying late, their rates may increase in addition to incurring a 

fee. Thus, the Board proposes to add § 226.5a(b)(13) to provide that if a card issuer may 

impose a penalty rate for any of the reasons that a penalty fee would be disclosed in the 

table (such as late payments, going over the credit limit, or returned payments), the issuer 

in disclosing the fee also must disclose that the penalty rate may apply, and a crossreference to the penalty rate. Proposed Samples G-10(B) and G-10(C) provide guidance 

on how to provide these disclosures. 

5a(b)(14) Required Insurance, Debt Cancellation Or Debt Suspension Coverage

 Credit card issuers often offer optional insurance or debt cancellation or 

suspension coverage with the credit card. Under the current rules, costs associated with 

the insurance or debt cancellation or suspension coverage are not considered “finance 

charges” if the coverage is optional, the issuer provides certain disclosures to the 

consumer about the coverage, and the issuer obtain an affirmative written request for 

coverage after the consumer has received the required disclosures. Card issuers 

frequently provide the disclosures discussed above on the application form and a space to 

sign or initial an affirmative written request for the coverage. Currently, issuers are not 

required to provide any information about the insurance or debt cancellation or 

suspension coverage in the table that contains the § 226.5a disclosures. 

In the event that a card issuer requires the insurance or debt cancellation or debt 

suspension coverage (to the extent permitted by state or other applicable law), the Board 

proposes new § 226.5a(b)(14) to require that the issuer disclose any fee for this coverage 

in the table. In addition, new § 226.5a(b)(14) would require that the card issuer also 

disclose a cross-reference to where the consumer may find more information about the 

insurance or debt cancellation or debt suspension coverage, if additional information is 

included on or with the application or solicitation. Proposed Sample G-10(B) provides 

guidance on how to provide the fee information and the cross-reference in the table. If 

insurance or debt cancellation or suspension coverage is required in order to obtain a 

credit card, the Board believes that fees required for this coverage should be highlighted 

in the table so that consumers are aware of these fees when considering an offer, because 

they will be required to pay the fee for this coverage every month in order to have the 

credit card. 
80

5a(b)(15) Payment Allocation

Some credit card issuers will allocate payments first to balances that are subject to 

the lowest APR. For example, if a cardholder made purchases using a credit card account 

and then initiated a balance transfer, the card issuer might allocate a payment (less than 

the amount of the balances) to the transferred balance portion of the account if that 

balance was subject to a lower APR than the purchases. Card issuers often will offer a 

discounted initial rate on balance transfers (such as 0 percent for an introductory period) 

with a credit card solicitation, but not offer the same discounted rate for purchases. In 

addition, the Board is aware of at least one issuer that offers the same discounted initial 

rate for balance transfers and purchases for a specified period of time, where the 

discounted rate for balance transfers (but not the discounted rate for purchases) may be 

extended until the balance transfer is paid off if the consumer makes a certain number of 

purchases each billing cycle. At the same time, issuers typically offer a grace period for 

purchases if a consumer pays his or her bill in full each month. Card issuers, however, do 

not typically offer a grace period on balance transfers or cash advances. Thus, on the 

offers described above, a consumer cannot take advantage of both the grace period on 

purchases and the discounted rate on balance transfers. Because the payments will be 

allocated to the balance transfers first, the only way for a consumer to avoid paying 

interest on purchases - and thus have the benefit of the grace period - is to pay off the 

entire balance, including the balance transfer subject to the discounted rate. 

The Board believes that it is important that consumers understand payment 

allocation in these circumstances, so that they can better understand the offer and decide 

whether to use this particular card for purchases. For example, if consumers knew that 

they would pay interest on all purchases made while paying off the balance transfer at the 

discounted rate, they might not use that particular card for purchases. They might use 

another card for purchases and pay that card in full every month to take advantage of the 

grace period on purchases. Or they might use another card with a lower purchase rate, if 

they did not plan to pay off the purchases in full each month. 

In the consumer testing conducted for the Board, many participants did not 

understand that they could not take advantage of the grace period on purchases and the 

discounted rate on balance transfers at the same time. Model forms were tested that 

included a disclosure notice attempting to explain this to consumers. Nonetheless, testing 

showed that a significant percentage of participants still did not fully understand how 

payment allocation can affect their interest charges, even after reading the disclosure 

tested. The Board plans to conduct further testing of the disclosure to determine whether 

the disclosure can be improved to be more effectively communicate to consumers how 

payment allocation can affect their interest charges. Nonetheless, because some 

participants did benefit from the disclosure, and in light of further testing, the Board, 

under its authority pursuant to TILA Section 127(c)(5), proposes to add § 226.5a(b)(15) 

to require a card issuer to explain payment allocation to consumers. 

15 U.S.C. 1637(c)(5). Proposed § 226.5a(b)(15) states that if (1) a card issuer offers a 

discounted initial rate on a balance transfers or cash advance that is lower than the rate on 

purchases, (2) the issuer offers a grace period on purchases, and (3)the issuer may 

allocate payments to the lower rate balance first, then the issuer must make certain 
81

disclosures in the table. Specifically, issuers would be required to disclose: (1) that the 

discounted initial rate applies only to balance transfers or cash advances, as applicable, 

and not to purchases; (2) that payments will be allocated to the balance transfer or cash 

advance balance, as applicable, before being allocated to any purchase balance during the 

time the discounted initial rate is in effect; and (3) that the consumer will incur interest on 

the purchase balance until the entire balance is paid, including the transferred balance or 

cash advance balance, as applicable. The Board would require these disclosures in the 

table only if the discounted initial rate applies to balance transfers or cash advances that 

consumers can request as part of accepting the offer. If the discounted initial rate only 

applies to subsequent balance transfers or checks that access a credit card account, the 

issuer would not need to provide this disclosure with the offer. The Board proposes to 

add comment 5a(b)(15)-1 to provide examples of when these disclosures must be given. 

The Board also proposes to add comment 5a(b)(15)-2 to specify that a card issuer may 

comply with the requirements in new § 226.5a(b)(15) by providing the applicable 

disclosures contained in proposed Samples G-10(B) and G-10(C).

5a(b)(16) Available Credit

 Subprime credit cards often have substantial fees assessed when the account is 

opened. Those fees will be billed to the consumer as part of the first statement, and will 

substantially reduce the amount of credit that the consumer initially has available with 

which to make purchases or other transactions on the account. For example, for cards for 

which a consumer is given a minimum credit line of $250, after the start-up fees have 

been billed to the account, the consumer may have less than $100 of available credit with 

which to make purchases or other transactions in the first month. In addition, consumers 

will pay interest on these fees until they are paid in full. 

The federal banking agencies have received a number of complaints from 

consumers with respect to cards of this type. Complainants often claim that they were 

not aware of how little available credit they would have after all the fees were assessed. 

Thus, the Board is proposing to add § 226.5a(b)(16) to inform consumers about the 

impact of these fees on their initial available credit. Specifically, § 226.5a(b)(16) would 

provide that if (1) a card issuer imposes required fees for the issuance or availability of 

credit, or a security deposit, that will be charged against the card when the account is 

opened, and (2) the total of those fees and/or security deposit equal 25 percent or more of 

the minimum credit limit applicable to the card, a card issuer must disclose in the table an 

example of the amount of the available credit that a consumer would have remaining after 

these fees or security deposit are debited to the account, assuming that the consumer 

receives the minimum credit limit offered on the relevant account. In determining 

whether the 25 percent threshold test is met, the issuer must only consider fees for 

issuance or availability of credit, or a security deposit, that are required. If certain fees 

for issuance or availability are optional, these fees should not be considered in 

determining whether the disclosure must be given. Nonetheless, if the 25 percent 

threshold test is met in connection with the required fees or security deposit, the issuer 

must disclose the available credit after excluding any optional fees from the amounts 

debited to the account, and the available credit after including any optional fees in the 

amounts debited to the account. The Board believes that 25 percent is an appropriate 
82

threshold because it represents a significant reduction in the initial available credit as a 

result of the imposition of fees or security deposit. The Board solicits comment on this 

threshold amount. 

In addition, the Board proposes comment 5a(b)(16)-1 to clarify that in calculating 

the amount of available credit that must be disclosed in the table, an 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 when the account is opened and charged to the 

account, such as one-time issuance and set-up fees that will be imposed when the card is 

opened. For example, in calculating the available credit, issuers must consider the first 

year’s annual fee and the first month’s maintenance fee (if applicable) if they are charged 

to the account immediately at account opening. Proposed Sample G-10(C) provides 

guidance to issuers on how to provide this disclosure. (See proposed 

comment 5a(b)(16)-2). 

As described above, a card issuer would consider only required fees for issuance 

or availability of credit, or a security deposit, that will be charged against the card when 

the account is opened in determining whether the 25 percent threshold test is met. The 

Board requests comment on whether there are other fees (other than fees required for 

issuance or availability of credit) that are typically imposed on these types of accounts 

when the account is opened, and should be included in determining whether the 

25 percent threshold test is met. 

5a(b)(17) Reference to Board Web Site for Additional Information

In the December 2004 ANPR, the Board requested comment on suggestions for 

non-regulatory approaches that may further the Board’s goal of improving the 

effectiveness of TILA’s disclosures and substantive protections. Q57. In response to the 

ANPR, several commenters encouraged the Board to develop educational materials, such 

as pamphlets, targeted media, and interactive web sites, that could educate consumers on 

a variety of topics related to shopping for and using credit cards. These commenters 

believe that certain topics that are difficult to explain to consumers, such as balance 

computation methods, are better provided in educational materials than in the TILA 

disclosures. 

The Board proposes to revise § 226.5a to require that credit card issuers must 

disclose in the table a reference to a Board web site and a statement that consumers can 

find on this web site educational materials on shopping for and using credit card 

accounts. See proposed § 226.5a(b)(17). Such materials would expand those already 

available on choosing a credit card at the Board’s web site.12 The Board recognizes that 

some consumers may need general education about how credit cards work and an 

explanation of typical account terms that apply to credit cards. In the consumer testing 

conducted for the Board, participants showed a wide range of knowledge about how 

credit cards work generally, with some participants showing a firm understanding of 

terms that relate to credit card accounts, while others had difficulty expressing basic 

financial concepts, such how the interest rate differs from a one-time fee. The Board’s 

 

12 The materials can be found at http://www.federalreserve.gov/pubs/shop/default.htm. 
83

current web site explains some basic financial concepts – such as what an annual 

percentage rate is – as well as terms that typically apply to credit card accounts. Through 

the web site, the Board could expand the explanation of other credit card terms, such as 

balance computation methods, that may be difficult to explain concisely in the 

disclosures given with applications and solicitations. 

As part of consumer testing, participants were asked whether they would use a 

Board web site to obtain additional information about credit cards generally. Some 

participants indicated they might use the web site, while others indicated that it was 

unlikely they would use such a web site. Although it is hard to predict from the results of 

the testing how many consumers might use the Board’s web site, and recognizing that not 

all consumers have access to the Internet, the Board believes that this web site may be 

helpful to some consumers as they shop for a credit card and manage their account once 

they obtain a credit card. Thus, the Board is proposing that a reference to a Board web 

site be included in the table because this is a cost-effective way to provide consumers 

with supplemental information on credit cards. The Board seeks comments on the 

content for the web site. 

Additional disclosures. In response to the December 2004 ANPR, several 

consumer groups suggested that the Board require information about the minimum 

payment formula, credit limit, any security interest, and all fees imposed on the account 

be disclosed in the table. The Board has decided not to propose this additional 

information in the table for the reasons detailed below. 

1. Minimum payment formula. In the consumer testing conducted for the Board, 

participants did not tend to mention the minimum payment formula as one of the terms 

on which they shop for a card. In addition, minimum payment formulas used by card 

issuers can be complicated formulas that would be hard to describe concisely in the table. 

For example, while some issuers still use a percentage to calculate the payment, such as 

2 percent of the outstanding balance or $10, whichever is less, other issuers use much 

more complicated formulas, such as “the greater of (1) $15 or (2) 2 percent of the balance 

or (3) the applicable finance charges, and if the finance charges are largest, add $15 to 

that amount.” Even if the Board were to require issuers to provide an example showing 

the amount of the minimum payment for a certain balance (for example, $1000), this 

example be of doubtful usefulness for the many consumers who have balances different 

from the example. In addition, the example might mislead consumers, because one card 

might yield a lower minimum payment amount than another card for one balance (for 

example, $1000), but the second card might yield a lower minimum payment than the 

first card if the minimum payment was calculated on a different balance. 

2. Credit limit. Card issuers often indicate a credit limit in a cover letter sent 

with an application or solicitation. Frequently, this credit limit is not stated as a specific 

amount but, instead, is stated as an “up to” amount, indicating the maximum credit limit 

for which a consumer may qualify. The actual credit limit for which a consumer qualifies 

depends on the consumer’s creditworthiness, which is evaluated after the application or 

solicitation is submitted. Several consumer groups suggested that the Board include the 
84

credit limit in the table because it is a key factor for many consumers in shopping for a 

credit card. These groups also suggested that the Board require issuers to state a specific 

credit limit, and not an “up to” amount. 

The Board is not proposing to include the credit limit in the table. As explained 

above, in most cases, the credit limit for which a consumer qualifies depends on the 

consumer’s creditworthiness, which is fully evaluated after the application or solicitation 

has been submitted. In addition, in consumer testing conducted for the Board, 

participants were not generally confused by the “up to” credit limit. Most participants 

understood that the “up to” amount on the solicitation letter was a maximum amount, 

rather than the amount the issuer was promising them. Almost all participants tested 

understood that the credit limit for which they would qualify depended on their 

creditworthiness, such as credit history. 

3. Security interest. Several consumer groups suggested that any required 

security interest should be disclosed in the table. These commenters suggest that if a 

security interest is required, the disclosure in the table should describe it briefly, such as 

“in items purchased with card” or “required $200 deposit.” These commenters indicated 

that a security deposit is a very important consideration in credit shopping, especially for 

low-income consumers. In addition, they stated that many credit cards issued by 

merchants are secured by the goods that the consumer purchases, but consumers are often 

unaware of the security interest. 

The Board is not proposing to include a disclosure of any required security 

interest in the table at this time. Credit card-issuing merchants may include in their 

account agreements a security interest in the goods that are purchased with the card. It is 

not apparent that consumers would shop on whether a retail card has this type of security 

interest. Requiring or allowing this type of security interest to be disclosed in the table 

may distract from important information in the table, and contribute to “information 

overload.” Thus, in an effort to streamline the information that may appear in the table, 

the Board is not proposing to include this disclosure in the table.With respect to security 

deposits, if a consumer is required to pay a security deposit prior to obtaining a credit 

card and that security deposit is not charged to the account but is paid by the consumer 

from separate funds, a card issuer must necessarily disclose to the consumer that a 

security deposit is required, so that the consumer knows to submit the deposit in order to 

obtain the card. A security deposit in these instances may already be sufficiently 

highlighted in the materials accompanying the application or solicitation, and may not 

need to appear in the table. Nonetheless, the Board recognizes that a security deposit 

may need to be highlighted when the deposit is not paid from separate funds but is 

charged to the account when the account is opened. In those cases, consumers may not 

realize that the security deposit may significantly decrease their available credit when the 

account is opened. Thus, as described above, the Board proposes to provide that if (1) a 

card agreement requires payment of a fee for issuance or availability of credit, or a 

security deposit, (2) the fee or security deposit will be charged to the account when it is 

opened, and (3) the total of those fees and security deposit equal 25 percent or more of 

the minimum credit limit offered with the card, the card issuer must disclose in the table 
85

an example of the amount of the available credit that a consumer would have remaining 

after these fees or security deposit are debited to the account, assuming that the consumer 

receives the minimum credit limit offered on the card. 

 

4. Fees. In response to the December 2004 ANPR, several consumer groups 

suggested that all fees imposed on an account should be included in the table. They 

believed that by requiring only certain fees in the table, card issuers have an incentive to 

devise new fees that do not have to be disclosed so prominently. They indicate that if the 

Board excludes any fees, the list of such fees should be an exclusive list. They also 

suggested that the Board should require card issuers to report periodically on the volume 

of the excluded fees collected. If a certain type of fee increases in volume, these 

commenters suggested that the Board should delete this fee from the list of excluded fees 

on the grounds that that fee has become a more significant component of the cost of 

credit. 

As described above, the Board is proposing to include certain transaction fees and 

penalty fees, such as cash advance fees, balance transfer fees, late-payment fees, and 

over-the-credit limit fees, in the table because these fees are frequently paid by 

consumers, and consumers have indicated these fees are important for shopping purposes. 

The Board is not proposing to include other fees in the table, such as copying fees and 

stop-payment fees, in the table because these fees tend to be imposed less frequently and 

are not fees on which consumers tend to shop. In consumer testing conducted for the 

Board, participants tended to mention cash advance fees, balance transfer fees, latepayment fees, and over-the-credit-limit fees as the most important fees they would want 

to know when shopping for a credit card. In addition, most participants understood that 

issuers were allowed to impose additional fees, beyond those disclosed in the table. 

Thus, the Board believes it is important to highlight in the table the fees that consumers 

want to know when shopping for a card, rather than including infrequently-paid fees, to 

avoid creating “information overload” such that consumers could not easily identify the 

fees that are most important to them. Nonetheless, the Board recognizes that fees can 

change over time, and the Board plans to monitor the market and update the fees required 

to be disclosed in the table as necessary. 

5a(c) Direct-Mail and Electronic Applications

5a(c)(1) General

Electronic applications and solicitations. As discussed above, the Bankruptcy Act 

amends TILA Section 127(c) to require that solicitations to open a card account using the 

Internet or other interactive computer service must contain the same disclosures as those 

made for applications or solicitations sent by direct mail. 15 U.S.C. 1637(c)(7). The 

interim final rules adopted by the Board in 2001 revised § 226.5a(c) to apply the direct 

mail rules to electronic applications and solicitations. The Board proposes to retain these 

provisions in § 226.5a(c)(1). (Current § 226.5a(c) would be revised and renumbered as 

new §226.5a(c)(1).) The same proposal was included in the Board’s 2007 Electronic 

Disclosure Proposal. 
86

The Bankruptcy Act also requires that the disclosures for electronic offers must be 

“updated regularly to reflect the current policies, terms, and fee amounts.” In the October 

2005 ANPR, the Board also solicited comment on what guidance the Board should 

provide on how to apply that standard for credit card accounts. The Board’s 2001 interim 

final rules provided guidance that disclosures for a variable-rate credit card plan provided 

electronically must be based on an APR in effect within the last 30 days. The 2001 

guidance did not contain specific guidance on accuracy requirements for other 

disclosures provided electronically, such as disclosure of fees. The majority of 

commenters on the October 2005 ANPR which addressed the accuracy of variable rates 

agreed that a 30-day standard would be appropriate to implement the “updated regularly” 

standard in the Bankruptcy Act. Some commenters advocated longer periods such as 60 

days or shorter periods such as daily or weekly updating, or suggested that the Board 

should not provide specific guidance or rules, instead allowing maximum flexibility in 

this area. 

The Board proposes to revise § 226.5a(c) to implement the “updated regularly” 

standard in the Bankruptcy Act with regard to the accuracy of variable rates. A new 

§ 226.5a(c)(2) would be added to address the accuracy of variable rates in direct mail and 

electronic applications and solicitations. This new section would require issuers to 

update variable rates disclosed on mailed applications and solicitations every 60 days and 

variable rates disclosed on applications and solicitations provided in electronic form 

every 30 days, and to update other terms when they change. The Board believes the 30-

day and 60-day accuracy requirements for variable rates strike an appropriate balance 

between seeking to ensure consumers receive updated information and avoiding imposing 

undue burdens on creditors. The Board believes it is unnecessary for creditors to disclose 

to consumers the exact variable APR in effect on the date the application or solicitation is 

accessed by the consumer, so long as consumers understand that variable rates are subject 

to change. Moreover, it would be costly and operationally burdensome for creditors to 

comply with a requirement to disclose the exact variable APR in effect at the time the 

application or solicitation is accessed. The obligation to update the other terms when 

they change ensures that consumers receive information that is accurate and current, and 

should not impose significant burdens on issuers. These terms generally do not fluctuate 

with the market like variable rates. In addition, based on discussions with industry 

representatives concerning operational issues, the Board staff understands that issuers 

typically change other terms infrequently, perhaps once or twice a year. 

Section 226.5a(c)(2) consists of two subsections. Section 226.5a(c)(2)(i) would 

provide that § 226.5a disclosures mailed to a consumer must be accurate as of the time 

the disclosures are mailed. This section would also provide that an accurate variable 

APR is one that is in effect within 60 days before mailing. Section 226.5a(c)(2)(ii) would 

provide that § 226.5a disclosures provided in electronic form (except for a variable APR) 

must be accurate as of the time they are sent to a consumer’s e-mail address, or as of the 

time they are viewed by the public on a web site. For the reasons discussed above, this 

section would provide that a variable APR is accurate if it is in effect within 30 days 

before it is sent, or viewed by the public. Presently, variable APRs on most credit cards 
87

may change on a monthly basis, so a 30-day accuracy requirement for variable APRs 

appears appropriate.

Many of the provisions included in proposed § 226.5a(c)(2) have been 

incorporated from current § 226.5a(b)(1). To eliminate redundancy, the Board proposes 

to revise § 226.5a(b)(1) by deleting § 226.5a(b)(1)(ii), § 226.5a(b)(1)(iii), and comment 

5a(c)-1. The same revisions were included in the Board’s 2007 Electronic Disclosure 

Proposal. 

5a(d) Telephone Applications and Solicitations

5a(d)(2) Alternative Disclosure

 Section 226.5a(d) specifies rules for providing cost disclosures in oral 

applications and solicitations initiated by a card issuer. Card issuers generally must 

provide certain cost disclosures during the oral conversation in which the application or 

solicitation is given. Alternatively, an issuer is not required to give the oral disclosures if 

the card issuer either does not impose a fee for the issuance or availability of a credit card 

(as described in § 226.5a(b)(2)) or does not impose such a fee unless the consumer uses 

the card, provided that the card issuer provides the disclosures later in a written form. 

Specifically, the issuer must provide the disclosures required by § 226.5a(b) in a tabular 

format in writing within 30 days after the consumer requests the card (but in no event 

later than the delivery of the card), and disclose the fact that the consumer need not 

accept the card or pay any fee disclosed unless the consumer uses the card. The Board 

proposes to add comment 5a(d)-2 to indicate that an issuer may disclose in the table that 

the consumer is not required to accept the card or pay any fee unless the consumer uses 

the card. 

5a(d)(3) Accuracy

 Proposed § 226.5a(d)(3) would provide guidance on the accuracy of telephone 

disclosures. Current comment 5a(b)(1)-3 specifies that for variable-rate disclosures in 

telephone applications and solicitations, the card issuer must provide the rates currently 

applicable when oral disclosures are provided. For the alternative disclosures under 

§ 226.5a(d)(2), an accurate variable APR is one that is (1) in effect at the time the 

disclosures are mailed or delivered; (2) in effect as of a specified date (which rate is then 

updated from time to time, for example, each calendar month); or (3) an estimate in 

accordance with § 226.5(c). Current comment 5a(b)(1)-3 would be moved to 

§ 226.5a(d)(3), except that the option of estimating a variable APR would be eliminated 

as the least meaningful of the three options. Proposed § 226.5a(d)(3) also would specify 

that if an issuer discloses a variable APR as of a specified date, the issuer must update the 

rate on at least a monthly basis, the frequency with which variable rates on most credit 

card products are adjusted. The Board also would amend proposed § 226.5a(d)(3) to 

specify that oral disclosures under § 226.5a(d)(i) must be accurate when given, consistent 

with the requirement in § 226.5(c) that disclosures must reflect the terms of the legal 

obligation between the parties. For the alternative disclosures, terms other than variable 

APRs must be accurate as of the time they are mailed or delivered. See proposed 

§ 226.5a(d)(3). 
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5a(e) Applications and Solicitations Made Available to General Public

 TILA Section 127(c)(3) and § 226.5a(e) specify rules for providing disclosures in 

applications and solicitations made available to the general public such as “take-one” 

applications and catalogs or magazines. 15 U.S.C. 1637(c)(3). These applications and 

solicitations must either contain: (1) the disclosures required for direct mail applications 

and solicitations, presented in a table; (2) a narrative that describes how finance charges 

and other charges are assessed; or (3) a statement that costs are involved, along with a 

toll-free telephone number to call for further information. 

 Narrative that Describes How Finance Charges and Other Charges Are Assessed. 

TILA Section 127(c)(3)(D) and § 226.5a(e)(2) allow issuers to meet the requirements of 

§ 226.5a for take-one applications and solicitations by giving a narrative description of 

certain account-opening disclosures (such as information about how finance charges and 

other charges are assessed), a statement that the consumer should contact the card issuer 

for any change in the required information, and a toll-free telephone number or a mailing 

address for that purpose. 15 U.S.C. 1637(c)(3)(D). Currently, this information does not 

need to be in the form of a table, but may be a narrative description, as is also currently 

allowed for account-opening disclosures. The Board is proposing, however, to require 

that certain account-opening information (such as information about key rates and fees) 

must be given in the form of a table. See the section-by-section analysis to § 226.6(b)(4). 

Therefore, the Board also is proposing that card issuers give this same information in a 

tabular form in take-one applications and solicitations. Thus, the Board proposes to 

delete § 226.5a(e)(2) and comments 5a(e)(2)-1 and -2 as obsolete. Card issuers that 

provide cost disclosures in take-one applications and solicitations would be required to 

provide the disclosures in the form of a table, for which they could use the accountopening summary table. See § 226.5a(e)(1) and comment 5a-2. 

5a(e)(4) Accuracy

For applications or solicitations that are made available to the general public, if a 

creditor chooses to provide the cost disclosures, § 226.5a(b)(1)(ii) currently requires that 

any variable APR disclosed must be accurate within 30 days before printing. The 

proposal would move this provision to § 226.5a(e)(4). Proposed § 226.5a(e)(4) also 

would specify that other disclosures must be accurate as of the date of printing. 

5a(f) In-Person Applications and Solicitations

Card issuer and person extending credit are not the same. Existing § 226.5a(f) 

and its accompanying commentary contain special charge card rules that address 

circumstances in which the card issuer and the person extending credit are not the same 

person. (These provisions implement TILA Section 127(c)(4)(D), 

15 U.S.C. 1637(c)(4)(D).) The Board understands that these types of cards are no longer 

being offered. Thus, the Board proposes to delete these provisions and the Model Clause 

G-12 from Regulation Z as obsolete, recognizing that the statutory provision in TILA 

Section 127(c)(4)(D) will remain in effect if these products are offered in the future. The 

Board requests comment on whether these provisions should be retained in the 

regulation. A commentary provision referencing the statutory provision would be added 
89

to § 226.5(d), which addresses disclosure requirements for multiple creditors. 

See proposed comment 5(d)-3. 

In-person applications and solicitations. The Board is proposing a new 

§ 226.5a(f) and accompanying commentary to address in-person applications and 

solicitations initiated by the card issuer. In in-person applications, a card issuer initiates a 

conversation with a consumer inviting the consumer to apply for a card account, and if 

the consumer responds affirmatively, the issuer takes application information from the 

consumer. For example, in-person applications include instances in which a retail 

employee, in the course of processing a sales transaction using the customer’s bank credit 

card, invites the customer to apply for the retailer’s credit card and the customer submits 

an application. 

In in-person solicitations, a card issuer offers a consumer in-person to open an 

account that does not require an application. For example, in-person solicitations include 

instances where a bank employee offers a preapproved credit card to a consumer who 

came into the bank to open a checking account. 

Currently, in-person applications in response to an invitation to apply are 

exempted from § 226.5a because they are considered applications initiated by consumers. 

(See current comments 5a(a)(3)-2 and 5a(e)-2.) On the other hand, in-person solicitations 

are not specifically addressed in § 226.5a. Neither in-person applications nor 

solicitations are specifically addressed in TILA. 

The Board proposes to cover in-person applications and solicitations under 

§ 226.5a, pursuant to the Board’s authority under TILA Section 105(a). Requiring inperson applications and solicitations to include credit terms under § 226.5a could help 

serve TILA’s purpose to provide meaningful disclosure of credit terms so that consumers 

will be able to compare more readily the various credit terms available to him or her, and 

avoid the uninformed use of credit. 15 U.S.C. 1601(a). Also, the Board understands that 

card issuers routinely provide § 226.5a disclosures in these circumstances; therefore, any 

additional compliance burden would be minimal. 

Card issuers must provide the disclosures required by § 226.5a in the form of a 

table, and those disclosures must be accurate when given (consistent with the direct mail 

rules) or when printed (consistent with one option for the take-one rules). 

See § 226.5a(c), (e)(1). These two alternatives appear to provide issuers flexibility, while 

also providing consumers with the information they need to make informed credit 

decisions. Existing comment 5a(a)(3)-2 (which would be moved to comment 5a(a)(5)-1) 

and comment 5a(e)-2 would be revised to be consistent with § 226.5a(f). 

5a(g) Balance Computation Methods Defined

TILA Section 127(c)(1)(A)(iv) calls for the Board to name not more than five of 

the most common balance computation methods used by credit card issuers to calculate 

the balance on which finance charges are computed. 15 U.S.C. 1637(c)(1)(A)(iv). If 

issuers use one of the balance computation methods named by the Board, the issuer must 
90

disclose that name of the balance computation method as part of the disclosures required 

by § 226.5a, and is not required to provide a description of the balance computation 

method. If the issuer uses a balance computation method that is not named by the Board, 

the issuer must disclose a detailed explanation of the balance computation method. 

See current § 226.5a(b)(6). Currently, the Board has named four balance computation 

methods: (1) average daily balance (including new purchases) or (excluding new 

purchases); (2) two-cycle average daily balance (including new purchases) or (excluding 

new purchases); (3) adjusted balance; and (4) previous balance. The Board proposes to 

retain these four balance computation methods. The Board requests comment on whether 

the list should be revised, along with data indicating why. 

Section 226.6 Account-opening Disclosures

TILA Section 127(a), implemented in § 226.6, requires creditors to provide 

information about key credit terms before an open-end plan is opened, such as rates and 

fees that may be assessed on the account. Consumers’ rights and responsibilities in the 

case of unauthorized use or billing disputes are also explained. 15 U.S.C. 1637(a). 

See also Model Forms G-2 and G-3 in Appendix G. 

Home-equity lines of credit. Account-opening disclosure and format 

requirements for home-equity lines of credit (HELOCs) subject to § 226.5b would be 

unaffected by the proposal, consistent with the Board’s plan to review Regulation Z’s 

disclosure rules for home-secured credit in a separate rulemaking. To facilitate 

compliance, the substantively unrevised rules applicable only to HELOCs are grouped 

together in proposed § 226.6(a), including rules relating to the disclosure of finance 

charges, other charges, and specific HELOC-related disclosures. (See redesignation table 

below.) For the reasons set forth in the section-by-section analysis to § 226.6(b)(1), the 

Board would update references to “free-ride period” as “grace period” in the regulation 

and commentary, without any intended substantive change. 

Open-end (not home-secured) plans. The Board proposes two significant 

revisions to account-opening disclosures for open-end (not home-secured) plans, which 

are set forth in proposed § 226.6(b). The rule would (1) require a tabular summary of key 

terms to be provided before an account is opened (see proposed § 226.6(b)(4)), and 

(2) reform how and when cost disclosures must be made (see proposed § 226.6(b)(1) for 

content, § 226.5(b) and § 226.9(c) for timing). The Board proposes to apply the tabular 

summary requirement to all open-end loan products, except HELOCs. Such products 

include credit card accounts, traditional overdraft credit plans, personal lines of credit, 

and revolving plans offered by retailers without a credit card. The benefit to consumers 

from receiving a concise summary of rates and important fees appears to outweigh the 

costs, such as developing the new disclosures and revising them as needed. 

Disclosure requirements in § 226.6 that potentially affect all open-end creditors, 

namely rules relating to security interests and billing error disclosure requirements, are 

grouped together in proposed § 226.6(c). The section also would be retitled “Accountopening disclosures” to more accurately reflect the timing of the disclosures. In today’s 
91

marketplace, there are few open-end products for which consumers receive the 

disclosures required under § 226.6 as their “initial” Truth in Lending disclosure. See

§ 226.5a, § 226.5b. The substance of footnotes 11 and 12 is moved to the regulation; the 

substance of footnote 13 is moved to the commentary. (See redesignation table below.) 

In technical revisions, comments 6-1 and 6-2 would be deleted. The substance of 

comment 6-1, which requires consistent terminology, is discussed more generally in 

proposed § 226.5(a)(2). Comment 6-2 addresses certain open-end plans involving more 

than one creditor, and is proposed to be deleted as obsolete. See section-by-section 

analysis to § 226.5a(f). 

Tabular summary. As provided by Regulation Z, creditors may, and typically do, 

include account-opening disclosures as a part of an account agreement document that also 

contains other contract terms and state-law disclosures. The agreement is typically 

lengthy and in small print. In the December 2004 ANPR, the Board sought comment on 

possible approaches to ease consumers’ ability to navigate account-opening disclosures, 

such as a summary paragraph, a table similar to the one required on or with credit and 

charge card applications, or a table of contents to highlight key features and terms of the 

account. Q2 – Q3. 

Commenters generally encouraged the Board to consider format rules that focus 

on providing essential terms in a simplified way. In general, commenters suggested that 

a summary of key terms would improve the effectiveness of the now-lengthy and 

complex account agreement documents. Some industry commenters, however, opposed a 

summary. These commenters noted that the current format rules integrating account 

terms and TILA disclosures allow creditors to explain features coherently, and noted that 

summarizing information and repeating it in detail in the contract document may result in 

information overload. As a part of consumer research conducted for the Board regarding 

consumer understanding of current TILA disclosures, tests simulated consumers’ review 

of packets of information typically received when new accounts are opened. Most of the 

consumers in the Board’s sample group set aside the lengthy multi-fold account 

agreement pamphlets without reading them, saying they were too long, the type was too 

small, and the language too legalistic. Consumers who reviewed packets that included a 

summary of account terms generally noticed and reviewed the summary, even if they set 

aside the contract document. 

Based on public comment, consumer testing, and its own analysis, the Board is 

proposing to introduce format requirements for account-opening disclosures for open-end 

(not home-secured) plans. The Board proposes to summarize key information most 

important to informed decision-making in a table similar to that required on or with credit 

and charge card applications and solicitations. The proposal would permit TILA 

disclosures that are typically lengthy or complex and less-often used in determining how 

to use an account, such as how variable rates are determined, to be integrated with the 

account agreement terms. The content requirements for the proposed summary are set 

forth in new § 226.6(b)(4) and are discussed below; proposed Model Form G-17(A) and 

Samples G-17(B) and G-17(C) in Appendix G illustrate the table. 
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Charges imposed as part of the plan. The Board proposes to reform its rules 

regarding cost disclosures provided at account opening for open-end (not home-secured) 

plans. Under TILA and current Regulation Z, account-opening disclosures must include 

charges that are either a “finance charge” or an “other charge” (TILA charges). 

According to TILA, a charge is a finance charge if it is payable directly or indirectly by 

the consumer and imposed directly or indirectly by the creditor “as an incident to the 

extension of credit.” The Board implemented the definition by including as a finance 

charge under Regulation Z, any charge imposed “as an incident to or a condition of the 

extension of credit.” TILA also requires a creditor to disclose, before opening an 

account, “other charges which may be imposed as part of the plan . . . in accordance with 

regulations of the Board.” The Board implemented the provision virtually verbatim, and 

the staff commentary interprets the provision to cover “significant charges related to the 

plan.” 15 U.S.C. 1605(a), § 226.4; 15 U.S.C. 1637(a)(5), § 226.6(b), current 

comment 6(b)-1. 

The terms “finance charge” and “other charge” are given broad and flexible 

meanings in the regulation and commentary. This ensures that TILA adapts to changing 

conditions, but it also creates uncertainty. The distinctions among finance charges, other 

charges, and charges that do not fall into either category are not always clear. As 

creditors develop new kinds of services, some find it difficult to determine if associated 

charges for the new services meet the standard for a “finance charge” or “other charge” 

or are not covered by TILA at all. This uncertainty can pose legal risks for creditors that 

act in good faith to classify fees. Examples of charges that are included or excluded 

charges are in the regulation and commentary, but they cannot provide definitive 

guidance in all cases. 

A 2003 rulemaking concerning charges for two services—expediting payments 

and expediting card delivery—illustrates the challenges in applying current rules. 68 FR 

16,185; April 3, 2003. Public comments on the proposal reflected a lack of consensus 

about the proposed interpretations of expedited payment fee as an “other charge” and 

expedited card delivery fee as not covered by TILA. More broadly, the comments 

reflected a lack of consensus over the basic principles that should determine whether a 

charge is a finance charge or an “other charge.” 

In the final rule, staff adopted official interpretations indicating that neither charge 

was a charge covered by TILA. In the supplementary information accompanying the 

final rule, Board staff recognized that requiring a written disclosure of a charge for a 

service long before the consumer might consider purchasing the service did not provide 

the consumer with any material benefit. The staff also noted creditors’ current practice of 

disclosing the charge when the service is requested, and encouraged the continuation of 

that practice. 

Board staff also indicated that a more comprehensive review of existing rules was 

needed. Accordingly, the December 2004 ANPR solicited comment on the effectiveness 

of the rules governing disclosure of charges covered by TILA, and on potential 

alternatives. The comments indicated a consensus that the current approach should be 
93

replaced with a new one. Commenters split, however, on the proper approach. Most 

focused on the definition of “finance charge” or “other charge.” Approaches ranged from 

industry’s suggestions to restrict finance charges to interest or to charges required as a 

condition to the extension of credit, to consumer groups’ suggestion to include virtually 

all charges the consumer would pay. While commenters disagreed over which approach 

would best serve TILA’s purposes, they shared a common objective: provide a clear test.

In light of the comments received, consumer testing, and the Board’s experience 

and analysis, the Board is proposing to reform the rules governing disclosure of charges 

before they are imposed, as discussed below. The proposed rule is intended to respond 

collectively to these concerns by (1) giving full effect to TILA’s requirement that all 

charges imposed as part of an open-end (not home-secured) plan be disclosed before they 

are imposed, (2) specifying precisely important costs that must be disclosed in writing at 

account opening (e.g., interest rates, annual fees, and late-payment or over-the-creditlimit fees), and (3) permitting the creditor to disclose all other charges imposed as part of 

the plan (e.g., fees to expedite payments or to provide an additional card) at account 

opening or orally at any time before the consumer agrees to or becomes obligated to pay 

the charge. Charges added or increased during the life of the plan would be subject to 

similar rules. See § 226.9(c)(2). 

Under the proposal, some charges would be covered by TILA that the current 

regulation, as interpreted by the staff commentary, excludes from TILA coverage, such as 

fees for expedited payment and expedited delivery. It may not have been useful to 

consumers to cover such charges under TILA when such coverage would have meant 

only that the charges were disclosed long before they became relevant to the consumer. 

It may, however, be useful to cover such charges under TILA as part of a rule that 

permits their disclosure at a (later) more relevant time. Further, as new services (and 

associated charges) are developed, the proposal is intended to reduce uncertainty of how 

to disclose such fees and risks of civil liability. The list of charges creditors must 

disclose in the account-opening table would be specific and exclusive, not open-ended as 

is the case today. Creditors could otherwise comply with the rule by disclosing other 

costs at any other relevant time. 

6(a) Rules Affecting Home-equity Plans

For the reasons discussed above and as illustrated in the redesignation table 

below, the proposal would set forth in § 226.6(a) all requirements applying exclusively to 

home-equity plans subject to § 226.5b (HELOCs). Rules relating to the disclosure of 

finance charges currently in § 226.6(a)(1) through (4) would be moved to proposed 

§ 226.6(a)(1)(i) through (iv); those rules and accompanying official staff interpretations 

are substantively unchanged. Rules relating to the disclosure of other charges would be 

moved from current § 226.6(b) to proposed § 226.6(a)(2), and specific HELOC-related 

disclosure requirements would be moved from current § 226.6(e) to proposed 

§ 226.6(a)(3). Several technical revisions to commentary provisions are proposed for 

clarity and in some cases for consistency with corresponding comments to proposed 

§ 226.6(b)(2), which addresses rate disclosures for open-end (not home-secured) plans, 

but these revisions are not intended to be substantive. See, for example, proposed 
94

comments 6(a)(1)(ii)-1 and 6(b)(2)(i)(B)-1, which address disclosing ranges of balances. 

Also, commentary provisions that currently apply to open-end plans generally but are 

inapplicable to HELOCs would not moved. For example, guidance in current 6(a)(2)-2 

regarding a creditor’s general reservation of the right to change terms would not be 

moved to proposed comment 6(a)(1)(ii)-2, because § 226.5b(f)(1) prohibits “ratereservation” clauses for HELOCS. Comment 6-1, which addresses the need for 

consistent terminology with periodic statement disclosures, would be deleted as 

duplicative. See proposed § 226.5(a)(2)(i). 

6(b) Rules Affecting Open-end (not Home-secured) Plans

6(b)(1) Charges Imposed as Part of Open-end (not Home-secured) Plans

Proposed § 226.6(b)(1) would apply to all open-end plans except HELOCs 

subject to § 226.5b. It retains TILA’s general requirements for disclosing costs for openend plans: Creditors would be required to continue to disclose the circumstances under 

which charges are imposed as part of the plan, including the amount of the charge (e.g., 

$3.00) or an explanation of how the charge is determined (e.g., 3 percent of the 

transaction amount). For finance charges, creditors must include a statement of when the 

finance charge begins to accrue and an explanation of whether or not a “grace period” or 

“free-ride period” exists (a period within which any credit that has been extended may be 

repaid without incurring the charge). Regulation Z generally refers to this period as a 

“free-ride period.” Since 1989, creditors have been required to use the term “grace 

period” in complying with disclosure requirements for credit and charge card applications 

and solicitations in § 226.5a. 15 U.S.C. 1632(c)(2)(C); current § 226.5a(a)(2)(iii); 

54 FR 13,856; April 6, 1989. For consistency and the reasons set forth in the section-bysection analysis to § 226.6(b)(1), the Board would update references to “free-ride period” 

as “grace period” in the regulation and commentary, without any intended substantive 

change. 

Currently, the rules for disclosing costs related to open-end plans create two 

categories of charges covered by TILA: finance charges (§ 226.6(a)) and “other charges” 

(§ 226.6(b)). Under the proposal, the rules would create a single category of “charges 

imposed as part of an open-end (not home-secured) plan” as identified in proposed 

§ 226.6(b)(1)(i). This new section would identify a complete description of the types of 

charges that would be considered to be imposed as part of a plan. These charges include 

finance charges under § 226.4(a) and (b), penalty charges, taxes, and charges for 

voluntary credit insurance, debt cancellation or debt suspension coverage. 

Charges to be disclosed would also include any charge the payment, or 

nonpayment of which affects the consumer’s access to the plan, duration of the plan, the 

amount of credit extended, the period for which credit is extended, and the timing or 

method of billing or payment. This proposed provision is intended to be broad but 

provide greater clarity than current rules and capture charges that relate to the key 

attributes of a credit plan. The proposed commentary would provide examples of charges 

covered by the provision, such as application fees and participation fees (which affect 

access to the plan), fees to expedite card delivery (which also affect access to the plan), 
95

and fees to expedite payment (which affect the timing and method of payment). 

See proposed comment 6(b)(1)(i)-2. 

Three examples of types of charges that are not imposed as part of the plan are 

listed in proposed § 226.6(b)(1)(ii). These examples include charges imposed on a 

cardholder by an institution other than the card issuer for the use of the other institution’s 

ATM; and charges for a package of services that includes an open-end credit feature, if 

the fee is required whether or not the open-end credit feature is included and the noncredit services are not merely incidental to the credit feature. Comment 6(b)(1)(ii)-1 

provides examples of fees for packages of services that are considered to be imposed as 

part of the plan and fees for packages of services that are not. This comment is 

substantively identical to current comment 6(b)-1.v. 

The proposal would not completely eliminate ambiguity about what are TILA 

charges. To mitigate ambiguity, however, the proposal provides a complete list in new 

§ 226.6(b)(4) of which charges identified under § 226.6(b)(1) must be disclosed in 

writing at account opening (or before they are increased or newly introduced). 

See proposed § 226.5(b)(1) and § 226.9(c)(2) for timing rules. Any fees aside from those 

identified in proposed § 226.6(b)(4) would not be required to be disclosed in writing at 

account opening. However, other charges imposed as part of an open-end (not homesecured) plan may be disclosed at account opening, or orally at any relevant time before 

the consumer agrees to or becomes obligated to pay the charge. This approach is 

intended in part to reduce creditor burden. Creditors presumably disclose fees at relevant 

times, such as when a consumer orders a service by telephone, for business reasons and 

to comply with other state and federal laws. Moreover, compared to the approach 

reflected in the current regulation, the proposed broad application of the statutory 

standard of fees “imposed as part of the plan” should make it easier for a creditor to 

determine whether a fee is a charge covered by TILA, and reduce litigation and liability 

risks. In addition, this approach will help ensure that consumers receive the information 

they need when it would be most helpful to them. 

6(b)(2) Rules Relating to Rates for Open-end (not Home-secured) Plans

Rules for disclosing rates that affect the amount of interest that will be imposed 

would be reorganized and consolidated in proposed § 226.6(b)(2). (See redesignation 

table below.) 

6(b)(2)(i)

Finance charges attributable to periodic rates. Currently, creditors must disclose 

finance charges attributable to periodic rates. These costs are typically interest but may 

include other costs such as premiums for required credit insurance. As discussed earlier, 

in consumer testing for the Board, participants understood credit costs in terms of interest 

and fees. The text of proposed § 226.6(b)(2)(i) reflects the Board’s intention to make the 

distinction between interest and fees clear. 

Balance computation methods. Proposed § 226.6(b)(2)(i) sets forth rules relating 

to the disclosure of rates. Proposed § 226.6(b)(2)(i)(D) (currently § 226.6(a)(3)) requires 
96

creditors to explain the method used to determine the balance to which rates apply. 

15 U.S.C. 1637(a)(2). Model Clauses that explain commonly used methods, such as the 

average daily balance method, are at Appendix G-1. The Board requests comment on 

whether model clauses for methods such as “adjusted balance” and previous balance” 

should be deleted as obsolete, and more broadly, whether G-1 should be eliminated 

entirely because creditors no longer use the model clauses. 

In the December 2004 ANPR, the Board sought comment on how significantly 

the choice of a balance computation method might affect consumers’ cost of credit, and 

on possible ways to enhance the effectiveness of any required disclosure. Q28 – Q30. 

Commenters acknowledged that balance computation methods can affect consumers’ cost 

of credit but in general would favor an approach that emphasizes other key cost terms 

instead of the details of balance computation methods. The Board concurs with these 

views. 

Calculating balances on open-end plans can be complex, and requires an 

understanding of how creditors allocate payments, assess fees, and record transactions as 

they occur during a billing cycle. Currently, neither TILA nor Regulation Z requires 

creditors to disclose all the information necessary to compute balances to which periodic 

rates are applied, and requiring that level of detail would not appear to benefit consumers 

because consumers are unlikely to review such detailed information. Although the 

Board’s model clauses are intended to assist creditors in explaining common methods, 

consumers continue to find explanations in account agreements to be lengthy and 

complex, and are not understood. The proposal would require creditors to continue to 

explain the balance computation methods in the account-opening agreement, but the 

explanation would not be permitted in the account-opening summary. As discussed 

below, along with the account-opening summary proposed in § 226.6(b)(4), creditors 

would name the balance computation method and refer consumers to the account-opening 

disclosures for an explanation of the balance computation method. 

6(b)(2)(ii)

New § 226.6(b)(2)(ii) would set forth the rules for variable-rate disclosures now 

contained in footnote 12. In addition, guidance on the accuracy of variable rates provided 

at account opening would be moved from the commentary to the regulation, and revised. 

Currently, comment 6(a)(2)-3 provides that creditors may provide the current rate, a rate 

as of a specified date if the rate is updated from time to time, or an estimated rate under 

§ 226.5(c). The Board proposes an accuracy standard that is consistent with the Board’s 

2007 Electronic Disclosure Proposal; that is, the rate disclosed is accurate if it was in 

effect as of a specified date within 30 days before the disclosures are provided. 

See 72 FR 21,1141; April, 30, 2007. The proposal would eliminate creditors’ option to 

provide an estimate as the rate in effect for a variable-rate account. The Board believes 

creditors are provided with sufficient flexibility under the proposal to provide a rate as of 

a specified date, so the use of an estimate would not be appropriate. New proposed 

comment 6(b)(2)(ii)-5, which addresses discounted variable-rate plans and is 

substantively unchanged from current comment 6(a)(2)-10, contains technical revisions. 
97

The Board also proposes to require that, in describing how a variable rate is 

determined, creditors must disclose the applicable margin, if any. See proposed 

§ 226.6(b)(2)(ii)(B). Creditors state the margin for purposes of contract or other law and 

are currently required to disclose margins related to penalty rates, if applicable. No 

particular format requirements would apply. Thus, the Board does not expect the 

revision would add burden. 

6(b)(2)(iii)

New § 226.6(b)(2)(iii) would consolidate existing rules for rate changes that are 

specifically set forth in the account agreement but are not due to changes in an index or 

formula, such as rules for disclosing introductory and penalty rates. In addition to 

identifying the circumstances under which a rate may change (such as the end of an 

introductory period or a late payment), creditors would be required to disclose how 

existing balances would be affected by the new rate. The proposed change is intended to 

improve consumer understanding as to whether a penalty rate triggered by, for example, a 

late payment would apply not only to outstanding balances for purchases but to existing 

balances that were transferred at a low promotional rate. If the increase in rate is due to 

an increased margin, creditors must disclose the increase; the highest margin can be 

stated if more than one might apply. See proposed comment 6(b)(2)(iii)-2. 

6(b)(3) Voluntary Credit Insurance; Debt Cancellation or Suspension

As discussed in the section-by-section analysis to § 226.4, the Board is proposing 

revisions to the requirements to exclude charges for voluntary credit insurance or debt 

cancellation or debt suspension coverage from the finance charge. See proposed 

§ 226.4(d). Creditors must provide information about the voluntary nature and cost of the 

credit insurance or debt cancellation or suspension product, and about the nature of 

coverage for debt suspension products. Because creditors must obtain the consumer’s 

affirmative request for the product as a part of the disclosure requirements, the Board 

expects the disclosures proposed under § 226.4(d) will be provided at the time the 

product is offered to the consumer. Thus, consumers may receive the disclosures at the 

time they open an open-end account, or earlier in time, such as at application. 

6(b)(4) Tabular Format Requirements for Open-end (not Home-secured) Plans

Proposed § 226.6(b)(4) would introduce format requirements for account-opening 

disclosures for open-end (not home-secured) plans. The proposed summary of accountopening disclosures is based on the format and content requirements for the tabular 

disclosures provided with direct mail applications for credit and charge cards under 

§ 226.5a, as it would be revised under the proposal. Proposed forms under G-17 in 

Appendix G illustrate the account-opening tables. As proposed, comment 6(b)(4)-1 

would refer generally to guidance in § 226.5a regarding format and disclosure 

requirements for the application and solicitation table. For clarity, rules under § 226.5a 

that do not apply to account-opening disclosures are specifically noted. Comment is 

requested on this approach, or whether importing essentially identical guidance from 

§ 226.5a to § 226.6 would ease compliance. 
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Rates. Proposed § 226.6(b)(4)(ii) sets forth disclosure requirements for rates that 

would apply to accounts. Periodic rates and index and margin values would not be 

permitted to be disclosed in the table, for the same reasons underlying, and consistent 

with, the proposed requirements for the table provided with credit card applications and 

solicitations. See comment 6(b)(4)(ii)-1. Creditors would continue to disclose periodic 

rates, and index and margin values as part of the account opening disclosures, and these 

could be provided in the credit agreement, as is likely currently the case. 

The rate disclosures required for the account-opening table differ from those 

required for the table provided with credit card applications and solicitations. For 

applications and solicitations, creditors may provide a range of APRs or specific APRs 

that may apply, where the APR is based on a later determination of the consumer’s 

creditworthiness. At account opening, creditors must disclose the specific APRs that will 

apply to the account. 

Fees. Fees that would be highlighted in the account-opening summary are 

identified in § 226.6(b)(4)(iii). The Board believes that these fees, among the charges 

that TILA covers, are the most important fees, at least in the current marketplace, for 

consumers to know about before they start to use an account. They include charges that 

the consumer could incur without creditors otherwise being able to disclose the cost in 

advance of the consumers’ act that triggers the cost, such as fees triggered by a 

consumer’s use of a cash advance check or by a consumers’ late payment. Transaction 

fees imposed for transactions in a feign currency or that take place in a foreign country 

would be among the fees disclosed at account opening, though the Board is not proposing 

to require that foreign transaction fees be disclosed in the table provided with credit card 

applications and solicitations. See section-by-section analysis to § 226.5a(b)(4). 

Although consumer testing for the Board indicated that consumers do not choose to apply 

for a card based on foreign transaction fees, the Board believes highlighting the fee may 

be useful for some consumers before they obtain credit on the account. 

The Board intends this list of fees to be exclusive, for two reasons. An exclusive 

list eases compliance and reduces the risk of litigation; creditors have the certainty of 

knowing that as new services (and associated fees) develop, the new fees need not be 

highlighted in the account-opening summary unless and until the Board requires their 

disclosure after notice and public comment. And as discussed in the section-by-section 

analysis to § 226.5(a)(1) and § 226.5(b)(1), charges required to be highlighted under new 

§ 226.6(b)(4) would have to be provided in a written and retainable form before the first 

transaction and before being increased or newly introduced. Creditors would have more 

flexibility regarding disclosure of other charges imposed as part of an open-end (not 

home-secured) plan. 

The exclusive list of fees also benefits consumers. The list focuses on fees 

consumer testing conducted for the Board showed to be most important to consumers. 

The list is manageable and focuses on key information rather than attempting to be 

comprehensive. Since all fees imposed as part of the plan must be disclosed before the 

cost is incurred, not all fees need to be included in the table. 
99

The Board notes that if the amount of a fee such as a late-payment fee or balance 

transfer fee varies from state to state, for disclosures required to be provided with credit 

card applications and solicitations, card issuers may disclose a range of fees and a 

statement that the amount of the fee varies from state to state. See existing 

§ 226.5a(a)(5), renumbered as new § 226.5a(a)(4). A goal of the proposed accountopening summary table is to provide to a consumer with key information about the terms 

of the account. Permitting creditors to disclose a range of fees seems not to meet that 

standard. Nonetheless, the Board solicits comment on whether there are any operational 

issues presented by the proposed rule to disclose fees applicable to the consumer’s 

account in the account-opening summary table, and if so, suggested solutions. 

Grace period. Under TILA, creditors providing disclosures with applications and 

solicitations must discuss grace periods on purchases; at account opening, creditor must 

explain grace periods more generally. 15 U.S.C. 1637(c)(1)(A)(iii); 

15 U.S.C. 1637(a)(1). Under proposed § 226.6(b)(4)(iv), creditors would state for all 

balances on the account, whether or not a period exists in which consumers may avoid 

the imposition of finance charges, and if so, the length of the period. 

Required insurance, debt cancellation or debt suspension. For the reasons 

discussed in the section-by-section analysis to § 226.5a(b)(14), as permitted by applicable 

law, creditors that require credit insurance, or debt cancellation or debt suspension 

coverage, as part of the plan would be required to disclose the cost of the product and a 

reference to the location where more information about the product can be found with the 

account-opening materials, as applicable. See proposed § 226.6(b)(4)(v). 

Payment allocation. In the December 2004 ANPR, the Board asked about 

creditors’ payment allocation methods, how the methods are typically disclosed, and 

whether additional disclosures about payment allocation should be required. Q34 – Q36. 

Responses suggest that in general, creditors tend to apply consumers’ payments to satisfy 

low-rate balances first, but that payment allocation methods vary. The timing and detail 

of disclosures also vary. Some card issuers disclose their payment allocation policies in 

materials accompanying credit card applications, while others provide information as part 

of the account agreement. Descriptions of payment allocation are typically general. 

The Board proposes in § 226.6(b)(4)(vi) to require creditors to disclose, if 

applicable, the information proposed to be required with credit card applications and 

solicitations regarding how payments will be allocated if the consumer transfers balances 

at a low rate and then makes purchases on the account. The Board believes the 

information is useful to the consumer, although perhaps more so at the time of 

application when consumers may establish an account to take advantage of a promotional 

balance transfer rate. Because the Board is proposing to allow the account-opening table 

to substitute for the table given with an application or solicitation, the Board proposes 

also to include the payment allocation disclosure in the account-opening summary, to 

ensure that consumers receive this information, if applicable, at the time of application or 

solicitation. 
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Available credit. For the reasons discussed under § 226.5a(b)(16), the Board 

proposes a disclosure targeted at subprime card accounts that assess substantial fees at 

account opening and leave consumers with a limited amount of available credit. 

Proposed § 226.6(b)(4)(vii) would require creditors to disclose in the account-opening 

table the disclosures required under § 226.5a(b)(16). The proposed requirements would 

apply to creditors that require fees for the availability or issuance of credit, or a security 

deposit, that equals 25 percent or more of the minimum credit limit offered on the 

account. If that threshold is met, card issuers must disclose in the table an example of the 

amount of available credit the consumer would have after the fees or security deposit are 

debited to the account, assuming the consumer receives the minimum credit limit. 

Web site reference. For the reasons stated under § 226.5a(b)(17), credit card 

issuers would be required under proposed § 226.6(b)(4)(viii) to provide a reference to the 

Board’s web site for additional information about shopping for and using credit card 

accounts. 

Balance computation methods. TILA requires creditors to explain as part of the 

account-opening disclosures the method used to determine the balance to which rates are 

applied. 15 U.S.C. 1637(a)(2). Explaining balance computation methods in the accountopening table may not benefit consumers, because the explanations can be lengthy and 

complex, and consumer testing indicates the explanations are not understood. Including 

an explanation in the table also may undermine the goal of presenting essential 

information in a simplified way. Nonetheless, some balance computation methods are 

more favorable to consumers than others, and the Board believes it is appropriate to 

highlight the method used, if not the technical computation details. For those reasons, the 

Board proposes that the name of balance computation methods used be disclosed beneath 

the table, along with a statement that an explanation of the method is provided in the 

account agreement or disclosure statement. See proposed § 226.6(b)(4)(ix). To 

determine the name of the balance computation method to be disclosed, creditors would 

refer to § 226.5a(g) for a list of commonly-used methods; if the method used is not 

among those identified, creditors would provide a brief explanation in place of the name. 

Billing error rights reference. All creditors offering open-end plans must provide 

notices of billing rights at account opening. See current § 226.6(d); proposed 

§ 226.6(c)(2). This information is important, but lengthy. The Board proposes to draw 

consumers’ attention to the notices by requiring a statement that information about billing 

rights and how to exercise them is provided in the account-opening disclosures. 

See proposed § 226.6(b)(4)(x). The statement, along with the name of the balance 

computation method, would be located directly below the table. 

6(c) Rules of General Applicability

6(c)(1) Security Interests

Comments to proposed § 226.6(c)(1) (current § 226.6(c)) are revised for clarity, 

without any substantive change. 
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6(c)(2) Statement of Billing Rights

Creditors offering open-end plans must provide information to consumers at 

account opening about consumers’ billing rights under TILA, in the form prescribed by 

the Board. 15 U.S.C. 1637(a)(7). This requirement is implemented in the Board’s Model 

Form G-3. The Board is proposing revisions to Model Form G-3, proposed as G-3(A). 

The proposed revisions are not based on consumer testing, although design techniques 

and changes in terminology are proposed to improve consumer understanding of TILA’s 

billing rights. Creditors offering HELOCs subject to § 226.5b could continue to use 

current Model Form G-3, or proposed G-3(A), at the creditor’s option. 

Section 226.7 Periodic Statement

TILA Section 127(b), implemented in § 226.7, identifies information about an 

open-end account that must be disclosed when a creditor is required to provide periodic 

statements. 15 U.S.C. 1637(b). 

Home-equity lines of credit. Periodic statement disclosure and format 

requirements for home-equity lines of credit (HELOCs) subject to § 226.5b would be 

unaffected by the proposal, consistent with the Board’s plan to review Regulation Z’s 

disclosure rules for home-secured credit in a separate rulemaking. To facilitate 

compliance, the substantively unrevised rules applicable only to HELOCs are grouped 

together in proposed § 226.7(a). (See redesignation table below.) 

Open-end (not home-secured) plans. The Board proposes a number of significant 

revisions to periodic statement disclosures for open-end (not home-secured) plans. These 

rules are grouped together in proposed § 226.7(b). First, interest and fees imposed as part 

of the plan during the statement period would be disclosed in a simpler manner and in a 

consistent location. Second, the Board is proposing for comment two alternative 

approaches to disclose the effective APR: The first approach would try to improve 

consumer understanding of this rate and reduce creditor uncertainty about its 

computation. The second approach would eliminate the requirement to disclose the 

effective APR. Third, if an advance notice of changed rates or terms is provided on or 

with a periodic statement, a summary of the change would be required on the front of the 

periodic statement. Model clauses would illustrate the proposed revisions, to facilitate 

compliance. In addition, the Board proposes to add new paragraphs § 226.7(b)(11) and 

(12) to implement disclosures regarding late-payment fees and the effects of making 

minimum payments in Section 1305(a) and 1301(a) of the Bankruptcy Act (further 

discussed below). TILA Section 127(b)(11) and (12); 15 U.S.C. 1637(b)(11) and (12). 

A number of technical revisions are made for clarity. For the reasons set forth in 

the section-by-section analysis to § 226.6(b)(1), the Board would update references to 

“free-ride period” as “grace period” in the regulation and commentary, without any 

intended substantive change. Current comment 7-2, which addresses open-end plans 

involving more than one creditor, would be deleted as obsolete and unnecessary. 
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Format requirements for periodic statements. TILA and Regulation Z contain few 

formatting requirements for periodic statement disclosures. In the December 2004 

ANPR, the Board noted that some information about past account activity also may be 

useful to consumers in making future decisions concerning the plan. The Board sought 

comment on possible ways to format information to improve the effectiveness of periodic 

statement disclosures, including proximity requirements or grouping of terms or fees. 

Q4 – Q6. 

Commenters’ views were mixed. Industry commenters generally opposed 

mandating specific format requirements. They suggested that consumers are not 

confused by basic information conveyed on periodic statements, and that mandated 

format requirements would be expensive to implement and could stifle creditors’ ability 

to tailor statements to specific products. Some of these commenters suggested that 

grouping of terms or fees might be helpful, but cautioned against a total of fees that 

would not differentiate interest from other charges such as penalty fees (late or over-thecredit-limit, for example). Some consumer group commenters suggested importing 

format requirements similar to the tabular disclosures for credit card applications and 

solicitations. 

Consumer testing conducted for the Board has shown that targeted proximity 

requirements on periodic statements tend to improve the effectiveness of cost disclosures 

for consumers. For the reasons discussed below, the Board proposes several proximity 

requirements. For example, the proposal would link by proximity the payment due date 

with the late payment fee and penalty rate that could be triggered by an untimely 

payment. The minimum payment amount also would be linked by proximity with the 

new warning required by the Bankruptcy Act about the effects of making such payments 

on the account. The Board believes grouping these disclosures together would enhance 

consumers’ informed use of credit. 

To ensure consumers are alerted to rate increases and other changes that increase 

the cost of using their account, a summary of key rate and term changes would precede 

the transactions when an advance notice of a change in term or rate accompanies a 

periodic statement. Transactions would be grouped by type, and fee and interest charge 

totals would be located with the transactions. Participants in the consumer testing 

conducted for the Board tended to review their transactions and to notice fees and interest 

charges when placed there. The Board notes that some financial institutions presently 

group transactions by type. Form G-18(A) would illustrate these requirements. 

The Board is publishing for the first time forms illustrating front sides of a 

periodic statement. The Board is publishing forms G-18(G) and G-18(H) to illustrate 

how a periodic statement might be designed to comply with the requirements of § 226.7. 

Forms G-18(G) and G-18(H) contain some additional disclosures that are not required by 

Regulation Z. The forms also present information in some additional formats that are not 

required by Regulation Z. The Board is publishing the front side of a statement form as a 

compliance aid. 
103

Consumer testing for the Board indicates that the effectiveness of periodic 

statement disclosures is improved when certain information is grouped together. The 

Board seeks comment on any alternative approaches that would provide creditors more 

flexibility in grouping related information together on the periodic statement. 

7(a) Rules Affecting Home-equity Plans

For HELOCs, creditors are required to comply with the disclosure requirements 

under proposed § 226.7(a)(1) through (10), including existing rules and guidance 

regarding the disclosure of finance charges and other charges, which would be combined 

in a new § 226.7(a)(6). These rules and accompanying commentary are substantively 

unchanged from current § 226.7(a) through (k). Proposed § 226.7(a) also provides that at 

their option, creditors offering HELOCs may comply with the requirements of 

§ 226.7(b). The Board understands that some creditors may use a single processing 

system to generate periodic statements for all open-end products they offer, including 

HELOCs. These creditors would have the option to generate statements according to a 

single set of rules. 

In technical revisions, the substance of footnotes referenced in § 226.7(d) is 

moved to proposed § 226.7(a)(4) and comment 7(a)(4)-6. 

7(a)(7) Annual Percentage Rate

The Board is proposing two alternative approaches to address concerns about the 

effective APR. These approaches are discussed in detail in the section-by-section 

analysis to proposed § 226.7(b)(7). The first approach seeks to improve the effective 

APR. For HELOCs subject to § 226.5b, creditors would have an option to comply with 

the new rules or continue to comply with the current rules applicable to the effective 

APR. This is intended as a temporary measure until the Board reviews comprehensively 

the rules for HELOCs subject to § 226.5b. The second approach would eliminate the 

requirement to disclose the effective APR; thus, under this approach, the effective APR 

would be optional for HELOC creditors pending the Board’s review of home-secured 

disclosure rules. 

7(b) Rules Affecting Open-end (not Home-secured) Plans

Current comment 7-3 provides guidance on various periodic statement disclosures 

for deferred-payment transactions, such as when a consumer may avoid interest charges 

if a purchase balance is paid in full by a certain date. Under the proposal, the substance 

of comment 7-3, revised to conform to other proposed revisions in § 226.7(b), is 

proposed as comment 7(b)-1. The Board believes the guidance is unnecessary for 

HELOCs. 

7(b)(2) Identification of Transactions

Proposed § 226.7(b)(2) requires creditors to identify transactions in accordance 

with rules set forth in § 226.8. The Board proposes to revise and significantly simplify 

those rules, as discussed in the section-by-section analysis relating to § 226.8 below. 
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The Board would introduce a format requirement to group transactions by type, 

such as purchases and cash advances. In consumer testing conducted for the Board, 

participants found such groupings helpful. Moreover, consumers noticed fees and 

interest charges more readily when transactions were grouped together, the fees imposed 

for the statement period were not interspersed among the transactions, and the interest 

and fees were disclosed in proximity to the transactions. Comment 7(b)(2)-1 would 

reflect the new requirement. Sample G-18(A) would illustrate the proposal. 

7(b)(3) Credits

Creditors are required to disclose any credits to the account during the billing 

cycle. Creditors typically disclose credits among other transactions. The Board proposes 

no substantive changes to the disclosure requirements for credits. However, consistent 

with the format requirements proposed in § 226.7(b)(2), the proposal would require 

credits and payments to be grouped together. Consumers who participated in testing 

conducted for the Board consistently identified credits as statement information they 

review each month, and favored a separation of credits and payments among the 

transactions. 

Current comment 7(c)-2, which permits creditors to commingle credits related to 

extensions of credit and credits related to non-credit accounts, such as a deposit account, 

is not proposed under new § 226.7(b)(3). The Board solicits comment on the need for 

alternatives to the proposed format requirements to segregate transactions and credit, 

such as when a depository institution provides on a single periodic statement account 

activity for a consumer’s checking account and an overdraft line of credit. 

Sample G-18(A) would illustrate the proposal. Comment 7(b)(3)-3, as renumbered, is 

revised for clarity. 

7(b)(4) Periodic Rates

Periodic rates. TILA Section 127(b)(5) and current § 226.7(d) require creditors to 

disclose all periodic rates that may be used to compute the finance charge, and an APR 

that corresponds to the periodic rate multiplied by the number of periods in the years. 

15 U.S.C. 1637(b)(5); § 226.14(b). The Board is proposing to eliminate, for open-end 

(not home-secured) plans, the requirement to disclose periodic rates on periodic 

statements. 

The Board proposes this approach pursuant to its exception and exemption 

authorities under TILA Section 105. Section 105(a) authorizes the Board to make 

exceptions to TILA to effectuate the statute’s purposes, which include facilitating 

consumers’ ability to compare credit terms and helping consumers avoid the uniformed 

use of credit. 15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes the Board to exempt 

any class of transactions (with an exception not relevant here) from coverage under any 

part of TILA if the Board determines that coverage under that part does not provide a 

meaningful benefit to consumers in the form of useful information or protection. 

15 U.S.C. 1604(f)(1). Section 105(f) directs the Board to make this determination in light 

of specific factors. 15 U.S.C. 1604(f)(2). These factors are (1) the amount of the loan 

and whether the disclosure provides a benefit to consumers who are parties to the 
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transaction involving a loan of such amount; (2) the extent to which the requirement 

complicates, hinders, or makes more expensive the credit process; (3) the status of the 

borrower, including any related financial arrangements of the borrower, the financial 

sophistication of the borrower relative to the type of transaction, and the importance to 

the borrower of the credit, related supporting property, and coverage under TILA; 

(4) whether the loan is secured by the principal residence of the borrower; and 

(5) whether the exemption would undermine the goal of consumer protection. 

The Board has considered each of these factors carefully, and based on that 

review, believes that proposing the exemption is appropriate. In consumer testing 

conducted for the Board, consumers indicated they do not use periodic rates to verify 

interest charges. Consistent with the Board’s proposal to not allow periodic rates to be 

disclosed in the tabular summary on or with credit card applications and disclosures, the 

Board believes that requiring periodic rates to be disclosed on periodic statements may 

distract from more important information on the statement, and contribute to information 

overload. The proposal to eliminate periodic rates from the periodic statement therefore 

has the potential to better inform consumers and further the goals of consumer protection 

and the informed use of credit for open-end (not home-secured) credit. The Board 

welcomes comment on this matter. 

Labeling APRs. Currently creditors are provided with considerable flexibility in 

identifying the APR that corresponds to the periodic rate. Current comment 7(d)-4 

permits labels such as “corresponding annual percentage rate,” “nominal annual 

percentage rate,” or “corresponding nominal annual percentage rate.” To promote 

uniformity, creditors offering open-end (not home-secured) plans would be required to 

label the annual percentage rate disclosed under proposed § 226.7(b)(4) as “annual 

percentage rate.” In combination with the Board’s proposed approach to improve 

consumers’ understanding of the effective APR discussed in the section-by-section 

analysis to proposed § 226.7(b)(7), it is important that the “interest only” APR be 

uniformly distinguishable from the effective APR that includes interest and fees. Forms 

G-18(G) and G-18(H) illustrate periodic statements that disclose an APR but no periodic 

rates. 

Rates that “may be used.” Currently, comment 7(d)-1 interprets the requirement 

to disclose all periodic rates that “may be used” to mean “whether or not [the rate] is 

applied during the cycle.” For example, rates on cash advances must be disclosed on all 

periodic statements, even for billing periods with no cash advance activity or balances. 

The regulation and commentary do not clearly state whether promotional rates, such as 

those offered for using checks accessing credit card accounts, that “may be used” should 

be disclosed under current § 226.7(d) regardless of whether they are imposed during the 

period. See current comment 7(d)-2. The Board is proposing a limited exception to 

TILA Section 127(b)(5) to effectuate the purposes of TILA to require disclosures that are 

meaningful and to facilitate compliance. 

Under the proposal, creditors would be required to disclose promotional rates only 

if the rate actually applied during the billing period. See proposed § 226.7(b)(4)(ii). For 
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example, a card issuer may impose a 22 percent APR for cash advances but offer for a 

limited time a 1.99 percent promotional APR for advances obtained through the use of a 

check accessing a credit card account. Creditors are currently required to disclose, in this 

example, the 22 percent cash advance APR on periodic statements whether or not the 

consumer obtains a cash advance during the previous statement period. The proposal 

would make clear that creditors are not required to disclose the 1.99 percent promotional 

APR unless the consumer used the check during the statement period. The Board 

believes that interpreting TILA to require the disclosure of all promotional rates would be 

operationally burdensome for creditors and result in information overload for consumers. 

The proposed exception would not apply to HELOCs covered by § 226.5b. The Board 

requests comment on whether the class of transactions under the proposed exceptions 

should be tailored more broadly to include HELOCs subject to § 226.5b, and if so, why. 

Combining interest and other charges. Currently, creditors must disclose finance 

charges attributable to periodic rates. These costs are typically interest but may include 

other costs such as premiums for required credit insurance. If applied to the same 

balance, creditors may disclose each rate, or a combined rate. See current comment 

7(d)-3. As discussed earlier, consumer testing for the Board indicates that participants 

appeared to understand credit costs in terms of “interest” and “fees,” and the proposal 

would require disclosures to distinguish between interest and fees. To the extent 

consumers associate periodic rates with “interest,” it seems unhelpful to consumers’ 

understanding to permit creditors to include periodic rate charges other than interest into 

the dollar cost disclosed. Thus, guidance about combining periodic rates attributable to 

interest and other finance charges would be retained for HELOCs in proposed comment 

7(a)(4)-3, but would be eliminated for open-end (not home-secured) plans. 

A new comment 7(b)(4)-7 would be added to provide guidance to creditors when 

a fee is imposed, remains unpaid, and accrues interest on the unpaid balance. The 

comment provides that creditors disclosing fees in accordance with the format 

requirements of § 226.7(b)(6) need not separately disclose which periodic rate applies to 

the unpaid fee balance. 

In technical revisions, the substance of footnotes referenced in § 226.7(d) is 

moved to the regulation and comment 7(b)(4)-5. 

7(b)(5) Balance on which Finance Charge is Computed

Creditors must disclose the amount of the balance to which a periodic rate was 

applied and an explanation of how the balance was determined. The Board provides 

model clauses creditors may use to explain common balance computation methods. 

15 U.S.C. 1637(b)(7); current § 226.7(e); Model Clauses G-1, Appendix G. The staff 

commentary to current § 226.7(e) interprets how creditors may comply with TILA in 

disclosing the “balance,” which typically changes in amount throughout the cycle, on 

periodic statements. 

Amount of balance. The proposal does not change how creditors are required to 

disclose the amount of the balance on which finance charges are computed. It would, 
107

however, permit creditors, at their option, not to include an explanation of how the 

finance charge may be verified for creditors that use a daily balance method. Currently, 

creditors that use a daily balance method are permitted to disclose an average daily 

balance for the period, provided they explain that the amount of the finance charge can be 

verified by multiplying the average daily balance by the number of days in the statement 

period, and then applying the periodic rate. The Board would retain the rule permitting 

creditors to disclose an average daily balance but would eliminate the requirement to 

provide the explanation. Consumer testing conducted for the Board suggests that the 

explanation may not be used by consumers as an aid to calculate their interest charges. 

Participants suggested that if they attempted without satisfaction to calculate balances 

and verify interest charges based on information on the periodic statement, they would 

call the creditor for assistance. 

The section-by-section analysis to § 226.7(b)(6) discusses proposed revisions 

intended to further consumers’ understanding of interest charges, as distinguished from 

fees. To complement those proposed revisions, the Board would require creditors to refer 

to the balance as “balances subject to interest rate,” for consistency. Forms G-18(G) and 

18(H) illustrate this format requirement. For the reasons discussed regarding guidance on 

disclosing periodic rates, guidance about disclosing balances to which periodic rates 

attributable to interest and other finance charges are applied would be retained for 

HELOCs in proposed comment 7(a)(5)-1, but would be eliminated for open-end (not 

home-secured) plans. 

Explanation of balance computation method. The Board is proposing an 

alternative to providing an explanation of how the balance was determined. Under the 

proposal, a creditor that uses a balance computation method identified in § 226.5a(g) has 

two options. The creditor may: (1) provide an explanation, as the rule currently requires, 

or (2) identify the name of the balance computation method and provide a toll-free 

telephone number where consumers may obtain more information from the creditor about 

how the balance is computed and resulting finance charges are determined. If the 

creditor uses a balance computation method that is not identified in § 226.5a(g), the 

creditor would provide a brief explanation of the method. The Board’s proposal is 

guided by the following factors. 

Calculating balances on open-end plans can be complex, and requires an 

understanding of how creditors allocate payments, assess fees, and record transactions as 

they occur during the cycle. Currently, neither TILA nor Regulation Z requires creditors 

to disclose on periodic statements all the information necessary to compute a balance, and 

requiring that level of detail appears not to be warranted. Although the Board’s model 

clauses are intended to assist creditors in explaining common methods, consumers 

continue to find these explanations lengthy and complex. As stated earlier, consumer 

testing indicates that consumers call the creditor for assistance when they attempt without 

satisfaction to calculate balances and verify interest charges. 

The Board believes that providing the name of the balance computation method 

(or a brief explanation, if the name is not identified in § 226.5a(g)), along with a 
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reference to where additional information may be obtained provides essential information 

in a simplified way, and in a manner consistent with how consumers obtain further 

balance computation information. The proposal is consistent with the views of some 

commenters who responded to the December 2004 ANPR and suggested that the Board 

simplify some of the more complex disclosures not used by most consumers. Current 

comment 7(e)-6, which refers creditors to guidance in § 226.6 about disclosing balance 

computation methods would be deleted as unnecessary. 

7(b)(6) Charges Imposed 

As discussed in the section-by-section analysis to § 226.6, the Board proposes to 

reform cost disclosure rules for open-end (not home-secured) plans, in part, to ensure that 

all charges assessed as part of an open-end (not home-secured) plan are disclosed before 

they are imposed and to simplify the rules for creditors to identify such charges. 

Consistent with the proposed revisions at account opening, the proposed revisions to cost 

disclosures on periodic statements are intended to simplify how creditors identify the 

dollar amount of charges imposed during the statement period. 

Consumer testing conducted for the Board indicates that most participants 

reviewing mock periodic statements could not correctly explain the term “finance 

charge.” The proposed revisions are intended to conform labels of charges more closely 

to common understanding, “interest” and “fees.” Format requirements would also help 

ensure that consumers notice charges imposed during the statement period. 

Two alternatives are proposed: One addresses interest and fees in the context of 

an effective APR disclosure, the second assumes no effective APR is disclosed. 

Charges imposed as part of the plan. Proposed § 226.7(b)(6) would require 

creditors to disclose the amount of any charge imposed as part of an open-end (not homesecured) plan, as stated in § 226.6(b)(1). Guidance on which charges are deemed to be 

imposed as part of the plan is in proposed § 226.6(b)(1) and accompanying commentary. 

Although coverage of charges would be broader under the proposed standard of “charges 

imposed as part of the plan” than under current standards for finance charges and other 

charges, the Board understands that creditors have been disclosing on the statement all 

charges debited to the account regardless of whether they are now defined as “finance 

charges,” “other charges,” or charges that do not fall into either category. Accordingly, 

the Board understands that creditors already disclose all charges that would be considered 

“imposed as part of the plan,” and it does not expect this proposed change to affect 

significantly the disclosure of charges on the periodic statement. 

Interest charges and fees. For creditors complying with the new proposed cost 

disclosure requirements, the current requirement in § 226.7(f) to label finance charges as 

such would be eliminated. See current § 226.7(f). Testing of this term with consumers 

found that it did not help them to understand charges. Instead, charges imposed as part of 

an open-end (not home-secured) plan would be disclosed under the labels of “interest 

charges” and “fees.” Consumer testing supplies evidence that consumers may generally 

understand interest as the cost of borrowing money over time and characterize other 
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costs—regardless of their characterization under TILA and Regulation Z—as fees (other 

than interest). The Board’s proposal is consistent with this evidence. 

TILA Section 127(b)(4) requires creditors to disclose on periodic statements the 

amount of any finance charge added to the account during the period, itemized to show 

amounts due to the application of periodic rates and the amount imposed as a fixed or 

minimum charge. 15 U.S.C. 1637(b)(4). This requirement is currently implemented in 

§ 226.7(f), and creditors are given considerable flexibility regarding totaling or 

subtotaling finance charges attributable to periodic rates and other fees. See current 

§ 226.7(f) and comments 7(f)-1, -2, and -3. To improve uniformity and promote the 

informed use of credit, creditors would be required under proposed § 226.7(b)(6)(ii) to 

itemize finance charges attributable to interest, by type of transaction labeled as such, and 

would be required to disclose, for the statement period, a total interest charge, labeled as 

such. Although creditors are not currently required to itemize interest charges by 

transaction type, creditors often do so. For example, creditors may disclose the dollar 

interest costs associated with cash advance and purchase balances. Based on consumer 

testing, the Board believes consumers’ ability to make informed decisions about the 

future use of their open-end plans—primarily credit card accounts—may be promoted by 

a simply-labeled breakdown of the current interest cost of carrying a purchase or cash 

advance balance. The breakdown would enable consumers to better understand the cost 

for using each type of transaction, and uniformity among periodic statements would 

allow consumers to compare one account with other open-end plans the consumer may 

have. Under the proposal, finance charges attributable to periodic rates other than 

interest charges, such as required credit insurance premiums, would be identified as fees 

and would no longer be permitted to be combined with interest costs. See proposed 

comment 7(b)(4)-3. 

Current § 226.7(h) requires the disclosure of “other charges” parallel to the 

requirement in TILA Section 127(a)(5) and current § 226.6(b) to disclose such charges at 

account opening. 15 U.S.C. 1637(a)(5). Consistent with current rules to disclose “other 

charges,” revised § 226.7(b)(6)(iii) would require that other costs be identified consistent 

with the feature or type, and itemized. The proposal differs from current requirements in 

the following respect: fees would be required to be grouped together and a total of all 

fees for the statement period would be required. Currently, creditors typically include 

fees among other transactions identified under § 226.7(b). In consumer testing, 

consumers were able to more accurately and easily determine the total cost of noninterest charges when fees were grouped together and a total of fees was given than when 

fees were scattered among the transactions without a total. (Section 226.7(b)(6)(iii) also 

would require that certain fees that are included in the computation of the effective APR 

pursuant to § 226.14 must be labeled either as “transaction fees” or “fixed fees.” This 

proposed requirement is discussed in further detail in the section-by-section analysis to 

§ 226.7(b)(7).) 

To highlight the overall cost of the credit account to consumers, creditors would 

disclose the total amount of interest charges and fees for the statement period and 

calendar year to date. Participants in consumer testing conducted for the Board noticed 
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the year-to-date cost figures and indicated they would find the numbers helpful in making 

future financial decisions. The Board believes that disclosure of year-to-date totals 

would better inform consumers about the cumulative cost of their credit plans over a 

significant period of time. Comment 7(b)(6)-3 would provide guidance on how creditors 

may disclose the year to date totals at the end of a calendar year. 

Proposed § 226.7(b)(6)(iv) in Alternative 1 contains requirements for calculating 

and disclosing totals for interest and certain fees in connection with the disclosure of the 

effective APR pursuant to § 226.7(b)(7). These requirements are in addition to the total 

interest and fee disclosures disclosed in proximity to transactions, and are discussed in 

further detail in the section-by-section analysis to § 226.7(b)(7). 

Format requirements. In consumer testing, consumers consistently reviewed 

transactions identified on their periodic statements and noticed fees and interest charges, 

itemized and totaled, when they were grouped together with transactions. Some creditors 

also disclose these costs in account summaries or in a progression of figures associated 

with disclosing finance charges attributable to periodic rates. The proposal would not 

affect creditors’ flexibility to provide this information in such summaries. 

See Forms G-18(G) and G-18(H), which illustrate, but do not require, such summaries. 

However, the Board believes TILA’s purpose to promote the informed use of credit 

would be furthered significantly if consumers are uniformly provided, in a location they 

routinely review, basic cost information—interest and fees—that enables consumers to 

compare costs among their open-end plans. The Board proposes that charges required to 

be disclosed under § 226.7(b)(6)(i) would be grouped together with the transactions 

identified under § 226.7(b)(2), substantially similar to Sample G-18(A) in Appendix G. 

Proposed § 226.7(b)(6)(iii) would require non-interest fees to be itemized and grouped 

together, and a total of fees would be disclosed for the statement period and calendar year 

to date. Interest charges would be itemized by type of transaction, grouped together, and 

a total of interest charges would be disclosed for the statement period and year to date. 

Sample G-18(A) in Appendix G illustrates the proposal. 

7(b)(7) Effective Annual Percentage Rate

TILA Section 127(b)(6) requires disclosure of an APR calculated as the quotient 

of the total finance charge for the period to which the charge relates divided by the 

amount on which the finance charge is based, multiplied by the number of periods in the 

year. 15 U.S.C. 1637(b)(6). This rate has come to be known as the “historical APR” or 

“effective APR.” (This APR will be referred to as the “effective APR” in this section-bysection analysis, and in the regulation and accompanying commentary.) Section 

127(b)(6) exempts a creditor from disclosing an effective APR when the total finance 

charge does not exceed 50 cents for a monthly or longer billing cycle, or the pro rata

share of 50 cents for a shorter cycle. In such a case, TILA Section 127(b)(5) requires the 

creditor to disclose only the periodic rate and the annualized rate that corresponds to the 

periodic rate. 15 U.S.C. 1637(b)(5). When the finance charge exceeds 50 cents, the act 

requires creditors to disclose the periodic rate but not the corresponding APR. Since 

1970, however, Regulation Z has required disclosure of the corresponding APR in all 
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cases. See current § 226.7(d). Current § 226.7(g) implements TILA Section 127(b)(6)’s 

requirement to disclose an effective APR. 

The effective APR and corresponding APR for any given plan feature are the 

same when the finance charge in a period arises only from application of the periodic rate 

to the applicable balance (the balance calculated according to the creditor’s chosen 

method, such as average daily balance method). When the two APRs are the same, 

Regulation Z requires that the APR be stated just once. The effective and corresponding 

APRs diverge when the finance charge in a period arises (at least in part) from a charge 

not determined by application of a periodic rate and the total finance charge exceeds 50 

cents. When they diverge, Regulation Z requires that both be stated. 

The following example illustrates the relationship between the effective APR and 

the corresponding APR in a simple case. A credit cardholder with no balance in the 

previous cycle takes a cash advance of $100 on the first day of the cycle. A cash advance 

fee of 3 percent applies (a finance charge of $3), as does a periodic rate of 11⁄2 percent per 

month on the average daily balance of $100 (a finance charge of $1.50). No other 

transactions, and no payments, occur during the cycle, which is 30 days. The 

corresponding APR is 18 percent (11⁄2 percent times 12). To determine the effective 

APR, first the total finance charge of $4.50 is divided by the balance of $100. This 

quotient, 41⁄2 percent, is the rate of the total finance charge on a monthly basis. The 

monthly rate is annualized, or multiplied by 12, to yield an effective APR of 54 percent. 

Under Regulation Z, the creditor would disclose on the periodic statement both the 

corresponding APR of 18 percent and the effective APR of 54 percent. 

The controversy over the effective APR. The statutory requirement of an 

effective APR is intended to provide the consumer with an annual rate that reflects the 

total finance charge, including both the finance charge due to application of a periodic 

rate (interest) and finance charges that take the form of fees. This rate, like other APRs 

required by TILA, presumably was intended to provide consumers information about the 

cost of credit that would help consumers compare credit costs and make informed credit 

decisions and, more broadly, strengthen competition in the market for consumer credit. 

15 U.S.C. 1601(a). There is, however, a longstanding controversy about the extent to 

which the requirement to disclose an effective APR advances TILA’s purposes or, as 

some argue, undermines them. This controversy has been reflected in such forums as 

discussions by the Board’s Consumer Advisory Council and comments on the ANPR. 

Q23 – Q25. The following discussion seeks to place the controversy over the effective 

APR in the context of certain objective characteristics of the disclosure. 

The effective APR is essentially retrospective, or “historical.” An effective APR 

on a particular periodic statement represents the cost of transactions in which the 

consumer engaged during the cycle to which that statement pertains. It is not likely, 

however, that the effective APR for a transaction in a given cycle will predict accurately 

the cost of a transaction in a future cycle. If any one of several factors is different in the 

future cycle than it was in the past cycle, such as the balance at the beginning of the cycle 

or the amount and timing of each transaction and payment during the cycle, then the 
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effective APRs in the two cycles will be different, too.13 In short, the effective APR is by 

nature retrospective and idiosyncratic and, therefore, provides limited information about 

the cost of future transactions. 

Consumer groups argue that the information the rate provides about the cost of 

future transactions, even if limited, is meaningful. The effective APR for a specific 

transaction or set of transactions in a given cycle may provide the consumer a rough 

indication that the cost of repeating such transactions is high in some sense or, at least, 

higher than the corresponding APR alone conveys. Industry commenters respond that the 

cost of a transaction is not usually as high as the effective APR makes it appear, and that 

this tendency of the rate to exaggerate the cost makes this APR misleading. Commenters 

generally agree that the effective APR can be “shocking,” but they disagree as to whether 

it conveys meaningful information. 

One reason that effective APRs appear high is the assumption built into the 

disclosure that the borrower paid the balance at the end of the cycle. This assumption 

tends to make the APR higher, and more volatile, than if a longer repayment period were 

used. In the example given above, the effective APR on cash advances, 54 percent, is 

three times the corresponding APR, 18 percent. Moreover, the effective APR would have 

been 18 percent (the same as the corresponding APR) in the previous cycle if no cash 

advances had been taken then, and it will fall back to 18 percent in the next cycle if no 

cash advance is taken then (assuming the rate is fixed). Use of a longer repayment period 

would, other things being equal, yield a lower, and less volatile, effective APR. A lower 

APR based on available information about the consumer’s expected time to repay might 

seem more realistic. But its disclosure would require making assumptions about activity 

in future cycles, such as the timing and amount of future transactions and payments – or 

it would require assuming that there is to be no activity on the account until the balance is 

repaid. Such assumptions would often appear arbitrary and unrealistic. Accordingly, 

Regulation Z has always required that the effective APR be calculated on the premise that 

payment was made at the end of the cycle. The likelihood that the premise is often wrong 

accounts, at least in part, for the controversy as to whether the effective APR can supply 

meaningful information about credit costs. 

Consumer advocates and industry representatives also disagree as to whether the 

effective APR promotes credit shopping. The dependence of the effective APR on the 

particular activity in a given cycle means that any given effective APR in any given cycle 

is not typically a practical shopping tool. Comparing two particular effective APRs for 

any two cycles on two different accounts is not usually a reliable basis to determine 

 

13 An example demonstrates how the effective APR depends critically on the timing of transactions during 

two different cycles. Assume for the sake of simplicity that the transaction amount and beginning balance 

remain the same in both cycles. In the example discussed above, a cash advance of $100 on the first day of 

a 30-day cycle yielded an effective APR of 54 percent, three times the corresponding APR of 18 percent. If 

in a later cycle the consumer were to take the cash advance on the last day of the 30-day cycle, the effective 

APR would be 36.6 percent, about twice the corresponding APR. (The finance charge produced by the 

periodic rate would be $.05 (11⁄2 percent times the average daily balance of $3.33). The total finance charge 

of $3.05 divided by the transaction amount of $100 yields a quotient of 3.05 percent, which is multiplied by 

12 to yield an effective APR of 36.6 percent.) 
113

which account costs the consumer more. Moreover, an effective APR for a given month 

on an existing account cannot be compared reliably to the corresponding APR advertised 

on a different account, which by definition does not reflect any finance charges imposed 

in the form of fees. There may be cases in which repeated disclosure of effective APRs 

in consecutive cycles, as opposed to one effective APR for one cycle, would facilitate 

shopping. For example, if an account had a periodic rate and a corresponding APR of 

zero, the effective APRs disclosed on the account might provide the most practical basis 

for assessing the cost of the account in relationship to other advertised accounts. This 

example, though, does not appear to be common in today’s market. 

Although the effective APR is not commonly usable as a shopping tool in itself, 

consumer group commenters argue that the effective APR promotes credit shopping by 

encouraging consumers to seek out other sources of credit, especially when the rate 

reaches levels that “shock” consumers. Industry commenters respond, however, that the 

tendency of the effective APR to exaggerate the cost of credit may lead consumers to 

make invalid comparisons. They say that disclosure of a high effective APR in a cycle 

may cause a consumer to discontinue using the account in favor of another account that 

appears less expensive based on its corresponding APR but is in fact more expensive, 

because of fixed or minimum charges or other factors. 

Supporters of the effective APR also argue that high effective APRs typical for 

cash advances and balance transfers benefit consumers by discouraging them from 

engaging in these transactions. Industry commenters respond that consumers do not 

necessarily benefit if they refrain categorically from a particular kind of credit 

transaction; depending on the alternatives consumers choose, they may be worse-off 

rather than better-off. Some of these commenters also argue that discouraging particular 

kinds of credit transactions is not a valid objective of Regulation Z. 

Industry and community group commenters find some common ground in their 

observations that consumers do not understand the effective APR well. Industry 

commenters argue from their experience with their customers that consumers do not 

understand how this APR differs from the corresponding APR, why it is “so high,” or 

which fees it reflects. Creditor commenters say that when their customers call them and 

express alarm or confusion over the effective APR, the creditors find it difficult, if not 

impossible, to make the caller understand the disclosure. Nor, they argue, does a 

consumer find the disclosure any more useful than disclosure of interest and fees in 

dollars and cents, even if the consumer understands the disclosure. Consumer groups 

concede that, as implemented today, the effective APR is difficult for consumers to 

understand, and they support efforts to make it more understandable, such as improved 

presentation on the periodic statement. Industry commenters expressed doubt that such 

efforts would be worthwhile. 

Industry commenters also claim the effective APR imposes direct costs on 

creditors that consumers pay indirectly. They represent that the effective APR raises 

compliance costs when they introduce new services, including legal analysis of 

Regulation Z to determine whether the fee for the new service must be included in the 
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effective APR and software programming if it is included; they are also concerned about 

litigation risks. Also, responding to telephone inquiries from confused customers and 

accommodating them (e.g., with fee waivers or rebates) increases operational costs. 

Costs associated with adverse consumer reactions to the effective APR may influence 

creditors to take steps to minimize the frequency with which they must disclose it. One 

such step would be to price credit mostly through a periodic rate rather than fees. 

Although this effect is difficult to measure, a trade association commenter concedes a 

policy argument for retaining the effective APR as a hedge against creditors shifting their 

pricing from periodic rates to transaction-triggered fees and charges. 

Like most other industry commenters, however, this same commenter concludes 

that the effective APR should be eliminated because, for the reasons discussed above, its 

costs outweigh its benefits. Some industry commenters support replacing the effective 

APR with enhanced fee disclosures (for example, grouping fees on the statement or 

summing them for each period or for the year), but many do not. Consumer groups urge 

the Board not only to retain the effective APR, but to expand it in two respects: 

(1) include in the rate all charges, including charges not currently defined as finance 

charges in Regulation Z; and (2) require creditors to disclose a “typical effective APR” 

(an average of effective APRs) on solicitations and account-opening disclosures.14

Consumer research conducted for the Board. It is difficult to measure directly 

how the effective APR ultimately affects consumers, creditors, and the credit market 

generally. It is feasible, however, at a minimum, to assess to some degree consumers’ 

awareness and understanding of the disclosure. Such assessments may support inferences 

about the disclosure’s effectiveness. 

Accordingly, the Board undertook research, through a consultant, to shed light on 

consumer awareness and understanding of the effective APR; and on whether changes to 

the presentation of the disclosure could increase awareness and understanding. A Board 

consultant used a qualitative testing method, one-on-one cognitive interviews with 

consumers. Consumers were provided mock disclosures of periodic statements that 

included effective APRs and asked questions about the disclosure designed to elicit their 

understanding of the rate. In the first round the statements were copied from examples in 

the market. For subsequent testing rounds, however, statements were modified in 

language and design to better convey how the effective APR differs from the 

corresponding APR. Several different approaches and many variations on those 

approaches were tested. 

In most of the rounds, a minority of participants correctly explained that the 

effective APR for cash advances in the last cycle was higher than the corresponding APR 

for cash advances because a cash advance fee had been imposed. A smaller minority 

correctly explained that the effective APR for purchases was the same as the 

corresponding APR for purchases because no transaction fee had been imposed on 

purchases. A majority offered incorrect explanations or did not offer any explanation. 

 

14 Consumer group comments about a “typical APR” disclosure are summarized in the section-by-section 

analysis to § 226.5a. 
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Results changed at the final testing site, however, when a majority of participants 

evidenced an understanding that the effective APR for cash advances would be elevated 

for the statement period when a cash advance fee was imposed during that period, that the 

effective APR would not be as elevated for periods where a cash advance balance 

remained outstanding but no fee had been imposed, and that the effective APR for 

purchases was the same as the corresponding APR for purchases because no transaction 

fee had been imposed on purchases. 

The form in the final round labeled the rate “Fee-Inclusive APR” and placed it in 

a table separate from the corresponding APR. The “Fee-Inclusive APR” table included 

the amount of interest and the amount of transaction fees. An adjacent sentence stated 

that the “Fee-Inclusive APR” represented the cost of transaction fees as well as interest. 

Similar approaches had been tried in some of the earlier rounds, except that the effective 

APR had been labeled “Effective APR.” 

The Board’s two alternative proposals. The considerations and data discussed 

above lead the Board to propose two alternative approaches for disclosing the effective 

APR: The first approach would try to improve consumer understanding of this rate and 

reduce creditor uncertainty about its computation. The second approach would eliminate 

the requirement to disclose the effective APR. The evidence of consumer understanding 

of the effective APR supplied by the qualitative research conducted for the Board is 

mixed, but it suggests that it may be possible to increase current levels of understanding 

by modifying the presentation of the rate on the periodic statement. The Board’s 

experience with Regulation Z also suggests that it may be possible to reduce burdens by 

simplifying computation of the effective APR. 

The Board plans to conduct further research into consumer understanding of the 

effective APR after the comment period has ended. The Board will evaluate this 

additional research with the research conducted to date, and with other information, 

including comments received on this proposal, and determine whether the effective APR 

should be retained with modifications as proposed, eliminated, or addressed in some 

other way. 

1. First alternative proposal. Under the first alternative, the Board proposes to 

impose uniform terminology and formatting on disclosure of the effective APR and the 

fees included in its computation. See proposed §§ 226.7(b)(7)(i), 226.7(b)(6)(iv). This 

proposal is based largely on a form developed through several rounds of one-on-one 

interviews with consumers. The Board also proposes under this alternative to revise 

§ 226.14, which governs computation of the effective APR, in an effort to increase 

certainty about which fees the rate must include. See proposed § 226.14(d). See sectionby-section analysis to § 226.7(a)(7) regarding how the proposal affects HELOCs subject 

to § 226.5b. 

Under proposed § 226.7(b)(7)(i) and Sample Form G-18(B), creditors would label 

the effective APR “Fee-Inclusive APR” and indicate that the Fee-inclusive APRs are the 

“APRs that you paid this period when transactions or fixed fees are taken into account as 
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well as interest.” Creditors would disclose an effective APR for each feature, such as 

purchases and cash advances, in a tabular format. A composite effective APR for two or 

more features would no longer be permitted, as it is more difficult to explain to 

consumers. The effective APR(s) would appear in a table, by feature, with the total of 

interest, labeled as “interest charges,” and the total of the fees included in the effective 

APR, labeled as “transaction and fixed charges.” To facilitate understanding, proposed 

§ 226.7(b)(6)(iii) would require creditors to label the specific fees used to calculate the 

effective APR either as “transaction” or “fixed” fees, depending whether the fee relates to 

a specific transaction; such fees would be disclosed in the list of transactions. If the only 

finance charges in a billing cycle are interest charges, the corresponding and effective 

APRs are identical. In those cases, creditors would disclose only the corresponding 

APRs and would not be required to label fees as “transaction” or “fixed” fees. These 

requirements would be illustrated in forms under G-18 in Appendix G, and creditors 

would be required to use the model or a substantially similar presentation. 

To facilitate compliance, the proposed regulation would give specific guidance 

about how to attribute fees to account features. For convenience and uniformity, two 

kinds of charges, when used to calculate the effective APR, would be grouped under the 

purchase feature of the account: (1) charges that relate to specific purchase transactions; 

and (2) minimum, fixed and other non-interest charges not related to a specific 

transaction. See proposed § 226.7(b)(6)(iv)(B). If there are purchase features other than 

the standard purchase feature – such as a promotional purchase feature – then the 

minimum, fixed or other non-interest charges would be grouped with other charges 

relating to the balance on the standard purchase feature. See proposed comment 7(b)(6)-

5. In addition, a minimum charge would be disclosed as a fee, rather than as interest, and 

it would be grouped together with other fees related to standard purchases and used to 

calculate the effective APR with respect to the standard purchase feature. See proposed 

comment 7(b)(6)-4. 

The proposal also seeks to simplify computation of the effective APR, both to 

increase consumer understanding of the disclosure and facilitate creditor compliance. 

New § 226.14(e) would provide a specific and exclusive list of finance charges that 

would be included in calculating the effective APR.15 This proposed change is discussed 

further in the section-by-section analysis to § 226.14. 

The Board seeks comment on the potential benefits and costs of the first 

alternative proposal. 

2. Second alternative proposal. Under the second alternative proposal, for the 

reasons discussed in the introduction to the discussion of the effective APR, the effective 

APR would no longer be disclosed. The Board proposes this approach pursuant to its 

 

15 Under the statute, the numerator of the quotient used to determine the historical APR is the total finance 

charge. See Section 107(a)(2), 15 U.S.C. 1606(a)(2). The Board has authority to make exceptions and 

adjustments to this calculation method to serve TILA’s purposes and facilitate compliance. See Section 

105(a), 15 U.S.C. 1604(a). The Board has used this authority before to exclude certain kinds of finance 

charges from the historical APR. See current § 226.14(c)(2), fn. 33. 
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exception and exemption authorities under TILA Section 105. Section 105(a) authorizes 

the Board to make exceptions to TILA to effectuate the statute’s purposes, which include 

facilitating consumers’ ability to compare credit terms and helping consumers avoid the 

uniformed use of credit. 15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes the 

Board to exempt any class of transactions (with an exception not relevant here) from 

coverage under any part of TILA if the Board determines that coverage under that part 

does not provide a meaningful benefit to consumers in the form of useful information or 

protection. 15 U.S.C. 1604(f)(1). Section 105(f) directs the Board to make this 

determination in light of specific factors. 15 U.S.C. 1604(f)(2). These factors are (1) the 

amount of the loan and whether the disclosure provides a benefit to consumers who are 

parties to the transaction involving a loan of such amount; (2) the extent to which the 

requirement complicates, hinders, or makes more expensive the credit process; (3) the 

status of the borrower, including any related financial arrangements of the borrower, the 

financial sophistication of the borrower relative to the type of transaction, and the 

importance to the borrower of the credit, related supporting property, and coverage under 

TILA; (4) whether the loan is secured by the principal residence of the borrower; and (5) 

whether the exemption would undermine the goal of consumer protection. 

The Board has considered each of these factors carefully, and based on that 

review, believes that proposing the exemption is appropriate. Consumer testing suggests 

that consumers find the current requirement of disclosing an APR that combines rates and 

fees to be confusing. The proposal would require disclosure of the nominal interest rate 

and fees in a manner that is more readily understandable and comparable across 

institutions. It therefore has the potential to better inform consumers and further the 

goals of consumer protection and the informed use of credit for all types of open-end 

credit. A potentially competing consideration is the extent to which “sticker shock” from 

the effective APR benefits consumers, even if the disclosure is somewhat arbitrary. A 

second consideration is whether the effective APR is a hedge against fee-intensive 

pricing by creditors, and if so, the extent to which it promotes transparency. On balance, 

however, the Board believes that the benefits of the proposal would outweigh these 

considerations. The Board welcomes comment on this matter. 

7(b)(9) Address for Notice of Billing Errors

Consumers who allege billing errors must do so in writing. 15 U.S.C. 1666; 

§ 226.13(b). Creditors must provide on or with periodic statements an address for this 

purpose. See current § 226.7(k). Currently, comment 7(k)-2 provides that creditors may 

also provide a telephone number along with the mailing address as long as the creditor 

makes clear a telephone call to the creditor will not preserve consumers’ billing error 

rights. The Board would update comment 7(k)-2, renumbered as comment 7(b)(9)-2, to 

address notification by e-mail or via a web site. The comment would provide that the 

address is deemed to be clear and conspicuous if a precautionary instruction is included 

that telephoning or notifying the creditor by e-mail or 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. 
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7(b)(10) Closing Date of Billing Cycle; New Balance

Creditors must disclose the closing date of the billing cycle and the account 

balance outstanding on that date. As a part of its proposal to implement TILA 

amendments in the Bankruptcy Act regarding late payment and the effect of making 

minimum payments, the Board is proposing to require creditors to group together, as 

applicable, disclosures of related information about due dates and payment amounts, 

including the new balance. This is discussed in the section-by-section analysis to 

§§ 226.7(b)(11) and (b)(13) below, and illustrated in Forms G-18(G) and G-18(H) in 

Appendix G. 

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

TILA Section 127(b)(12), added by Section 1305(a) of the Bankruptcy Act, 

requires creditors that charge a late-payment fee to disclose on the periodic statement 

(1) the payment due date or, if different, the earliest date on which the late-payment fee 

may be charged, and (2) the amount of the late-payment fee. 15 U.S.C. 1637(b)(12). The 

October 2005 ANPR solicited comment on the need for additional guidance on the date 

to be disclosed under the new rule, and whether the Board should consider any format 

requirements, such as proximity rules, or the publication of model disclosures. 

Q97 – Q99. 

Home-equity plans. The Board intends to implement the late payment disclosure 

for HELOCs as a part of its review of rules affecting home-secured credit. Creditors 

offering HELOCs may comply with proposed § 226.7(b)(11), at their option. 

Charge card issuers. TILA Section 127(b)(12) applies to “creditors.” TILA’s 

definition of “creditor” includes card issuers and other persons that offer consumer openend credit. Issuers of “charge cards” (which are typically products where outstanding 

balances cannot be carried over from one billing period to the next and are payable when 

a periodic statement is received) are “creditors” for purposes of specifically enumerated 

TILA disclosure requirements. 15 U.S.C. 1602(f); § 226.2(a)(17). The new disclosure 

requirement in TILA Section 127(b)(12) is not among those specifically enumerated. 

The Board proposes that charge card issuers are not subject to the late payment 

disclosure requirements contained in the Bankruptcy Act and to be implemented in 

new § 226.7(b)(11); the new requirement is not specifically enumerated to apply to 

charge card issuers. In addition, the Board understands that for some charge card issuers, 

payments are not considered “late” for purposes of imposing a fee until a second 

statement is received without a payment. The Board believes it would be undesirable to 

encourage consumers who in January receive a statement with the balance due upon 

receipt, for example, to avoid paying the balance when due because a late-payment fee 

may not be assessed until mid-February; such a disclosure could cause issuers to change 

such a practice.

Payment due date. Under the proposal, creditors must disclose the due date for a 

payment if a late-payment fee could be imposed under the credit agreement. The Board 

interprets this to be a date that is required by the legal obligation and not to encompass 
119

informal “courtesy periods” that are not part of the legal obligation and that creditors may 

observe for a short period after the stated due date before a late-payment fee is imposed, 

to account for minor delays in payments such as mail delays. Several commenters asked 

the Board to clarify that in complying with the new late-payment fee disclosure, creditors 

need not disclose informal “courtesy periods” not part of the legal obligation. The Board 

proposes a comment to this effect. See proposed comment 7(b)(11)-1. 

Under the statute, creditors must disclose on periodic statements the payment due 

date or, if different, the earliest date on which the late-payment fee may be charged. 

Some state laws require that a certain number of days must elapse following a due date 

before a late-payment fee may be imposed. Under such a state law, the later date 

arguably would be required to be disclosed on periodic statements. The Board is 

concerned, however, that such a disclosure would not provide a meaningful benefit to 

consumers in the form of useful information or protection and would result in consumer 

confusion. 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. The Board is concerned that 

highlighting March 20 as the last date to avoid a late payment fee may mislead 

consumers into thinking that a payment made any time on or before March 20 would 

have no adverse financial consequences. However, failure to make a payment when due 

is considered an act of default under most credit contracts, and can trigger higher costs 

due to interest accrual and perhaps penalty APRs. Particularly in the case of an increased 

rate that applies to all account balances, the cost of paying late may be significant. 

The Board considered additional disclosures on the periodic statement that would 

more fully explain the consequences of paying after the due date and before the date 

triggering the late-payment fee, but such an approach appears cumbersome and overly 

complicated. For those reasons, the Board proposes that creditors must disclose the due 

date under the terms of the legal obligation, 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 due date. Consumers’ 

rights under state laws to avoid the imposition of late-payment fees during a specified 

period following a due date are unaffected by the proposal; that is, in the above 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. However, the 

proposal would provide additional protections to consumers by not requiring a disclosure 

that a late-payment fee will be imposed only after a specified period after the due date, 

which, if followed, may result in even more costly consequence of an increased penalty 

rate. 

Cut-off time for making payments. As discussed in the section-by-section 

analysis to § 226.10(b), the Board proposes to require that creditors disclose any cut-off 

time for receiving payments closely proximate to each reference of the due date, if the 

cut-off time is before 5 p.m. on the due date. If cut-off times prior to 5 p.m. differ 

depending on the method of payment (such as by check or via the Internet), the creditor 

must state the earliest time without specifying the method to which it applies. This 

avoids information overload by potentially identifying several cut-off times. Cut-off 
120

hours of 5 p.m. or later may continue to be disclosed under the existing rule (including on 

the reverse side of periodic statements). 

Amount of late payment fee; penalty APR. Creditors must disclose the amount of 

the late-payment fee and the payment due date on periodic statements, under TILA 

amendments contained in the Bankruptcy Act. The purpose of the new late payment 

disclosure requirement is to ensure consumers know the consequences of paying late. To 

fulfill that purpose, the Board proposes that the amount of the late-payment fee must be 

disclosed in close proximity to the due date. If the amount of the late-payment fee is 

based on outstanding balances, the proposal would permit the creditor to disclose either 

the fee that would apply to that specific balance, or the highest fee in the range (e.g., “up 

to” a stated dollar amount). 

In addition, the Board believes that an equally (or more) important consequence 

of paying late is the potential increase in APRs. The extent of rate increases may be 

substantial, particularly where the increased APR applies to all existing balances, 

including balances at low promotional rates. Further, the increased APR may apply for a 

lengthy period of time (although if the creditor imposes a penalty rate, the increase would 

not become effective for at least 45 days, under the Board’s proposal). See proposed 

§ 226.9(g). The Board is concerned that if the disclosure refers to only the late payment 

fee, consumers may overlook the more costly consequence of penalty rates. Therefore, 

the Board proposes to require creditors to disclose any increased rate that may apply if 

consumers’ payments are received after the due date. If, under the terms of the account 

agreement, a late payment could result in the loss of a promotional rate, the imposition of 

a penalty rate, or both, the creditor must disclose the highest rate that could apply, to 

avoid information overload. Under the proposal, the increased APR would be disclosed 

closely proximate to the fee and due date, as set forth in proposed § 226.7(b)(13). The 

Board believes this fulfills Congress’s intent to warn consumers about the effects of 

paying late. 

7(b)(12) Minimum Payment

The Bankruptcy Act amends TILA Section 127(b) to require creditors that extend 

open-end credit to provide a disclosure on the front of each periodic statement in a 

prominent location about the effects of making only minimum payments. 

15 U.S.C. § 1637(b)(11). This disclosure must include: (1) a “warning” statement 

indicating that making only the minimum payment will increase the interest the consumer 

pays and the time it takes to repay the consumer’s balance; (2) a hypothetical example of 

how long it would take to pay off a specified balance if only minimum payments are 

made; and (3) a toll-free telephone number that the consumer may call to obtain an 

estimate of the time it would take to repay their actual account balance. 

Under the Bankruptcy Act, depository institutions may establish and maintain 

their own toll-free telephone numbers or use a third party. In order to standardize the 

information provided to consumers through the toll-free telephone numbers, the 

Bankruptcy Act directs the Board to prepare a “table” illustrating the approximate 

number of months it would take to repay an outstanding balance if the consumer pays 
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only the required minimum monthly payments and if no other advances are made. The 

Board is directed to create the table by assuming a significant number of different APRs, 

account balances, and minimum payment amounts; instructional guidance must be 

provided on how the information contained in the table should be used to respond to 

consumers’ requests. The Board is also required to establish and maintain, for two years, 

a toll-free telephone number for use by customers of creditors that are depository 

institutions having assets of $250 million or less. The Federal Trade Commission (FTC) 

must maintain a toll-free telephone number for creditors that are not depository 

institutions. 15 U.S.C. 1637(b)(11)(A)-(C). 

The Bankruptcy Act provides that consumers who call the toll-free telephone 

number may be connected to an automated device through which they can obtain 

repayment information by providing information using a touch-tone telephone or similar 

device, but consumers who are unable to use the automated device must have the 

opportunity to be connected to an individual from whom the repayment information may 

be obtained. Creditors, the Board and the FTC may not use the toll-free telephone 

number to provide consumers with repayment information other than the repayment 

information set forth in the “table” issued by the Board. 15 U.S.C. 1637(b)(11)(F)-(H). 

Alternatively, a creditor may use a toll-free telephone number to provide the 

actual number of months that it will take consumers to repay their outstanding balance 

instead of providing an estimate based on the Board-created table. A creditor that does so 

also need not include a hypothetical example on its periodic statements, but must disclose 

the warning statement and the toll-free telephone number on its periodic statements. 

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

 

For ease of reference, the Board will refer to the above disclosures about the 

effects of making only the minimum payment as “the minimum payment disclosures.” 

Proposal to limit the minimum payment disclosure requirements to credit card 

accounts. Under the Bankruptcy Act, the minimum payment disclosures apply to all 

open-end accounts (such as credit card accounts, HELOCs, and general-purpose credit 

lines). The Act expressly states that these disclosure requirements do not apply, however, 

to any “charge card” account, the primary aspect of which is to require payment of 

charges in full each month. 

In the October 2005 ANPR, the Board requested comment on whether certain 

open-end accounts should be exempted from some or all of the minimum payment 

disclosure requirements. Q59. Many industry commenters urged the Board to limit the 

minimum payment disclosure requirements to credit card accounts because they believed 

that Congress intended the minimum payment disclosures only for such accounts. On 

the other hand, several consumer groups urged the Board to apply the minimum payment 

disclosures to all open-end plans because they believed that these disclosures could be 

useful to consumers for all open-end products, including HELOCs. 
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The Board is proposing to exempt open-end credit plans other than credit card 

accounts from the minimum payment disclosure requirements. This exemption would 

cover, for example, HELOCs (including open-end reverse mortgages), overdraft lines of 

credit and other general-purpose personal lines of credit. 

The debate in Congress about the minimum payment disclosures focused on 

credit card accounts. For example, Senator Grassley, a primary sponsor of the 

Bankruptcy Act, in discussing the minimum payment disclosures, stated: 

[The Bankruptcy Act] contains significant new disclosures for consumers, 

mandating that credit card companies provide key information about how much 

[consumers] owe and how long it will take to pay off their credit card debts by 

only making the minimum payment. That is very important consumer education 

for every one of us. 

Consumers will also be given a toll-free number to call where they can get 

information about how long it will take to pay off their own credit card balances if 

they only pay the minimum payment. This will educate consumers and improve 

consumers’ understanding of what their financial situation is. 

Remarks of Senator Grassley (2005), Congressional Record (daily edition), vol. 151, 

March 1, p. S 1856. 

Thus, it appears the principal concern of Congress was that consumers may not be 

fully aware of the length of time it takes to pay off their credit card accounts if only 

minimum monthly payments are made. The concern expressed by Congress for credit 

card accounts does not necessarily apply to other types of open-end credit accounts. 

These other types of open-end accounts are discussed below. 

1. HELOCs. Many industry commenters requested that HELOCs be exempted 

from the minimum payment disclosure requirements. These commenters indicated that 

most HELOCs have a fixed repayment period specified in the account agreement, so that 

consumers know from the account agreement the length of the draw period and the length 

of the repayment period. Nonetheless, several consumer groups urged that HELOCs 

should not be exempted entirely. They advocated a warning to HELOC consumers that 

they can pay down the balance faster and save on finance charges if they pay more than 

the minimum monthly payment required. 

Based on the comments received in response to the October 2005 ANPR as well 

as other information, the Board understands that most HELOCs have a fixed repayment 

period. Thus, for those HELOCs, consumers could learn from the current disclosures the 

length of the draw period and the repayment period. See current § 226.6(e)(2). The 

minimum payment disclosures would not appear to provide useful information to 

consumers that is not already disclosed to them. The cost of providing this information a 

second time, including the costs to reprogram periodic statement systems and to establish 

and maintain a toll-free telephone number, may not be justified by the limited benefit to 
123

consumers. Thus, the Board proposes to exempt HELOCs from the minimum payment 

disclosures requirements at this time, but will consider changes to HELOC disclosures as 

part of the HELOC review. 

2. Open-end reverse mortgages. An open-end reverse mortgage is a HELOC that 

is designed to allow consumers to convert the equity in their homes into cash. During an 

extended “draw” period consumers continue living in their homes, can draw on the line 

of credit to the extent they repay any outstanding balance. The principal and interest 

become due when the homeowner moves, sells the home, or dies. Consumers with openend reverse mortgages would not likely benefit from the minimum payment disclosures, 

because these disclosures would be based on assumptions about events difficult to 

predict, such as when the homeowner will move, sell the house or die. 

3. Overdraft lines of credit and other general-purpose personal lines of credit. In 

response to the October 2005 ANPR, several industry commenters suggested that the 

Board exempt overdraft lines of credit from the minimum payment disclosure 

requirements. For example, one industry trade group indicated that overdraft lines of 

credit have relatively low credit limits and are not intended as a long term credit option. 

The commenter also indicated that features and terms of overdraft lines of credit vary 

widely from institution to institution. Some banks require that an overdraft line of credit 

be paid in full within a short period after the consumer receives notice that the overdraft 

line has been used. Other banks permit longer periods of time to repay, but those periods 

and the size of any minimum payment vary significantly from bank to bank. This 

commenter indicated that the cost to small institutions of providing the minimum 

payment disclosures might cause them to stop providing overdraft products. 

The Board is proposing to exempt overdraft lines of credit and other generalpurpose credit lines from the minimum payment disclosure requirements for several 

reasons. First, these lines of credit are not in wide use. The 2004 Survey of Consumer 

Finances data indicates that few families – 1.6 percent – had a balance on lines of credit 

other than a home-equity line or credit card at the time of the interview. (In terms of 

comparison, 74.9 percent of families had a credit card, and 58 percent of these families 

had a credit card balance at the time of the interview.)16 Second, these lines of credit 

typically are neither promoted, nor used, as long-term credit options of the kind for which 

the minimum payment disclosures are intended. Third, the Board is concerned that the 

operational costs of requiring creditors to comply with the minimum payment disclosure 

requirements with respect to overdraft lines of credit and other general-purpose lines of 

credit may cause some institutions to no longer provide these products as 

accommodations to consumers, to the detriment of consumers who currently use these 

products. For these reasons, the Board is proposing to exempt overdraft lines of credit 

and other general-purpose credit lines from the minimum payment disclosure 

requirements. 

 

16 Brian Bucks, et al., Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey 

of Consumer Finances, FEDERAL RESERVE BULLETIN (March 2006). 
124

7(b)(12)(i) General Disclosure Requirements 

Under the Bankruptcy Act, the hypothetical example that creditors must disclose 

on periodic statements varies depending on the creditor’s minimum payment 

requirement. Generally, creditors that require minimum payments equal to 4 percent or 

less of the account balance must disclose on each statement that it takes 88 months to pay 

off a $1000 balance at an interest rate of 17 percent if the consumer makes a “typical” 

2 percent minimum monthly payment. Creditors that require minimum payments 

exceeding 4 percent of the account balance must disclose that it takes 24 months to pay 

off a balance of $300 at an interest rate of 17 percent if the consumer makes a “typical” 

5 percent minimum monthly payment (but a creditor may opt instead to disclose the 

statutory example for 2 percent minimum payments). The 5 percent minimum payment 

example must be disclosed by creditors for which the FTC has the authority under the 

Truth in Lending Act to enforce the act and this regulation. Creditors also have the 

option to substitute an example based on an APR that is greater than 17 percent. The 

Bankruptcy Act authorizes the Board to periodically adjust the APR used in the 

hypothetical example and to recalculate the repayment period accordingly. 

15 U.S.C. § 1637(b)(11)(A)-(E). 

Wording of the examples. The Bankruptcy Act sets forth specific language for 

issuers to use in disclosing the applicable hypothetical example on the periodic statement. 

The Board proposes to amend the statutory language to facilitate consumers’ use and 

understanding of the disclosures, pursuant to its authority under TILA Section 105(a) to 

make adjustments that are necessary to effectuate the purposes of TILA. 

15 U.S.C. 1604(a). First, the Board proposes to require that issuers disclose the payoff 

periods in the hypothetical examples in years, rounding fractional years to the nearest 

whole year, rather than in months as provided in the statute. Thus, issuers would disclose 

that it would take over 7 years to pay off the $1,000 hypothetical balance, and about 

2 years for the $300 hypothetical balance. The Board believes that disclosing the payoff 

period in years allows consumers to better comprehend the repayment period without 

having to convert it themselves from months to years. Participants in the consumer 

testing conducted for the Board reviewed disclosures with the estimated payoff period in 

years, and they indicated they understood the length of time it would take to repay the 

balance if only minimum payments were made. Consumers may also appreciate more 

that the repayment periods are merely estimates. 

Second, the statute requires that issuers disclose in the examples the minimum 

payment formula used to calculate the payoff period. In the $1,000 example above, the 

statute would require issuers to indicate that a “typical” 2 percent minimum monthly 

payment was used to calculate the repayment period. In the $300 example above, the 

statute would require issuers to indicate that a 5 percent minimum monthly payment was 

used to calculate the repayment period. The Board proposes to eliminate the specific 

minimum payment formulas from the examples. The references to the 2 percent 

minimum payment in the $1,000 example, and a 5 percent minimum payment in the $300 

example, are incomplete descriptions of the minimum payment requirement. In the 

$1,000 example, the minimum payment formula used to the calculate repayment period is 
125

the greater of 2 percent of the outstanding balance or $20. In the $300 example, the 

minimum payment formula used to calculate the repayment period is the greater of 

5 percent of the outstanding balance or $15. In fact, in each example, the hypothetical 

consumer always pays the absolute minimum ($20 or $15, depending on the example). 

The Board believes that including the entire minimum payment formula, 

including the floor amount, in the disclosure could make the example too complicated 

and have the unintended consequence of misleading a consumer who reads the language 

set out in the statute into concluding that the payment is smaller than it actually is. While 

the disclosures could be revised to indicate that the repayment period in the $1,000 

balance was calculated based on a $20 payment, and repayment period in the $300 

balance was calculated based on a $15 payment, the Board believes that revising the 

statutory language in this way changes the disclosure to focus consumers on the effects of 

making a fixed payment each month as opposed to the effects of making minimum 

payments. Moreover, disclosing the minimum payment formula is not necessary for 

consumers to understand the essential point of the examples – that it can take a 

significant amount of time to pay off a balance if only minimum payments are made. In 

testing conducted for the Board, the $1,000 balance example was tested without including 

the 2 percent minimum payment disclosure required by the statute. Consumers appeared 

to understand the purpose of the disclosure—that it would take a significant amount of 

time to repay a $1,000 balance if only minimum payments were made. For these reasons, 

the Board is proposing to require the hypothetical examples without a minimum payment 

formula. 

The proposed regulatory language for the examples is set forth in new 

§ 226.7(b)(12)(i). In addition to the revisions mentioned above, the Board also proposes 

several stylistic revisions to the statutory language, based on plain language principles, in 

an attempt to make the language of the examples more understandable to consumers. 

Adjustments to the APR used in the examples. The Bankruptcy Act specifically 

authorizes the Board to periodically adjust the APR used in the hypothetical example and 

to recalculate the repayment period accordingly. In the October 2005 ANPR, the Board 

requested comment on whether the Board should adjust the APR used in the hypothetical 

examples, because current APRs on credit cards may be less than the 17 percent APR in 

the examples. Q62. Commenters were split on whether the Board should adjust the APR 

in the examples. 

The Board is not proposing to adjust the APR used in the hypothetical examples. 

The Board recognizes that the examples are intended to provide consumers with an 

indication that it can take a long time to pay off a balance if only minimum payments are 

made. Revising the APR used in the example to reflect the average APR paid by 

consumers would not significantly improve the disclosure, because for many consumers 

an average APR would not be the APR that applies to the consumer’s account. 

Moreover, consumers will be able to obtain a more tailored disclosure of a repayment 

period based on the APR applicable to their accounts by calling the toll-free telephone 

number provided as part of the minimum payment disclosure. 
126

7(b)(12)(ii) Estimate of Actual Repayment Period

Under the Bankruptcy Act, a creditor may use a toll-free telephone number to 

provide consumers with the actual number of months that it will take consumers to repay 

their outstanding balance instead of providing an estimate based on the Board-created 

table. Creditors that choose to give the actual number via the telephone number need not 

include a hypothetical example on their periodic statements. Instead, they must disclose 

on periodic statements a warning statement that making the minimum payment will 

increase the interest the consumer pays and the time it takes to repay the consumer’s 

balance and a toll-free telephone number that consumers may use to obtain the actual 

repayment disclosure. 15 U.S.C. 1637(b)(11)(I) and (K). The Board proposes to 

implement this statutory provision in new § 226.7(b)(12)(ii)(A). 

In addition, the Board proposes to provide that if card issuers provide the actual 

repayment disclosure on the periodic statement, they need not disclose the warning, the 

hypothetical example and a toll-free telephone number on the periodic statement, nor 

need they maintain a toll-free telephone number to provide the actual repayment 

disclosure. See proposed § 226.7(b)(12)(ii)(B). 

The Board strongly encourages card issuers to provide the actual repayment 

disclosure on periodic statements, and solicits comments on whether the Board can take 

other steps to provide incentives to card issuers to use this approach. A recent study 

conducted by the GAO on minimum payments suggests that certain cardholders would 

find the actual repayment disclosure more helpful than the generic disclosures required 

by the Bankruptcy Act. For this study, the GAO interviewed 112 consumers and 

collected data on whether these consumers preferred to receive on the periodic statement 

(1) customized minimum payment disclosures that are based on the consumers’ actual 

account terms (such as the actual repayment disclosure), (2) generic disclosures such as 

the warning statement and the hypothetical example required by the Bankruptcy Act; or 

(3) no disclosure.17 According to the GAO’s report, in the interviews with the 

112 consumers, most consumers who typically carry credit card balances (revolvers) 

found customized disclosures very useful and would prefer to receive them in their 

billing statements. Specifically, 57 percent of the revolvers preferred the customized 

disclosures, 30 percent preferred the generic disclosures, and 14 percent preferred no 

disclosure. In addition, 68 percent of the revolvers found the customized disclosure 

extremely useful or very useful, 9 percent found the disclosure moderately useful, and 

23 percent found the disclosure slightly useful or not useful. According to the GAO, the 

consumers that preferred the customized disclosures liked that such disclosures would be 

specific to their accounts, would change based on their transactions, and would provide 

more information than generic disclosures. GAO Report on Minimum Payments, 

pages 25, 27. 

 

17 United States Government Accountability Office, Customized Minimum Payment Disclosures Would 

Provide More Information to Consumers, but Impact Could Vary, 06-434 (April 2006). (The GAO 

indicated that the sample of 112 consumers was not designed to be statistically representative of all 

cardholders, and thus the results cannot be generalized to the population of all U.S. cardholders.) 
127

In addition, the Board believes that disclosing the actual repayment disclosure on 

the periodic statement would simplify the process for consumers and creditors. 

Consumers would not need to take the extra step to call the toll-free telephone number to 

receive the actual repayment disclosure, but instead would have that disclosure each 

month on their periodic statements. Card issuers (other than issuers that may use the 

Board or the FTC toll-free telephone number) would not have the operational burden of 

establishing a toll-free telephone number to receive requests for the actual repayment 

disclosure and the operational burden of linking the toll-free telephone number to 

consumer account data in order to calculate the actual repayment disclosure. 

The Board proposes this approach pursuant to its exception and exemption 

authorities under TILA Section 105. Section 105(a) authorizes the Board to make 

exceptions to TILA to effectuate the statute’s purposes, which include facilitating 

consumers’ ability to compare credit terms and helping consumers avoid the uniformed 

use of credit. 15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes the Board to exempt 

any class of transactions (with an exception not relevant here) from coverage under any 

part of TILA if the Board determines that coverage under that part does not provide a 

meaningful benefit to consumers in the form of useful information or protection. 

15 U.S.C. 1604(f)(1). Section 105(f) directs the Board to make this determination in light 

of specific factors. 15 U.S.C. 1604(f)(2). These factors are (1) the amount of the loan 

and whether the disclosure provides a benefit to consumers who are parties to the 

transaction involving a loan of such amount; (2) the extent to which the requirement 

complicates, hinders, or makes more expensive the credit process; (3) the status of the 

borrower, including any related financial arrangements of the borrower, the financial 

sophistication of the borrower relative to the type of transaction, and the importance to 

the borrower of the credit, related supporting property, and coverage under TILA; 

(4) whether the loan is secured by the principal residence of the borrower; and 

(5) whether the exemption would undermine the goal of consumer protection. 

The Board has considered each of these factors carefully, and based on that 

review, believes it is appropriate to provide an exemption from the requirement to 

provide on periodic statements a warning about the effects of making minimum 

payments, a hypothetical example, and a toll-free telephone number consumers may call 

to obtain repayment periods, and to maintain a toll-free telephone number for responding 

to consumers’ requests, if the creditor instead provides the actual repayment period on the 

periodic statement. As noted above, consumer testing indicated that actual repayment 

period information is more useful to consumers than estimated information. Providing 

that disclosure on a statement rather than over the telephone provides consumers with 

easier access to the information. Thus, the proposal has the potential to better inform 

consumers and further the goals of consumer protection and the informed use of credit for 

credit card accounts. The Board welcomes comment on this matter. 

7(b)(12)(iii) Exemptions

As explained above, the Board proposes to require the minimum payment 

disclosures only for credit card accounts. See proposed § 226.7(b)(12)(i). Thus, 

creditors would not need to provide the minimum payment disclosures for HELOCs 
128

(including open-end reverse mortgages), overdraft lines of credit or other general-purpose 

personal lines of credit. For the same reasons, the Board proposes to exempt these 

products regardless of whether they can be accessed by a credit card device. Specifically, 

proposed § 226.7(b)(12)(iii) would exempt the following types of credit card accounts: 

(1) HELOCs accessible by credit cards that are subject to § 226.5b; (2) overdraft lines of 

credit tied to asset accounts accessed by check-guarantee cards or by debit cards; and 

(3) lines of credit accessed by check-guarantee cards or by debit cards that can be used 

only at automated teller machines. See proposed § 226.7(b)(12)(iii)(A)-(C). The Board 

also proposes to exempt charge cards from the minimum payment disclosure 

requirements, to implement TILA Section 127(b)(11)(I). 15 U.S.C. § 1637(b)(11)(I); 

See proposed § 226.7(b)(12)(iii)(D). 

Exemption for credit card accounts with a specific repayment period. In the 

October 2005 ANPR, the Board requested comment on whether certain open-end 

accounts should be exempted from some or all of the minimum payment disclosure 

requirements, such as open-end plans that have a fixed repayment period. Q59. Industry 

commenters generally supported an exemption for open-end plans that have a fixed 

repayment period. These commenters indicated that the minimum payment disclosures 

are not necessary in this context, because the consumer will already know from the 

account agreement how long it will take to repay the balance. 

 

The Board proposes to exempt credit card accounts where a fixed repayment 

period for the account is specified in the account agreement and the required minimum 

payments will amortize the outstanding balance within the fixed repayment period. 

See proposed § 226.7(b)(12)(iii)(E). The minimum payment disclosures would not 

appear to provide useful information to consumers that they do not already have in their 

account agreements. The cost of providing this information a second time, including the 

costs to reprogram periodic statement systems and to establish and maintain a toll-free 

telephone number, may not be justified by the limited benefit to consumers. 

In order for this proposed exemption to apply, a fixed repayment period must be 

specified in the account agreement. As proposed, this exemption would include, for 

example, accounts where the account has been closed due to delinquency and the 

required monthly payment has been reduced or the balance decreased to accommodate a 

fixed payment for a fixed period of time designed to pay off the outstanding balance. 

See proposed comment 7(b)(12)(iii)-1. This exemption would not apply where the credit 

card may have a fixed repayment period for one credit feature, but an indefinite 

repayment period on another feature. For example, some retail credit cards have several 

credit features associated with the account. One of the features may be a general 

revolving feature, where the minimum payment for this feature does not pay off the 

balance in a specific period of time. The card also may have another feature that allows 

consumers to make specific types of purchases (such as furniture purchases, or other 

large purchases), and the minimum payments for that feature will pay off the purchase 

within a fixed period of time, such as one year. New comment 7(b)(12)(iii)-1 makes 

clear that the exemption relating to a fixed repayment period does not apply to the above 
129

situation, because the retail card account as a whole does not have a fixed repayment 

period. 

Exemption where cardholders have paid their accounts in full for two consecutive 

months. In the October 2005 ANPR, the Board requested comment on whether the Board 

should exempt credit card accounts of consumers who typically do not revolve balances 

or make monthly payments that regularly exceed the minimum. Q60. In response to the 

October 2005 ANPR, several industry commenters urged the Board to exempt card 

issuers from providing minimum payment disclosures to consumers who do not regularly 

make minimum payments. These commenters indicated that excluding non-minimum 

payers is appropriate because the minimum payment disclosures are less meaningful to 

those consumers. On the other hand, several consumer groups indicated that the Board 

should not provide an exemption based on the characteristics or habits of the 

accountholder, such as whether they typically pay in full. These commenters indicated 

that the typical behavior of a particular consumer can change quickly, due either to a 

temporary change in circumstances (a move, a layoff, or a major medical expense) or a 

permanent change (the death of a spouse or a disability). The consumer groups believed 

that in these circumstances, it is important that consumers have disclosure about the 

effects of paying the minimum payments in a timely fashion, before an outstanding 

balance grows unmanageable. 

The Board proposes to provide that card issuers are not required to comply with 

minimum payment disclosure requirements for a particular billing cycle if a consumer 

has paid the entire balance in full for the previous two billing cycles. See proposed 

§ 226.7(b)(12)(iii)(F). The GAO found in its study on minimum payment disclosures 

that cardholders who pay their balances in full each month (non-revolvers) were 

generally satisfied with receiving generic disclosures or none at all, and did not prefer 

customized disclosures such as actual repayment disclosures. Thirty-seven percent of 

non-revolvers found the customized disclosure extremely or very useful. Eight percent of 

non-revolvers found the customized disclosure moderately useful and 55 percent found it 

slightly or not useful. The GAO indicated that many of the non-revolvers it interviewed 

who preferred not to receive a customized disclosure explained that they paid their 

balance in full each month, already understood the consequences of making only 

minimum payments, and did not need the additional reminder. See GAO Report on 

Minimum Payments, pages 26, 30-31. 

Thus, because non-revolvers may not find the minimum payment disclosures very 

useful or meaningful, the Board proposes to exempt card issuers from the requirement to 

provide the minimum payment disclosures in a particular billing cycle if a consumer has 

paid the entire balance in full for the two previous billing cycles. For example, if a 

consumer paid the entire balance in full for account activity in March and April, the 

creditor would not be required to provide the minimum payment disclosure for the 

statement representing account activity in May. The Board believes this approach strikes 

an appropriate balance between benefits to consumers from the disclosures, and 

compliance burdens on issuers in providing the disclosures. Consumers who might 

benefit from the disclosures will receive them. Consumers who carry a balance each 
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month will always receive the disclosure, and consumers who pay in full each month will 

not. Consumers who sometimes pay their bill in full and sometimes do not will receive 

the minimum payment disclosures if they do not pay in full the prior two consecutive 

months (cycles). Also, if a consumer’s typical payment behavior changes from paying in 

full to revolving, the consumer will begin receiving the minimum payment disclosures 

after not paying in full one billing cycle, when the disclosures would appear to be timely. 

In addition, creditors already typically track whether a consumer has paid their balance in 

full for two consecutive months. Typically, creditors provide a grace period on new 

purchases to consumers (that is, creditors do not charge interest to consumers on new 

purchases) if consumers paid both the current balance and the previous balance in full. 

Thus, creditors currently capture payment history for consumers for two billing cycles. 

 

In response to the October 2005 ANPR, one industry commenter indicated that 

many creditors do not have the processing systems that are capable of selectively pricing 

the disclosures from month-to-month based on customers’ prior payment patterns. Card 

issuers are not required to take advantage of this exemption from providing the minimum 

payment disclosures for a particular billing cycle if a consumer has paid the entire 

balance in full for the previous two billing cycles. Card issuers may provide the 

minimum payment disclosures to all of its cardholders, even to those cardholders that fall 

within this exemption. If issuers choose to provide voluntarily the minimum payment 

disclosures to those cardholders that fall within this exemption, issuers should follow the 

disclosures rules set forth in § 226.7(b)(12), the accompanying commentary, and 

Appendices M1-M3 (as appropriate) for those cardholders. 

Exemption where balance has fixed repayment period. In response to the October 

2005 ANPR, several industry commenters urged the Board to exempt credit cards with 

fixed payment features from the minimum payment disclosures. As described above, 

some retail credit cards may have several features on the card. One of those features may 

allow consumers to make certain types of purchases with the feature (such as furniture 

purchases, or other large purchases), and the minimum payments for that feature will pay 

off the purchase within a specific period of time, such as one year. Some commenters 

indicated that these types of accounts should be exempted from the minimum payment 

disclosure requirements because consumers would know the repayment period from the 

account agreement. 

The Board proposes to exempt credit card issuers from providing the minimum 

payment disclosures on periodic statements in a billing cycle where the entire outstanding 

balance held by consumers in that billing cycle is subject to a fixed repayment period 

specified in the account agreement and the required minimum payments applicable to this 

feature will amortize the outstanding balance within the fixed repayment period. This 

exemption is meant to cover the retail cards described above in those cases where the 

entire outstanding balance held by a consumer in a particular billing cycle is subject to a 

fixed repayment period specified in the account agreement. The minimum payment 

disclosures would not appear to provide useful information to consumers in this context 

because consumers would be able to learn from their account agreements how long it 

would take to repay the balance. The cost of providing this information a second time, 
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including the costs to reprogram periodic statement systems and to establish and maintain 

a toll-free telephone number, may not be justified by the limited benefit to consumers. 

See proposed comment 7(b)(12)(iii)-2. 

Other exemptions. In response to the October 2005 ANPR, several commenters 

suggested other exemptions to the minimum payment requirements, as discussed below. 

For the reasons discussed below, the Board is not proposing to include these exemptions. 

1. Exemption for discontinued credit card products In response to the October 

2005 ANPR, one commenter urged the Board to provide a partial exemption for credit 

card products for which no new accounts are being opened and for which existing 

accounts are closed to new transactions. With respect to these products, the commenter 

urged the Board to exempt issuers of these products from having to place the minimum 

payment disclosures on the periodic statement, but instead allow issuers to provide these 

notices in freestanding inserts to the periodic statements. The commenter indicates that 

the number of accounts that are discontinued are usually very small and the computer 

systems used to produce the statements for the closed accounts are being phased out. 

The Board solicits further comment on why this exemption is needed. What are 

the costs of redesigning the old computer systems to provide the minimum payment 

disclosures (that is, the warning statement, the hypothetical example, and the toll-free 

telephone number) on the periodic statements? 

2. Exemption for credit card accounts purchased within the last 18 months. In 

response to the October 2005 ANPR, one commenter urged the Board to provide an 

exemption for accounts purchased by a credit card issuer. With respect to these 

purchased accounts, the commenter urged the Board to exempt issuers from placing the 

minimum payment disclosures on the periodic statement during a transitional period (up 

to 18 months) while the purchasing issuer converts the new accounts to its statement 

system. In this situation, the commenter indicated that issuers should be allowed to 

provide these notices in freestanding inserts to the periodic statements. 

The Board solicits further comment on why this exemption is needed. Why could 

the purchasing issuer not continue to use the periodic statement system and toll-free 

telephone numbers used by the selling issuer to meet the requirements of the minimum 

payment disclosures, until the purchased accounts are converted to the purchaser’s 

systems? 

3. Credit card products that do not use declining balance amortization. One 

commenter suggested that the Board exempt from the minimum payment disclosure 

requirements credit card products that do not use declining balance amortization to 

calculate the minimum payment. For example, some retail credit cards base their 

minimum payment formula on the original purchase price or similar amount, rather than 

on the declining balance. The commenter indicates that these products should be exempt 

because amortization schedules for these products result in far shorter repayment periods. 

The Board is proposing not to adopt this exemption because even though the amortization 
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schedules for these products may be shorter than for cards where the minimum payment 

is calculated on the declining balance, the payoff time may not be so short as to justify an 

exemption. For example, assume the minimum payment formula is 3.33 percent of the 

highest balance or $10, whichever is greater. It could still take around 4 years to pay off 

a $500 balance at a 21.9 percent APR if a consumer only made minimum payments. (For 

contrast, the repayment period would be around 7 years if the minimum payment was 

calculated based on the outstanding balance, instead of the highest balance.) 

4. Credit cards with balances of less than $500. One commenter suggested that 

the Board exempt credit card accounts from the minimum payment disclosure 

requirements in cases where the balance on the card is less than $500. This commenter 

indicated in cases of low balances, the repayment period is fairly short and so the 

minimum payment disclosure is less needed. The Board is not proposing to exempt these 

credit card accounts. Depending on how the minimum payment is calculated, it can still 

take a significant amount of time to pay off a $500 balance if only minimum payments 

are made. For example, assume the minimum payment is calculated based on the 

following formula: the greater of (1) 1 percent of the outstanding balance plus interest 

charges that accrued in the past month; or (2) $10. It could still take around 5 years to 

repay a $500 balance at a 7.99 percent APR if only minimum payments are made. 

7(b)(12)(iv) Toll-free Telephone Numbers

Under Section 1301(a) of the Bankruptcy Act, depository institutions generally 

must establish and maintain their own toll-free telephone numbers or use a third party to 

disclose the repayment estimates based on the “table” issued by the Board. 

15 U.S.C. 1637(b)(11)(F)(i). At the issuer’s option, the issuer may disclose the actual 

repayment disclosure through the toll-free telephone number. The Board also is required 

to establish and maintain, for two years, a toll-free telephone number for use by 

customers of depository institutions having assets of $250 million or less. 

15 U.S.C. 1637(b)(11)(F)(ii). The FTC must maintain a toll-free telephone number for 

creditors other than depository institutions. 15 U.S.C. 1637(b)(11)(F). 

The Bankruptcy Act also provides that consumers who call the toll-free telephone 

number may be connected to an automated device through which they can obtain 

repayment information by providing information using a touch-tone telephone or similar 

device, but consumers who are unable to use the automated device must have the 

opportunity to be connected to an individual from whom the repayment information may 

be obtained. Unless the issuer is providing an actual repayment disclosure, the issuer 

may not provide through the toll-free telephone number a repayment estimate other than 

estimates based on the “table” issued by the Board. 15 U.S.C. 1637(b)(11)(F). These 

same provisions apply to the FTC’s and the Board’s toll-free telephone numbers as well. 

The Board proposes to add new § 226.7(b)(12)(iv) and accompanying 

commentary to implement the above statutory provisions related to the toll-free telephone 

numbers. In addition, new comment 7(b)(12)(iv)-3 would provide that once a consumer 

has indicated that he or she is requesting the generic repayment estimate or the actual 

repayment disclosure, as applicable, card issuers may not provide advertisements or 
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marketing information to the consumer prior to providing the repayment information 

required or permitted by Appendix M1 or M2, as applicable. 

7(b)(12)(v) Definitions

 As discussed above, Section 1301(a) of the Bankruptcy Act requires the Board to 

establish and maintain, for two years, a toll-free telephone number for use by customers 

of depository institutions having assets of $250 million or less. 15 U.S.C. 

1637(b)(11)(F)(ii). For ease of reference in the regulation, the Board proposes to define 

the above depository institutions as “small depository institution issuers.” See proposed 

§ 226.7(b)(12)(v). 

7(b)(13) Format Requirements

As discussed throughout this section-by-section analysis to § 226.7, consumer 

testing conducted for the Board indicates improved understanding when related 

information is grouped together. Under the proposal, creditors would group together 

when a payment is due (due date and cut-off time if before 5 p.m.), how much is owed 

(minimum payment and ending balance), and what the potential costs are for paying late 

(late-payment fee, and penalty APR if triggered by a late payment). See proposed 

Samples G-18(E) and G-18(F) in Appendix G. The proposed format requirements are 

intended to fulfill Congress’s intent to have the new late payment and minimum payment 

disclosures ensure consumers’ ability to understand the consequences of paying late or 

making only minimum payments. 

7(b)(14) Change-in-terms and Increased Penalty Rate Summary for Open-end (not 

Home-secured) Plans

A major goal of its review of Regulation Z’s open-end credit rules is to address 

consumers’ surprise at increased rates (and/or fees). In part, the Board is addressing the 

issue in § 226.9(c) and § 226.9(g) to give more time before new rates and changes to 

significant costs become effective. See proposed § 226.9(c)(2) and § 226.9(g). The 

proposed new § 226.7(b)(14) is intended to enable consumers to notice more easily 

changes in their account terms. Increasing the time period to act is ineffective if 

consumers do not see the change-in-term notice. Consumers who participated in testing 

conducted for the Board consistently set aside change of term notices that accompanied 

periodic statements. Research conducted for the Board indicates that consumers do look 

at the front side of periodic statements and do look at transactions. Therefore, when a 

change-in-terms notice is provided on or with a periodic statement the proposal would 

require a summary of key changes to precede transactions. In addition, when a notice of 

a rate increase due to delinquency or default or as a penalty is provided on or with a 

periodic statement, the proposal would require this notice to precede transactions. 

Samples G-20 and G-21 in Appendix G illustrate the proposed format requirement under 

§ 226.7(b)(14) and the level of detail required for the notice under § 226.9(c)(2)(iii) and 

§ 226.9(g)(3). Forms G-18(G) and G-18(H) illustrate the placement of these notices on a 

periodic statement. 
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Section 226.8 Identifying Transactions on Periodic Statements

TILA Section 127(b)(2) requires creditors to identify on periodic statements credit 

extensions that occurred during a billing cycle. 15 U.S.C. 1637(b)(2). The statute calls 

for the Board to implement requirements that are sufficient to identify the transaction or 

to relate the credit extension to sales vouchers or similar instruments previously 

furnished. The rules for identifying transactions are implemented in § 226.8, and vary 

depending on whether: (1) the sales receipt or similar credit document is included with 

the periodic statement, (2) the transaction is sale credit (purchases) or nonsale credit (cash 

advances, for example), and (3) the creditor and seller are the “same or related.” TILA’s 

billing error protections include consumers’ requests for additional clarification about 

transactions listed on a periodic statement. 15 U.S.C. 1666(b)(2); § 226.13(a)(6). 

The Board proposes to update and simplify the rules for identifying sales 

transactions when the sales receipt or similar document is not provided with the periodic 

statement (so called “descriptive billing”), which is typical today. The rules for 

identifying transactions where such receipts accompany the periodic statement are not 

affected by the proposal. The proposed changes reflect current business practices and 

consumer experience, and are intended to ease compliance. Currently, creditors that use 

descriptive billing are required to include on periodic statements an amount and date as a 

means to identify transactions, and the proposal would not affect those requirements. As 

an additional means to identify transactions, current rules contain description 

requirements that differ depending on whether the seller and creditor are “same or 

related.” For example, a retail department store with its own credit plan (seller and 

creditor are same or related) sufficiently identifies purchases on periodic statements by 

providing the department such as “jewelry” or “sporting goods;” item-by-item 

descriptions are not required. Periodic statements provided by issuers of general purpose 

credit cards, where the seller and creditor are not the same or related, identify transactions 

by the seller’s name and location. 

The Board proposes to provide additional flexibility to creditors that do not 

provide sales slips or similar documents with the periodic statement. Under the proposal, 

all creditors would be permitted to identify sales transactions (in addition to the amount 

and date) by the seller’s name and location. Thus, creditors and sellers that are the same 

or related could, at their option, identify transactions by a brief identification of goods or 

services, which they are currently required to do in all cases, or they could provide the 

seller’s name and location for each transaction. Guidance on the level of detail required 

to describe amounts, dates, the identification of goods, or the seller’s name and location 

remains unchanged. 

The Board’s proposal is guided by several factors. The standard set forth by 

TILA for identifying transactions on periodic statements is quite broad. 

15 U.S.C. 1637(b)(2). Whether a general description such as “sporting goods” or the 

store name and location would be more helpful to a consumer can depend on the 

situation. Many retailers permit consumers to purchase in a single transaction items from 

a number of departments; in that case, the seller’s name and location may be as helpful as 
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the description of a single department from which several dissimilar items were 

purchased. Also, the seller’s name and location has become the more common means of 

identifying transactions, as the use of general purpose cards increases and the number of 

store-only cards decreases. Under the proposed rule, retailers that commonly accept 

general purpose credit cards but also offer a credit card account or other open-end plan 

for use only at their store would not be required to maintain separate systems that enable 

different descriptions to be provided, depending on the type of card used. Finally, it 

appears that any consumer benefits would be minimally affected by the proposed change 

because many retailers permit purchases from different departments to be charged in a 

single transaction. Moreover, consumers are likely to carefully review transactions on 

periodic statements and inquire about transactions they do not recognize, such as when a 

retailer is identified by its parent company on sales slips which the consumer may not 

have noticed at the time of the transaction. Moreover, consumers are protected under 

TILA with the ability to assert a billing error to seek clarification about transactions listed 

on periodic statements, and are not required to pay the disputed amount while the creditor 

obtains the necessary clarification. Maintaining rules that require more standardization 

and detail would be costly, and likely without significant corresponding consumer 

benefit. Thus, the proposal is intended to provide flexibility for creditors without 

reducing consumer protection. 

The Board notes, however, that some retailers offering their own open-end credit 

plans tie their inventory control systems to their systems for generating sales receipts and 

periodic statements. In these cases, purchases listed on periodic statements may be 

described item by item, for example, to indicate brand name such as “XYZ Sweater.” 

This item-by-item description, while not required under current or proposed rules, would 

remain permissible under the proposal; thus, no operational changes would be required 

for these retailers. 

To implement the approach described above, § 226.8 would be revised as follows. 

Section 226.8(a)(1) would set forth the proposed rule providing flexibility in identifying 

sales transactions, as discussed above. Section 226.8(a)(2) would contain the existing 

rules for identifying transactions when sales receipts or similar documents accompany the 

periodic statement. Section 226.8(b) is revised for clarity. A new § 226.8(c) would be 

added to set forth rules now contained in footnotes 16 and 19; and, without references to 

“same or related” parties, footnotes 17 and 20. The substance of footnote 18, based on a 

statutory exception where the creditor and seller are the same person, would be deleted as 

unnecessary. The title of the section would be revised for clarity. 

The commentary to § 226.8 would be reorganized and consolidated but would not 

be substantively changed. Comments 8-1, 8(a)-1, and 8(a)(2)-4 would be deleted as 

duplicative. Similarly, comments 8-6 through 8-8, which provide creditors with 

flexibility in describing certain specific classes of transactions regardless of whether they 

are “related” or “nonrelated” sellers or creditors, would be deleted as unnecessary. 

Existing comments 8-4 and 8(a)(2)-3, which provide guidance when copies of credit or 

sales slips accompany the statement, also would be deleted. The Board believes this 

practice is no longer common, and to the extent sales or similar credit documents 
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accompany billing statements, additional guidance seems unnecessary. Proposed 

§ 226.8(a)(1)(ii) and comments 8(a)-3 and 8(a)-7, which provide guidance for identifying 

mail or telephone transactions, also would refer to Internet transactions. Proposed 

comment 8(a)-1 would provide an example of new services that are now commonly 

purchased from creditors as well as third party service providers (sale credit). 

Section 226.9 Subsequent Disclosure Requirements

Section 226.9 sets forth a number of disclosure requirements that apply after an 

account is opened, including a requirement to provide billing rights statements annually, 

a requirement to provide at least 15 days advance notice whenever a term required to be 

disclosed in the account-opening disclosures is changed, and a requirement to provide 

finance charge disclosures whenever credit devices or features are added on terms 

different from those previously disclosed. 

With respect to open-end (not home-secured) plans, the Board proposes a number 

of substantive and technical revisions to § 226.9 and the accompanying commentary, as 

further described below. The proposal would require certain disclosures to accompany 

checks that access a credit card account. In addition, the proposal would require creditors 

to provide a summary table of a limited number of key terms if those terms are changed. 

The summary table would appear on the first page of the notice or a separate piece of 

paper. Moreover, if the change-in-terms notice is included with a periodic statement, that 

summary table would be required to be provided on the front of the first page of the 

periodic statement, before the list of transactions for the statement period. Also, the 

Board would require creditors to provide advance notice when a rate is increased due to a 

consumer’s delinquency or default or as a penalty. The Board’s proposal also would 

require creditors to provide 45 days advance notice for changes in terms or increases in 

rates due to delinquency or default or penalty pricing. Home-equity lines of credit 

(HELOCs) subject to § 226.5b would not be affected by these proposed revisions. For 

the reasons set forth in the section-by-section analysis to § 226.6(b)(1), the Board would 

update references to “free-ride period” as “grace period” in the regulation and 

commentary, without any intended substantive change. 

9(a) Furnishing Statement of Billing Rights

TILA Section 127(a)(7) and § 226.9(a) require creditors to mail or deliver a 

billing error rights statement annually, either to all consumers or to each consumer 

entitled to receive a periodic statement. 15 U.S.C. 1637(a)(7). (See Model Form G-3.) 

Alternatively, creditors may provide a billing rights statement on each periodic statement. 

(See Model Form G-4.) Both the regulation and commentary would be unchanged under 

the proposal. However, the Board proposes to revise both Model Forms G-3 and G-4 to 

improve the readability of these notices. The revised forms are in G-3(A) and G-4(A) of 

Appendix G. For open-end (not home-secured) plans, creditors may use Model Forms 

G-3(A) and G-4(A). For HELOCs subject to the requirements of § 226.5b, creditors may 

use the current Model Forms G-3 and G-4, or the revised forms. 
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9(b) Disclosures for Supplemental Credit Access Devices and Additional Features

 Section 226.9(b) requires certain disclosures when a creditor adds a credit device 

or feature to an existing open-end plan. When a creditor adds a credit feature or delivers 

a credit device to the consumer within 30 days of mailing or delivering the accountopening disclosures under current § 226.6(a), and the device or feature is subject to the 

same finance charge terms previously disclosed, the creditor is not required to provide 

additional disclosures. If the credit feature or credit device is added more than 30 days 

after mailing or delivering the account-opening disclosures, and is subject to the same 

finance charge terms previously disclosed in the account-opening agreement, the creditor 

must disclose that the feature or device is for use in obtaining credit under the terms 

previously disclosed. However, if the added credit device or feature has finance charge 

terms that differ from the disclosures previously given under § 226.6(a), then the 

disclosures required by § 226.6(a) that are applicable to the added feature or device must 

be given before the consumer uses the new feature or device. 

In the December 2004 ANPR, the Board solicited comment as to whether there 

are formatting tools or navigational aids that could more effectively link information in 

account-opening disclosures with information provided in subsequent disclosures under 

§ 226.9(b), such as checks that access a credit card account. Q45. Many creditors 

commented that there would be no benefit to linking subsequent disclosures and accountopening disclosures because many consumers fail to retain the information they receive at 

account opening. Several creditors commented that improved formatting could improve 

consumer understanding; however, they were concerned about overly prescriptive 

requirements that might hinder creditors’ ability to tailor their disclosure formats to their 

products and product terms. Some creditors and consumer groups suggested importing 

the tabular format used to disclose information in credit card or charge card applications 

and solicitations to the subsequent disclosure context. 

The Board is proposing to retain the current rules set forth in §§ 226.9(b)(1) and 

226.9(b)(2) for all credit devices and credit features except checks that access a credit 

card account. With respect to such checks, the Board is concerned that the current rule in 

§ 226.9(b)(1) may not communicate effectively to the consumer the material terms of 

checks that access a credit card account, when those checks are mailed or sent to a 

consumer 30 days or more after the § 226.6 disclosures for the underlying account are 

provided. The Board agrees with commenters that, after a significant time has passed, it 

becomes less likely that consumers will still have a copy of the account-opening 

disclosures, and all relevant change-in-terms notices. 

With respect to open-end (not home-secured) plans, the Board is proposing to 

create a new § 226.9(b)(3) that would require that certain information be disclosed each 

time that checks that access a credit card account are mailed to a consumer, for checks 

mailed more than 30 days following the delivery of the account-opening disclosures. 

This provision would apply regardless of whether that information was previously 

included in the account-opening disclosures. As under the current regulation, no 

additional disclosures would be required when a creditor provides, within 30 days of the 

account-opening disclosures, checks that access a credit card account, if the finance 
138

charge terms are the same as those that were previously disclosed. HELOCs would not 

be affected by this proposed revision. 

Creditors would be required to provide the new § 226.9(b)(3) disclosures on the 

front of the page containing the checks that access a credit card account. Specifically, the 

proposed amendments would require the following key terms be disclosed on the front of 

the page containing the checks: (1) any discounted initial rate, and when that rate will 

expire, if applicable; (2) the type of rate that will apply to the checks after expiration of 

any discounted initial rate (such as whether the purchase or cash advance rate applies) 

and the applicable annual percentage rate; (3) any transaction fees applicable to the 

checks; and (4) whether a grace period applies to the checks, and if one does not apply, 

that interest will be charged immediately. If a discounted initial rate applies, a creditor 

must disclose the type of rate that will apply after the discounted initial rate expires, and 

the rate that will apply after the discounted initial rate expires. The disclosures must be 

accurate as of the time the disclosures are given. A variable annual percentage rate is 

accurate if it was in effect within 30 days of when the disclosures are given. Proposed 

§ 226.9(b)(3) would require that these key terms be disclosed in a tabular format 

substantially similar to Sample G-19 in Appendix G.

It is the Board’s understanding that checks that access a credit card account often 

are mailed with the periodic statement, so consumers will frequently receive an updated 

disclosure of the periodic rate in the same envelope as the checks. The Board considered 

permitting creditors to disclose the rate that applies to a check by means of a reference to 

the type of applicable periodic rate (e.g., balance transfer or cash advance) accompanied 

by a reference to the consumer’s periodic statement. However, consumer testing 

conducted for the Board showed that while participants looked at actual numbers on the 

front of the page of checks, they generally did not notice or pay attention to a cross 

reference to the periodic statement. 

Thus, the Board proposes that the actual APRs and fees applicable to the checks 

must be disclosed pursuant to § 226.9(b)(3). The Board understands, however, that 

creditors may engage in risk-based pricing with regard to checks used by consumers , and 

seeks with this proposal to strike an appropriate balance between meaningful disclosure 

for consumers and the operational burden on creditors. The proposed rule would require 

that creditors customize each set of checks sent to reflect a particular consumer’s rate. 

The Board seeks comment on the operational burden associated with customizing the 

checks, and on alternatives, such as whether providing a reference to the type of rate that 

will apply, accompanied by a toll-free telephone number that a consumer could call to 

receive additional information, would provide sufficient benefit to consumers while 

limiting burden on creditors. 

The Board also seeks comment as to whether there are other credit devices or 

additional features that creditors add to consumers’ accounts to which this proposed rule 

should apply. 
139

The Board has proposed several technical revisions to improve the clarity of 

§ 226.9(b) and the associated commentary. 

9(c) Change in Terms

 Under § 226.9(c) of Regulation Z, certain changes to the terms of an open-end 

plan require specific notice of the change. (TILA does not address changes in terms to 

open-end plans.) The general rule is that creditors must provide 15 days’ advance notice 

of changes in terms required to be included in the account-opening disclosures, with 

some exceptions, or to increase the minimum payment. See current § 226.9(c)(1). 

Advance notice currently is not required in all cases. For example, if an interest 

rate or other finance charge increases due to a consumer’s default or delinquency, notice 

is required, but need not be given in advance. See current § 226.9(c)(1); comment 

9(c)(1)-3. Furthermore, no change-in-terms notice is required if the specific change is set 

forth initially by the creditor in the account-opening disclosures. See current comment 

9(c)-1. For example, some credit card account agreements permit the card issuer to 

increase the periodic rate if the consumer makes a late payment. Because the 

circumstances of the increase are specified in advance in the account agreement, the 

creditor currently need not provide a change-in-terms notice; under current § 226.7(d) the 

new rate will appear on the periodic statement for the cycle in which the increase occurs. 

In the December 2004 ANPR, the Board sought comment as to whether mailing a 

notice 15 days prior to the effective date of a change in an interest rate provided timely 

notice to consumers. Q26. The Board also asked whether existing disclosure rules for 

increases to interest rates and other finance charges were adequate to enable consumers to 

make timely decisions about how to manage their accounts. Q27. Some commenters 

noted that consumers are surprised by changes to the terms of their accounts and are not 

aware that such changes are possible before they take effect, because they do not receive 

advance notice of those changes and do not remember the information regarding those 

changes that was contained in the account-opening disclosures. Consumer advocates 

expressed concern that consumers are not aware when they have triggered rate increases, 

for example by paying late, and thus are unaware that it might be in their best interest to 

shop for alternative financing before the rate increase takes effect. Some consumer 

commenters requested that the Board ban certain practices, such as “universal default 

clauses,” which permit a creditor to raise a consumer’s interest rate to the penalty rate if 

the consumer, for example, makes a late payment on any account, not just on accounts 

with that creditor. 

The Board proposes three revisions to the regulation and commentary to improve 

consumers’ awareness about changes in their account terms or increased rates due to 

delinquency or default or as a penalty. These revisions also are intended to enhance 

consumers’ ability to shop for alternative financing before such account terms become 

effective. The proposed revisions generally apply when a creditor is changing terms that 

must be disclosed in the account-opening summary table under § 226.6(b)(4). 

See section-by-section analysis to § 226.6(b)(4). First, the Board proposes to expand the 

circumstances under which consumers receive advance notice of changed terms, or 
140

increased rates due to delinquency, or for default or as a penalty. Second, the Board 

proposes to give consumers earlier notice of a change in terms, or for increased rates due 

to delinquency or default or as a penalty. Third, the Board proposes to introduce format 

requirements to make the disclosures about changes in terms or for increased rates due to 

delinquency, default or as a penalty more effective. HELOCs would not be affected by 

these proposed revisions. The provisions dealing with notices about increased rates due 

to delinquency, or default or as a penalty are discussed in the section-by-section analysis 

to § 226.9(g). 

Changes in late-payment fees and over-the-credit limit fees. Creditors currently 

do not have to provide notice of changes to late-payment fees and over-the-credit-limit 

charges, pursuant to current § 226.9(c)(2). For open-end (not home-secured) plans, the 

Board’s proposal would require 45 days advance notice for changes involving latepayment charges or over-the-credit-limit charges, other than a reduction in the amount of 

the charges. See proposed § 226.9(c)(2)(i). The Board believes that it would be 

beneficial for consumers to have advance notice of changes to these charges, which can 

be substantial depending on how a consumer uses his or her account. Late-payment 

charges and over-the-credit-limit charges can have a large aggregate effect, particularly 

since they need not be one-time charges, and can be charged month after month if a 

consumer repeatedly makes late payments or exceeds his or her credit limit. Advance 

notice regarding changes in the amount of these charges may assist consumers to make 

better decisions regarding their account usage and regarding when and in what amount 

they should make payments in order to avoid these potentially recurring charges. This 

amendment would require that 45 days’ advance notice be given only when the amount 

of a late-payment fee or over-the-credit-limit fee changes, not when such a fee is applied 

to a consumer’s account. 

Timing. As discussed above, § 226.9(c)(1) currently provides that whenever any 

term required to be disclosed under § 226.6 is changed or the required minimum payment 

is increased, a written notice must be mailed or delivered to the consumer at least 15 days 

before that change becomes effective. Commenters responding to the December 2004 

ANPR expressed a number of opinions about this requirement. One consumer group and 

a number of individual consumers stated that 15 days is not enough time for a consumer 

to seek alternative financing, and recommended that consumers be given more time. 

Some creditors stated that 15 days’ advance notice was adequate. Other industry 

commenters stated that they did not oppose increasing the notice period from 15 days to 

30 days, and added that many consumers already receive notice approximately one month 

before a change in terms becomes effective, because the notices often are sent with 

periodic statements. A few consumer group commenters recommended 90 days’ advance 

notice for all changes to terms. 

In light of the comments received and upon further consideration of this issue, for 

open-end (not home-secured) plans, the Board proposes to add § 226.9(c)(2)(i) to extend 

the notice period from 15 days to 45 days. For changes that require advance notice, the 

Board believes that consumers should have sufficient time, following the notice and 

before the change becomes effective, to change the usage of their plan or to pursue 
141

alternative means of financing their purchases, such as using another credit card, utilizing 

a home-equity line or installment loan, or shopping for a new credit card. 

The Board considered requiring that advance notice of changes in terms be sent 

30 days in advance, but concluded that 30 days could be inadequate in some 

circumstances. The rule governs when notices must be sent, not received by the 

consumer, so in practice the notice will be received by the consumer with less days 

remaining to act than the full advance notice period specified in the rule. In light of 

delays in mail delivery, for example, a notice sent to a consumer 30 days in advance may 

give a consumer only 25 days to seek alternative financing before the change in terms 

takes effect. For example, if a consumer wants to shop for another credit card, apply for, 

open, and transfer a balance from an existing card to a new card, 30 days may be too 

short a time in some cases. The Board’s proposal that notice be sent 45 days in advance 

should ensure, in most cases, that a consumer will have at least one calendar month 

following receipt of the notice and before the change in terms takes effect, to seek 

alternative financing or otherwise mitigate the effect of the new terms. 

The proposed 45 day notice period would not apply when the changes affect 

charges that are not required to be disclosed under § 226.6(b)(4). See proposed 

§ 226.9(c)(2)(ii). Specifically, 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)(1) but is not 

required to be disclosed as part of the account-opening summary table under 

§ 226.6(b)(4), the creditor may either, at its option (1) provide at least 45 days written 

advance notice before the change becomes effective, or (2) provide notice orally or in 

writing of the amount of the charge to an affected consumer at a relevant time before the 

consumer agrees to or becomes obligated to pay the charge. For example, a fee for 

expedited delivery of a credit card is a charge imposed as part of the plan under 

§ 226.6(b)(1) but is not required to be disclosed in the account-opening summary table 

under § 226.6(b)(4). 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 

notice orally or in writing of the amount of the charge to an affected consumer at a 

relevant time before the consumer agrees to or becomes obligated to pay the charge. 

See comment 9(c)(2)(ii)-1. Creditors meet the standard to provide the notice at a relevant 

time if the oral or written notice of a charge is given when a consumer would likely 

notice it, such as when deciding whether to purchase the service that would trigger the 

charge. 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. 

See comment 9(c)(2)(ii)-2. The Board believes that for these charges, consumers do not 

need advance notice of the current amount of the charge. 

As discussed in the section-by-section analysis to § 226.5(a)(1)(ii), creditors are 

permitted under the E-Sign Act to provide in electronic form any TILA disclosure that is 

required to be provided or made available to consumers in writing if the consumer 

affirmatively consents to receipt of electronic disclosures in a prescribed manner. 
142

15 U.S.C. 7001 et seq. The Board requests comment on whether there are circumstances 

in which creditors should be permitted to provide cost disclosures in electronic form to 

consumers who have not affirmatively consented to receive electronic disclosures for the 

account, such as when a consumer seeks to make a payment online, and the creditor 

imposes a fee for the service. 

Format. Section 226.9 currently contains no restrictions or requirements with 

regard to how change-in-terms notices are presented or formatted. The consumer testing 

conducted for the Board explored the usability of current change-in-terms notices. The 

results of this consumer testing suggest that typical change-in-terms notices are not 

formatted in a manner that is noticeable and easy for consumers to understand. 

Consumer testing also suggests that improvements can be made to these notices. 

A typical change-in-terms notice contains dense blocks of contractual language in a small 

font, and may be on an accordion-style pamphlet included with the consumer’s periodic 

statement. Consumer testing indicated that consumers may not look at these pamphlets 

when they are included with periodic statements, and that some consumers have trouble 

navigating these notices even when their attention is explicitly drawn to the disclosures. 

These pamphlets generally are not designed to draw attention to the changes because they 

provide a disclosure of contractual provisions. 

For open-end (not home-secured) plans, the Board proposes that creditors be 

required to provide a summary table of a limited specified number of key terms on the 

front of the first page of the change-in-terms notice, or segregated on a separate sheet of 

paper. See proposed § 226.9(c)(2)(iii), Sample G-20 in Appendix G. Creditors would be 

required to utilize the same headings as in the account-opening tables in Model Form G17(A) and Samples G-17(B) and G-17(C) in Appendix G. If the change-in-terms notice 

were included with a periodic statement, a summary table would be required to appear on 

the front of the periodic statement, preceding the list of transactions for the period. 

See §§ 226.7(b)(14), 226.9(c)(2)(iii). 

The Board believes that requiring a tabular summary of the key terms of the 

consumer’s account would make change-in-terms notices more useful to consumers by 

highlighting those terms that may be of most interest to them. Based on consumer testing 

conducted for the Board, when a summary of key terms was included on change-in-terms 

notices tested, consumers tended to read the notice and appeared to understand better 

what key terms were being changed than when a summary was not included. 

The proposal also would require that creditors provide other information in the 

change-in-terms notice, specifically (1) a statement that changes are being made to the 

account; (2) a statement indicating the consumer has the right to opt out of these changes, 

if applicable, and a reference to additional information describing the opt out right 

provided in the notice, if applicable; (3) the date the changes to terms described in the 

summary table will become effective; (4) if applicable, an indication that the consumer 

may find additional information about the summarized changes, and other changes to the 

account, in the notice; and (5) if the creditor is changing a rate on the account, other than 

a penalty rate, a statement that if a penalty rate applies to the consumer’s account, the 
143

new rate described in the notice does not apply to the consumer’s account until the 

consumer’s account balances are no longer subject to the penalty rate. This information 

must be placed directly above the summary of key changes described above. This 

information is intended to give context to the summary of key changes. 

With respect to the reference to a right to opt out of the changes, the Board is not 

requiring that creditors provide such an opt out right. State law or other applicable laws 

may provide consumers with a right to opt out of certain changes. If a consumer has the 

right to opt out of the changes in the notice, a creditor must include a statement indicating 

the consumer has the right to opt out of these changes, if applicable, and a reference to 

additional information describing the opt out right provided in the notice, if applicable.

Reduction in credit limit. Under Regulation Z, a creditor generally may decrease 

a consumer’s credit limit without providing any notice, except with regard to HELOCs. 

As a result, there could be situations where a consumer may exceed his or her credit limit 

without realizing it, potentially triggering late-payment fees and penalty pricing. Under 

new § 226.9(c)(2)(v), for open-end (not home-secured) plans, if a creditor decreases the 

credit limit on an account, advance notice of the decrease must be provided before an 

over-the-limit fee or a penalty rate can be imposed solely as a result of the consumer 

exceeding the newly decreased credit limit. Under the proposal, notice must be provided 

in writing or orally at least 45 days prior to imposing the over-the-limit fee or penalty rate 

and shall state that the credit limit on the account has been or will be decreased. The 

Board and other federal banking agencies in the past have received a number of 

complaints from consumers who were not notified when their credit limits were 

decreased, and were surprised at the subsequent imposition of an over-the-credit-limit 

fee. The Board is not proposing that creditors may not reduce a consumer’s credit limit. 

The Board recognizes that creditors have a legitimate interest in mitigating the risk of 

loss when a consumer’s creditworthiness deteriorates, and that a consumer’s 

creditworthiness can deteriorate quickly. Therefore, the Board’s proposal would simply 

require that a creditor provide a notice that it has reduced or will be reducing a 

consumer’s credit limit 45 days before imposing any fee or penalty rate for exceeding 

that new limit. This proposed amendment would apply only when the over-the-creditlimit fee is imposed solely as a result of a reduction in the credit limit; if the over-thecredit-limit fee would have been charged notwithstanding the reduction in a credit limit, 

no advance notice would be required. This provision is not intended to permit creditors 

to provide a general notice at account opening that a consumer’s credit limit may change 

from time to time; rather, the notice should be sent with regard to a specific credit limit 

reduction that has occurred or will be occurring.

Rules affecting home-equity plans. The Board proposes at the present time to 

retain in proposed § 226.9(c)(1), without intended substantive change, the current rules 

regarding the circumstances, timing, and content of change-in-terms notices for 

HELOCs. These rules will be reviewed in the Board’s upcoming review of the 

provisions of Regulation Z addressing closed-end and open-end (home-secured) credit. 
144

The Board is aware that the current change-in-terms rules, which have 

applicability both to HELOCs and open-end (not home-secured) credit, address several 

types of changes in terms that are impermissible for HELOCs subject to § 226.5b. 

Section 226.5b imposes substantive restrictions on which terms of HELOCs may be 

changed, and in retaining the current change-in-terms rules for HELOCs, the Board does 

not intend to amend or in any way change the substantive restrictions imposed by 

§ 226.5b. Accordingly, the Board proposes to make several deletions in proposed 

§ 226.9(c)(1) and the related commentary with respect to HELOCs. For example, the 

Board proposes deleting in new comment 9(c)(1)-1 the requirement that notice “be given 

if the contract allows the creditor to increase the rate at its discretion but does not include 

specific terms for an increase,” because such a contractual term would be prohibited 

under § 226.5b. 

The Board welcomes comment on whether there are any remaining references in 

§ 226.9(c)(1) and the related commentary to changes in terms that would be 

impermissible for open-end (home-secured) credit pursuant to § 226.5b. 

9(e) Disclosures upon Renewal of Credit or Charge Card

TILA Section 127(d), which is implemented in § 226.9(e), requires card issuers 

that assess an annual or other periodic fee, including a fee based on activity or inactivity, 

on a credit card account of the type subject to § 226.5a to provide a renewal notice before 

the fee is imposed. 15 U.S.C. 1637(d). The creditor must provide disclosures required 

for credit card applications (although not in a tabular format) and must inform the 

consumer that the renewal fee can be avoided by terminating the account by a certain 

date. The notice must generally be provided at least 30 days or one billing cycle, 

whichever is less, before the renewal fee is assessed to the account. However, there is an 

alternative delayed notice procedure where the fee can be assessed; the fee must be 

reversed if the consumer terminates the account provided the consumer is given notice. 

Creditors are given considerable flexibility in the placement of the disclosures 

required under § 226.9(e). For example, the notice can be preprinted on the periodic 

statement, such as on the back of the statement. See § 226.9(e)(3) and 

comment 9(e)(3)-2. However, creditors that place any of the disclosures on the back of 

the periodic statement must include a reference to those disclosures under § 226.9(e)(3). 

To aid in compliance, a model clause that may, but is not required to, be used is proposed 

for creditors that use the delayed notice method. See proposed comment 9(e)(3)-1. 

Comment 9(e)-4, which addresses accuracy standards for disclosing rates on 

variable rate plans, would be revised, for the same reasons and consistent with the 

proposed accuracy standard for account-opening disclosures. See section-by-section 

analysis to § 226.6(b)(2)(ii)(G). 

Other proposed changes to § 226.9(e) are minor with no intended substantive 

change. For example, footnote 20a, dealing with format, is deleted as unnecessary. The 

proposed reorganization of § 226.5a is intended, in part, to separate more clearly content 
145

and format requirements in that section. Nonetheless, to avoid any possible confusion, 

comment 9(e)-2, which generally repeats footnote 20a, would be retained. 

9(g) Increase in Rates Due to Delinquency or Default or Penalty Pricing 

 As discussed above with respect to § 226.9(c), in the December 2004 ANPR, the 

Board asked whether existing disclosure rules for increases to interest rates and other 

finance charges were adequate to enable consumers to make timely decisions about how 

to manage their accounts. Q27. Consumer advocates expressed concern that consumers 

are not aware when they have triggered rate increases, for example by paying late, and 

thus are unaware that it might be in their interest to shop for alternative financing before 

the rate increase takes effect. Some consumer commenters requested that the Board ban 

certain practices, such as “universal default clauses,” which permit a creditor to raise a 

consumer’s interest rate to the penalty rate if the consumer defaults on any accounts, not 

just on accounts with that creditor. 

The Board is not proposing at the present time to prohibit universal default 

clauses or similar practices. Instead, as discussed in the section-by-section analysis to 

§ 226.5a, the Board’s proposal seeks to improve the effectiveness of the disclosures given 

to consumers regarding the conditions in which penalty pricing will apply. In addition, 

the Board seeks to improve the ability of consumers to use the disclosures given to them 

by proposing that disclosures be provided prior to the application of penalty pricing to 

their accounts. To this end, with respect to open-end (not home-secured) plans, the 

Board’s proposed rule would add § 226.9(g)(1) to require creditors to provide 45 days 

advance notice when a rate is increased due to a consumer’s delinquency or default, or if 

a rate is increased 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. This notice 

would be required even if, as is currently the case, the creditor specifies the penalty rate 

and the specific events that may trigger the penalty rate in the account-opening 

disclosures.

Neither Regulation Z nor TILA defines what a “default” is, and the Board is 

aware that credit agreements of some creditors permit penalty pricing based on a single 

late payment by the consumer to that creditor. The Board is concerned that the 

imposition of penalty pricing can come as a costly surprise to consumers who are not 

aware of, or do not understand, what behavior is considered a “default” under their 

agreement. As discussed in the section-by-section analysis to § 226.5a, consumer testing 

conducted for the Board indicated that some consumers do not understand what factors 

can give rise to penalty pricing, such as the fact that one late payment may constitute a 

“default.” Moreover, when penalty pricing is imposed, it may apply to all of the balances 

on a consumer’s account and often applies to balances for several months or longer. 

Penalty rates can be more than twice as much as the consumer’s normal rate on 

purchases; for example, default rates in excess of 30 percent are not uncommon. 

The Board believes that the way to address penalty pricing is through improved 

disclosures regarding the conditions under which penalty pricing may be imposed. In 

part, the Board is proposing, in connection with the disclosures given with credit card 
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applications and solicitations and at account opening, to enhance disclosures about 

penalty pricing and revise terminology to address consumer confusion regarding the 

meaning of “default.” However, in light of the relatively low contractual threshold for 

rate increases based on consumer delinquency, default or as a penalty, the Board believes 

that consumers also would benefit from advance notice of these rate increases, which 

they otherwise may not expect. Advance notice would give consumers an opportunity to 

shop for alternate sources of credit, pay down account balances before the rate increase 

takes effect, or contact the card issuer to rectify any errors before penalty rates are 

imposed. To make this opportunity viable, the Board is proposing that the notice be 

provided at least 45 days before the increase takes effect. The Board requests comment 

on whether a shorter time period, such as 30 days’ advance notice, would be adequate 

notice for consumers whose interest rates are being increased due to default or 

delinquency, or as a penalty. 

The proposed rule would impose a de facto limitation on the implementation of 

contractual terms between a consumer and creditor, in that creditors would no longer be 

permitted to provide for the immediate application of penalty pricing upon the occurrence 

of certain events specified in the contract. The Board believes that this delay in 

implementing contract terms is appropriate in light of the potential benefit to consumers. 

Many consumers are likely unaware of the events that will trigger such pricing. The 

account-opening disclosures may be provided to the consumer too far in advance for the 

consumer to recall the circumstances that may cause his or her rates to increase. In 

addition, the consumer may not have retained a copy of the account-opening disclosures 

and may not be able to effectively link the information disclosed at account opening to 

the current repricing of his or her account. 

The Board notes that this advance notice provision does not, in any manner, limit 

the contractual ability of creditors to establish the events that trigger penalty pricing, or to 

establish the rates that apply for such events. The Board also notes that use of this sort of 

de facto delay in implementing contract terms has precedent in Regulation Z. For 

example, since 1988, § 226.20(c) has provided that 25 days’ advance notice must be 

given for certain increases in the payment for an adjustable rate mortgage, even if the 

circumstances of the increase are specified in advance in the contract. 

Under the proposed rule, creditors would retain the ability to mitigate risk by 

freezing credit accounts or lowering the credit limit without providing advance notice 

(subject to proposed § 226.9(c)(2)(v) discussed above, which addresses over-the-creditlimit fees or penalty rates). Thus, creditors would be able to effectively mitigate risk on 

accounts that are delinquent or in default notwithstanding the fact that they would be 

required to provide a notice 45 days before increasing the rate. 

The rule also would not require that 45 days’ advance notice be given for certain 

changes made in accordance with the contract, provided that such adjustment is not due 

to delinquency, default or as a penalty. For example, if an employee offers an open-end 

plan with discounted rates to its employees, the employer would not be required to give a 

former employee 45 days’ advance notice before increasing the rate on that individual’s 
147

account from the preferential employees’ rate to the standard rate, provided that the rate 

increase was set forth in the account agreement. 

Disclosure content and format. With respect to open-end (not home-secured) 

plans, under the Board proposal, if a creditor is increasing the rate due to delinquency or 

default or as a penalty, the creditor must provide a notice with the following information: 

(1) a statement that the delinquency or default rate or penalty rate has been triggered, as 

applicable; (2) the date as of which the delinquency or default rate or penalty rate will be 

applied to the account, as applicable; (3) the circumstances under which the delinquency 

or default rate or penalty rate, as applicable, will cease to apply to the consumer’s 

account, or that the delinquency or default rate or penalty rate will remain in effect for a 

potentially indefinite time period; and (4) a statement indicating to which balances on the 

account the delinquency or default rate or penalty rate will be applied, as applicable. See

proposed § 226.9(g)(3)(i). In consumer testing conducted for the Board, some 

participants did not appear to understand that penalty rates can apply to all of their 

balances, including existing balances. Some participants also did not appear to 

understand how long a penalty rate could be in effect. Without information about the 

balances to which the penalty rate applies and how long it applies, consumers might have 

difficultly determining whether they should shop for another card or pursue alternate 

sources of financing. Consumers also may consider the duration of penalty pricing when 

shopping for alternative sources of credit which would enhance their ability to make 

prudent decisions. 

If the notice regarding increases in rates due to delinquency, default or penalty 

pricing were included on or with a periodic statement, this notice must be in a tabular 

format. Under the proposal, the notice also would be required to appear on the front of 

the periodic statement, preceding the list of transactions for the period. See proposed 

§§ 226.7(b)(14), 226.9(g)(3)(ii)(A). If the notice is not included on or with a periodic 

statement, the information described above must be disclosed on the front of the first 

page of the notice. See § 226.9(g)(3)(ii)(B). 

Section 226.10 Prompt Crediting of Payments

Section 226.10, which implements TILA Section 164, generally requires a 

creditor to credit to a consumer’s account a payment that conforms to the creditor’s 

instructions (also known as a conforming payment) as of the date of receipt, except when 

a delay in crediting the account will not result in a finance or other charge. 15 U.S.C. 

1666c; § 226.10(a). Section 226.10 also requires a creditor that accepts a nonconforming payment to credit the payment within five days of receipt. See § 226.10(b). 

The Board has interpreted § 226.10 to permit creditors to specify cut-off times indicating 

the time when a payment is due, provided that the requirements for making payments are 

reasonable, to allow most consumers to make conforming payments without difficulty. 

See comments 10(b)-1 and -2. Pursuant to § 226.10(b) and comment 10(b)-1, if a 

creditor imposes a cut-off time, it must be disclosed on the periodic statement; many 

creditors put the cut-off time on the back of statements. 
148

The December 2004 ANPR solicited comment regarding the cut-off times used 

currently by most issuers for receiving payments, whether cut-off times differ based on 

the type of payment (e.g., check, EFT, telephone, or Internet), and whether the operating 

times of third party processors differ from those of creditors. Q47 – Q48, Q50. The 

December 2004 ANPR also requested comment regarding the adequacy and clarity of 

current disclosures of payment due dates and cut-off times, and asked whether the Board 

should issue a rule requiring creditors to credit payments as of the date they are received, 

regardless of the time. Q49, Q51. 

Disclosure of cut-off times. In response to the December 2004 ANPR, the Board 

received a number of comments describing issuers’ current practices regarding cut-off 

times. The majority of industry commenters noted that they do set cut-off times that are 

in the early or mid-afternoon, but that cut-off times may differ based on the means by 

which a consumer makes his or her payment, with telephone and Internet payments often 

having later cut-off times than payments made by mail. These industry commenters 

argued that current disclosure of these cut-off times is clear. Consumer groups and 

consumers commented that the majority of banks now set a cut-off time on payment due 

dates and that these cut-off times are a problem because they could result in a due date 

that is one day earlier in practice than the date disclosed. Consumer groups expressed 

particular concern about cut-off times because they believe that issuers simultaneously 

may be decreasing the time period between the end of the statement period and the time 

when the payment is due. 

Almost all industry comments opposed the Board’s suggestion to require creditors 

to credit payments as of the date they are received, regardless of the time, noting that 

issuers need flexibility to work with external vendors and that creditors’ internal 

processes and systems will to some extent dictate the timing of payment crediting. 

Consumer and consumer group comments proposed a rule that would require banks to 

consider the postmark to be the day the payment is received. 

The Board is not proposing to require a minimum cut-off time. Instead, as 

discussed above, the Board is proposing, in what would be new § 226.7(b)(11), to require 

that for open-end (not home-secured) plans, creditors must disclose the earliest of their 

cut-off times for payments near the due date on the front page of the periodic statement, 

if that earliest cut-off time is before 5 p.m. on the due date. The Board believes that the 

disclosure-based approach may benefit consumers without imposing an unreasonable 

operational burden on creditors. Consumers would be able to make better decisions 

about when to make payments in order to avoid late-payment fees and default rates if 

earlier cut-off times such as 12:00 p.m. were more prominently disclosed on the periodic 

statement. In recognition of the fact that creditors may have different cut-off times 

depending on the type of payment (e.g., mail, Internet, or telephone), the Board’s 

proposal would require that creditors disclose only the earliest cut-off time, if earlier than 

5 p.m. on the due date. See proposed § 226.7(b)(11). HELOCs would not be affected by 

the disclosure rule in § 226.7(b)(11). 
149

Receipt of electronic payments made through a creditor’s web site. The Board 

also proposes to add an example to comment 10(a)-2 that states that for payments made 

through a creditor’s web site, the date of receipt is the date as of which the consumer 

authorizes the creditor to debit that consumer’s account electronically. Industry 

comments to the December 2004 ANPR stated that most credit card payments are still 

received by mail. Nevertheless, the Internet is an increasingly utilized resource for 

making credit card payments and for receiving information about accounts. Unlike 

payments delivered by mail, payments made via a creditor’s web site may be received 

almost immediately by that creditor. 

The proposed comment would refer to the date on which the consumer authorizes 

the creditor to effect the electronic payment, not the date on which the consumer gives 

the instruction. The consumer may give an advance instruction to make a payment and 

some days may elapse before the payment is actually made; accordingly, comment 10(a)-

2 would refer to the date on which the creditor is authorized to debit the consumer’s 

account. If the consumer authorized an immediate payment, but provided the instruction 

after a creditor’s cut-off time, the relevant date would be the following business day. For 

example, a consumer may go online on a Sunday evening and instruct that a payment be 

made; however, the creditor could not transmit the request for the debit to the consumer’s 

account until the next day, Monday. Under proposed comment 10(a)-2 the date on which 

the creditor was authorized to effect the electronic payment would be deemed to be 

Monday, not Sunday. Proposed comment 10(b)-1.i.B would clarify that the creditor may, 

as with other means of payment, specify a cut-off time for an electronic payment to be 

received on the due date in order to be credited on that date. The Board solicits comment 

regarding the incidence of, and types of, any delays that may prevent creditors or their 

third party processors from receiving electronic payments on the date on which the 

creditor is authorized to effect the payment.

 

The Board considered expanding this comment to cover electronic payments 

received by other means (e.g., if the consumer authorizes a payment to his deposit 

account-holding bank’s web site), because it is likely that such electronic payments made 

through such parties also may be received by the creditor on the same day that they are 

authorized. However, it could be difficult for a creditor to monitor when a consumer 

gives a third party an instruction to send a payment, and, in addition, the creditor has no 

direct control over how long it takes the third party to process that instruction. As a 

result, the Board’s proposed clarification of comment 10(a)-2 is limited to electronic 

payments effected through the creditor’s own web site, over which the creditor has 

control. 

Promotion of payment via the creditor’s web site. The Board also proposes to 

update the commentary to clarify that if a creditor discloses that payments can be made 

on that creditor’s web site, then payments made through the creditor’s web site will be 

considered conforming payments for purposes of § 226.10(b). Many creditors now 

permit consumers to make payments via their web site. Payment on the creditor’s web 

site may not be specified on or with the periodic statement as conforming payments, but 

it may be promoted in other ways, such as in the account-opening agreement, via e-mail, 
150

in promotional material, or on the web site itself. It would be reasonable for a consumer 

who receives materials from the creditor promoting payment on the creditor’s web site to 

believe that it would be a conforming payment and credited on the date of receipt. 

Therefore, the Board proposes to amend comment 10(b)-2 to clarify that if a creditor 

promotes that it accepts payments via its web site (such as disclosing on the web site 

itself or on the periodic statement that payments can be made via the web site), then it is 

considered a conforming payment for purposes of § 226.10(b). 

Third party processors. With regard to third party processors, industry 

commenters noted that current practice is that payments received by a third party 

processor are treated as if they were received directly by the creditor, and that no further 

clarification is necessary. Accordingly, the Board is not currently proposing any 

amendments to specifically address third party processors. 

Section 226.11 Treatment of Credit Balances; Account Termination

11(a) Credit Balances

TILA Section 165, implemented in § 226.11, sets forth specific steps that a 

creditor must take to return any credit balance in excess of $1 on a credit account, 

including making a good faith effort to refund any credit balance remaining in the 

consumer’s account for more than six months. 15 U.S.C. 1666d. The substance of 

§ 226.11 would remain unchanged; however, the commentary would be revised to 

provide that a creditor may comply with this section by refunding any credit balance 

upon receipt of a consumer’s oral or electronic request. See proposed comment 11(a)-1. 

In addition, the Board proposes to move the current rules in § 226.11 to a new paragraph 

(a), with the commentary renumbered accordingly, and to add a new paragraph (b) which 

implements the account termination prohibition for certain open-end accounts in Section 

1306 of the Bankruptcy Act (further discussed below). See TILA Section 127(h); 15 

U.S.C. 1637(h). The section title would be amended to reflect the new subject matter. 

11(b) Account Termination

TILA Section 127(h), added by the Bankruptcy Act, prohibits an open-end 

creditor from terminating open-end accounts for certain reasons. Creditors cannot 

terminate an open-end plan before its expiration date solely because the consumer has not 

incurred finance charges on the account. The prohibition does not prevent a creditor 

from terminating an account for inactivity in three or more consecutive months. The 

October 2005 ANPR solicited comment on the need for additional guidance, such as 

when an account “expires” and when an account is “inactive.” Q106 – Q108. 

The Board proposes to implement TILA Section 127(h) in new § 226.11(b). The 

general rule is stated in § 226.11(b)(1) and mirrors the statute; the prohibition would 

apply to all open-end plans. 

Commenters expressed differing views on how the Board might interpret 

“expiration date.” Some suggested using the expiration date on credit cards as the date 

the account is deemed to expire. Others noted that while cards may expire from time to 
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time, the underlying open-end plans commonly do not have maturity or expiration dates. 

These commenters were concerned that if an account were deemed to “expire” when a 

credit card’s expiration date occurs, new account-opening disclosures would be required 

for the account to continue. The Board believes that Congress did not intend such a 

result. Therefore, comment 11(b)(1)-1 would clarify that the underlying credit 

agreement, not the credit card, determines if there is a stated expiration (maturity) date. 

Creditors offering accounts without a stated expiration date could not terminate those 

accounts solely because the consumer does not incur finance charges on the account. 

Under the proposal, a new § 226.11(b)(2) would be added to provide that the new 

rule in § 226.11(b)(1) does not prevent creditors from terminating an account under an 

open-end plan (with or without an expiration date) that is inactive for three consecutive 

months. Commenters were split on the need for guidance on an “inactive” account. Of 

those that suggested guidance, commenters generally concurred that “activity” includes 

purchases or cash advances, for example. But commenters disagreed whether an account 

with an outstanding balance was “active.” Because finance charges are likely to accrue 

on balances remaining after the end of a grace period if any, the Board believes the 

Congress was addressing situations where no finance charges were accruing due to 

inactivity. Therefore, proposed § 226.11(b)(2) would provide that an account is inactive 

if there has been no extension of credit (such as by purchase, cash advance, or balance 

transfer) and the account has no outstanding balance. 

Section 226.12 Special Credit Card Provisions

 Section 226.12 contains special rules applicable to credit cards and credit card 

accounts, including conditions under which a credit card may be issued, liability of 

cardholders for unauthorized use, and cardholder rights to assert merchant claims and 

defenses against the card issuer. The proposal would, among other things, provide 

additional guidance on the rules on unauthorized use and the rights of cardholders to 

assert claims or defenses involving a merchant against the card issuer (consumer claims 

with merchants) and update the section to address Internet transactions. 

12(a) Issuance of Credit Card

TILA Section 132, which is implemented by § 226.12(a) of Regulation Z, 

generally prohibits creditors from issuing credit cards except in response to a request or 

application. Section 132 explicitly exempts from this prohibition credit cards issued as 

renewals of or substitutes for previously accepted credit cards. 15 U.S.C. 1642. Existing 

comment 12(a)(2)-5, the “one-for-one rule,” interprets these statutory and regulatory 

provisions by providing that, in general, a creditor may not issue more than one credit 

card as a renewal of or substitute for an accepted credit card. The proposal would leave 

§ 226.12(a) and the accompanying commentary generally unchanged, except that the text 

of footnote 21 defining the term “accepted credit card” would be moved to new comment 

12(a)-2. 

In 2003, Board staff revised the commentary to § 226.12(a) to allow card issuers 

to replace an accepted credit card with more than one card, subject to certain conditions, 

including the limitation that the consumer’s total liability for unauthorized use with 
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respect to the account could not increase with the issuance of the additional renewal or 

substitute card(s). See comment 12(a)(2)-6; 68 FR 16,185; April 3, 2003. Card issuers 

could thus, for example, issue credit cards using a new format or technology to existing 

accountholders, even though the new card is intended to supplement rather than replace 

the traditional card. In the December 2004 ANPR, the Board solicited comment as to 

whether it should consider revising § 226.12(a) to allow the unsolicited issuance of 

additional cards on an existing account outside of renewal or substitution under certain 

conditions, including that the additional cards be sent unactivated. Q46. 

Consumer groups stated that additional credit cards should only be sent if the 

consumer specifically requests such cards, citing identity theft concerns if issuers were 

permitted to send out credit cards without any advance warning or notice. One consumer 

group suggested that the Board require that consumers be notified in writing or by phone 

before additional cards are sent. Industry commenters strongly encouraged the Board to 

amend the regulation to permit the unsolicited issuance of additional cards on existing 

accounts even when a previously accepted card is not being replaced. These industry 

commenters observed that the current constraints on distributing new types of credit cards 

potentially impeded industry innovation in providing more convenient methods for 

consumers to access their accounts. Industry commenters also contested the notion that 

sending additional cards on an unsolicited basis would increase the risk of identity theft 

because, in their view, providing an additional card presents no greater risk than sending 

the first card, which the consumer has requested, or a renewal card, which consumers 

often would not know when to expect. Industry commenters also noted that allowing the 

unsolicited issuance of credit cards outside the context of a renewal or substitution would 

not expose consumers to greater liability for unauthorized transactions given the 

contemplated condition that liability for unauthorized use on the card account may not 

increase with the issuance of the additional card. 

At this time, the Board does not propose to amend § 226.12(a) and the one-forone rule to allow the unsolicited issuance of credit cards outside the context of a renewal 

or substitution of an accepted access device. Based on current card issuer practices, the 

Board understands that some issuers may be unable to require separate activation 

procedures for access devices on the same credit card account. As a result, additional 

cards sent on an unsolicited basis outside the context of a renewal or substitution might 

be sent in activated form, which could cause considerable harm to consumers. Even if 

the card issuer were not permitted to impose any additional liability on the consumer for 

unauthorized use, consumers would nevertheless still suffer the inconvenience of refuting 

unwarranted claims of liability. 

12(b) Liability of Cardholder for Unauthorized Use

TILA Section 133(a) limits a cardholder’s liability for an unauthorized use of a 

credit card to no more than $50 for transactions that occur prior to notification of the card 

issuer that an unauthorized use has occurred or may occur as the result of loss, theft or 

otherwise. 15 U.S.C. 1643. Before a card issuer may impose liability for an 

unauthorized use of a credit card, it must satisfy certain conditions: (1) the card must be 

an accepted credit card; (2) the issuer must have provided adequate notice of the 
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cardholder’s maximum liability and of the means by which the issuer may be notified in 

the event of loss or theft of the card; and (3) the issuer must have provided a means to 

identify the cardholder on the account or the authorized user of the card. The statutory 

provisions on unauthorized use are implemented in § 226.12(b) of the regulation. The 

Board is proposing a number of revisions that would clarify the scope of the provision 

and update the regulation to reflect current business practices. The proposed revisions 

also would provide guidance on the relationship between the unauthorized use provision 

and the billing error provisions in § 226.13.

Scope. The definition of “unauthorized use” currently found in footnote 22 would 

be moved into the regulation in new § 226.12(b)(1)(i). The definition provides that 

unauthorized use is use of a credit card by a person who lacks “actual, implied, or 

apparent authority” to use the credit card. Comment 12(b)(1)-1 further clarifies that 

whether such authority exists must be determined under state or other law. Commenters 

were asked in the December 2004 ANPR about whether there was a need to revise any of 

the substantive protections for open-end credit accounts. Q43. Some commenters urged 

the Board to consider adopting a provision similar to the existing staff commentary under 

Regulation E (Electronic Fund Transfer Act) to address circumstances where a consumer 

has furnished an access device to a person who has exceeded the authority given. The 

proposal would add a new comment 12(b)(1)-3 to clarify that if a cardholder furnishes a 

credit card to another person and that person exceeds the authority given, the cardholder 

is liable for that credit transaction unless the cardholder has notified (in writing, orally, or 

otherwise) the creditor that use of the credit card by that person is no longer authorized. 

See also comment 205.2(m)-2 of the Official Staff Commentary to Regulation E, 

12 CFR part 205. New comment 12(b)(1)-4 would provide, however, that an 

unauthorized use would include circumstances where a person has obtained a credit card, 

or otherwise has initiated a credit card transaction through robbery or fraud (e.g., if the 

person holds the consumer at gunpoint). See also comment 205.2(m)-3 of the Official 

Staff Commentary to Regulation E, § 205.5. In both cases, the Board believes it is 

appropriate for the same standard to apply to credit cards that applies to debit cards under 

Regulation E. Thus, the Board is proposing to adopt the two standards under Regulation 

Z for consistency. 

The Board does not anticipate that the proposed comments would significantly 

expand the circumstances under which liability could be imposed on a cardholder for a 

particular transaction, in light of the existing reference in the definition of “unauthorized 

use” to “implied or apparent authority.” Nevertheless, the addition of this comment 

could help provide greater clarity for issuers when investigating unauthorized use claims. 

Comment is requested, however, as to whether this clarification is necessary in light of 

the existing definition of “unauthorized use.” Current § 226.12(b)(1) would be redesignated as § 226.12(b)(1)(ii). 

Section 226.12(b)’s liability provisions apply only to unauthorized uses of a 

cardholder’s credit card. Thus, the liability limits established in § 226.12(b) do not apply 

to unauthorized transactions involving the use of a check that accesses a credit card 

account. (See prior discussion of “credit card” under § 226.2(a)(15).) The consumer 
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would nevertheless be able to assert the billing error protections in § 226.13 which are 

independent of the protections under § 226.12(b). New comment 12(b)-4 would contain 

this clarification. 

Some commenters on the December 2004 ANPR urged the Board to adopt a time 

period within which consumers must make claims for unauthorized transactions made 

through the use of a credit card. These commenters asserted that over time, evidence 

becomes more difficult to obtain, making a creditor’s investigation more difficult and that 

a consumer’s early detection and notification would prevent additional fraud on the 

account. In contrast to TILA Section 161 which requires consumers to assert a billing 

error claim within 60 days after a periodic statement reflecting the error has been sent, 

TILA Section 133 does not prescribe a time frame for asserting an unauthorized use 

claim. 15 U.S.C. 1643. The Board believes that had Congress intended that a 

consumer’s rights to assert an unauthorized use claim to be time-limited, it would have 

established a time frame for asserting the claim. Accordingly, the proposal does not 

contain the suggested change. 

 

Conditions for imposing liability. Section 226.12(b)(2) requires the card issuer to 

satisfy three conditions before the issuer may impose any liability for an unauthorized use 

of a credit card. First, the credit card must be an accepted credit card. See footnote 21; 

proposed comment 12-2. Second, the card issuer must have provided “adequate notice” 

to the cardholder of his or her maximum potential liability and the means by which to 

notify the issuer of the loss or theft of the card. Third, the card issuer also must have 

provided a means to identify the cardholder on the account or the authorized user of the 

card. See § 226.12(b)(2). 

Under the proposal, the guidance regarding what constitutes adequate notice 

currently in footnote 23 would be moved to the staff commentary. See new comment 

12(b)(2)(ii)-2. In addition, the examples in comment 12(b)(2)(iii)-1 describing means of 

identifying a cardholder or user would be updated to contemplate additional biometric 

means of identification other than a fingerprint on a card. 

Comment 12(b)(2)(iii)-3 currently states that a 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. In these circumstances, the card issuer has not satisfied 

one of the conditions precedent necessary to impose liability; that is, it has not provided a 

means to identify the cardholder of the account or the user of the card. For example, no 

liability may be imposed on the cardholder if a person without authority to do so orders 

merchandise by telephone, using a credit card number or another number that appears 

only on the card. The example would be updated to also apply to Internet transactions. 

In many instances, a credit card will bear a separate 3- or 4-digit number, which is 

typically printed on the back of the card on the signature block or in some cases on the 

front of the card above the card number. Although the provision of the 3- or 4- digit 

number may suggest that the person providing the number is in possession of the card, it 

does not meet the requirement to provide a means to identify the cardholder or the 
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authorized user of the card, as required by the regulation. Thus, comment 12(b)(2)(iii)-3 

would clarify that a card issuer may not impose liability on the cardholder when 

merchandise is ordered by telephone or Internet if the person using the card without the 

cardholder’s authority provides the credit card number by itself or with other information 

that appears on the card because it has not met the requirement that a means to identify 

the cardholder or authorized user of the card in the transaction. 

The Board is also proposing revisions to Model Clause G-2, which can be used to 

explain the consumer’s liability for unauthorized use, to improve its readability. For 

HELOCs subject to § 226.5b, at the creditor’s option, the creditor may use Model Clause 

G-2 or G-2(A). For open-end (not home-secured) plans, the creditor may use G-2(A). 

12(c) Right of Cardholder to Assert Claims or Defenses Against Card Issuer

 Under TILA Section 170, as implemented in § 226.12(c) of the regulation, a 

cardholder may assert against the card issuer a claim or defense for defective goods or 

services purchased with a credit card. The claim or defense applies only as to unpaid 

balances for the goods or services, and if the merchant honoring the card fails to resolve 

the dispute. See 15 U.S.C. 1666i. The cardholder may withhold payment up to the 

unpaid balance of the purchase that gave rise to the dispute and any finance or other 

charges imposed on that amount. The right is limited to disputes exceeding $50 for 

purchases made in the consumer’s home state or within 100 miles. See § 226.12(c).18 

The proposal would update the regulation to address current business practices and move 

guidance currently in the footnotes to the rule or the staff commentary as appropriate. 

In order to assert a claim under § 226.12(c), a cardholder must have used a credit 

card to purchase the goods or services associated with the dispute. Comment 12(c)(1)-1 

lists examples of circumstances that are excluded or included by § 226.12(c). The 

proposal would add Internet transactions charged to the credit card account to the list of 

circumstances included within the scope of § 226.12(c) (provided that certain conditions 

are met, including that the disputed transaction take place in the same state as the 

cardholder’s current designated address, or within 100 miles from that address). 

In technical revisions, guidance stating § 226.12(c)’s inapplicability to the 

transactions listed in footnote 24 has been moved to comment 12(c)-3 with corresponding 

changes in comment 12(c)(1)-1. The reference to “paper-based debit cards” in existing 

comment 12(c)(1)-1 would be deleted as obsolete. The Board is aware of at least one 

product, however, whereby a consumer can pay cash and is instantly issued an account 

number (along with a 3-digit card identification number and expiration date) that allows 

the consumer to conduct transactions with an online merchant. No physical card device 

is issued to the consumer. Comment is requested whether the reference to paper-based 

debit cards should be retained or expanded to include these “virtual” cards. Comment is 

also requested as to whether the references to “check-guarantee cards” under comments 

 

18 Certain merchandise disputes, such as the nondelivery of goods, may also be separately asserted as a 

“billing error” under § 226.13(a)(3). See comment 12(c)-1. 
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12(c)-3 (see existing footnote 24) and 12(c)(1)-1 should continue to be retained as 

guidance in the commentary or whether they should also be deleted as obsolete. 

 

Section 226.12 also requires that the disputed transaction must have occurred in 

the same state as the cardholder’s current designated address or, if different, within 100 

miles from that address. See § 226.12(c)(3). Thus, if applicable state law provides that a 

mail, telephone, or Internet transaction occurs at the cardholder’s address, such 

transactions would be covered under § 226.12(c), even if the merchant is located more 

than 100 miles from the cardholder’s address. The conditions for asserting merchant 

claims would be re-designated under § 226.12(c)(3)(i)(A) and (B) in the proposal. In 

addition, the Board proposes to move the guidance currently found in footnote 26 

regarding the applicability of some of the limitations in § 226.12(c) to § 226.12(c)(3)(ii). 

Corresponding revisions to reflect the proposed changes would also be made to the staff 

commentary, with additional clarifying changes. 

Guidance regarding how to calculate the amount of the claim or defense that may 

be asserted by the cardholder under § 226.12(c), currently found in footnote 25, would be 

moved to the commentary in proposed comment 12(c)-4. 

12(d) Offsets by Card Issuer Prohibited

TILA Section 169 prohibits card issuers from taking any action to offset a 

cardholder’s credit card indebtedness against funds of the cardholder held on deposit with 

the card issuer. 15 U.S.C. 1666h. The statutory provision is implemented by § 226.12(d) 

of the regulation. Section 226.12(d)(2) currently provides that card issuers are permitted 

to “obtain or enforce a consensual security interest in the funds” held on deposit. 

Comment 12(d)(2)-1 provides guidance on the security interest provision. For example, 

the security interest must be affirmatively agreed to by the consumer, and must be 

disclosed as part of the account-opening disclosures under § 226.6. In addition, the 

comment provides that the security interest must not be “the functional equivalent of a 

right of offset.” The comment states that 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.” The 

comment gives some examples of how this requirement can be met, such as use of 

separate signature or initials to authorize the security interest, placement of the security 

agreement on a separate page, or reference to a specific amount or account number for 

the deposit account. The comment also states that 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).” 

 From time to time, questions have been raised about comment 12(d)(2)-1. For 

example, some card issuers have asked whether using only one of the methods to ensure 

the consumer’s awareness and intent is sufficient, versus using more than one. Card 

issuers have also asked about the requirement that the security interest be obtainable and 

enforceable by creditors generally. The Board requests comment on whether additional 

guidance is needed and, if so, the specific issues that the guidance should address. 
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12(e) through 12(g)

Sections § 226.12(e), (f), and (g) address, respectively: the prompt notification of 

returns and crediting of refunds; discounts and tie-in arrangements; and guidance on the 

applicable regulation (Regulation Z or Regulation E) in instances involving both credit 

and electronic fund transfer aspects. The Board does not propose any changes to these 

provisions. 

Section 226.13 Billing Error Resolution

TILA Section 161, as implemented in § 226.13 of the regulation, addresses error 

resolution procedures for billing errors, and requires a consumer to provide written notice 

of the error within 60 days after the first periodic statement reflecting the alleged error is 

sent. 15 U.S.C. 1666. The written notice triggers a creditor’s duty to investigate the 

claim within prescribed time limits. In contrast to the consumer protections in § 226.12 

of the regulation, which are limited to transactions involving the use of a credit card, the 

billing error procedures apply to any extensions of credit that are made in connection 

with an open-end account. Commenters on the December 2004 ANPR provided few 

comments addressing the billing error provisions, except to urge the Board to increase the 

time period for investigating errors. Q43. 

The proposed revisions would clarify, among other things, that (1) the billing 

error provisions apply to purchases made using a third-party payment intermediary, 

where the purchase is funded through an extension of credit using the consumer’s credit 

card or other open-end plan; (2) a creditor must complete its investigation within the time 

frames established under the regulation and may not reverse any credits made once the 

time frames have expired; and (3) a creditor may not deduct any portion of a disputed 

amount or related charges when a cardholder uses an automatic payment service offered 

directly by or through the creditor. 

In technical revisions, the substance of footnotes 27-30 would be moved to the 

regulation or the commentary, as appropriate, and footnote 31 would be deleted. (See

redesignation table below.) For the reasons set forth in the section-by-section analysis to 

§ 226.6(b)(1), the Board would update references to “free-ride period” as “grace period” 

in the regulation and commentary, without any intended substantive change. 

13(a) Definition of Billing Error

The definition of a billing error in § 226.13(a) would be substantively unchanged 

in the proposal. Under § 226.13(a)(3), the term “billing error” includes disputes about 

property or services that are not accepted by the consumer or not delivered to the 

consumer as agreed. See § 226.13(a)(3). The proposal would add a new comment 

13(a)(3)-2 to clarify that § 226.13(a)(3) also applies when a consumer uses his or her 

credit card or other open-end account to purchase a good or service through a third-party 

payment intermediary, such as a person-to-person Internet payment service. 
158

In some cases, a consumer might pay for merchandise purchased through an 

Internet auction site using an Internet payment service, which is in turn funded through 

an extension of credit from the consumer’s credit card or other open-end account. As in 

the case of purchases made using a check that accesses a consumer’s credit card account, 

there may not be a direct relationship between the merchant selling the merchandise and 

the card issuer when an Internet payment service is used. Because a consumer has billing 

error rights with respect to purchases made with checks that access a credit card account, 

the Board believes the same result should apply when the consumer makes a purchase 

using a third-party intermediary funded using the same credit card account. In particular, 

the Board believes that there is little difference between a consumer using his or her 

credit card to make a payment directly to the merchant on the merchant’s Internet web 

site or to make a payment to the merchant through a third-party intermediary. 

Accordingly, comment 13(a)(3)-2 would clarify that when an extension of credit from the 

consumer’s credit card or other open-end account is used to fund a purchase through a 

third-party payment intermediary, the good or service purchased is not the payment 

medium, but rather the good or service that is obtained using the payment service. 

Proposed new comment 13(a)(3)-3 would clarify that prior notice to the merchant 

is not required before the consumer can assert a billing error that the good or service was 

not accepted or delivered as agreed. Thus, in contrast to claims or defenses asserted 

under TILA Section 170 and § 226.12(c) of the regulation which require that the 

cardholder first make a good faith attempt to obtain satisfactory resolution of a 

disagreement or problem with the person honoring the credit card, the consumer need not 

provide prior notice of the dispute to the person from whom the consumer purchased the 

good or service of the dispute before asserting a billing error claim directly with the 

creditor. 15 U.S.C. 1666i. 

The text of footnote 27 prohibiting a creditor from accelerating a consumer’s debt 

or restricting or closing the account because the consumer has exercised billing error 

rights, and alerting creditors to the statutory forfeiture penalty under TILA Section 161(e) 

(15 U.S.C. 1666) for failing to comply with any of the requirements in § 226.13 would be 

moved to the list of error resolution rules under § 226.13(d)(3). Current comment 13-1 

referring to this general prohibition would be deleted as redundant. 

13(b) Billing-Error Notice

To assert a billing error under § 226.13(b), a consumer must provide a written 

notice of the error to the creditor no later than 60 days after the creditor transmitted the 

first periodic statement that reflects the alleged error. The notice must provide sufficient 

information to enable the creditor to investigate the claim, including the consumer’s 

name and account number, the type, date and amount of the error, and, to the extent 

possible, the consumer’s reasons for his or her belief that a billing error exists. 

Comment 13(b)-1 would be revised to incorporate the guidance currently in 

footnote 28 stating that the creditor need not comply with the requirements of § 226.13(c) 

through (g) if the consumer voluntarily withdraws the billing error notice. Comment 

13(b)-2 would be added to incorporate the guidance currently in footnote 29 stating that 
159

the creditor may require that the written billing error notice not be made on the payment 

coupon or other material accompanying the periodic statement if the creditor so states in 

the billing rights statement on the account-opening disclosure and annual billing rights 

statement. In addition, comment 13(b)-2 would provide that billing error notices 

submitted electronically would be deemed to satisfy the requirement that billing error 

notices be provided in writing, provided that the creditor has stated in the billing rights 

statement required by §§ 226.6(c)(2) and 226.9(a) that it will accept notices submitted 

electronically, including how the consumer can submit billing error notices in this 

manner. 

13(c) Time for Resolution; General Procedures

Section 226.13(c) generally requires a creditor to mail or deliver written 

acknowledgment to the consumer within 30 days of receiving a billing-error notice, and 

to complete the billing error investigation procedures within two billing cycles (but no 

later than 90 days) after receiving a billing-error notice. Comment 13(c)(2)-2 would be 

added to clarify that a creditor must complete its investigation and conclusively 

determine whether an error occurred within the error resolution time frames. Thus, once 

the error resolution time frame has expired, the creditor may not reverse any corrections 

it has made related to the asserted billing error, including any previously credited 

amounts, even if the creditor subsequently obtains evidence indicating that the billing 

error did not occur as asserted. The statute is clear that a creditor must complete its 

investigation and make appropriate corrections to the consumer’s account within two 

complete billing cycles after the receipt of the consumer’s notice of error, and does not 

permit the creditor to continue its investigation beyond the error resolution period. 

15 U.S.C. 1666. This rule is intended to ensure finality in the error resolution process, 

and to ensure creditors complete their investigations in a timely manner. Of course, a 

creditor may reverse a prior determination, based on an investigation, that no error 

occurred and subsequently credit the consumer’s account for the amount of the error even 

after the error resolution period has elapsed. 

Some commenters on the December 2004 ANPR urged the Board to increase the 

time period for investigating errors from 90 days to 120 days to allow issuers to 

investigate billing error claims effectively. Q43. The 90-day time frame is statutory, and 

the Board does not propose to extend the maximum error resolution period. The Board 

further notes that the 90-day maximum time frame would apply only in cases where a 

creditor’s billing cycle is 45 days or more. Otherwise, the creditor must complete its 

investigation within the time period represented by two billing cycles. Thus, for 

example, if a creditor’s billing cycle is 30 days, it would only have 60 days to conclude 

its investigation of alleged billing errors. 

Of course, any determination that an error has not occurred must be based upon a 

reasonable investigation. See § 226.13(f). 

13(d) Rules Pending Resolution

 Once a billing error is asserted by a consumer, the creditor is prohibited under 

§ 226.13(d) from taking certain actions with respect to the dispute in order to ensure that 
160

the consumer is not otherwise discouraged from exercising his or her billing error rights. 

For example, the creditor may not take action to collect any disputed amounts, including 

related finance or other charges, or make or threaten to make an adverse report, including 

reporting that the amount or account is delinquent, to any person about the consumer’s 

credit standing arising from the consumer’s failure to pay the disputed amount or related 

finance or other charges. 

 Under the current rule, the card issuer is specifically prohibited from deducting 

any part of the disputed amount or related charges from a cardholder’s deposit account 

that is also held by the card issuer. To reflect new payment practices, the proposal would 

extend the prohibition to automatic deductions from the consumer’s deposit account 

where the consumer has enrolled in the card issuer’s automatic payment plan. The Board 

believes that whenever an automatic payment service is offered by the card issuer, 

thereby giving the card issuer control over the amount to be debited, a cardholder should 

not treated any differently solely because the consumer’s deposit account is maintained at 

a different account-holding institution. Thus, for example, if the cardholder has agreed to 

pay a predetermined amount each month and subsequently disputes one or more 

transactions that appear on a statement, the card issuer must ensure that it does not debit 

the consumer’s asset account for any part of the amount in dispute. The proposed 

revision would apply whether the card issuer operates the automatic payment service 

itself or outsources the service to a third-party service provider, but would not apply 

where the consumer has enrolled in a third-party bill payment service that is not offered 

by the card issuer. Thus, for example, the proposed revision would not apply where the 

consumer uses a bill-payment service offered by his or her deposit account-holding 

institution to pay his debt (unless the account-holding institution is also the card issuer). 

Section 226.13(d)(1) and comment 13(d)(1)-4, which describes the coverage of the 

automatic payment plan exclusion, would be revised to reflect the proposed change. 

Comment is requested regarding any operational issues card issuers may encounter in 

implementing the systems changes necessary to comply with the proposed revision. 

13(e) Procedures if Error Occurred As Asserted and 13(f) Procedures if Different 

Billing Error or No Billing Error Occurred

Paragraphs (e) and (f) of § 226.13 set forth procedures that a creditor must follow 

to resolve a billing error claim, depending on whether the billing error occurred as 

asserted, or if a different billing error or no billing error occurred. In particular, 

§ 226.13(f) requires that a creditor first conduct a reasonable investigation before the 

creditor may deny the consumer’s claim or conclude that the billing error occurred 

differently than as asserted by the consumer. See TILA Section 161(a)(3)(B)(ii); 

15 U.S.C. 1666(a)(3)(B)(ii). These provisions in the regulation would be substantively 

unchanged in the proposal. The text of footnote 31 is deleted as unnecessary in light of 

the general obligation under § 226.13(f) to conduct a reasonable investigation before a 

creditor may deny a billing error claim. 

13(g) Creditor’s Rights and Duties After Resolution

 Section 226.13(g) specifies the creditor’s rights and duties once it has determined, 

after a reasonable investigation under § 226.13(f), that a consumer owes all or a portion 
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of the disputed amount and related finance or other charges. The proposal would provide 

guidance to clarify the length of the time the consumer would have to repay the amount 

determined still to be owed without incurring additional finance charges (i.e., the grace 

period) that would apply under these circumstances. 

 Before a creditor may collect any amounts owed related to a disputed charge that 

is determined to be proper, the creditor must promptly notify the consumer in writing 

when the payment is due and the portion of the disputed amount and related finance or 

other charges that is still owed (including any charges that may be retroactively imposed 

on the amount found not to be in error). See 15 U.S.C. 1666(a); § 226.13(g)(1). The 

consumer must then be given any grace period disclosed under proposed 

§§ 226.6(a)(1), 226.6(b)(1), 226.7((a)(8), or 226.7(b)(8), as applicable, to pay the amount 

due as specified in the written notice without incurring any additional finance or other 

charges. See § 226.13(g)(2). Comment 13(g)(2)-1 would be revised to clarify that if the 

consumer was entitled to a grace period at the time the consumer asserted the alleged 

billing error, then the consumer must be given a period of time equivalent to the disclosed 

grace period to pay the disputed amount as well as related finance or other charges. The 

Board believes that this interpretation is necessary to ensure that consumers are not 

discouraged from asserting their statutory billing rights by putting the consumer in the 

same position (that is, with the same grace period) if the consumer had not disputed the 

transaction in the first place. 

13(i) Relation to Electronic Fund Transfer Act and Regulation E

Section 226.13(i) is designed to facilitate compliance when financial institutions 

extend credit incident to electronic fund transfers that are subject to the Board’s 

Regulation E, for example, when the credit card account is used to advance funds to 

prevent a consumer’s deposit account from becoming overdrawn or to maintain a 

specified minimum balance in the consumer’s account. See 12 CFR part 205. The 

provision states that under these circumstances, the creditor should comply with the error 

resolution procedures of Regulation E, rather than those in Regulation Z (except that the 

creditor must still comply with §§ 226.13(d) and (g)). The Board is not proposing any 

changes to this provision as it appears in the regulation; however, a minor clarification is 

proposed for an existing comment. 

Comment 13(i)-2 states that 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. The example in the current comment would 

be revised to include a specific reference to overdraft protection services that are not 

subject to the Board’s Regulation Z when there is no agreement between the creditor and 

the consumer to extend credit when the consumer’s account is overdrawn. 

See § 226.4(c)(3); 70 FR 29,582; May 24, 2005. 

Comment is requested as to whether the Board should expand the guidance 

provided under § 226.13(i) to apply more generally to other circumstances when an 

extension of credit is incident to an electronic fund transfer, rather than limited to 

transactions pursuant to an agreement between a consumer and a financial institution to 
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extend credit when the consumer’s account is overdrawn or to maintain a specified 

balance. For example, in situations where a consumer transfers funds from an open-end 

credit plan, such as a home-equity line of credit, to the consumer’s checking or savings 

account, the wrong amount may be transferred from the credit plan to the deposit 

account. Both Regulation E and Z could potentially apply under this circumstance 

leaving a potential issue as to which set of error resolution provisions the creditor/ 

financial institution should follow. In particular, if Regulation E is deemed to apply, the 

institution would have a shorter period of time in which to complete its investigation. 

Section 226.14 Determination of Annual Percentage Rate

 As discussed in the section-by-section analysis to § 226.7(b)(7), Regulation Z 

requires disclosure on periodic statements of both the effective APR and the 

corresponding APR. The regulation also requires disclosure of the corresponding APR in 

account-opening disclosures, change-in-terms notices, advertisements, and other 

documents. The computation methods for both the corresponding APR and the effective 

APR are implemented in § 226.14 of Regulation Z. Section 226.14 also provides 

tolerances for accuracy in APR disclosures. 

 As also discussed in the section-by-section analysis to § 226.7(b)(7), the Board is 

proposing for comment two alternative approaches regarding the computation and 

disclosure of the effective APR. Under the first alternative, the Board proposes to retain 

the requirement that the effective APR be disclosed on the periodic statement, with 

modifications to the rules for computing and disclosing the effective APR to reflect an 

approach tested with consumers. See proposed § 226.7(b)(7) and § 226.14(d). For 

HELOCs subject to § 226.5b, the Board proposes to allow a creditor to comply with the 

current rules applicable to the effective APR; creditors would not be required to make 

changes in their periodic statement systems for such plans at this time. See proposed 

§§ 226.7(a)(7), 226.14(c). If the creditor chooses, however, the creditor may disclose an 

effective APR for its HELOCs according to any revised rules adopted for the effective 

APR. 

The second alternative would be to eliminate the requirement to provide the 

effective APR on the periodic statement. Under the second alternative, for a HELOC 

subject to § 226.5b, a creditor would have the option of providing the effective APR 

according to current rules. The two proposed alternatives are reflected in two proposed 

alternative versions of § 226.14. 

Under either alternative, the current provisions in § 226.14(a) and (b) dealing with 

tolerances for the APR and guidance on calculating the APR for certain disclosures other 

than the periodic statement would not be substantively revised, but minor changes would 

be made. Section 226.14(b) identifies the regulatory sections where a corresponding 

APR (the periodic rate multiplied by the number of periods in a year) must be disclosed. 

A reference to proposed §§ 226.7(a)(4) and 226.7(b)(4) (currently § 226.7(d)), which 

requires creditors to disclose corresponding APRs on periodic statements, would be 

added to § 226.14(b). (A reference to § 226.7(d) would be deleted from § 226.14(c) as 
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obsolete.) With respect to technical revisions, under both alternatives, the § 226.14 

regulatory and commentary text would be revised where necessary to reflect changes in 

terminology and to eliminate footnotes, moving their substance into the text of the 

regulation. 

First alternative proposal. Under the first alternative, the proposed new rules for 

calculating the effective APR are contained in §§ 226.14(d) and 14(e), and accompanying 

commentary. As discussed above under § 226.7(b)(7), for multifeatured plans, the Board 

proposes to require that the creditor must compute and disclose an effective APR 

separately for each feature. For example, purchases and cash advances would be separate 

features; there might be two separate cash advance features, if there was a promotional 

APR on certain cash advances and a different APR on others. Proposed § 226.14(d) and 

accompanying commentary provide rules on how the effective APR should be computed 

for each feature. (Current § 226.14(d) would be redesignated as § 226.14(c)(5). 

In proposed § 226.14(e), the Board proposes to limit the finance charges that are 

included in calculating the effective APR. These charges would be: (1) charges 

attributable to a periodic rate used to calculate interest; (2) charges that relate to a specific 

transaction; (3) charges related to required credit insurance or debt cancellation or 

suspension coverage; (4) minimum charges imposed if, and only 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 (such as a $1.00 minimum finance 

charge); and (5) charges based on the account balances, account activity or inactivity, or 

the amount of credit available. This exclusive list is intended to limit disclosure of an 

effective APR to situations in which it is more likely to be understood by consumers and 

be useful to consumers, as well as provide creditors with certainty as to the fees that must 

be included in the computation of the effective APR. 

For finance charges that relate to a specific transaction, such as cash advance and 

balance transfers, expressing the interest and transactions fees in the effective APR may 

help consumers better understand the costs of these transactions. For finance charges that 

relate to required credit insurance or debt cancellation or suspension coverage (coverage 

for which the regulation’s conditions for excluding the charge from the finance charge 

have not been satisfied), consumers may benefit from seeing an effective APR that 

combines two costs that will be imposed every month if a consumer carries a balance – 

interest on the balance and the required fee for insurance or debt cancellation or 

suspension coverage. For finance charges that are minimum charges in lieu of interest 

described above, a consumer that typically carries a small balance may benefit from 

seeing an effective APR that includes this minimum charge, so that the consumer 

understands that he or she is paying a higher rate for carrying that small balance than the 

corresponding APR suggests. For finance charges based on the account balances, 

account activity or inactivity, or the amount of credit available, consumers may benefit 

from seeing an effective APR that includes these charges, because these charges could be 

imposed as often as every month as a substitute for interest or in addition to interest. For 

example, the Board is aware of at least one credit card product where there is no interest 

rate applicable to the card, but each month a fixed charge is charged based on the 
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outstanding balance on the card (for example, $6 charge per $1,000 balance). For such a 

price structure, which has a corresponding APR of zero, consumers may find the 

effective APR helpful. 

Also, in proposed § 226.14(e), the Board would make clear that a finance charge 

related to opening the account, and a finance charge imposed not more often than 

annually as a condition to continuing or renewing the account, is not included in 

calculating the effective APR. Because these fees would be imposed infrequently (either 

at account opening or annually, or less frequently, to continue or renew the account), 

including these finance charges in the effective APR may not be helpful to consumers. 

With respect to open-end (not home-secured) plans, the Board would also revise 

the current rule that exempts a creditor from disclosing an effective APR when the total 

finance charge does not exceed 50 cents for a monthly or longer billing cycle, or the pro 

rata share of 50 cents for a shorter cycle. See 15 U.S.C. 127(b)(6); current 

§ 226.14(c)(4). The Board would exercise its exceptions authority to adjust the 50-cent 

threshold to $1.00 to reflect adjusted prices since the rule was implemented. Section 

226.14(d)(4) would also be revised to limit the finance charges included in determining 

whether the threshold is exceeded to those specified in proposed § 226.14(e). 

See proposed § 226.14(d)(4). 

Also under the first alternative, the Board proposes to place in § 226.14(c) the 

rules for calculating the effective APR for periodic statements for HELOCs subject to 

§ 226.5b. As proposed, § 226.14(c) provides that, for HELOCs subject to § 226.5b, a 

creditor may comply either with (1) the current rules applicable to the effective APR, 

(which are contained in proposed § 226.14(c)), or (2) with the revised rules applicable to 

open-end (not home-secured) plans (which are contained in proposed § 226.14(d)). 

Second alternative proposal. Under the second alternative, for the reasons 

discussed in the section-by-section analysis to § 226.7(b)(7), the Board proposes to 

eliminate the requirement to provide the effective APR on the periodic statement. Under 

this alternative, however, for a HELOC subject to § 226.5b, a creditor would have the 

option of disclosing an effective APR according to the current rules in Regulation Z for 

computing and disclosing the effective APR. No guidance would be given for disclosing 

the effective APR on open-end (not home-secured) plans, since the requirement to 

provide the effective APR on such plans would be eliminated. 

Section 226.16 Advertising

 TILA Section 143, implemented by the Board in § 226.16, governs 

advertisements of open-end credit plans. 15 U.S.C. 1663. The statute applies to the 

advertisement itself, and therefore, the statutory and regulatory requirements apply to any 

person advertising an open-end credit plan, whether or not such person meets the 

definition of creditor. See comment 2(a)(2)-2. Under the statute, if an advertisement sets 

forth any of the specific terms of the plan, then the advertisement must also state: (1) any 

minimum or fixed amount which could be imposed; (2) the periodic rates expressed as 
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APRs, if periodic rates may be used to compute the finance charge; and (3) any other 

term the Board requires by regulation. The specific terms of an open-end plan that 

“trigger” additional disclosures, which are commonly known as “triggering terms,” are 

finance charges and other charges required to be disclosed under current §§ 226.6(a) and 

226.6(b). If an advertisement states a triggering term, the regulation requires that the 

advertisement also state (1) any minimum, fixed, transaction, activity or similar charge 

that could be imposed; (2) any periodic rate that may be applied expressed as an APR; 

and (3) any membership or participation fee that could be imposed. See current 

§ 226.16(b) and comment 16(b)-7 (as redesignated to proposed comment 16(b)-1.) 

The Board is proposing several changes to the advertising rules in § 226.16 in 

order to ensure meaningful disclosure of advertised credit terms, alleviate compliance 

burden for certain advertisements, and implement provisions of the Bankruptcy Act. 

Specifically, under § 226.16(b), the Board is proposing to make the triggering terms 

consistent for all open-end credit advertisements by including terms stated negatively (for 

example, no interest), as is currently required under TILA for advertisements of 

HELOCs. Presently, for advertisements for open-end (not home-secured) plans, only 

positive terms trigger the additional disclosure. 

If an advertisement states a minimum month payment to finance a purchase under 

a plan established by a creditor or retailer, the proposal would amend § 226.16(b) to 

require a disclosure of the total number of payments and time period to repay. In 

addition, the Board is proposing in new § 226.16(g) to provide guidelines concerning use 

of the word “fixed” in connection with an APR. To ease compliance burden on 

advertisers, the Board is proposing in new § 226.16(f), alternative disclosures for 

television and radio advertisements in recognition of the time and space constraints on 

such media. Finally, the Board is implementing Section 1303 of the Bankruptcy Act, in 

part, in new § 226.16(e) and Section 1309 of the Bankruptcy Act in the commentary on 

clear and conspicuous in new comment 16-2. The Board’s proposed revisions to 

§ 226.16 and the accompanying commentary are described in more detail below. 

Clear and conspicuous standard. Comment 16-1 provides that disclosures made 

under § 226.16 are subject to the clear and conspicuous standard required for all 

disclosures for open-end credit plans. See § 226.5(a)(1). To be clear and conspicuous, 

disclosures must be in a reasonably understandable form. See comment 5(a)(1)-1. 

Generally, there are no specific rules regarding the format of disclosures in 

advertisements. See comment 16-1. 

Section 1309 of the Bankruptcy Act requires the Board to implement the “clear 

and conspicuous” term as it applies to certain disclosures required by Section 1303(a) of 

the Bankruptcy Act. Section 1303(a) applies to direct-mail applications and solicitations 

for credit cards and accompanying promotional materials. The Bankruptcy Act requires, 

in part, that when an introductory rate is stated, the time period in which the introductory 

period will end and the rate that will apply after the end of the introductory period must 

be stated “in a clear and conspicuous manner” in a prominent location closely proximate 

to the first listing of the introductory rate. The statute requires these disclosures to be 
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“reasonably understandable and designed to call attention to the nature and significance 

of the information in the notice.” 

The Board solicited comment in the October 2005 ANPR on interpreting the 

standard for clear and conspicuous set forth in Section 1309 of the Bankruptcy Act. Q85. 

Most industry commenters stated that additional guidance on clear and conspicuous was 

unnecessary. Consumer group commenters suggested that the Board impose minimum 

font size requirements, while industry commenters universally opposed such 

requirements. 

After considering comments, the Board is proposing in comment 16-2 that 

creditors clearly and conspicuously disclose when the introductory period will end and 

the rate that will apply after the end of the introductory period if the information is 

equally prominent to the first listing of the introductory rate to which it relates. Guidance 

on what is considered the first listing of the introductory rate is given in proposed 

comment 16(e)-4, as discussed below. The Board is also proposing that if these 

disclosures are the same type size as the first listing of the introductory rate, they will be 

deemed to be equally prominent. See proposed comment 16-2. Requiring equal 

prominence for this information calls attention to the nature and significance of such 

information by ensuring that the information is at least as significant as the introductory 

rate to which it relates. Furthermore, an equally prominent standard for similar 

information currently applies to advertisements for HELOCs. See current § 226.16(d)(2). 

16(b) Advertisement of Terms that Require Additional Disclosures

Negative terms as triggering terms. If an advertisement states certain terms, 

additional information must be disclosed. See § 226.16(b). The goal of this triggering 

term approach is to provide consumers with a more complete picture of costs that may 

apply to the plan when certain specified charges for the plan are given. TILA Section 

143 provides that stating any specific term of the plan triggers additional disclosures. 

15 U.S.C. 1663. The Board, however, limited triggering terms for advertisements of 

open-end (not home-secured) plans to those terms that are stated as a positive number. 

For home-equity advertisements, under TILA Section 147(a) (15 U.S.C. 1665b(a)), 

triggering terms include both positive as well as negative terms. See also current 

§ 226.16(d)(1) and comments 16(b)-2 and 16(d)-1. Pursuant to TILA Section 143(3), the 

Board proposes to apply this approach to advertisements for all open-end plans. The 

Board believes that negative terms such as “no interest” and “no annual fee” alone may 

not provide consumers with a sufficiently accurate portrayal of possible costs associated 

with the plan if the additional disclosures are not provided. This approach would also 

ensure similar treatment for all open-end plans. Current comment 16(b)-2 would be 

amended accordingly and moved to a revised comment 16(b)-1, which includes guidance 

on triggering terms in general. See redesignation table below. 

Advertisement of minimum monthly payment. The Board has the authority under 

TILA Section 143(3) to require the disclosure in advertisements for open-end credit of 

any terms in addition to those explicitly required by the statute. 15 U.S.C. 1663(3). The 

Board proposes to require additional disclosures for advertisements that provide a 

minimum monthly payment for an open-end credit plan that would be established to 
167

finance the purchase of goods or services. If a minimum monthly payment is advertised, 

the advertisement would be required to state, in equal prominence to the minimum 

payment, the time period required to pay the balance and the total dollar amount of 

payments if only minimum payments are made. Proposed § 226.16(b)(2) would clarify 

that this disclosure should assume that the consumer makes only the minimum payment 

required during each payment period. 

The Board believes that advertisements that state a minimum monthly payment 

will provide a clearer picture of credit costs if such advertisements also state the total 

dollar amount of payments the consumer would make, and the amount of time needed to 

pay the balance if only the minimum payments are made. The Board has received 

comments from time to time from state attorneys general regarding creditors that sell 

large-ticket items and simultaneously arrange financing for the purchase of those items. 

See discussion regarding the definition of open-end credit in the section-by-section 

analysis to § 226.2(a)(20). The comments the Board has received indicate that some 

consumers agree to the financing on the basis of a certain advertised minimum payment 

but are later surprised to learn how long the debt will take to pay, and how much the 

credit will cost them over that time period. The Board believes that disclosure of the time 

period and total dollar amount of payments will help to improve consumer understanding 

about the cost of credit products for which a minimum monthly payment is advertised. 

Other changes to 226.16(b). Currently, terms that are required to be disclosed 

under § 226.6 trigger the disclosure of additional terms. See § 226.16(b). Under current 

comment 16(b)-1, this would include terms required to be disclosed under §§ 226.6(a) 

and 226.6(b). As discussed in the section-by-section analysis to § 226.6, the Board is 

proposing new cost disclosure rules for open-end (not home-secured) plans, but is 

preserving existing cost disclosure rules for HELOCs pending a review of all homesecured rules. Section 226.16(b) would be conformed to reflect these revisions. 

In technical revisions, § 226.16(b) has been renumbered: triggering term 

requirements would be set forth in a revised § 226.16(b)(1); and the new proposed 

minimum monthly payment disclosures would be set forth in a revised § 226.16(b)(2). 

Footnote 36d (stating that disclosures given in accordance with § 226.5a do not constitute 

advertising terms) would be deleted as unnecessary since “advertisements” do not include 

notices required under federal law, including disclosures required under § 226.5a. 

See comment 2(a)(2)-1(ii). The Board is proposing to move the guidance in current 

comments 16(b)-1 and 16(b)-8 to new § 226.16(b)(1), with some revisions. Proposed 

comment 16(b)-1 would provide guidance on triggering terms by consolidating current 

comment 16(b)-2, amended as discussed above, with current comment 16(b)-7. Current 

comment 16(b)-6 would be eliminated as duplicative of the requirements under proposed 

§ 226.16(e), as discussed below. 

16(c) Catalogs or Other Multiple-Page Advertisements; Electronic Advertisements

Amendments to § 226.16(c) and comments 16(c)(1)-1, 16(c)(1)-2, and 16(c)(3)-1 

reflect provisions contained in the 2007 Electronic Disclosure Proposal. See 72 FR 

21,1141; April 30, 2007. The amendments provide that for an advertisement that is 
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accessed by the consumer in electronic form, the disclosures required under § 226.16 

must be provided to the consumer in electronic form on or with the advertisement. 

16(d) Additional Requirements for Home-equity Plans

 No revisions are proposed for the advertising rules under § 226.16(d), consistent 

with the Board’s plan to review rules affecting HELOCs in a separate rulemaking. 

High loan-to-value disclosures. Section 1302 of the Bankruptcy Act amends 

TILA Section 127(a)(13) to require that credit applications for, and advertisements 

related to, an extension of credit secured by a dwelling that may exceed the fair market 

value of the dwelling include a statement that the interest on the portion of the credit 

extension that is greater than the fair market value of the dwelling is not tax deductible 

for Federal income tax purposes. 15 U.S.C. 1637(a)(13). For these applications and 

advertisements, the statute also requires inclusion of a statement that the consumer should 

consult a tax adviser for further information on the deductibility of the interest. The new 

disclosures would apply to advertisements for home-secured credit, whether open-end or 

closed-end; thus, the Board plans to address issues related to this requirement during its 

review of the rules relating to home-secured credit. 

16(e) Introductory Rates

TILA Section 127(c)(6), as added by Section 1303(a) of the Bankruptcy Act, 

requires that if a credit card issuer states an introductory rate in applications, solicitations, 

and all accompanying promotional materials, the issuer must use the term “introductory” 

clearly and conspicuously in immediate proximity to each mention of the introductory 

rate. 15 U.S.C. 1637(c)(6). Credit card issuers also must disclose, in a prominent 

location closely proximate to the first mention of the introductory rate, other than the 

listing of the rate in the table required for credit card applications and solicitations, the 

time period when the introductory rate expires and the rate that will apply after the 

introductory rate expires. 

TILA Section 127(c)(7), as added by Section 1304(a) of the Bankruptcy Act, 

applies these requirements to “any solicitation to open a credit card account for any 

person under an open end consumer credit plan using the Internet or other interactive 

computer service.” 15 U.S.C. 1637(c)(7). The Board proposes to implement these 

requirements for promotional materials accompanying such applications or solicitations 

in a new § 226.16(e). In addition, the Board proposes to apply these requirements more 

broadly, pursuant to the Board’s authority under TILA Section 105(a), to issue 

regulations with classification, differentiations or other provisions as in the judgment of 

the Board are necessary to effectuate the purposes of TILA, as discussed below. 

15 U.S.C. 1604(a). Sections 1303 and 1304 of the Bankruptcy Act would be 

implemented in § 226.5a, and are discussed in the section-by-section analysis to § 226.5a. 

16(e)(1) Scope 

The Bankruptcy Act amendments regarding “introductory” rates, the time period 

these rates may be in effect, and the post-introductory rate apply to direct-mail 

applications and solicitations, and accompanying promotional materials. 
169

15 U.S.C. 1637(c)(1)(A). To provide meaningful disclosure of credit terms in order to 

avoid the uninformed use of credit, the Board is proposing to extend these requirements 

to applications or solicitations to open a credit card account, and all accompanying 

promotional materials, that are available publicly (“take-ones”). 15 U.S.C. 1601(a); 

15 U.S.C. 1604(a); 15 U.S.C. 1637(c)(3)(A). Consumers who obtain publicly available 

applications and solicitations are in essentially the same position in terms of the shopping 

process as consumers who receive direct mail applications and solicitations or 

applications or solicitations offered through the Internet. Therefore, the Board believes 

the information provided about introductory rates in these materials should be the same. 

Moreover, as discussed in the section-by-section analysis to § 226.5a(a)(2), the 

Board is proposing to apply the Bankruptcy Act provisions relating to Internet offers to 

both electronic solicitations and applications, although the statute refers only to 

solicitations, in order to promote the informed use of credit. Therefore, proposed 

§ 226.16(e)(1) would state that the introductory rate requirements in § 226.16(e) apply to 

all promotional materials accompanying credit card applications and solicitations offered 

through direct mail and electronically as well as those available publicly. 

Furthermore, the Board proposes to extend some of the requirements in Section 

1303 of the Bankruptcy Act regarding the presentation of introductory rates to other 

written advertisements for open-end credit plans that may not accompany an application 

or solicitation, other than advertisements of HELOCs subject to § 226.5b, in order to 

promote the informed use of credit. Advertisements for open-end credit plans are already 

required to comply with similar, though not identical, requirements to those set forth in 

Section 1303 of the Bankruptcy Act for “discounted variable-rate plans.” See current 

comment 16(b)-6. Specifically, “discounted variable-rate plans” are required to provide 

both the initial rate (with the statement of how long it will remain in effect) and the 

current indexed rate (with the statement that this second rate may vary). The Board’s 

proposal would ensure that the presentation of introductory rates in all written 

advertisements for open-end credit is consistent with the presentation requirements for 

promotional materials accompanying applications and solicitations, as discussed below. 

The Board believes consumers will benefit from these enhancements and advertisers will 

benefit from the consistent application of requirements related to introductory rates for all 

written open-end advertisements. Since the Board plans to address issues related to 

HELOCs during the next phase of its review of Regulation Z, proposed § 226.16(e) 

would not apply to advertisements of HELOCs subject to § 226.5b. The requirements of 

§ 226.16(e) would apply to communications that are considered advertisements, and 

would not include disclosures required under § 226.5a and under § 226.6. 

16(e)(2) Definitions

TILA Section 127(c)(6)(D)(i), as added by Section 1303(a) of the Bankruptcy 

Act, defines a temporary APR as a rate of interest applicable to a credit card account for 

an introductory period of less than 1 year, if that rate is less than an APR that was in 

effect within 60 days before the date of mailing the application or solicitation. 

15 U.S.C. 1637(c)(6)(D)(i). TILA Section 127(c)(6)(D)(ii) defines an “introductory 

period” as “the maximum time period for which the temporary APR may be applicable.” 
170

15 U.S.C. 1637(c)(6)(D)(ii). The Board proposes to implement the definition of 

“introductory period” in § 226.16(e)(2) without change. With respect to the definition of 

“temporary APR,” the Board proposes to implement the term more broadly, as discussed 

below. 

Since the term “introductory rate” is a commonly understood term that is 

currently used in Regulation Z, the Board proposes to use the term “introductory rate” in 

place of “temporary APR” for consistency and to facilitate compliance. Furthermore, for 

the reasons set forth below, the Board would implement the term more broadly to apply 

to any rate of interest applicable to an open-end plan for an introductory period if that rate 

is less than the advertised APR that will apply at the end of the introductory period. 

The statutory definition compares the temporary APR to an APR that was in 

effect within 60 days before the date of mailing of the application or solicitation. Since 

the advertised variable rate that will apply at the end of the introductory period in directmail credit card applications and solicitations (and accompanying promotional materials) 

must have been in effect within 60 days before the date of mailing, as required under 

proposed § 226.5a(c)(2)(i) (and currently under § 226.5a(b)(1)(ii)), the Board’s proposed 

definition captures the same concept in more simple language. Furthermore, because the 

Board is proposing to extend these requirements to publicly available applications and 

solicitations as well as applications and solicitations offered through the Internet, the 

Board’s proposed definition of “introductory rate” would also incorporate the timing 

requirements for variable rates under proposed §§ 226.5a(c)(2) and 226.5a(e)(4). 

The statutory definition currently applies to offers where the introductory period 

is less than 1 year. The Board is proposing to extend the definition of “introductory rate” 

to include offers where the introductory period is a year or more, in order to promote the 

informed use of credit. Creditors, however, often offer an introductory rate for a year or 

more, and the Board believes that consumers would benefit from the application of the 

requirements imposed by the Bankruptcy Act on introductory rates to these types of 

offers as well. In addition, the requirements for the advertisement of “discounted 

variable-rate plans” under current comment 16(b)-6 are not limited to offers where the 

introductory period is less than 1 year, and the Board believes that these requirements 

should continue to apply to such advertised offers. 

 The requirements for “discounted variable-rate plans” under current comment 

16(b)-6 apply solely to variable-rate plans. In adopting the proposed definition of 

“introductory rate” at § 226.16(e)(2), the Board would cover both variable- and 

nonvariable-rate plans under the requirements regarding the presentation of introductory 

rates. Current comment 16(b)-6 would be deleted as obsolete. 

16(e)(3) Stating the Term “Introductory”

Under TILA Section 127(c)(6)(A), as added by section 1303(a) of the Bankruptcy 

Act, the term “introductory” must be used in immediate proximity to each listing of the 

temporary APR in the application, solicitation, or promotional materials accompanying 

such application or solicitation. 15 U.S.C. 1637(c)(6)(A). The Board solicited comment 
171

in the October 2005 ANPR on what type of guidance was appropriate with respect to this 

requirement. Q86. 

Abbreviation. In the October 2005 ANPR, many commenters asked the Board to 

consider permitting creditors to use the term “intro” as an alternative to the word 

“introductory.” One commenter also asked the Board to consider permitting creditors to 

use terms that convey the same meaning (such as “temporary”). Because “intro” is a 

commonly-understood abbreviation of the term “introductory,” the Board proposes to 

allow creditors to use “intro” as an alternative to the requirement to use the term 

“introductory” in new § 226.16(e)(3). Because the Bankruptcy Act requires the use of 

the term “introductory,” the Board does not propose to allow use of a different term. 

Immediate proximity. Responses to the October 2005 ANPR suggested three 

general approaches to interpreting the meaning of “immediate proximity”: 

(1) immediately preceding or following the APR; (2) within the same sentence as the 

APR (or within a certain number of words); or (3) in the sentence immediately preceding 

or following the sentence with the APR. After considering comments, the Board is 

proposing to provide a safe harbor for creditors that place the word “introductory” or 

“intro” within the same phrase as each listing of the temporary APR. This guidance is in 

proposed comment 16(e)-2. The Board believes that interpreting “immediate proximity” 

to mean adjacent to the rate may be too restrictive and would effectively ban phrases such 

as “introductory balance transfer rate X percent.” Moreover, the Board has proposed a 

safe harbor, recognizing that there may be instances where the term “introductory” may 

arguably appear in “immediate proximity” of the rate, yet not necessarily be in the same 

phrase as the rate, such as in a graphic. 

16(e)(4) Stating the Introductory Period and Post-Introductory Rate 

 TILA Section 127(c)(6)(A), as added by Section 1303(a) of the Bankruptcy Act, 

also requires that the time period in which the introductory period will end and the APR 

that will apply after the end of the introductory period be listed in a clear and conspicuous 

manner in a “prominent location closely proximate to the first listing” of the introductory 

APR (disclosures in the application and solicitation table are not covered). 

15 U.S.C. 1637(c)(6)(A). The Board specifically solicited comments on this provision in 

the October 2005 ANPR. Q87 – Q90. 

Prominent location closely proximate. Industry comments received during the 

October 2005 ANPR generally advocated flexibility in interpreting the phrases 

“prominent location” and “closely proximate.” Consumer group commenters suggested 

very specific formatting requirements in interpreting these phrases, including minimum 

font size and placement requirements. 

The Board believes flexible guidance is appropriate in interpreting “prominent 

location closely proximate” given the numerous ways this information may be presented. 

Accordingly, the Board is proposing a safe harbor in order to provide guidance on this 

issue. Specifically, the Board would provide a safe harbor for advertisers that place the 

time period in which the introductory period will end and the APR that will apply after 
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the end of the introductory period in the same paragraph as the first listing of the 

introductory rate. This proposal is in proposed comment 16(e)-3. Congress’s use of the 

term “closely proximate” may be distinguished from its use of the term “immediate 

proximity”, and thus, the Board believes that guidance on the meaning of “prominent 

location closely proximate” should be more flexible than the guidance given for the 

meaning of “immediate proximity” in comment 16(e)-2. 

Recognizing that there may be instances where the information may not appear in 

the same “paragraph” as the first listing and yet may still be considered in a prominent 

location closely proximate to the first listing (for example, in a graphic), the Board’s 

guidance has been provided as a safe harbor. Consumer testing conducted for the Board 

suggests that placing this type of information in a footnote makes it much less likely the 

consumer will notice it. In light of the statutory provision providing that this information 

appear in a prominent location closely proximate to the listing, the Board believes that 

placing this information in footnotes would not be a prominent location closely proximate 

to the listing. 

First listing. In the October 2005 ANPR, the Board solicited comments on which 

listing of the temporary APR should be considered the “first listing” other than the rate 

listed in the table required on or with credit card applications or solicitations. In 

particular, the Board requested comment on (1) which document within a multi-page 

mailing should be considered the one with the first listing, and (2) which listing of the 

introductory APR within a particular document should be considered the first listing. 

With respect to the first question, commenters suggested either (1) that the first listing 

should apply to the “principal promotional document” in the package, or (2) that the 

Board treat each separate document within a mailing as a separate solicitation such that 

the information would need to appear in a prominent location closely proximate to the 

first listing on each separate document. The “principal promotional document” is a 

concept used in connection with the placement of a prescreening opt-out notice under the 

Fair Credit Reporting Act (FCRA). 15 U.S.C. 1681 et seq. The FTC, in its regulations 

related to the FCRA, defines the “principal promotional document” as “the document 

designed to be seen first by the consumer such as the cover letter.” 16 CFR part 642.2(b). 

After considering comments received during the ANPR, the Board is proposing in 

comment 16(e)-4 to provide that for a multi-page mailing or application or solicitation 

package, the first listing should apply solely to the “principal promotional document” in 

the package, unless the introductory rate is not listed in the principal promotional 

document and appears in another document in the package. If the introductory rate does 

not appear in the principal promotional document but appears in another document in the 

package, then the requirements apply to each separate document that lists the 

introductory rate. Proposed comment 16(e)-4 clarifies that the term “principal 

promotional document” includes solicitation letters. The Board’s consumer testing 

efforts suggest that consumers are likely to read the principal promotional document. 

Applying the requirement to each document in a mailing/package would be unnecessary 

if the consumer will already have seen the introductory rate in the principal promotional 

document. If the introductory rate does not appear in the principal promotional 
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document, however, the Board proposes that the requirements apply to the first listing of 

the introductory rate in each document in the package containing the introductory rate as 

it is not clear which document the consumer will read first in such circumstances. 

 

With respect to the question of which listing of the introductory rate within a 

particular document should be considered the first listing, many industry commenters 

suggested that creditors be given flexibility in determining which listing is the first 

listing. Some commenters suggested that the first listing be the highest listing on the 

page while other commenters advocated the most prominent listing. After considering 

comments, the Board is proposing that the first listing be the most prominent listing of 

the introductory rate on the front of the first page of the document. Consumer testing 

conducted for the Board suggests that consumers may not necessarily read documents in 

an application/solicitation package from top to bottom. Instead, they may tend to look 

first to the pieces of information that are set forth most prominently on the document. As 

a result, the Board believes that the first listing (i.e., the one the consumer sees first) 

would not necessarily be the highest one on the page, especially if such listing is in an 

inconspicuous format, and instead, it would be the one that is most prominent to the 

consumer. In terms of judging which listing is the “most prominent,” the Board is 

proposing a safe harbor for the listing with the largest type size. While type size is one 

measure for judging the most prominent listing, the Board recognizes that there may be 

other ways to assess the most prominent listing independent of type size. 

Post-introductory rate. The Board requested comment in the October 2005 ANPR 

regarding whether the Board should issue guidance with respect to listing the rate that 

will apply after the end of the introductory period. Q90. Most commenters agreed that 

advertisers should be permitted to list a range of rates. Consistent with the guidance 

given above for listing the APR in the table required for credit card applications and 

solicitations under § 226.5a(b)(1)(v), the Board is proposing that a range of rates may be 

listed as the rate that will apply after the introductory period if the specific rate for which 

the consumer will qualify will depend on later determinations of a consumer’s 

creditworthiness. See section-by-section analysis to § 226.5a(b)(1). The Board proposes 

comment 16(e)-5 to be consistent with comment 5a(b)(1)-5. In addition, the Board 

solicits comment on whether advertisers may alternatively list only the highest rate that 

may apply instead of a range of rates. For example, if there are three rates that may apply 

(9.99 percent, 12.99 percent or 17.99 percent), instead of disclosing three rates 

(9.99 percent, 12.99 percent or 17.99 percent) or a range of rates (9.99 percent to 

17.99 percent), card issuers should be permiteed toprovide only the highest rate (up 

to 17.99 percent). 

16(e)(5) Envelope Excluded 

 TILA Section 127(c)(6)(B), as added by Section 1303(a) of the Bankruptcy Act, 

specifically excludes envelopes or other enclosures in which an application or solicitation 

to open a credit card account is mailed from the requirements of TILA 

Section 127(c)(6)(A)(ii) and (iii). 15 U.S.C. 1637(c)(6)(B). This guidance is set forth in 

proposed § 226.16(e)(5). 
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In the October 2005 ANPR, the Board solicited comment on whether there should 

be any difference in guidance provided to applications and solicitations provided 

electronically with those that are provided in paper form. Q92. In response to comments 

received, the Board is proposing in § 226.16(e)(5) to exclude banner advertisements and 

pop-up advertisements that are linked to an electronic application or solicitation. In the 

Board’s view, these devices are similar to envelopes or other enclosures in the direct mail 

context. 

16(f) Alternative Disclosures—Television or Radio Advertisements

 For radio and television advertisements, the Board is proposing to allow 

alternative disclosures to the ones required by § 226.16(b) if a triggering term is stated in 

the advertisement. Radio and television advertisements would still be required to 

disclose any APR applicable to the plan, consistent with the requirements in proposed 

§ 226.16(b)(1)(ii); however, instead of the detailed information in 

proposed§§ 226.16(b)(1)(i) and (iii) (minimum or fixed payments, and annual or 

membership fees, respectively) an advertisement would be able to provide a toll-free 

telephone number that the consumer may call to receive more information. 

 

This approach is consistent with the approach taken in the advertising rules for 

Regulation M (See § 213.7(f)). Given the space and time constraints on radio and 

television advertisements, the additional disclosures required by proposed 

§§ 226.16(b)(1)(i) and (iii) may go unnoticed by consumers or be difficult for them to 

retain and would therefore not provide a meaningful benefit to consumers. An alternative 

means of disclosure may be more effective in many cases given the nature of television 

and radio media. 

While proposed § 226.16(f) is similar to § 213.7(f) in Regulation M, it is not 

identical. For example, § 213.7(f)(1)(ii) permits a leasing advertisement made through 

television or radio to direct the consumer to a written advertisement in a publication of 

general circulation in a community served by the media station. The Board believes that 

advertisers of open-end credit plans would be unlikely to use this option and has thus not 

proposed it for § 226.16(f). 

16(g) Misleading Terms

 Creditors often refer to an APR as “fixed” to denote an APR that is not tied to an 

index. However, the Board has found through consumer testing efforts that most 

participants did not appear to understand the term “fixed” in this manner. Participants 

also did not appear to understand that creditors often reserve the right to increase a 

“fixed” rate upon the occurrence of certain events (such as when a consumer pays late or 

goes over the credit limit) or for other reasons. Thus, consumer testing suggests many 

consumers believe a “fixed” rate does not change, such as with fixed-rate mortgage loans. 

Therefore, to avoid consumer confusion and the uninformed use of credit, the 

Board proposes to restrict the term “fixed” to instances where the rate will not change for 

any reason. 15 U.S.C. 1601(a), 1604(a). Proposed § 226.16(g) prohibits the use of the 

term “fixed” or any similar term in describing an APR unless that rate will remain in 
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effect unconditionally until the expiration of an advertised time period. If no time period 

is advertised, then the term “fixed” or any similar term may not be used unless the rate 

will remain in effect unconditionally until the plan is closed. For example, a creditor 

could describe a rate that is subject to change as non-indexed, to indicate that the rate will 

not change due to changes in the market. A creditor could not, however, describe a rate 

as “unchanging” or “permanent” unless the standard in proposed § 226.16(g) is met. 

Restricting the use of the term “fixed” is intended to help consumers distinguish rates that 

do not change for any reason from rates that can change for one reason or another. 

APPENDIX E – Rules for Card Issuers That Bill on a Transaction-by-Transaction 

Basis

 

Appendix E applies to card programs in which the card issuer and the seller are 

the same or related persons; no finance charge is imposed; cardholders are billed in full 

for each use of the card on a transaction-by-transaction basis; and no cumulative account 

is maintained reflecting transactions during a period of time such as a month. At the time 

the provisions now constituting Appendix E (originally adopted as an official Board 

interpretation to Regulation Z) were added to the regulation, they were intended to 

address card programs offered by automobile rental companies. 

 Appendix E specifies the provisions of Regulation Z that apply to credit card 

programs covered by the Appendix. For example, for the account-opening disclosures 

under § 226.6, the required disclosures are limited to penalty charges such as late 

charges, and to a disclosure of billing error rights and of any security interest. For the 

periodic statement disclosures under § 226.7, the required disclosures are limited to 

identification of transactions and an address for notifying the card issuer of billing errors. 

Further, since Appendix E card issuers do not issue periodic statements of account 

activity, Appendix E provides that these disclosures may be made on the invoice or 

statement sent to the consumer for each transaction. In general, the disclosures that this 

category of card issuers need not provide are those that are clearly inapplicable, either 

because the disclosures relate to finance charges, are based on a system in which periodic 

statements are generated, or apply to three-party credit cards (such as bank-issued credit 

cards). 

 The Board proposes to revise Appendix E by inserting material explaining what is 

meant by “related persons.” In addition, technical changes would be made, including 

numbering the paragraphs within the appendix and changing cross-references to conform 

to the renumbering of other provisions of Regulation Z. 

The Board solicits comment on whether Appendix E should be revised to specify 

that the disclosures required under § 226.5a apply to card programs covered by the 

appendix. For the most part, the credit card application and solicitation disclosures 

required by § 226.5a appear to be inapplicable to this category of card programs because 

most of those disclosures relate to finance charges or APRs. However, a few of the 

§ 226.5a disclosures could potentially apply, such as annual or membership fees and late 

charges. (Appendix E does not currently require a disclosure of annual or membership 

fees; comment is requested, however, on whether the appendix should be revised to 
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require such a disclosure, if a transaction-by-transaction card issuer were to impose such 

a fee.) If few or no such card issuers impose fees covered by § 226.5a, there may be no 

need to revise Appendix E to apply these requirements. In addition, the value of such a 

revision may depend on whether transaction-by-transaction card issuers typically make 

credit card applications or solicitations available to consumers in the ways specified by 

§ 226.5a, such as by direct mail, telephone solicitation, or as take-ones. On the other 

hand, if Appendix E were revised to apply § 226.5a to these card issuers, they would 

have to comply only to the extent the requirements are applicable. Thus, no burden 

would be imposed on card issuers that, for example, do not impose late-payment fees or 

annual fees, or do not conduct direct-mail credit card solicitations or other activities that 

come within § 226.5a. 

 

The Board also requests comment on whether any other provisions of Regulation 

Z not currently specified in Appendix E as applicable to transaction-by-transaction card 

issuers (such as §§ 226.5b and 226.16) should be specified as being applicable, and on 

whether any provisions currently specified as being applicable should be deleted. 

APPENDIX F – Annual Percentage Rate Computations for Certain Open-end 

Credit Plans

 Appendix F provides guidance regarding the computation of the effective APR 

under § 226.14(c)(3), which applies to situations where the finance charge imposed 

during a billing cycle includes a transaction charge, such as a balance transfer fee or a 

cash advance fee. As discussed in the section-by-section analysis to §§ 226.7(a)(7) and 

(b)(7), and § 226.14, the Board is proposing two alternative approaches for computation 

and disclosure of the effective APR. Depending upon the alternative and upon whether 

or not the plan is home-secured, the creditor (1) may use proposed § 226.14(c)(3) or 

§ 226.14(d)(3) if the finance charge for the billing cycle includes a transaction charge, or 

(2) would not be required to calculate and disclose an effective APR at all. The guidance 

in existing Appendix F would continue to apply to either proposed § 226.14(c)(3) or 

proposed § 226.14(d)(3). Therefore, the Board is not proposing changes to Appendix F 

except to add applicable cross references and to move the substance of footnote 1 to 

Appendix F to the text of the appendix. A cross-reference to proposed comment 

14(d)(3)-3 is added to the staff commentary to Appendix F. 

APPENDIX G – Open-end Model Forms and Clauses; APPENDIX H – Closed-end 

Model Forms and Clauses

 Appendices G and H set forth models forms, model clauses and sample forms that 

creditors may use to comply with the requirements of Regulation Z. Appendix G 

contains model forms, model clauses and sample forms applicable to open-end plans. 

Appendix H contains model forms, model clauses and sample forms applicable to closedend loans. Although use of the model forms and clauses is not required, creditors using 

them properly will be deemed to be in compliance with the regulation with regard to 

those disclosures. As discussed above, the Board proposes to add or revise several model 

and sample forms to Appendix G. The new or revised model and samples forms are 
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discussed above in the section-by-section analysis applicable to the regulatory provisions 

to which the forms relate. See section-by-section analysis to §§ 226.4(d)(3), 226.5a(b), 

226.6(b)(4), 226.6(c)(2), 226.7(b), 226.9(a), 226.9(b), 226.9(c), 226.9(g) and 226.12(b). 

In addition, the Board proposes to add a new model clause and sample form relating to 

debt suspension coverage in Appendix H. These forms are discussed above in the 

section-by-section analysis of § 226.4(d)(3). In Appendix G, all the existing forms 

applicable to home-equity lines of credit (HELOCs) have been retained without revision. 

The Board anticipates considering changes to these forms when it reviews the homeequity disclosure requirements in Regulation Z. 

 

The Board also proposes to revise or add commentary to the model and sample 

forms in Appendix G, as discussed below. The Board solicits comment on the proposed 

revisions below, as well as whether any additional commentary should be added to 

explain the model and sample forms contained in Appendix G. 

 Permissible changes to the model and sample forms. The commentary to 

appendices G and H currently states that creditors may make certain changes in the 

format and content of the model 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. See comment app. G and H-1. As discussed above, the Board is proposing 

format requirements with respect to certain disclosures applicable to open-end (not homesecured) plans, such as a tabular requirement for certain account-opening disclosures and 

certain change-in-terms disclosures. See § 226.5(a)(3). In addition, the Board is 

proposing revisions to certain model forms to improve their readability. See proposed 

G-2(A), G-3(A) and G-4(A). Thus, the Board would amend comment app. G and H-1 to 

indicate that with respect to certain model and sample forms in Appendix G, formatting 

changes may not be made to the model and sample forms. 

 In a technical revision, the Board proposes to delete comment app. G and H-1(vii) 

as obsolete. This comment allows a creditor to substitute appropriate references, such as 

“bank,” “we” or a specific name, for “creditor” in the account-opening disclosures, but 

none of the model or sample forms applicable to the account-opening disclosures uses the 

term “creditor.” 

Model clauses for notice of liability for unauthorized use and billing-error rights. 

Currently, Appendix G contains Model Clause G-2 which provides a model clause for the 

notice of liability for unauthorized use of a credit card. The Board is proposing revisions 

to Model Clause G-2 to improve its readability. This revised model clause is designated 

G-2(A). In addition, Appendix G currently contains Model Forms G-3 and G-4, which 

contain models for the long-form billing-error rights statement (for use with the accountopening 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. Like with Model Clause G-2, the Board is proposing 

revisions to Model Forms G-3 and G-4 to improve readability. The revised model forms 

are designated Model Form G-3(A) and G-4(A). The Board is proposing to revise 

comments app. G and H-2 and 3 to provide that for HELOCs subject to § 226.5b, at the 
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creditor’s option, a creditor either may use the current forms (G-2, G-3, and G-4) or the 

revised forms (G-2(A), 3(A) and 4(A)). For open-end (not home-secured) plans, 

creditors may use the revised forms. 

Model and sample forms applicable to disclosures for credit card applications and 

solicitations and account-opening disclosures. Currently, Appendix G contains several 

model forms related to the credit card application and solicitation disclosures required by 

§ 226.5a. Current Model Form G-10(A) illustrates, in the tabular format, the disclosures 

required under § 226.5a for applications and solicitations for credit cards other than 

charge cards. Current Sample G-10(B) is a sample disclosure illustrating an account with 

a lower introductory rate and a penalty rate. Model Form G-10(A) and Sample G-10(B) 

would be substantially revised to reflect the proposed changes to § 226.5a, as discussed in 

the section-by-section analysis to § 226.5a. In addition, the Board proposes to add 

Sample G-10(C) to provide another example of how certain disclosures required by 

§ 226.5a may be given. Under the proposal, current Model Form G-10(C) illustrating the 

tabular format disclosures for charge card applications and solicitations would be moved 

to G-10(D) and revised. The Board proposes to add Sample G-10(E) to provide an 

example of how certain disclosures in § 226.5a applicable to charge card applications and 

solicitations may be given. In addition, the Board proposes to add a model form and two 

sample forms to illustrate, in the tabular format, the disclosures required under 

§ 226.6(b)(4) for account-opening disclosures. See proposed Model G-17(A) and 

Samples G-17(B) and G-17(C). 

The Board also proposes to revise the existing commentary that provides 

guidance to creditors on how to use Model Forms and Samples G-10(A)-(E) and G17(A)-(C). Currently, the commentary indicates that the disclosures required by § 226.5a 

may be arranged horizontally (where headings are at the top of the page) or vertically 

(where headings run down the page, as is shown in the Model Forms G-10(A), G-10(D) 

and G-17(A), and need not be highlighted aside from being included in the table. The 

Board proposes to delete this guidance and instead require that the table for credit card 

application and solicitation disclosures and account-opening disclosures be presented in 

the format shown in proposed Model Forms G-10(A), G-10(D) and G-17(A), where a 

vertical format is used. The Board would no longer allow a horizontal format because 

such formats would be difficult for consumers to read, given the information that is 

required to be disclosed in the table. In addition, the Board proposes to delete the 

provision that disclosures in the tables need not be highlighted aside form being included 

in the table, as inconsistent with the proposed requirement that creditors must include 

certain rates and fees in the tables in bold text. See §§ 226.5a(a)(2)(iv) and 

226.6(b)(4)(i)(C). 

In addition, Model Form G-10(A) applicable to credit card applications and 

solicitations currently uses the heading “Minimum Finance Charge” for disclosing a 

minimum finance charge under § 226.5a(b)(3). The Board proposes to amend Model 

Form G-10(A) to provide two alternative headings (“Minimum Interest Charge” and 

“Minimum Charge”) for disclosing a minimum finance charge under § 226.5a(b)(3). The 

same two heading are proposed for Model Form G-17(A), the model form for the 
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account-opening table required under § 226.6(b)(4). In the consumer testing conducted 

for the Board, many participants did not understand the term “finance charge” in this 

context. The term “interest” was more familiar to many participants. Under the 

proposal, if a creditor imposes a minimum finance 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.” Other minimum finance charges should be 

disclosed under the heading “Minimum Charge.” 

Also, under the proposal, Model Forms 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)(4)(iii)(A). The Board proposes to provide guidance on when creditor should 

use each heading. Under the proposal, if the only fee for issuance or availability of credit 

disclosed under § 226.5a(b)(2) or § 226.6(b)(4)(iii)(A) is an annual fee, a creditor should 

use the heading “Annual Fee” to disclose this fee. If a creditor imposes fees for issuance 

or availability of credit disclosed under § 226.5a(b)(2) or § 226.6(b)(4)(iii)(A) other than, 

or in addition to, an annual fee, the creditor should use the heading “Set-up and 

Maintenance Fees” to disclose fees for issuance or availability of credit, including the 

annual fee. 

The Board also would revise the commentary to provide details about proposed 

sample forms G-10(B), G-10(C), G-17(B) and G-17(C) for credit card application and 

solicitation disclosures and account-opening disclosures. For example, the commentary 

indicates that samples G-10(B), G-10(C), G-17(B) and G-17(C) are designed to be 

printed on an 8x14 inch sheet of paper. In addition, the following formatting techniques 

were used in presenting the information in the table to ensure that the information was 

readable: 

1. A readable font style and font size (10-point Ariel font style, except for the 

purchase APR which is shown in 16-point type). 

2. Sufficient spacing between lines of the text. That is, words were not 

compressed to appear smaller than 10-point type. 

3. 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 

three components: (a) the applicable balance transfer rate, (b) a cross-reference to the 

balance transfer fee, and (c) a notice about payment allocation. The samples show these 

three components on separate lines with adequate space between each component. On 

the other hand, in the samples, in the disclosure of the late payment fee, the form 

discloses two components: (a) the late-payment fee, and (b) 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 table. 
180

4. Standard spacing between words and characters. 

5. 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. 

6. Sufficient contrast between the text and the background. Black text was used 

on white paper. 

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 size), the 

Board encourages issuers to consider these techniques when disclosing information in the 

table, to ensure that the information is presented in a readable format. 

Model and sample forms for periodic statements. The Board is proposing to add 

several model forms for periodic statements disclosures that creditors may use to comply 

with the requirements in proposed § 226.7(b) applicable to open-end (not home-secured) 

plans. As discussed above in the section-by-section analysis of § 226.7(a), for HELOCs 

subject to § 226.5b, at the creditor’s option, a creditor either may comply with the current 

rules applicable to periodic statement disclosures in § 226.7(a) or comply with the new 

rules applicable to periodic statement disclosures in § 226.7(b). The Board proposes to 

added comment app. G and H-8 to provide that for HELOCs subject to § 226.5b, if a 

creditor chooses to comply with the new periodic statement requirements in § 226.7(b), 

the creditor may use Samples G-18(A)-(F) to comply with the requirements in § 226.7(b). 

APPENDIX M1 – Generic Repayment Estimates

As discussed in the section-by-section analysis to § 226.7(b)(12), Section 1301(a) 

of the Bankruptcy Act requires creditors, the FTC and the Board to establish and 

maintain toll-free telephone numbers in certain instances in order to provide consumers 

with an estimate of the time it will take to repay the consumer’s outstanding balance, 

assuming the consumer makes only minimum payments on the account and the consumer 

does not make any more draws on the account. 15 U.S.C. § 1637(b)(11)(F). The Act 

requires creditors, the FTC and the Board to provide estimates that are based on tables 

created by the Board that estimate repayment periods for different minimum monthly 

payment amounts, interest rates, and outstanding balances. Instead of issuing a table, the 

Board proposes to issue guidance in Appendix M1 to card issuers and the FTC for how to 

calculate this generic repayment estimate. The Board would use the same guidance to 

calculate the generic repayment estimates given through its toll-free telephone number. 

The Board expects that this guidance would be more useful than a table, because the 

guidance will facilitate the use of automated systems to provide the required disclosures, 

although the guidance also can be used to generate a table. 

Under Section 1301(a) of the Bankruptcy Act, a creditor may use a toll-free 

telephone number to provide the actual number of months that it will take consumers to 

repay their outstanding balance instead of providing an estimate based on the Board-
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created table. 15 U.S.C. 1637(b)(11)(I)-(K). The Board proposes new Appendix M2 to 

provide guidance to issuers on how to calculate the actual repayment disclosure. 

Calculating generic repayment estimates. Proposed Appendix M1 provides 

guidance on how to calculate the generic repayment estimates. In the October 2005 

ANPR, the Board noted that the Bankruptcy Act directs the Board in estimating 

repayment periods to allow for a significant number of different minimum payment 

amounts, interest rates, and outstanding balances. With respect to the toll-free telephone 

numbers set up by the Board and the FTC, information about the consumers’ account 

terms must come from consumers because the information is not available to the Board or 

the FTC. Consumers would need convenient access to this information to request an 

estimated repayment period. Because consumers’ outstanding account balances appear 

on their monthly statements, consumers are able to provide that amount when requesting 

an estimate of the repayment period. Issues arise, however, with respect to the minimum 

payment requirement and interest rate information. 

Periodic statements do not disclose the fixed percentage or formula used to 

determine the minimum dollar amount that must be paid each month. The statements 

only disclose the minimum dollar amount that must be paid for the current statement 

period, which would vary each month as the account balance changes. Furthermore, 

while periodic statements must disclose all APRs applicable to the account, the 

statements may, but do not necessarily, indicate the portion of the account balance 

subject to each APR. This information is also needed to estimate the actual repayment 

period. 

The Board sought commenters’ views regarding three basic approaches for 

developing a system to calculate estimated repayment periods for consumers who call the 

toll-free telephone number. The three approaches were: 

(1) Prompting consumers to provide an account balance, a minimum payment 

formula, and all applicable APRs in order to obtain an estimated repayment period. For 

information about minimum payments and APRs that is not currently disclosed on 

periodic statements, the Board could require additional disclosures on those statements. 

But the Board also could develop guidance that makes assumptions about these variables 

for a “typical” account. 

(2) Prompting consumers to input information, or using assumptions based on a 

“typical” account to calculate an estimated repayment period—but also giving creditors 

the option to input information from their own systems regarding consumers’ account 

terms, to provide more accurate estimates. Estimates provided by creditors that elect this 

option would differ somewhat from the estimates provided by other creditors, the Board, 

and the FTC. 

(3) Prompting consumers to provide their account balance, but requiring creditors 

to input information from their own systems regarding the account’s minimum payment 

requirement, APRs, and the portion of the balance subject to each APR. These estimates 
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would be more accurate, but would impose additional compliance burdens, and would not 

necessarily reflect consumers’ actual repayment periods because of the use of several 

other assumptions. 

In response to the October 2005 ANPR, industry commenters urged the Board not 

to require issuers to program their systems to obtain consumers’ account information 

from their account management systems to calculate the generic repayment estimate. 

These commenters indicated that such a requirement was not contemplated by the statute. 

Several consumer group commenters indicated that issuers should be required to use 

inputs from their own systems about minimum monthly payment formulas, APRs, and 

account balances applicable to an account in calculating the generic repayment estimate. 

The Board is proposing to allow credit card issuers and the FTC to use a 

“consumer input” system to collect information from the consumer to calculate the 

generic repayment estimate. The Board would also use a “consumer input” system for its 

toll-free telephone number. For example, certain information is needed to calculate the 

generic repayment estimate, such as the outstanding balance on the account and the APR 

applicable to the account. The Board’s proposed rule would allow issuers and the FTC to 

prompt the consumer to input this information so that the generic repayment estimate can 

be calculated. Although issuers have the ability to program their systems to obtain 

consumers’ account information from their account management systems, the Board is 

not proposing that issuers be required to do so. Allowing issuers to use a “consumer 

input” system in calculating the generic repayment estimate preserves the distinction 

between estimates based on the Board table and actual repayment disclosures 

contemplated in the statute. 

In proposed Appendix M1, the Board sets forth guidance for credit card issuers 

and the FTC in determining the minimum payment formula, the APR, and the 

outstanding balance to use in calculating the generic repayment estimates. With respect 

to other terms that could impact the calculation of the generic repayment estimate, the 

Board proposes to set forth assumptions about these terms that issuers and the FTC must 

use. 

1. Minimum payment formula. In the October 2005 ANPR, the Board sought 

comment on whether the Board should select a “typical” minimum payment formula that 

issuers and the FTC must use in calculating the generic repayment estimates. Q66. In 

response to the ANPR, many industry commenters acknowledged that there is no 

“typical” minimum payment formula for credit cards. Nonetheless, some industry 

commenters indicated that the Board should use a minimum formula of 1 percent of the 

outstanding balance plus the accrued finance charges for the billing period, with a 

minimum payment of $20. Another industry commenter indicated that the Board should 

require that issuers, the FTC and the Board use the minimum payment formula in the 

statutory examples to calculate the generic repayment estimate. As indicated above, 

several consumer groups indicated that issuers should be required to use the minimum 

payment formula(s) that is applicable to the consumer’s account. These commenters 

indicated that the FTC and the Board should be required to use a minimum payment 
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formula that is identified by the Board as producing the “worst-case scenario” repayment 

estimate. 

As indicated in Appendix M1, the Board proposes to require credit card issuers to 

use the minimum payment formula that applies to most of the issuer’s accounts. The 

Board proposes different rules for general-purpose credit cards and retail credit cards in 

selecting the “most common” minimum payment formula. The Board proposes to define 

retail credit cards as credit cards that are issued by a retailer for use only in transactions 

with the retailer or a group of retailers that are related by common ownership or control, 

or a credit card where a retailer arranges for a creditor to offer open-end credit under a 

plan that allows the consumer to use the credit only in transactions with the retailer or a 

group of retailers that are related by common ownership or control. General-purpose 

credit cards are defined as credit cards that are not retail credit cards. 

When calculating the generic repayment estimate for general-purpose credit cards, 

card issuers must use the minimum payment formula that applies to most of its generalpurpose credit card accounts. The issuer must use this “most common” formula to 

calculate the generic repayment estimate for all of its general-purpose credit card 

accounts, regardless of whether this formula applies to a particular account. Proposed 

Appendix M1 contains additional guidance to issuers of general-purpose credit cards in 

complying with the “most common” formula approach. The Board solicits comment on 

the need for guidance if two or more formulas could apply equally to the same number of 

accounts. 

When calculating the generic repayment estimate for retail credit cards, credit 

card issuers must use the minimum payment formula that most commonly applies to its 

retail credit card accounts. If an issuer offers credit card accounts on behalf of more than 

one retailer, credit card issuers must group credit card accounts relating to each retailer 

separately, and determine the minimum formula that is most common to each retailer. 

For example, if Issuer A, the owner of Retailer A and Retailer B, issues separate cards for 

Retailer A and Retailer B, the proposal would require Issuer A to determine the most 

common formula separately for each retailer (A and B). Under the proposal, the issuer 

must use the “most common” formula for each retailer to calculate the generic repayment 

estimate for the retail credit card accounts related to each retailer, regardless of whether 

this formula applies to a particular account. Proposed Appendix M1 provides additional 

guidance to issuers of retail credit cards on how to comply with the “most common” 

formula approach. The Board solicits comment on whether Issuer A in the example 

above should be permitted to determine a single “most common” formula for all retailers 

under its common ownership or control, and if so, what the standard of affiliation should 

be. The Board also solicits comment on the need for guidance if two or more formulas 

could apply equally to the same number of accounts. 

The Board believes that the “most common” approach described above is 

preferable to using a “typical” minimum payment formula identified by the Board for 

several reasons. First, as acknowledged by the industry commenters, there is no “typical” 

minimum payment formula that generally applies to credit card accounts. Informally, the 
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Board gathered data on the minimum payment formulas used by the top 10 issuers of 

general-purpose credit cards. With respect to those 10 issuers, there was no minimum 

payment formula that most of the issuers used. Second, the minimum payment formula 

can have a significant impact on the calculation of the generic repayment estimate. For 

example, based on the minimum payment formulas used by the top 10 issuers, the 

repayment period for paying a $1000 balance at a 13.99 percent APR if only minimum 

payments are made can range from 6 years to 12 years depending on the issuer. 

In addition, it appears that at least for general-purpose credit cards, issuers 

typically use the same or similar minimum payment formula for their entire credit card 

portfolio. Thus, for those types of credit cards, the “most common” minimum payment 

formula identified by an issuer often will match the actual formula used on a consumer’s 

account. The Board recognizes that in some cases the “most common” minimum 

payment formula will not match the actual formula used on a consumer’s account, for 

example, where a consumer has opted out of a change in the minimum payment formula, 

and the consumer is paying off the balance under the old minimum payment formula. 

The Board also recognizes that allowing retail card issuers to use one minimum payment 

formula under the “most common” formula approach to calculate the generic repayment 

estimate even when multiple minimum payment formulas apply to the account yields a 

less accurate estimate than if the issuer were required to use all the minimum payment 

formulas applicable to a consumer’s account. Nonetheless, short of requiring issuers to 

obtain the actual minimum payment formula(s) applicable to a consumer’s account from 

the issuer’s account management systems to calculate the generic repayment estimate, 

which does not appear to be contemplated by the statute, the Board believes that the 

approach of requiring issuers to identify their “most common” minimum payment 

formulas to calculate the generic repayment estimates is a preferable approach than 

allowing issuers to use a “typical” formula identified by the Board. 

As discussed in the section-by-section analysis to § 226.7(b)12), the Board is 

required to establish and maintain, for two years, a toll-free telephone number for use by 

customers of depository institutions having assets of $250 million or less to obtain 

generic repayment estimates. The Board proposes to use the following minimum 

payment formula to calculate the generic repayment estimates: either 2 percent of the 

outstanding balance, or $20, whichever is greater. This is the same minimum payment 

formula used to calculate the repayment estimate for the statutory example related to the 

$1,000 balance. The Board proposes to use the same formula as in the statutory example 

because the Board is not aware of any “typical” minimum payment formula that applies 

to general-purpose credit cards issued by smaller depository institutions. For the same 

reasons, the Board proposes that the FTC use the 5 percent minimum payment formula 

used in the $300 example in the statute to calculate the generic repayment estimates given 

through the FTC’s toll-free telephone number. 

2. Annual percentage rates. In the October 2005 ANPR, the Board noted that the 

statute’s hypothetical repayment examples assume that a single APR applies to a single 

account balance. But credit card accounts can have multiple APRs. The APR may differ 

for purchases, cash advances, and balance transfers. A card issuer may have a 
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promotional APR that applies to the initial balance transfer and a separate APR for other 

balance transfers. Although all the APRs for accounts are disclosed on periodic 

statements, calculating the repayment period requires information about what percentage 

or amount of the total ending balance is subject to each APR, and what payment 

allocation method is used. 15 U.S.C. 1637(b)(5); current § 226.7(d). Currently, the total 

ending balance is required to be disclosed, but not the portion of the cycle’s ending 

balance that is subject to each APR. 15 U.S.C. 1637(b)(8); current § 226.7(i). (Some 

creditors may voluntarily disclose such information on periodic statements.) For 

example, assuming a $1,000 outstanding balance on an account with a 12 percent APR 

for purchases and a 19.5 percent APR on cash advances, the consumer will know from 

his or her periodic statement the amount of the total outstanding balance ($1,000), but 

may not know the percentage or amount of the ending balance is subject to the 12 percent 

rate and what amount of the ending balance is subject to the 19.5 percent rate. Creditors 

know the portion of the cycle’s ending balance that is subject to each APR, and could 

develop automated systems that incorporate this information as part of their calculation. 

But again, the toll-free telephone systems developed by the Board and FTC would have 

to depend solely on data provided by the consumer. 

If multiple APRs apply to the outstanding balance, using the lowest APR to 

calculate the repayment period would estimate repayment periods that are shorter for 

some consumers, depending on the components of the balance, while using the highest 

APR would estimate repayment periods that are longer for some consumers. How much 

the repayment periods are underestimated or overestimated in each of these cases would 

depend on which rate applies to the outstanding balance. Using an average of the 

multiple rates may either overestimate or underestimate the repayment period depending 

on which rate applies to the outstanding balance. It is unclear whether detailed 

transaction data about how consumers use their credit card accounts would support a 

finding that there is a “typical” approach that would provide the best estimate of the 

repayment periods in most cases. 

In the October 2005 ANPR, the Board solicited comment on whether it would be 

appropriate for accounts that have multiple APRs to calculate an estimated repayment 

period using a single APR, and if so, which APR for the account should be used. Q71. 

Most industry commenters suggested that the Board use a single APR. They pointed out 

that it would be impractical to use multiple APRs for the generic repayment estimate. 

Consumers would need to understand and input multiple APRs and balances that apply to 

the accounts (as well as any expiration dates and APRs that apply after any promotional 

APRs expire). The complexity and effort required to accommodate multiple APRs would 

be unduly burdensome for consumers, which could discourage consumers from using 

such an approach, and for creditors. In terms of which APR on the account to use to 

calculate the generic repayment estimate, some industry commenters indicated that the 

purchase APR should be used because this is the rate that most typically applies to the 

majority of the balances on consumers’ accounts. Other industry commenters indicated 

that the highest APR on the account should be used to calculate the generic repayment 

estimates because this would provide consumers with the “worst-case scenario.” Several 
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consumer groups indicated that the Board should require issuers to use all the APRs 

applicable to a consumer’s account in calculating the generic repayment estimates. 

The Board proposes to require that the generic repayment estimate be calculated 

using a single APR, even for accounts that have multiple APRs. As indicated above, the 

Board does not believe that the statute contemplates that issuers be required to use their 

account management systems to disclose an estimate based on all of the APRs applicable 

to a consumer’s account and the actual balances to which those rates apply. The Board 

also agrees with several industry commenters that the complexity and effort required to 

accommodate multiple APRs using a “consumer-input” system would be unduly 

burdensome. In selecting the single APR to be used in calculating the generic repayment 

estimates, the Board proposes to require that credit card issuers, and the FTC use the 

highest APR on which the consumer has outstanding balances. As proposed, an issuer 

and the FTC may use an automated system to prompt the consumer to enter in the highest 

APR on which the consumer has an outstanding balance, and calculate the generic 

repayment estimate based on the consumer’s response. The Board would follow the 

same approach in calculating the generic repayment estimates for its toll-free telephone 

number. The Board recognizes that using the highest APR on which a consumer has an 

outstanding balance will overestimate the repayment period when the consumer has 

outstanding balances at lower APRs as well. Nonetheless, allowing issuers to use the 

purchase APR on the account to calculate the repayment period would underestimate the 

repayment period, if a consumer also has balances subject to higher APRs, such as cash 

advance balances. The Board believes that an overestimate of the repayment period is a 

better approach for purposes of this disclosure than an underestimate of the repayment 

period because it gives consumers the worst-case estimate of how long it may take to pay 

of their balance. 

3. Outstanding balance. As discussed above, because consumers’ outstanding 

account balances appear on their monthly statements, consumers can provide that amount 

when requesting an estimate of the repayment period. The Board proposes that when 

calculating the generic repayment estimate, credit card issuers and the FTC must use the 

outstanding balance on a consumer’s account as of the closing date of the last billing 

cycle to calculate the generic repayment estimates. As proposed, an issuer and the FTC 

may use an automated system to prompt the consumer to enter in the outstanding balance 

included on the last periodic statement received, and calculate the generic repayment 

estimate based on the consumer’s response. The Board would follow the same approach 

in calculating the generic repayment estimates for its toll-free telephone number. 

Other terms. In the October 2005 ANPR, the Board noted that Section 1301(a) of 

the Bankruptcy Act appears to contemplate that the generic repayment estimate should be 

calculated based on three variables: the minimum payment formula, the APR, and the 

outstanding balance. Nonetheless, a number of other assumptions can also affect the 

calculation of a repayment period. For example, the hypothetical examples that must be 

disclosed on periodic statements incorporate the following assumptions, in addition to the 

statutory assumptions that only minimum monthly payments are made each month, and 

no additional extensions of credit are obtained: (1) the balance computation method used 
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is the previous-balance method and finance charges are based on the beginning balance 

for the cycle; (2) no grace period applies to any portion of the balance; and (3) when the 

account balance becomes less than the required minimum payment, the receipt of the 

final amount in full completely pays off the account. In other words, there is no residual 

finance charge that accrues in the month when the final bill is paid in full. 

In the October 2005 ANPR, the Board requested comment on whether the Board 

should incorporate the above three assumptions into the calculation of the generic 

repayment estimates. Q67. Most industry commenters generally favored using the above 

three assumptions in the calculation of the generic repayment estimates. One consumer 

group commenter indicated that the Board should use “worst-case scenario” assumptions 

in calculating the generic repayment estimates. 

1. Balance computation method. Instead of using the previous-balance method 

used in the statutory example, the Board proposes to use the average daily balance 

method for purposes of calculating the generic repayment estimate. The average daily 

balance method is more commonly used by issuers to compute the balance on credit card 

accounts. Nonetheless, requiring use of the average daily balance method makes other 

assumptions necessary, including the length of the billing cycle, and when payments are 

made. The Board proposes to assume that all months are the same length. In addition, in 

the absence of data on when consumers typically make their payments each month, the 

Board proposes to assume that payments are credited on the last day of the month. 

2. Grace period. The Board proposes to assume that no grace period exists. The 

required disclosures about the effect of making minimum payments are based on the 

assumption that the consumer will be “revolving” or carrying a balance. Thus, it seems 

reasonable to assume that the account is already in a revolving condition at the time the 

consumer calls to obtain the estimate, and that no grace period applies. This assumption 

about the grace period is also consistent with the Board’s proposal to exempt issuers from 

providing the minimum payment disclosures to consumers that have paid their balances 

in full for two consecutive months. 

3. Residual interest. When the consumer’s account balance at the end of a billing 

cycle is less than the required minimum payment, the statutory examples assume that no 

additional transactions occurred after the end of the billing cycle, that the account balance 

will be paid in full, and that no additional finance charges will be applied to the account 

between the date the statement was issued and the date of the final payment. The Board 

proposes to make these same assumptions with respect to the calculation of the generic 

repayment estimates. These assumptions are necessary to have a finite solution to the 

repayment period calculation. Without these assumptions, the repayment period could be 

infinite. 

Disclosing the generic repayment estimates to consumers. The Board proposes in 

Appendix M1 to provide guidance regarding how the generic repayment estimate must be 

disclosed to consumers. As discussed in more detail below, credit card issuers and the 

FTC would be required to provide certain required disclosures to consumers in 
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responding to a request through a toll-free telephone number for generic repayment 

estimates. In addition, issuers and the FTC would be permitted to provide certain other 

information to consumers, so long as that permitted information is disclosed after the 

required information. The Board would follow the same approach in disclosing the 

generic repayment estimates through its toll-free telephone number. 

1. Required disclosures. In the October 2005 ANPR, the Board requested 

comment on what key assumptions, if any, should be disclosed to consumers in 

connection with the estimated repayment period. Q76. Some commenters indicated that 

a number of assumptions should be disclosed to consumers, such as that the estimated 

repayment period is based on the assumption there will be no new transactions, no late 

payments, no changes in the APRs and the minimum payment formula, and that only 

minimum payments are made. Other commenters indicated that the Board should only 

require a more general statement that the repayment period provided is only an estimate 

and the actual repayment period would differ based on a number of factors related to the 

consumers’ behavior and the particular terms of their account. 

As the rule is proposed, credit card issuers and the FTC would be required to 

provide the following information when responding to a request for generic repayment 

estimates through a toll-free telephone number: (1) the generic repayment estimate; 

(2) the beginning balance on which the generic repayment estimate is calculated; (3) the 

APR on which the generic repayment estimate is calculated; (4) the assumptions that only 

minimum payments are made and no other amounts are added to the balance; and (5) the 

fact that the repayment period is an estimate, and the actual time it make take to pay off 

the balance if only making minimum payment will differ based on the consumer’s 

account terms and future account activity. The Board proposes to include a model form 

in Appendix M1 that credit card issuers and the FTC may use to comply with the above 

disclosure requirements. The Board is proposing to require a brief statement that the 

repayment period is an estimate rather than include a list of assumptions used to calculate 

the estimate, because the Board believes the brief statement is more helpful to consumers. 

The many assumptions that are necessary to calculate a repayment period are complex 

and unlikely to be meaningful or useful to most consumers. Nonetheless, the Board 

proposes to allow issuers and the FTC to disclose through the toll-free telephone number 

the assumptions used to calculate the generic repayment estimates, so long as this 

information is disclosed after the required information described above. The Board 

would follow the same approach in disclosing the generic repayment estimates through 

its toll-free telephone number. 

2. Negative amortization. Negative amortization can occur if the required 

minimum payment is less than the total finance charges and other fees imposed during 

the billing cycle. Several major credit card issuers have established minimum payment 

requirements that prevent prolonged negative amortization. But some creditors may use 

a minimum payment formula that allows negative amortization (such as by requiring a 

payment of 2 percent of the outstanding balance, regardless of the finance charges or fees 

incurred). If negative amortization occurs when calculating the repayment estimate, 

issuers and the FTC would be required to disclose to the consumer that based on the 
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assumptions used to calculate the repayment estimate, the consumer will not pay off the 

balance by making only the minimum payment. As proposed, Appendix M1 contains a 

model form that issuers and the FTC may use to disclose the consumer that negative 

amortization is occurring. The Board would follow the same approach in disclosing 

through its toll-free telephone number that negative amortization is occurring. 

If creditors use a minimum payment formula that allows for negative 

amortization, the Board believes that consumers should be told that negative amortization 

is occurring. The Board recognizes that in some cases because of the assumptions used 

to calculate the generic repayment estimate, the estimate may indicate that negative 

amortization is occurring, when in fact, if the estimate was based on the consumer’s 

actual account terms, negative amortization would not occur. The Board strongly 

encourages issuers to use the actual repayment disclosure provided in proposed Appendix 

M2 in these instances to avoid giving inaccurate information to consumers. 

3. Permitted disclosures. As the rule is proposed, credit card issuers and the FTC 

may provide the following information when responding to a request for the generic 

repayment estimate through a toll-free telephone number, so long as this permitted 

information is given after the required disclosures: (1) a description of the assumptions 

used to calculate the generic repayment estimate; (2) an estimate of the length of time it 

would take to repay the outstanding balance if an additional amount was paid each month 

in addition to the minimum payment amount, allowing the consumer to select the 

additional amount; (3) an estimate of the length of time it would take to repay the 

outstanding balance if the consumer made a fixed payment amount each month, allowing 

the consumer to select the amount of the fixed payment; (4) the monthly payment amount 

that would be required to pay off the outstanding balance within a specific number of 

months, allowing the consumer to select the payoff period, (5) a reference to web sites 

that contains minimum payment calculators; and (6) the total interest that a consumer 

may pay if he or she makes minimum payments for the length of time disclosed in the 

generic repayment estimate. The Board would follow the same approach in disclosing 

permitted information through its toll-free telephone number. 

 

In consumer testing conducted for the Board, several participants reviewed a 

disclosure that provided an estimate of the time it would take to pay off a $1,000 balance 

at a 17 percent APR, if the consumer paid $10 more than the minimum payment each 

month. Most participants that reviewed this disclosure found it to be useful. Thus, the 

Board is proposing to allow credit card issuers and the FTC, via the toll-free telephone 

number, to provide this type of disclosure to consumers, as well as other relevant 

repayment information. The Board believes that consumers may find this information 

helpful in making decisions about how much to pay each month. 

In addition, in the October 2005 ANPR, the Board solicited comment on whether 

any creditors currently offer web-based calculation tools that permit consumers to obtain 

estimates of repayment periods. Several industry commenters indicated that they do offer 

such web-based calculation tools. In addition, other industry commenters indicated that 

such tools are available on the Internet from a variety of sources. For example, these web 
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sites may provide calculators that provide the monthly payment amount that would be 

required to pay off a particular balance within a specific number of months indicated by 

the consumer, and the total interest that would be paid during that period. Because these 

types of web sites might be useful to consumers to obtain additional information about 

repayment periods, the Board proposes to allow issuers, and the FTC to provide Internet 

addresses for these web sites as part of responding to a request for the generic repayment 

estimate through a toll-free telephone number. 

APPENDIX M2 – Actual Repayment Disclosures

 

As indicated above, Section 1301(a) of the Bankruptcy Act allows creditors to 

forego using the toll-free telephone number to provide a generic repayment estimate if 

the creditor instead provides through the toll-free telephone number the “actual number 

of months” to repay the consumer’s account. In the October 2005 ANPR, the Board 

requested comment on whether the Board should provide guidance on the how to 

calculate the actual repayment disclosures. Q77. Commenters generally favored the 

Board providing such guidance because without this guidance, issuers would be less 

likely to provide the actual repayment disclosures. The Board proposes to provide in 

Appendix M2 guidance to credit card issuers on how to calculate the actual repayment 

disclosure to encourage issuers to provide these estimates. 

Calculating the actual repayment disclosures. As a general matter, the Board is 

proposing that credit card issuers calculate the actual repayment disclosure for a 

consumer based on the minimum payment formula(s), the APRs and the outstanding 

balance currently applicable to a consumer’s account. For other terms that may impact 

the calculation of the actual repayment disclosure, the Board proposes to allow issuers to 

make certain assumption about these terms. 

1. Minimum payment formulas. Generally, when calculating actual repayment 

disclosures, the Board proposes that credit card issuers generally must use the minimum 

payment formula(s) that apply to a cardholder’s account. The Board proposes to allow 

issuers to disregard promotional terms that may be currently applicable to a consumer 

account when calculating the actual repayment disclosure. Specifically, if any 

promotional terms related to payments currently apply to a cardholder’s account, such as 

a “deferred payment plan” where a consumer is not required to make payments on the 

account for a certain period of time, credit card issuers may assume the promotional 

terms do not apply, and use the minimum payment formula(s) that would currently apply 

without regard to the promotional terms. Allowing issuers to disregard promotional 

terms on accounts eases compliance burden on issuers, without a significant impact on 

the accuracy of the repayment estimates for consumers. 

In addition, in response to the October 2005 ANPR, one commenter indicated that 

the issuers should not be required in calculating the actual repayment disclosure to 

develop different estimating methodologies for minimum payment formulas that apply to 

atypical customers. The commenter indicated that this might occur, for example, where 

customers have opted out of a newer version of a creditor’s minimum payment formula, 
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customers have received test versions of newer minimum payment formulas, or 

customers have received a relatively unique product with relatively unique versions of the 

creditor’s basic minimum payment formula. The commenter indicated that requiring 

creditors to develop special estimating methodologies for such small groups of customers 

would impose significant systems development costs, operational complexities, and 

similar burdens on creditors in excess of benefits to those customers. 

The Board solicits additional comment on why an exception from the general 

requirement that the actual repayment estimate should be based on the minimum payment 

formula(s) applicable to a consumer’s account is needed for atypical customers. Are the 

accounts for these atypical customers contained on separate periodic statements systems 

from other customers? If not, would not the issuer need to make changes only to one 

periodic statement system to obtain the minimum payment formula(s) applicable to a 

consumer’s account, even if the minimum payment formulas applicable to the 

consumer’s account were atypical? 

2. Annual percentage rates. Generally, when calculating actual repayment 

disclosures, the Board proposes that credit card issuers must use each of the APRs that 

currently apply to a consumer’s account, based on the portion of the balance to which that 

rate applies. For the reason discussed above, the Board proposes to allow issuers to 

disregard promotional APRs that may currently apply to a consumer’s account. 

Specifically, if any promotional terms related to APRs currently apply to a cardholder’s 

account, such as introductory rates or deferred interest plans, credit card issuers may 

assume the promotional terms do not apply, and use the APRs that currently would apply 

without regard to the promotional terms. 

3. Outstanding balance. When calculating the actual repayment disclosures, the 

Board proposes that credit card issuers must use the outstanding balance on a consumer’s 

account as of the closing date of the last billing cycle. Issuers would not be required to 

take into account any transactions consumers may have made since the last billing cycle. 

This rule makes it easier for issuers to place the estimate on the periodic statement, 

because the outstanding balance used to calculate the actual repayment disclosure would 

be the same as the outstanding balance shown on the periodic statement. 

4. Other terms. As discussed above, as a general matter, the Board is proposing 

that issuers calculate the actual repayment disclosures for a consumer based on the 

minimum payment formulas(s), the APRs and the outstanding balance currently 

applicable to a consumer’s account. For other terms that may impact the calculation of 

the actual repayment disclosures, the Board proposes to allow issuers to make certain 

assumptions about these terms. For example, the Board would allow issuers to make the 

same assumptions about balance computation method, grace period, and residual interest 

as are allowed for the generic repayment estimates. In addition, the Board proposes to 

allow issuers to assume that payments are allocated to lower APR balances before higher 

APR balances when multiple APRs apply to an account. This assumption is consistent 

with typical industry practice regarding how issuers allocate payments. Allowing issuers 
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to make these assumptions eases compliance burden for issuers, without a significant 

impact on the accuracy of the actual repayment disclosures. 

Disclosing the actual repayment disclosures to consumers through the toll-free 

telephone number or on the periodic statement. The Board proposes in Appendix M2 to 

provide guidance regarding how the actual repayment disclosure must be disclosed to 

consumers if a toll-free telephone number is used or if the actual repayment disclosure is 

placed on the periodic statement. The Board proposes similar rules with respect to 

disclosing the actual repayment disclosures as are being proposed with respect to the 

generic repayment estimate. Specifically, the Board proposes to require credit card 

issuers to disclose certain information when providing the actual repayment disclosure, 

and permits the issuers to disclose other related information, so long as that permitted 

information is disclosed after the required information. See proposed Appendix M2. 

Appendix M3 – Sample Calculations of Generic Repayment Estimates and Actual 

Repayment Disclosures 

 

Proposed Appendix M3 provides samples calculations for the generic repayment 

estimate and the actual repayment disclosures discussed in appendices M1 and M2. 

Specifically, proposed Appendix M3 contains an example of how to calculate the generic 

repayment estimate using the guidance in Appendix M1 where the APR is 17 percent, the 

outstanding balance is $1,000, and the minimum payment formula is 2 percent of the 

outstanding balance or $20, whichever is greater. In addition, proposed Appendix M3 

also provides an example of how to calculate the actual repayment disclosure using the 

guidance in Appendix M2 where three APRs apply, the total outstanding balance is 

$1000, and the minimum payment formula is 2 percent of the outstanding balance or $20, 

whichever is greater. The sample calculations in Appendix M3 are written in SAS code. 

VII. Initial Regulatory Flexibility Act Analysis 

In accordance with Section 3(a) of the Regulatory Flexibility Act 

(5 U.S.C. §§ 601-612) (RFA), the Board is publishing an initial regulatory flexibility 

analysis for the proposed amendment to Regulation Z. 

Based on its analysis and for the reasons stated below, the Board believes that this 

proposed rule will have a significant economic impact on a substantial number of small 

entities. A final regulatory flexibility analysis will be conducted after consideration of 

comments received during the public comment period. The Board requests public 

comment in the following areas. 

1. Reasons, statement of objectives and legal basis for the proposed rule. The 

purpose of the Truth in Lending Act is to promote the informed use of consumer credit by 

providing for disclosures about its terms and cost. In this regard, the goal of the proposed 

amendments to Regulation Z is to improve the effectiveness of the disclosures that 

creditors provide to consumers at application and throughout the life of an open-end 

account. Accordingly, the Board is proposing changes to format, timing, and content 
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requirements for the five main types of disclosures governed by Regulation Z: (1) credit 

and charge card application and solicitation disclosures; (2) account-opening disclosures; 

(3) periodic statement disclosures; (4) change-in-terms notices; and (5) advertising 

provisions. 

The following sections of the Supplementary Information above describe in detail 

the reasons, objectives, and legal basis for each component of the proposed rule: 

• A high-level summary of the major changes being proposed is in II. Summary 

of Major Proposed Changes, and a more detailed discussion is in V. Discussion of 

Major Proposed Revisions and VI. Section-by-section Analysis. 

• The Board’s major sources of rulemaking authority pursuant to TILA are 

summarized in IV. The Board’s Rulemaking Authority. More detailed information 

regarding the source of rulemaking authority for each individual proposed change, as 

well as the rulemaking authority for certain changes mandated by the Bankruptcy Act, are 

discussed in VI. Section-by-section Analysis. 

 

2. Description of small entities to which the proposed rule would apply. The 

total number of small entities likely to be affected by the proposal is unknown, because 

the open-end credit provisions of TILA and Regulation Z have broad applicability to 

individuals and businesses that extend even small amounts of consumer credit. 

See § 226.1(c)(1).19 Based on December 2006 call report data, there are approximately 

13,000 depository institutions in the United States that have assets of $165 million or less 

and thus are considered small entities for purposes of the Regulatory Flexibility Act. Of 

them, there were 2,293 banks, 3,603 insured credit unions, and 33 other thrift institutions 

with credit card assets (or securitizations), and total assets less than $165 million. The 

number of small non-depository institutions that are subject to Regulation Z’s open-end 

credit provisions cannot be determined from information in call reports, but recent 

congressional testimony by an industry trade group indicated that 200 retailers, 40 oil 

companies, and 40 third-party private label credit card issuers of various sizes also issue 

credit cards.20 There is no comprehensive listing of small consumer finance companies 

that may be affected by the proposed rules or of small merchants that offer their own 

credit plans for the purchase of goods or services. Furthermore, it is unknown how many 

of these small entities offer open-end credit plans as opposed to closed-end credit 

products, which would not be affected by the proposed rule. 

The effect of the proposed revisions to Regulation Z on small entities also is 

unknown. Small entities would be required to, among other things, conform their open-

 

19 Regulation Z generally applies to “each individual or business that offers or extends credit when four 

conditions are met: (i) the credit is offered or extended to consumers; (ii) the offering or extension of credit 

is done regularly, (iii) the credit is subject to a finance charge or is payable by a written agreement in more 

than four installments, and (iv) the credit is primarily for personal, family, or household purposes.” 

§ 226.1(c)(1). 

20 Testimony of Edward L. Yingling for the American Bankers’ Association before the Subcommittee on 

Financial Institutions and Consumer Credit, Financial Services Committee, United States House of 

Representatives, April 26, 2007, fn. 1, p 3. 
194

end credit disclosures, including those in solicitations, account opening materials, 

periodic statements, and change-in-terms notices, and advertisements to the revised rules. 

The precise costs to small entities of updating their systems are difficult to predict. These 

costs will depend on a number of factors that are unknown to the Board, including, 

among other things, the specifications of the current systems used by such entities to 

prepare and provide disclosures and administer open-end accounts, the complexity of the 

terms of the open-end credit products that they offer, and the range of such product 

offerings. Nevertheless, the Board believes that these costs will have a significant 

economic effect on small entities. The Board seeks information and comment on the 

effects of the proposed rules on small entities. 

3. Projected reporting, recordkeeping and other compliance requirements of the 

proposed rule. The compliance requirements of the proposed rules are described in 

VI. Section-by-section Analysis. The Board seeks information and comment on any 

costs, compliance requirements, or changes in operating procedures arising from the 

application of the proposed rule to small institutions. 

4. Other federal rules. As noted in the section-by-section analysis for § 226.13(i), 

there is a potential conflict between Regulation Z and Regulation E with respect to error 

resolution procedures when a transaction involves both an extension of credit and an 

electronic fund transfer. The Board has not identified any other federal rules that 

duplicate, overlap, or conflict with the proposed revisions to Regulation Z. The Board 

seeks comment regarding any statutes or regulations, including state or local statutes or 

regulations, that would duplicate, overlap, or conflict with the proposed rule. 

5. Significant alternatives to the proposed revisions. As previously noted, the 

proposed rule implements the Board’s mandate to prescribe regulations that carry out the 

purposes of TILA. In addition, the Board is directed to implement certain provisions of 

the Bankruptcy Act that require new disclosures on periodic statements, on credit card 

applications and solicitations, and in advertisements. The Board seeks with this proposed 

rule to balance the benefits to consumers arising out of more effective TILA disclosures 

against the additional burdens on creditors and other entities subject to TILA. To that 

end, and as discussed in VI. Section-by-section Analysis, consumer testing was 

conducted for the Board in order to assess the effectiveness of the proposed revisions to 

Regulation Z. In this manner, the Board has sought to avoid imposing additional 

regulatory requirements without evidence that these proposed revisions may be beneficial 

to consumer understanding regarding open-end credit products. 

The Board welcomes comments on any significant alternatives, consistent with 

TILA and the Bankruptcy Act, that would minimize the impact of the proposed rule on 

small entities. 

VIII. Paperwork Reduction Act 

In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3506; 

5 CFR Part 1320 Appendix A.1), the Board reviewed the proposed rule under the 
195

authority delegated to the Board by the Office of Management and Budget (OMB). The 

collection of information that is required by this proposed rule is found in 12 CFR part 

226. The Federal Reserve may not conduct or sponsor, and an organization is not 

required to respond to, this information collection unless the information collection 

displays a currently valid OMB control number. The OMB control number is 7100-0199.

This information collection is required to provide benefits for consumers and is 

mandatory (15 U.S.C. 1601 et seq.). The respondents/recordkeepers are creditors and 

other entities subject to Regulation Z, including for-profit financial institutions and small 

businesses.

TILA and Regulation Z are intended to ensure effective disclosure of the costs 

and terms of credit to consumers. For open-end credit, creditors are required to, among 

other things, disclose information about the initial costs and terms and to provide periodic 

statements of account activity, notices of changes in terms, and statements of rights 

concerning billing error procedures. Regulation Z requires specific types of disclosures 

for credit and charge card accounts and home-equity plans. For closed-end loans, such as 

mortgage and installment loans, cost disclosures are required to be provided prior to 

consummation. Special disclosures are required in connection with certain products, 

such as reverse mortgages, certain variable-rate loans, and certain mortgages with rates 

and fees above specified thresholds. TILA and Regulation Z also contain rules 

concerning credit advertising. Creditors are required to retain evidence of compliance for 

twenty-four months (§ 226.25), but Regulation Z does not specify the types of records 

that must be retained.

Under the PRA, the Federal Reserve accounts for the paperwork burden 

associated with Regulation Z for the state member banks and other creditors supervised 

by the Federal Reserve that engage in lending covered by Regulation Z and, therefore, are 

respondents under the PRA. Appendix I of Regulation Z defines the Federal Reserveregulated institutions as: state member banks, branches and agencies of foreign banks 

(other than federal branches, federal agencies, and insured state branches of foreign 

banks), commercial lending companies owned or controlled by foreign banks, and 

organizations operating under section 25 or 25A of the Federal Reserve Act. Other 

federal agencies account for the paperwork burden on other creditors. The current total 

annual burden to comply with the provisions of Regulation Z is estimated to be 552,398 

hours for the 1,172 Federal Reserve-regulated institutions that are deemed to be 

respondents for the purposes of the PRA. To ease the burden and cost of complying with 

Regulation Z (particularly for small entities), the Federal Reserve provides model forms, 

which are appended to the regulation. 

The proposed rule would impose a one-time increase in the total annual burden 

under Regulation Z for all respondents regulated by the Federal Reserve by 73,240 hours, 

from 552,398 to 625,638 hours. The total one-time burden increase, as well as the 

estimates of the one-time burden increase associated with each major section of the 

proposed rule as set forth below, represent averages for all respondents regulated by the 

Federal Reserve. The Federal Reserve expects that the amount of time required to 
196

implement each of the proposed changes for a given institution may vary based on the 

size and complexity of the respondent. (Furthermore, this one-time burden estimate does 

not include the burden addressing electronic disclosures as announced in a separate 

proposed rulemaking (Docket No. R-1284)). In addition, the Federal Reserve estimates 

that, on a continuing basis, the proposed revisions to the rules governing change-in-terms 

notices would increase the frequency with which such notices are required, and that this 

change would increase the total annual burden on a continuing basis from 552,398 to 

607,759 hours. 

As discussed in the preamble, the Federal Reserve proposes changes to format, 

timing, and content requirements for the five main types of open-end credit disclosures 

governed by Regulation Z: (1) application and solicitation disclosures; 

(2) account-opening disclosures; (3) periodic statement disclosures; (4) change-in-terms 

notices; and (5) advertising provisions. 

The proposed revisions to the application and solicitation disclosures are intended 

to make the content of those disclosures more meaningful and easier for consumers to 

use. The Federal Reserve estimates that 279 respondents regulated by the Federal 

Reserve would take, on average, 8 hours (one business day) to reprogram and update 

their systems to comply with the proposed disclosure requirements in § 226.5a and 

estimates the annual one-time burden to be 2,232 hours. 

The proposed revisions to the account-opening disclosures are intended to make 

the information in those disclosures more conspicuous and easier for consumers to read. 

The Federal Reserve estimates that 1,172 respondents regulated by the Federal Reserve 

would take, on average, 8 hours (one business day) to reprogram and update their systems 

to comply with the proposed disclosure requirements in § 226.6 and estimates the annual 

one-time burden to be 9,376 hours. 

The proposed revisions to the periodic statement disclosures are intended to make 

the information in those disclosures more understandable, primarily through changes to 

the format requirements, such as by grouping fees, interest charges, and transactions 

together. The Federal Reserve estimates that 1,172 respondents regulated by the Federal 

Reserve would take, on average, 40 hours (one week) to reprogram and update their 

systems to comply with the proposed disclosure requirements in § 226.7 and estimates 

the annual one-time burden to be 42,880 hours. 

The proposed revisions to the change-in-terms notices would expand the 

circumstances under which consumers receive written notice of changes in the terms 

(e.g., an increase in the interest rate) applicable to their accounts, and increase the amount 

of time these notices must be sent before the change becomes effective. The Federal 

Reserve estimates that 1,172 respondents regulated by the Federal Reserve will take, on 

average, 8 hours (one business day) to reprogram and update their systems to comply 

with the proposed disclosure requirements in § 226.9(c) and estimates the annual onetime burden to be 9,376 hours; In addition, the Federal Reserve estimates that, on a 

continuing basis, the proposed revisions to the change-in-terms notices would increase 
197

the estimated annual frequency for from 2,500 to 3,750. The estimated annual burden for 

change-in-terms notices would increase from 36,907 to 55,361 hours. 

The proposed changes to the advertising provisions would revise the rules 

governing advertising of open-end credit to help improve consumer understanding of the 

credit terms offered. The Federal Reserve estimates that 1,172 respondents regulated by 

the Federal Reserve would take, on average, 8 hours (one business day) to reprogram and 

update their systems to comply with the proposed disclosure requirements in § 226.16 

and estimates the annual one-time burden to be 9,376 hours. 

Additionally, the Federal Reserve proposes to revise the definition of open-end 

credit in § 226.2(a)(20) to ensure that the appropriate (i.e., open-end or closed-end) 

disclosures are provided in connection with multifeatured plans. The Federal Reserve 

also proposes to extend the applicability of the rules in § 226.4 for debt cancellation 

products to debt suspension products. The Federal Reserve estimates the burden to 

comply with the § 226.2(a)(20) provisions for open-end credit would be minimal. The 

burden associated with reprogramming and updating a respondent’s systems to comply 

with the proposed debt suspension disclosure requirements in § 226.4, is included in the 

one-time burden estimates for application and solicitation and periodic statement 

disclosures mentioned above. 

The other federal financial agencies are responsible for estimating and reporting 

to OMB the total paperwork burden for the institutions for which they have 

administrative enforcement authority. They may, but are not required to, use the Federal 

Reserve’s burden estimates. Using the Federal Reserve’s method, the total current 

estimated annual burden for all financial institutions subject to Regulation Z, including 

Federal Reserve-supervised institutions, would be approximately 12,324,037 hours. The 

proposed rule would impose a one-time increase in the estimated annual burden for all 

institutions subject to Regulation Z by 1,389,600 hours to 13,713,637 hours. On a 

continuing basis, the proposed revisions to the change-in-terms notices would increase 

the estimated annual frequency, thus increasing the total annual burden on a continuing 

basis from 12,324,037 to 13,516,584 hours. The above estimates represent an average 

across all respondents and reflect variations between institutions based on their size, 

complexity, and practices. All covered institutions, including card issuers, retailers, and 

depository institutions (of which there are approximately 19,300) potentially are affected 

by this collection of information, and thus are respondents for purposes of the PRA. 

Comments are invited on: (1) whether the proposed collection of information is 

necessary for the proper performance of the Federal Reserve's functions; including 

whether the information has practical utility; (2) the accuracy of the Federal Reserve's 

estimate of the burden of the proposed information collection, including the cost of 

compliance; (3) ways to enhance the quality, utility, and clarity of the information to be 

collected; and (4) ways to minimize the burden of information collection on respondents, 

including through the use of automated collection techniques or other forms of 

information technology. Comments on the collection of information should be sent to 

Michelle Shore, Federal Reserve Board Clearance Officer, Division of Research and 

Statistics, Mail Stop 151-A, Board of Governors of the Federal Reserve System, 
198

Washington, DC 20551, with copies of such comments sent to the Office of Management 

and Budget, Paperwork Reduction Project (7100-0200), Washington, DC 20503. 

IX. Redesignation Table 

In reviewing the rules affecting open-end credit, The Board has proposed 

organizational revisions that are designed to make the regulation easier to use. The 

following table indicates the proposed redesignations. 

Current Redesignation 

Footnote 3 § 226.2(a)(17)(v) 

Footnote 4 Comment 3-1 

Comment 3(a)-2 Comment 3(a)-3 

Comment 3(a)-3 Comment 3(a)-4 

Comment 3(a)-4 Comment 3(a)-5 

Comment 3(a)-5 Comment 3(a)-6 

Comment 3(a)-6 Comment 3(a)-8 

Comment 3(a)-7 Comment 3(a)-9 

Comment 3(a)-8 Comment 3(a)-10 

Footnote 5 § 226.4(d)(2) 

Footnote 6 § 226.4(d)(2)(i) 

Footnote 7 § 226.5(a)(1)(ii)(A) 

Footnote 8 § 226.5(a)(1)(ii)(B) 

§ 226.5(a)(2) § 226.5(a)(2)(ii) 

Footnote 9 § 226.5(a)(2)(ii) 

§ 226.5(a)(3) § 226.5(a)(3)(i) 

§ 226.5(a)(4) § 226.5(a)(3)(ii) 

§ 226.5(a)(5) § 226.5(a)(1)(iii) 

Comment 5(a)(1)-1 Comments 5(a)(1)-1 and 5(a)(1)-2 

Comment 5(a)(1)-2 Comment 5(a)(1)-4 

Footnote 10 § 226.5(b)(2)(iii) 

Comment 5(b)(1)-1 § 226.5(b)(1)(iv) - (v); 

Comment 5(b)(1)(i)-1 

§ 226.5a(a)(2)(i) (prominent location) § 226.5a(a)(2)(vi) 

§ 226.5a(a)(2)(iii) § 226.5(a)(2)(iii) 

§ 226.5a(a)(2)(iv) § 226.5(a)(2)(i) 

§ 226.5a(a)(3) § 226.5a(a)(5) 

§ 226.5a(a)(4) § 226.5a(a)(3) 

§ 226.5a(a)(5) § 226.5a(a)(4) 

§ 226.5a(b)(1)(ii); Comment 5a(c)-1 § 226.5a(c)(2)(i); § 226.5a(e)(4) 

§ 226.5a(b)(1)(iii) § 226.5a(c)(2)(ii) 

§ 226.5a(e)(3) § 226.5a(e)(2) 

§ 226.5a(e)(4) § 226.5a(e)(3) 

Comment 5a(a)(2)-2 Comment 5a(a)(2)-1