32948 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Regulation Z; Docket No. R–1286] 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Proposed rule; request for 

public comment. 

SUMMARY: The Board proposes to amend 

Regulation Z, which implements the 

Truth in Lending Act (TILA), and the 

staff commentary to the regulation, 

following a comprehensive review of 

TILA’s rules for open-end (revolving) 

credit that is not home-secured. The 

proposed revisions take into 

consideration comments from the public 

on an initial advance notice of proposed 

rulemaking (ANPR) published in 

December 2004 on a variety of issues 

relating to the format and content of 

open-end credit disclosures and the 

substantive protections provided under 

the regulation. The proposal also 

considers comments received on a 

second ANPR published in October 

2005 that addressed several 

amendments to TILA’s open-end credit 

rules contained in the Bankruptcy 

Abuse Prevention and Consumer 

Protection Act of 2005. Consumer 

testing was conducted as a part of the 

review. 

Except as otherwise noted, the 

proposed changes apply solely to openend credit. Disclosures accompanying 

credit card applications and 

solicitations would highlight fees and 

reasons penalty rates might be applied, 

such as for paying late. Creditors would 

be required to summarize key terms at 

account opening and when terms are 

changed. The proposal would identify 

specific fees that must be disclosed to 

consumers in writing before an account 

is opened, and give creditors flexibility 

regarding how and when to disclose 

other fees imposed as part of the openend plan. Periodic statements would 

break out costs for interest and fees. 

Two alternatives are proposed dealing 

with the ‘‘effective’’ or ‘‘historical’’ 

annual percentage rate disclosed on 

periodic statements. 

Rules of general applicability such as 

the definition of open-end credit and 

dispute resolution procedures would 

apply to all open-end plans, including 

home-equity lines of credit. Rules 

regarding the disclosure of debt 

cancellation and debt suspension 

agreements would be revised for both 

closed-end and open-end credit 

transactions. Loans taken against 

employer-sponsored retirement plans 

would be exempt from TILA coverage. 

DATES: Comments must be received on 

or before October 12, 2007. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1286, by any 

of the following methods: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: regs.comments@federal 

reserve.gov. Include the docket number 

in the subject line of the message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

unless modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. Public comments 

may also be viewed electronically or in 

paper in Room MP–500 of the Board’s 

Martin Building (20th and C Streets, 

NW.) between 9 a.m. and 5 p.m. on 

weekdays. 

FOR FURTHER INFORMATION CONTACT: 

Amy Burke or Vivian Wong, Attorneys, 

Krista Ayoub, Dan Sokolov, Ky TranTrong, or John Wood, Counsels, or Jane 

Ahrens, Senior Counsel, Division of 

Consumer and Community Affairs, 

Board of Governors of the Federal 

Reserve System, at (202) 452–3667 or 

452–2412; for users of 

Telecommunications Device for the Deaf 

(TDD) only, contact (202) 263–4869. 

SUPPLEMENTARY INFORMATION: 

I. Background on TILA and 

Regulation Z 

Congress enacted the Truth in 

Lending Act (TILA) based on findings 

that economic stability would be 

enhanced and competition among 

consumer credit providers would be 

strengthened by the informed use of 

credit resulting from consumers’ 

awareness of the cost of credit. The 

purposes of TILA are (1) to provide a 

meaningful disclosure of credit terms to 

enable consumers to compare credit 

terms available in the marketplace more 

readily and avoid the uninformed use of 

credit; and (2) to protect consumers 

against inaccurate and unfair credit 

billing and credit card practices. 

TILA’s disclosures differ depending 

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

(installment) loan. TILA also contains 

procedural and substantive protections 

for consumers. TILA is implemented by 

the Board’s Regulation Z. An Official 

Staff Commentary interprets the 

requirements of Regulation Z. By 

statute, creditors that follow in good 

faith Board or official staff 

interpretations are insulated from civil 

liability, criminal penalties, or 

administrative sanction. 

II. Summary of Major Proposed 

Changes 

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 (not home-secured) account. 

The proposed changes are the result of 

the Board’s review of the provisions that 

apply to open-end (not home-secured) 

credit. The Board’s last comprehensive 

review of Regulation Z was in 1981. The 

Board is proposing changes to format, 

timing, and content requirements for the 

five main types of open-end credit 

disclosures governed by Regulation Z: 

(1) Credit and charge card application 

and solicitation disclosures; (2) accountopening disclosures; (3) periodic 

statement disclosures; (4) change-interms notices; and (5) advertising 

provisions. 

Applications and solicitations. The 

proposal contains changes to the format 

and content to make the credit and 

charge card application and solicitation 

disclosures more meaningful and easier 

for consumers to use. The proposed 

changes include: 

• Adopting new format requirements 

for the summary table, including rules 

regarding: Type size and use of boldface 

type for certain key terms, placement of 

information, and the use of crossreferences. 

• Revising content, including: A 

requirement that creditors disclose the 

duration that penalty rates may be in 

effect, a shorter disclosure about 

variable rates, new disclosures 

highlighting the effect of creditors’ 

payment allocation practices, and a 

reference to consumer education 

materials on the Board’s Web site. 

Account-opening disclosures. The 

proposal also contains revisions to the 

cost disclosures provided at account 

opening to make the information more 

conspicuous and easier to read. The 

proposed changes include: 


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1The review was initiated pursuant to 

requirements of section 303 of the Riegle 

Community Development and Regulatory 

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

Regulatory Flexibility Act of 1980, and section 2222 

of the Economic Growth and Regulatory Paperwork 

Reduction Act of 1996. 

• Disclosing certain key terms in a 

summary table at account opening, 

which would be substantially similar to 

the table required for credit and charge 

card applications and solicitations, in 

order to summarize for consumers key 

information that is most important to 

informed decision-making. 

• Adopting a different approach to 

disclosing fees, to provide greater clarity 

for identifying fees that must be 

disclosed. In addition, creditors would 

have flexibility to disclose charges 

(other than those in the summary table) 

in writing or orally. 

Periodic statement disclosures. The 

proposal also contains revisions to make 

disclosures on periodic statements more 

understandable, primarily by making 

changes to the format requirements, 

such as by grouping fees, interest 

charges, and transactions together. The 

proposed changes include: 

• Itemizing interest charges for 

different types of transactions, such as 

purchases and cash advances, and 

providing separate totals of fees and 

interest for the month and year-to-date. 

• Modifying the provisions for 

disclosing the ‘‘effective APR,’’

including format and terminology 

requirements to make it more 

understandable. Because of concerns 

about the disclosure’s effectiveness, 

however, the Board is also soliciting 

comment on whether this rate should be 

required to be disclosed. 

• Requiring disclosure of the effect of 

making only the minimum required 

payment on repayment of balances 

(changes required by the Bankruptcy 

Act). 

Changes in consumer’s interest rate 

and other account terms. The proposal 

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 

proposed changes include: 

• Generally increasing advance notice 

before a changed term can be imposed 

from 15 to 45 days, to better allow 

consumers to obtain alternative 

financing or change their account usage. 

• Requiring creditors to provide 45 

days’ prior notice before the creditor 

increases a rate due to the consumer’s 

delinquency or default. 

• When a change-in-terms notice 

accompanies a periodic statement, 

requiring a tabular disclosure on the 

front of the periodic statement of the 

key terms being changed. 

Advertising provisions. The proposal 

would revise the rules governing 

advertising of open-end credit to help 

ensure consumers better understand the 

credit terms offered. These proposed 

revisions include: 

• Requiring advertisements that state 

a minimum monthly payment on a plan 

offered to finance the purchase of goods 

or services to state, in equal prominence 

to the minimum payment, the time 

period required to pay the balance and 

the total of payments if only minimum 

payments are made. 

• Permitting advertisements to refer 

to a rate as ‘‘fixed’’ only if the 

advertisement specifies a time period 

for which the rate is fixed and the rate 

will not increase for any reason during 

that time, or if a time period is not 

specified, if the rate will not increase for 

any reason while the plan is open. 

III. The Board’s Review of Open-End 

Credit Rules 

A. December 2004 Advance Notice of 

Proposed Rulemaking 

The Board began a review of 

Regulation Z in December 2004.1 The 

Board initiated its review of Regulation 

Z by issuing an advance notice of 

proposed rulemaking (December 2004 

ANPR). 69 FR 70925; December 8, 2004. 

At that time, the Board announced its 

intent to conduct its review of 

Regulation Z in stages, focusing first on 

the rules for open-end (revolving) credit 

accounts that are not home-secured, 

chiefly general-purpose credit cards and 

retailer credit card plans. The December 

2004 ANPR sought public comment on 

a variety of specific issues relating to 

three broad categories: the format of 

open-end credit disclosures, the content 

of those disclosures, and the substantive 

protections provided for open-end 

credit under the regulation. The 

December 2004 ANPR solicited 

comment on the scope of the Board’s 

review, and also requested commenters 

to identify other issues that the Board 

should address in the review. The 

comment period closed on March 28, 

2005. 

The Board received over 200 

comment letters in response to the 

December 2004 ANPR. More than half of 

the comments were from individual 

consumers. About 60 comments were 

received from the industry or industry 

representatives, and about 20 comments 

were received from consumer advocates 

and community development groups. 

The Office of the Comptroller of the 

Currency, one state agency, and one 

member of Congress also submitted 

comments. 

Scope. Commenters’ views on a 

staged review of Regulation Z were 

divided. Some believe reviewing the 

regulation in stages makes the process 

manageable and focuses discussion and 

analysis. Others supported an 

independent focus on open-end credit 

rules because they believe open-end 

credit by its nature is distinct from other 

credit products covered by TILA and 

Regulation Z. 

Some commenters supported the 

Board’s approach generally, but voiced 

concern that looking at the regulation in 

a piecemeal fashion may lead to 

decisions in the early stages of the 

review that may need to be revisited 

later. If the review is staged, these 

commenters want all changes 

implemented at the same time, to ensure 

consistency between the open-end and 

closed-end rules. 

Some commenters urged the Board to 

include open-end rules affecting homeequity lines of credit (HELOCs) in the 

initial stage of the review. If the Board 

chooses not to expand its review of 

open-end credit rules to cover homesecured credit, these commenters urged 

the Board to avoid making any revisions 

that would be inconsistent with existing 

HELOC requirements. 

A few commenters concurred with the 

Board’s approach of reviewing 

Regulation Z in stages, but they 

preferred that the Board start with rules 

of general applicability, such as 

definitions. These commenters generally 

urged the Board to provide additional 

clarity on the definition of ‘‘finance 

charge,’’ TILA’s dollar cost of credit. 

Finally, a few commenters stated the 

Board needs to review the entire 

regulation at the same time. They 

suggested a staged approach is not 

workable, and cited concerns about 

duplicating efforts, creating 

inconsistencies, and revisiting changes 

made in earlier stages of a lengthy 

review. 

Format. In general, commenters 

representing both consumers and 

industry stated that the tabular format 

requirements for TILA’s direct-mail 

credit card application and solicitation 

disclosures have proven useful to 

consumers, although a variety of 

suggestions were made to add or delete 

specific disclosures. Many, however, 

noted that typical account-opening 

disclosures are lengthy and complex, 

and suggested that the effectiveness of 

account-opening disclosures could be 

improved if key terms were summarized 

in a standardized format, perhaps in the 

same format as TILA’s direct-mail credit 

card application and solicitation 


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disclosures. These suggestions were 

consistent with the views of some 

members of the Board’s Consumer 

Advisory Council. Industry commenters 

supported the Board’s plan to use focus 

groups or other consumer research tools 

to test the effectiveness of any proposed 

revisions. 

To combat ‘‘information overload,’’

many commenters asked the Board to 

emphasize only the most important 

information that consumers need at the 

time the disclosure is given. They asked 

the Board to avoid rules that require the 

repetitive delivery of complex 

information, not all of which is essential 

to comparison shopping, such as a 

lengthy explanation of the creditor’s 

method of calculating balances now 

required at account opening and on 

periodic statements. Commenters 

suggested that the Board would most 

effectively promote comparison 

shopping by focusing on essential terms 

in a simplified way. They believe some 

information could also be provided to 

consumers through nonregulatory, 

educational methods. Taken together, 

these approaches could lead to simpler 

disclosures that consumers might be 

more inclined to read and understand. 

Content. In general, commenters 

provided a variety of views on how to 

simplify TILA’s cost disclosures. For 

example, some suggested that creditors 

should disclose only interest as the 

‘‘finance charge’’ and simply identify all 

other fees and charges. Others suggested 

all fees associated with an open-end 

plan should be disclosed as the ‘‘finance 

charge.’’ Creditors sought, above all, 

clear rules. 

Comments were divided on the 

usefulness of open-end APRs. TILA 

requires creditors to disclose an 

‘‘interest rate’’ APR for shopping 

disclosures (such as in advertisements 

and solicitations) and at account 

opening, and an ‘‘effective’’ APR on 

periodic statements that reflects interest 

and fees, such as transaction charges 

assessed during the billing period. In 

general, consumer groups suggested that 

the Board mandate for shopping 

disclosures an ‘‘average’’ or ‘‘typical’’

effective APR based on an historical 

average cost to consumers with similar 

accounts. An average APR, consumer 

representatives stated, would give 

consumers a more accurate picture of 

what consumers’ actual cost might be. 

Regarding the effective APR on periodic 

statements, consumer advocates stated 

that it is a key disclosure that is helpful, 

and can provide ‘‘shock value’’ to 

consumers when fees cause the APR to 

spike for the billing cycle. Commenters 

representing industry argued that an 

effective APR is not meaningful, 

confuses consumers, and is difficult to 

explain. Some commenters suggested 

that a disclosure on the periodic 

statement that provides context by 

explaining what costs are included in 

the effective APR might improve its 

usefulness. 

Regarding advance notice of changes 

to rates and fees, comments were 

sharply divided. Creditors generally 

believe the current notice requirements 

are adequate, although for rate (and 

other) changes not involving a 

consumer’s default, a number of 

creditors supported increasing the 

advance notice requirement from 15 to 

30 days. Consumers and consumer 

representatives generally believe that 

when terms change, consumers should 

have the right under TILA to opt out of 

the new terms, or be allowed a much 

longer time period to find alternative 

credit products. They suggested a twobilling cycle advance notice or as long 

as 90 days. More fundamentally, these 

commenters believe card issuers should 

be held to the initial terms of the credit 

contract, at least until the credit card 

expires. 

Where triggering events are set forth 

in the account agreement such as events 

that might trigger penalty pricing, 

creditors believe there is no need to 

provide additional notice when the 

event occurs; they are not changing a 

term, they stated, but merely 

implementing the agreement. Some 

suggest that instead of providing a 

notice when penalty pricing is triggered, 

penalty pricing and the triggers should 

be better emphasized in the application 

and account-opening disclosures. 

Consumers and consumer 

representatives agree that creditors’

policies about when terms may change 

should be more prominently displayed, 

including in the credit card application 

disclosures. They further believe the 

Board should provide new substantive 

protections to consumers, such as 

prohibiting the practice of increasing 

rates merely because the consumer paid 

late on another credit account. 

B. The Bankruptcy Act’s Amendments 

to TILA and October 2005 Advance 

Notice of Proposed Rulemaking 

The Bankruptcy Abuse Prevention 

and Consumer Protection Act of 2005 

(the ‘‘Bankruptcy Act’’) primarily 

amended the federal bankruptcy code, 

but also contained several provisions 

amending TILA. Public Law 109–8, 119 

Stat. 23. The Bankruptcy Act’s TILA 

amendments principally deal with 

open-end credit accounts and require 

new disclosures on periodic statements, 

on credit card applications and 

solicitations, and in advertisements. 

In October 2005, the Board published 

a second ANPR to solicit comment on 

implementing the Bankruptcy Act 

amendments (October 2005 ANPR). 70 

FR 60235; October 17, 2005. In the 

October 2005 ANPR, the Board stated its 

intent to implement the Bankruptcy Act 

amendments as part of the Board’s 

ongoing review of Regulation Z’s openend credit rules. The comment period 

for the October 2005 ANPR closed on 

December 16, 2005. 

The Board received approximately 50 

comment letters in response to the 

October 2005 ANPR. Forty-five letters 

were submitted by financial institutions 

and their trade groups. Five letters were 

submitted by consumer groups. 

Minimum payment warnings. Under 

the Bankruptcy Act, creditors that offer 

open-end accounts must provide 

standardized disclosures on each 

periodic statement about the effects of 

making only minimum payments, 

including an example of how long it 

would take to pay off a specified 

balance, along with a toll-free telephone 

number that consumers can use to 

obtain an estimate of how long it will 

take to pay off their own balance if only 

minimum payments are made. The 

Board must develop a table that 

creditors can use in responding to 

consumers requesting such estimates. 

Industry commenters generally 

favored limiting the minimum payment 

disclosure to credit card accounts (thus, 

excluding HELOCs and overdraft lines 

of credit) and to those consumers who 

regularly make only minimum 

payments. Consumer groups generally 

favored broadly applying the rule to all 

types of open-end credit and to all openend accountholders. 

Industry commenters supported 

having an option to provide customized 

information (reflecting a consumer’s 

actual account status) on the periodic 

statement or in response to a consumer’s 

telephone call, but also wanted the 

option to use a standardized formula 

developed by the Board. Consumer 

group commenters asked the Board to 

require creditors to provide more 

customized estimates of payoff periods 

through the toll-free telephone number 

and to not allow creditors to use a 

standardized formula, and supported 

disclosure of an ‘‘actual’’ repayment 

time on the periodic statement. 

Late-payment fees. Under the 

Bankruptcy Act, creditors offering openend accounts must disclose on each 

periodic statement the earliest date on 

which a late payment fee may be 

charged, as well as the amount of the 

fee. 

Industry commenters urged the Board 

to base the disclosure requirement on 


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the contractual payment due date and to 

disregard any ‘‘courtesy’’ period that 

creditors informally recognize following 

the contractual payment due date. 

Although the industry provided mixed 

comments on any format requirements, 

most opposed a proximity requirement 

for disclosing the amount of the fee and 

the date. Comments were mixed on 

adding information about penalty APRs 

and ‘‘cut-off times’’ to the late payment 

disclosures. While supporters (a mix of 

industry and consumer commenters) 

believe the additional information is 

useful, others were concerned about the 

complexity of such a disclosure, and 

opposed the approach for that reason. 

Consumer commenters suggested 

substantive protections to ensure 

consumers’ payments are timely 

credited, such as considering the 

postmark date to be the date of receipt. 

Internet solicitations. The Bankruptcy 

Act provides that credit card issuers 

offering cards on the Internet must 

include the same tabular summary of 

key terms that is currently required for 

applications or solicitations sent by 

direct mail. 

Although the Bankruptcy Act refers 

only to solicitations (where no 

application is required), most 

commenters (both industry and 

consumer groups) agreed that Internet 

applications should be treated the same 

as solicitations. Many industry 

commenters stated that the Board’s 

interim final rule on electronic 

disclosures, issued in 2001, would be 

appropriate to implement the 

Bankruptcy Act. Regarding accuracy 

standards, the majority of industry 

commenters addressing this issue 

indicated that issuers should be 

required to update Internet disclosures 

every 30 days, while consumer groups 

suggested that the disclosures should be 

updated in a ‘‘timely fashion,’’ with 30 

days being too long in some instances. 

Introductory rate offers. Under the 

Bankruptcy Act, credit card issuers 

offering discounted introductory rates 

must clearly and conspicuously disclose 

in marketing materials the expiration 

date of the offer, the rate that will apply 

after that date, and an explanation of 

how the introductory rate may be 

revoked (for example, if the consumer 

makes a late payment). 

In general, industry commenters 

asked for flexibility in complying with 

the new requirements. Consumer groups 

supported stricter standards, such as 

requiring an equivalent typeface for the 

word ‘‘introductory’’ in immediate 

proximity to the temporary rate and 

requiring the expiration date and 

subsequent rate to appear either side-byside with, or immediately under or 

above, the most prominent statement of 

the temporary rate. 

Account termination. Under the 

Bankruptcy Act, creditors are prohibited 

from terminating an open-end account 

before its expiration date solely because 

the consumer has not incurred finance 

charges on the account. Creditors are 

permitted, however, to terminate an 

account for inactivity. 

Regarding guidance on what should 

be considered an ‘‘expiration date,’’

several industry commenters suggested 

using card expiration dates as the 

account expiration date. Others 

cautioned against using such an 

approach, because accounts do not 

terminate upon a card expiration date. 

Regarding what constitutes ‘‘inactivity,’’

many industry commenters stated no 

further guidance is necessary. Among 

those suggesting additional guidance, 

most suggested ‘‘activity’’ should be 

measured only by consumers’ actions 

(charges and payments) as opposed to 

card issuer activity (for example, 

refunding fees, billing inactivity fees, or 

waiving unpaid balances). 

High loan-to-value mortgage credit. 

For home-secured credit that may 

exceed the dwelling’s fair-market value, 

the Bankruptcy Act amendments require 

creditors to provide additional 

disclosures at the time of application 

and in advertisements (for both openend and closed-end credit). The 

disclosures would warn consumers that 

interest on the portion of the loan that 

exceeds the home’s fair-market value is 

not tax deductible and encourage 

consumers to consult a tax advisor. 

Because these amendments deal with 

home-secured credit, the Board is not 

proposing revisions to Regulation Z to 

implement these provisions at this time. 

The Board anticipates implementing 

these provisions in connection with the 

upcoming review of Regulation Z’s rules 

for mortgage transactions. Nevertheless, 

the following is a summary of the 

comments received. 

In general, creditors asked for 

flexibility in providing the disclosure, 

either by permitting the notice to be 

provided to all mortgage applicants, or 

to be provided later in the approval 

process after creditors have determined 

the disclosure is triggered. Similarly, a 

number of industry commenters 

advocated limiting the advertising rule 

to creditors that specifically market high 

loan-to-value mortgage loans. Creditor 

commenters asked for guidance on loanto-value calculations and safe harbors 

for how creditors determine property 

values. Consumer advocates favored 

triggering the disclosure when the 

possibility of negative amortization 

could occur. 

C. Consumer Testing 

A principal goal for the Regulation Z 

review is to produce revised and 

improved credit card disclosures that 

consumers will be more likely to pay 

attention to, understand, and use in 

their decisions, while at the same time 

not creating undue burdens for 

creditors. In April 2006, the Board 

retained a research and consulting firm 

(Macro International) that specializes in 

designing and testing documents to 

conduct consumer testing to help the 

Board review Regulation Z’s credit card 

rules. Specifically, the Board used 

consumer testing to develop proposed 

model forms for the following credit 

card disclosures required by 

Regulation Z: 

• Summary table disclosures 

provided in direct-mail solicitations and 

applications; 

• Disclosures provided at account 

opening; 

• Periodic statement disclosures; and 

• Subsequent disclosures, such as 

notices provided when key account 

terms are changed, and notices on 

checks provided to access credit card 

accounts. 

Working closely with the Board, 

Macro International conducted several 

tests. Each round of testing was 

conducted in a different city, 

throughout the United States. In 

addition, the consumer testing groups 

contained participants with a range of 

ethnicities, ages, educational levels, 

credit card behavior, and whether a 

consumer likely has a prime or 

subprime credit card. 

Exploratory focus groups. In May and 

June 2006, the Board worked with 

Macro International to conduct two sets 

of focus groups with credit card 

consumers, in part, to learn more about 

what information consumers currently 

use in making decisions about their 

credit card accounts. Each focus group 

consisted of between eight and thirteen 

people that discussed issues identified 

by the Board and raised by a moderator 

from Macro International. Through 

these focus groups, the Board gathered 

information on what credit terms 

consumers usually consider when 

shopping for a credit card, what 

information they find useful when they 

receive a new credit card in the mail, 

and what information they find useful 

on periodic statements. 

Cognitive interviews on existing 

disclosures. In August 2006, the Board 

worked with Macro International to 

conduct nine cognitive interviews with 

credit card customers. These cognitive 

interviews consisted of one-on-one 

discussions with consumers, during 


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32952 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

2Surveys reviewed include: Thomas A. Durkin, 

Credit Cards: Use and Consumer Attitudes, 1970- 

2000, Federal Reserve Bulletin, (September 2000); 

Thomas A. Durkin, Consumers and Credit 

Disclosures: Credit Cards and Credit Insurance, 

Federal Reserve Bulletin (April 2002). 

which consumers were asked to view 

existing sample credit card disclosures. 

The goals of these interviews were: (1) 

To learn more about what information 

consumers read when they receive 

current credit card disclosures; (2) to 

research how easily consumers can find 

various pieces of information in these 

disclosures; and (3) to test consumers’

understanding of certain credit cardrelated words and phrases. 

1. Initial design of disclosures for 

testing. In the fall of 2006, the Board 

worked with Macro International to 

develop sample credit card disclosures 

to be used in the later rounds of testing, 

taking into account information learned 

through the focus groups and the 

cognitive interviews. 

2. Additional cognitive interviews and 

revisions to disclosures. In late 2006 and 

early 2007, the Board worked with 

Macro International to conduct four 

rounds of cognitive interviews (between 

seven and nine participants per round), 

where consumers were asked to view 

new sample credit card disclosures 

developed by the Board and Macro 

International. The rounds of interviews 

were conducted sequentially to allow 

for revisions to the testing materials 

based on what was learned from the 

testing during each previous round. 

Results of testing. Several of the 

model forms were developed through 

the testing. A report summarizing the 

results of the testing is available on the 

Board’s public Web site: http:// 

www.federalreserve.gov. 

Testing participants generally read the 

summary table provided in direct-mail 

credit card solicitations and 

applications and ignored information 

presented outside of the table. Thus, the 

proposal requires that information about 

events that trigger penalty rates and 

about important fees (late-payment fees, 

over-the-credit-limit fees, balance 

transfer fees, and cash advance fees) be 

placed in the table. Currently, this 

information may be placed outside the 

table. 

With respect to the account-opening 

disclosures, consumer testing indicates 

that consumers commonly do not 

review their account agreements, which 

are often in small print and dense prose. 

The proposal would require creditors to 

include a table summarizing the key 

terms applicable to the account, similar 

to the table required for credit card 

applications and solicitations. Setting 

apart the most important terms in this 

way will better ensure that consumers 

are apprised of those terms. 

With respect to periodic statement 

disclosures, testing participants found it 

beneficial to have the different types of 

transactions grouped together by type. 

Thus, the proposal requires creditors to 

group transactions together by type, 

such as purchases, cash advances, and 

balance transfers. In addition, many 

consumers more easily noticed the 

number and amount of fees when the 

fees were itemized and grouped together 

with interest charges. Consumers also 

noticed fees and interest charges more 

readily when they were located near the 

disclosure of the transactions on the 

account. Thus, under the proposal, 

creditors would be required to group all 

fees together and describe them in a 

manner consistent with consumers’

general understanding of costs (‘‘interest 

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

whether the fees would be considered 

‘‘finance charges,’’ ‘‘other charges’’ or 

neither under the regulation. 

With respect to change-in-terms 

notices, consumer testing indicates that 

much like the account-opening 

disclosures, consumers may not 

typically read such notices, because 

they are often in small print and dense 

prose. To enhance the effectiveness of 

change-in-terms notices, when a 

creditor is changing terms which were 

required to be disclosed in the summary 

table provided at account opening, the 

proposed rules would require the 

creditor to include a table summarizing 

any such changed terms. Creditors 

commonly provide notices about 

changes to terms or rates in the same 

envelope with periodic statements. 

Consumer testing indicates that 

consumers may not typically look at the 

notices if they are provided as separate 

inserts given with periodic statements. 

Thus, in such cases, a table 

summarizing the change would have to 

appear on the periodic statement 

directly above the transaction list, 

where consumers are more likely to 

notice the changes. 

Additional testing after comment 

period. After receiving comments from 

the public on the proposal and the 

revised disclosure forms, the Board will 

work with Macro International to revise 

the model disclosures. Macro 

International then will conduct 

additional rounds of cognitive 

interviews to test the revised 

disclosures. After the cognitive 

interviews, quantitative testing will be 

conducted. The goal of the quantitative 

testing is to measure consumers’

comprehension and the usability of the 

newly-developed disclosures relative to 

existing disclosures and formats. 

D. Other Outreach and Research 

The Board also solicited input from 

members of the Board’s Consumer 

Advisory Council on various issues 

presented by the review of Regulation 

Z’s open-end credit rules. During 2005 

and 2006, for example, the Council 

discussed the feasibility and 

advisability of reviewing Regulation Z 

in stages, ways to improve the summary 

table provided on or with credit card 

applications and solicitations, issues 

related to TILA’s substantive protections 

(including dispute resolution 

procedures), and issues related to the 

Bankruptcy Act amendments. In 

addition, the Board met or conducted 

conference calls with various industry 

and consumer group representatives 

throughout the review process leading 

to this proposal. The Board also 

reviewed disclosures currently provided 

by creditors, consumer complaints 

received by the federal banking 

agencies, and surveys on credit card 

usage to help inform the proposal.2

E. Reviewing Regulation Z in Stages 

Based on the comments received and 

upon its own analysis, the Board is 

proceeding with a review of Regulation 

Z in stages. This proposal largely 

contains revisions to rules affecting 

open-end plans other than HELOCs 

subject to § 226.5b. These open-end (not 

home-secured) plans are distinct from 

other TILA-covered products, and 

conducting a review in stages allows for 

a manageable process. Possible revisions 

to rules affecting HELOCs will be 

considered in the Board’s review of 

home-secured credit, currently 

underway. To minimize compliance 

burden for creditors offering HELOCs as 

well as other open-end credit, many of 

the open-end rules would be 

reorganized to delineate clearly the 

requirements for HELOCs and other 

forms of open-end credit. Although this 

reorganization would increase the size 

of the regulation and commentary, the 

Board believes a clear delineation of 

rules for HELOCs and other forms of 

open-end credit pending the review of 

HELOC rules provides a clear 

compliance benefit to creditors. 

Creditors that generate a single periodic 

statement for all open-end products 

would be given the option to retain the 

existing periodic statement disclosure 

scheme for HELOCs, or to disclose 

information on periodic statements 

under the revised rules for other openend plans. 

F. Implementation Period 

The Board contemplates providing 

creditors sufficient time to implement 


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3Charge cards are a type of credit card for which 

full payment is typically expected upon receipt of 

the billing statement. To ease discussion, this notice 

will refer simply to ‘‘credit cards.’’

any revisions that may be adopted. The 

Board seeks comment on an appropriate 

implementation period. 

IV. The Board’s Rulemaking Authority 

TILA mandates that the Board 

prescribe regulations to carry out the 

purposes of the act. TILA also 

specifically authorizes the Board, among 

other things, to do the following: 

• Issue regulations that contain such 

classifications, differentiations, or other 

provisions, or that provide for such 

adjustments and exceptions for any 

class of transactions, that in the Board’s 

judgment are necessary or proper to 

effectuate the purposes of TILA, 

facilitate compliance with the act, or 

prevent circumvention or evasion. 15 

U.S.C. 1604(a). 

• Exempt from all or part of TILA any 

class of transactions if the Board 

determines that TILA coverage does not 

provide a meaningful benefit to 

consumers in the form of useful 

information or protection. The Board 

must consider factors identified in the 

act and publish its rationale at the time 

it proposes an exemption for comment. 

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

• Add or modify information required 

to be disclosed with credit and charge 

card applications or solicitations if the 

Board determines the action is 

necessary to carry out the purposes of, 

or prevent evasions of, the application 

and solicitation disclosure rules. 15 

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

• Require disclosures in 

advertisements of open-end plans. 15 

U.S.C. 1663. 

In the course of developing the 

proposal, the Board has considered the 

information collected from comment 

letters submitted in response to its 

ANPRs, its experience in implementing 

and enforcing Regulation Z, and the 

results obtained from testing various 

disclosure options in controlled 

consumer tests. For the reasons 

discussed in this notice, the Board 

believes this proposal is appropriate to 

effectuate the purposes of TILA, to 

prevent the circumvention or evasion of 

TILA, and to facilitate compliance with 

the act. 

Also as explained in this notice, the 

Board believes that the specific 

exemptions proposed are appropriate 

because the existing requirements do 

not provide a meaningful benefit to 

consumers in the form of useful 

information or protection. In reaching 

this conclusion, the Board considered 

(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 rationales for these 

proposed exemptions are explained 

below. 

V. Discussion of Major Proposed 

Revisions 

The goal of the proposed revisions is 

to improve the effectiveness of the 

Regulation Z disclosures that must be 

provided to consumers for open-end 

accounts. A summary of the key account 

terms must accompany applications and 

solicitations for credit card accounts. 

For all open-end credit plans, creditors 

must disclose costs and terms at account 

opening, generally before the first 

transaction. Consumers must receive 

periodic statements of account activity, 

and creditors must provide notice before 

certain changes in the account terms 

may become effective. 

To shop for and understand the cost 

of credit, consumers must be able to 

identify and understand the key terms 

of open-end accounts. But the terms and 

conditions affecting credit card account 

pricing can be complex. The proposed 

revisions to Regulation Z are intended 

to provide the most essential 

information to consumers when the 

information would be most useful to 

them, with content and formats that are 

clear and conspicuous. The proposed 

revisions are expected to improve 

consumers’ ability to make informed 

credit decisions and enhance 

competition among credit card issuers. 

Many of the changes are based on the 

consumer testing that was conducted in 

connection with the review of 

Regulation Z. 

In considering the proposed revisions, 

the Board has also sought to balance the 

potential benefits for consumers with 

the compliance burdens imposed on 

creditors. For example, the proposed 

revisions seek to provide greater 

certainty to creditors in identifying what 

costs must be disclosed for open-end 

plans, and when those costs must be 

disclosed. More effective disclosures 

may also reduce customer confusion 

and misunderstanding, which may also 

ease creditors’ costs relating to 

consumer complaints and inquiries. 

A. Credit Card Applications and 

Solicitations 

Under Regulation Z, credit and charge 

card issuers are required to provide 

information about key costs and terms 

with their applications and 

solicitations.3 This information is 

abbreviated, to help consumers focus on 

only the most important terms and 

decide whether to apply for the credit 

card account. If consumers respond to 

the offer and are issued a credit card, 

creditors must provide more detailed 

disclosures at account opening, before 

the first transaction occurs. 

The application and solicitation 

disclosures are considered among the 

most effective TILA disclosures 

principally because they must be 

presented in a standardized table with 

headings, content, and format 

substantially similar to the model forms 

published by the Board. In 2001, the 

Board revised Regulation Z to enhance 

the application and solicitation 

disclosures by adding rules and 

guidance concerning the minimum type 

size and requiring additional fee 

disclosures. 

Penalty pricing. The proposal would 

make several revisions that seek to 

improve consumers’ understanding of 

default or penalty pricing. Currently, 

credit card issuers must disclose inside 

the table the APR that will apply in the 

event of the consumer’s ‘‘default.’’ Some 

creditors define a ‘‘default’’ as making 

one late payment or exceeding the credit 

limit once. The actions that may trigger 

the penalty APR are currently required 

to be disclosed outside the table. 

Consumer testing indicated that many 

consumers did not notice the 

information about penalty pricing when 

it was disclosed outside the table. Under 

the proposal, card issuers would be 

required to include in the table the 

specific actions that trigger penalty 

APRs (such as a late payment), the rate 

that will apply, the balances to which 

the penalty rate will apply, and the 

circumstances under which the penalty 

rate will expire or, if true, the fact that 

the penalty rate could apply 

indefinitely. The regulation would 

require card issuers to use the term 

‘‘penalty APR’’ because the testing 

demonstrated that some consumers are 

confused by the term ‘‘default rate.’’

Similarly, the proposal requires card 

issuers to disclose inside (rather than 

outside) the table the fees for paying 

late, exceeding a credit limit, or making 

a payment that is returned, along with 


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a cross-reference to the penalty rate if, 

for example, paying late could also 

trigger the penalty rate. Cash advance 

fees and balance transfer fees would 

also be disclosed inside the table. This 

proposed change is also based on 

consumer testing results; fees disclosed 

outside the table were often not noticed. 

Requiring card issuers to disclose 

returned-payment fees would be a new 

disclosure. 

Variable-rate information. Currently, 

applications and solicitations offering 

variable APRs must disclose inside the 

table the index or formula used to make 

adjustments and the amount of any 

margin that is added. Additional details, 

such as how often the rate may change, 

must be disclosed outside the table. 

Under the proposal, information about 

variable APRs would be reduced to a 

single phrase indicating the APR varies 

‘‘with the market,’’ along with a 

reference to the type of index, such as 

‘‘Prime.’’ Consumer testing indicated 

that few consumers use the variable-rate 

information when shopping for a card. 

Moreover, participants were distracted 

or confused by details about margin 

values, how often the rate may change, 

and where an index can be found. 

Payment allocation. The proposal 

would add a new disclosure to the table 

about the effect on credit costs of 

creditors’ payment allocation methods 

when payments are applied entirely to 

transferred balances at low introductory 

APRs. If, as is common, a creditor 

allocates payments to low-rate balances 

first, consumers who make purchases on 

the account will not be able to take 

advantage of any ‘‘grace period’’ on 

purchases, without paying off the entire 

balance, including the low-rate balance 

transfer. Consumer testing indicated 

that consumers are often confused about 

this aspect of balance transfer offers. 

The new disclosure would alert 

consumers that they will pay interest on 

their purchases until the transferred 

balance is paid in full. 

Web site reference. The proposal 

would also require card issuers to 

include a reference to the Board’s Web 

site, where additional information is 

available about how to compare credit 

cards and what factors to consider. This 

responds to commenters who suggested 

that the Board consider nonregulatory 

approaches to provide opportunities for 

consumers to learn about credit 

products. 

Subprime accounts. The proposal also 

addresses a concern that has been raised 

about subprime credit cards, which are 

generally offered to consumers with low 

credit scores or credit problems. 

Subprime credit cards often have 

substantial fees associated with opening 

the account. Typically, fees for the 

issuance or availability of credit are 

billed to consumers on the first periodic 

statement, and can substantially reduce 

the amount of credit available to the 

consumer. For example, the initial fees 

on an account with a $250 credit limit 

may reduce the available credit to less 

than $100. Consumer complaints 

received by the federal banking agencies 

state that consumers were unaware 

when they applied for cards of how 

little credit would be available after all 

the fees were assessed at account 

opening. 

To address this concern, the proposal 

would require additional disclosures if 

the card issuer requires fees or a 

security deposit to issue the card that 

are 25 percent or more of the minimum 

credit limit offered for the account. In 

such cases, the card issuer would be 

required to include an example in the 

table of the amount of available credit 

the consumer would have after paying 

the fees or security deposit, assuming 

the consumer receives the minimum 

credit limit. 

Balance computation methods. TILA 

requires creditors to identify their 

balance computation method by name, 

and Regulation Z requires that the 

disclosure be inside the table. However, 

consumer testing suggests that these 

names, such as the ‘‘two-cycle average 

daily balance method,’’ hold little 

meaning for consumers, and that 

consumers do not consider such 

information when shopping for 

accounts. Accordingly, the proposed 

rule requires creditors to place the name 

of the balance computation method 

outside the table, so that the disclosure 

does not detract from information that is 

more important to consumers. 

B. Account-Opening Disclosures 

Regulation Z requires creditors to 

disclose costs and terms before the first 

transaction is made on the account. The 

disclosures must specify the 

circumstances under which a ‘‘finance 

charge’’ may be imposed and how it will 

be determined. A ‘‘finance charge’’ is 

any charge that may be imposed as a 

condition of or an incident to the 

extension of credit, and includes, for 

example, interest, transaction charges, 

and minimum charges. The finance 

charge disclosures include a disclosure 

of each periodic rate of interest that may 

be applied to an outstanding balance 

(e.g., purchases, cash advances) as well 

as the corresponding annual percentage 

rate (APR). Creditors must also explain 

any grace period for making a payment 

without incurring a finance charge. 

They must also disclose the amount of 

any charge other than a finance charge 

that may be imposed as part of the 

credit plan (‘‘other charges’’), such as a 

late-payment charge. Consumers’’ rights 

and responsibilities in the case of 

unauthorized use or billing disputes 

must also be explained. Currently, there 

are few format requirements for these 

account-opening disclosures, which are 

typically interspersed among other 

contractual terms in the creditor’s 

account agreement. 

Account-opening summary table. 

Account-opening disclosures have often 

been criticized because the key terms 

TILA requires to be disclosed are often 

interspersed within the credit 

agreements, and such agreements are 

long and complex. The proposal to 

require creditors to include a table 

summarizing the key terms addresses 

that concern by making the information 

more conspicuous. Creditors may 

continue, however, to provide other 

account-opening disclosures, aside from 

the fees and terms specified in the table, 

with other terms in their account 

agreements. 

The new table provided at account 

opening would be substantially similar 

to the table provided with direct-mail 

credit card applications and 

solicitations. Consumer testing and 

surveys indicate that consumers 

generally are aware of the table on 

applications and solicitations. 

Consumer testing also indicates that 

consumers may not typically read their 

account agreements, which are often in 

small print and dense prose. Thus, 

setting apart the most important terms 

in a summary table will better ensure 

that consumers are aware of those terms. 

The table required at account opening 

would include more information than 

the table required at application. For 

example, it would include a disclosure 

of any fee for transactions in a foreign 

currency or that take place in a foreign 

country. However, to reduce compliance 

burden for creditors that provide 

account-opening disclosures at 

application, the proposal would allow 

creditors to provide the more specific 

and inclusive account-opening table at 

application in lieu of the table otherwise 

required at application. 

How charges are disclosed. Under the 

current rules, a creditor must disclose 

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

in the written account-opening 

disclosures. A subsequent written notice 

is required if one of the fees disclosed 

at account opening increases or if 

certain fees are newly introduced during 

the life of the plan. 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 


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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 comply with the law. Examples 

of included or excluded charges are in 

the regulation and commentary, but 

these examples cannot provide 

definitive guidance in all cases. 

Creditors are subject to civil liability 

and administrative enforcement for 

underdisclosing the finance charge or 

otherwise making erroneous 

disclosures, so the consequences of an 

error can be significant. Furthermore, 

overdisclosure of rates and finance 

charges is not permitted by Regulation 

Z for open-end credit. 

The fee disclosure rules also have 

been criticized as being outdated. These 

rules require creditors to provide fee 

disclosures at account opening, which 

may be months, and possibly years, 

before a particular disclosure is relevant 

to the consumer, such as when the 

consumer calls the creditor to request a 

service for which a fee is imposed. In 

addition, an account-related transaction 

may occur by telephone, when a written 

disclosure is not feasible. 

The proposed rule is intended to 

respond to these criticisms while still 

giving full effect to TILA’s requirement 

to disclose credit charges before they are 

imposed. Accordingly, under the 

proposal, the rules would be revised to 

(1) specify precisely the charges that 

creditors must disclose in writing at 

account opening (interest, minimum 

charges, transaction fees, annual fees, 

and penalty fees such as for paying late), 

which would be listed in the summary 

table, and; (2) permit creditors to 

disclose other less critical charges orally 

or in writing before the consumer agrees 

to or becomes obligated to pay the 

charge. Although the proposal would 

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 or other reasons. 

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. The Board believes it would 

be useful to consumers to cover such 

charges under TILA as part of a rule that 

permits their disclosure at a relevant 

time. Further, as new services (and 

associated charges) are developed, the 

proposal minimizes risk of civil liability 

associated with the determination as to 

whether a fee is a finance charge or an 

other charge, or is not covered by TILA 

at all. 

C. Periodic Statements 

Creditors are required to provide 

periodic statements reflecting the 

account activity for the billing cycle 

(typically, about one month). In 

addition to identifying each transaction 

on the account, creditors must identify 

each ‘‘finance charge’’ using that term, 

and each ‘‘other charge’’ assessed 

against the account during the statement 

period. When a periodic interest rate is 

applied to an outstanding balance to 

compute the finance charge, creditors 

must disclose the periodic rate and its 

corresponding APR. Creditors must also 

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

APR for the billing cycle, which, unlike 

the corresponding APR, includes not 

just interest but also finance charges 

imposed in the form of fees (such as 

cash advance fees or balance transfer 

fees). Periodic statements must also 

state the time period a consumer has to 

pay an outstanding balance to avoid 

additional finance charges (the ‘‘grace 

period’’), if applicable. 

Fees and interest costs. The proposal 

contains a number of revisions to the 

periodic statement to improve 

consumers’ understanding of fees and 

interest costs. Currently, creditors must 

identify on periodic statements any 

‘‘finance charges’’ that have been added 

to the account during the billing cycle, 

and creditors typically list these charges 

with other transactions, such as 

purchases, chronologically on the 

statement. The finance charges must be 

itemized by type. Thus, interest charges 

might be described as ‘‘finance charges 

due to periodic rates.’’ Charges such as 

late payment fees, which are not 

‘‘finance charges,’’ are typically 

disclosed individually and are 

interspersed among other transactions. 

Consumer testing indicated that 

consumers generally understand that 

‘‘interest’’ is the cost that results from 

applying a rate to a balance over time 

and distinguish ‘‘interest’’ from other 

fees, such as a cash advance fee or a late 

payment fee. Consumer testing also 

indicated that many consumers more 

easily determine the number and 

amount of fees when the fees are 

itemized and grouped together. 

Thus, under the proposal, creditors 

would be required to group all charges 

together and describe them in a manner 

consistent with consumers’ general 

understanding of costs (‘‘interest 

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

whether the charges would be 

considered ‘‘finance charges,’’ ‘‘other 

charges,’’ or neither. Interest charges 

would be identified by type (for 

example, interest on purchases or 

interest on balance transfers) as would 

fees (for example, cash advance fee or 

late-payment fee). 

Consumer testing also indicated that 

many consumers more quickly and 

accurately determined the total dollar 

cost of credit for the billing cycle when 

a total dollar amount of fees for the 

cycle was disclosed. Thus, the proposal 

would require creditors to disclose the 

(1) total fees and (2) total interest 

imposed for the cycle. The proposal 

would also require disclosure of year-todate totals for interest charges and fees. 

For many consumers, costs disclosed in 

dollars are more readily understood 

than costs disclosed as percentage rates. 

The year-to-date figures are intended to 

assist consumers in better 

understanding the overall cost of their 

credit account and would be an 

important disclosure and an effective 

aid in understanding annualized costs, 

especially if the Board were to eliminate 

the requirement to disclose the effective 

APR on periodic statements, as 

discussed below. 

The effective APR. The ‘‘effective’’

APR disclosed on periodic statements 

reflects the cost of interest and certain 

other finance charges imposed during 

the statement period. For example, for a 

cash advance, the effective APR reflects 

both interest and any flat or 

proportional fee assessed for the 

advance. 

For the reasons discussed below, the 

Board is proposing two alternative 

approaches to address the effective APR. 

The first approach would try to improve 

consumer understanding of this rate and 

reduce creditor uncertainty about its 

calculation. The second approach 

would eliminate the requirement to 

disclose the effective APR. 

Creditors believe the effective APR 

should be eliminated. They believe 

consumers do not understand the 

effective APR, including how it differs 

from the corresponding (interest rate) 

APR, why it is often ‘‘high,’’ and which 

fees the effective APR reflects. Creditors 

say they find it difficult, if not 

impossible, to explain the effective APR 

to consumers who call them with 

questions or concerns. They note that 


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4The proposal also would reverse a staff 

commentary provision that excludes ATM fees from 

the finance charge and effective APR; and it would 

address for the first time foreign transaction fees, 

which it would clarify are to be included in the 

finance charge and effective APR. 

callers sometimes believe, erroneously, 

that the effective APR signals a 

prospective increase in their interest 

rate, and they may make uninformed 

decisions as a result. And, creditors say, 

even if the consumer does understand 

the effective APR, the disclosure does 

not provide any more information than 

a disclosure of the total dollar costs for 

the billing cycle. Moreover, creditors 

say the effective APR is arbitrary and 

inherently inaccurate, principally 

because it amortizes the cost for credit 

over only one month (billing cycle) even 

though the consumer may take several 

months (or longer) to repay the debt. 

Consumer groups acknowledge that 

the effective APR is not well 

understood, but argue that it 

nonetheless serves a useful purpose by 

showing the higher cost of some credit 

transactions. They contend the effective 

APR helps consumers decide each 

month whether to continue using the 

account, to shop for another credit 

product, or to use an alternative means 

of payment such as a debit card. 

Consumer groups also contend that 

reflecting costs, such as cash advance 

fees and balance transfer fees, in the 

effective APR creates a ‘‘sticker shock’’

and alerts consumers that the overall 

cost of a transaction for the cycle is high 

and exceeds the advertised 

corresponding APR. This shock, they 

say, may persuade some consumers not 

to use certain features on the account, 

such as cash advances, in the future. In 

their view, the utility of the effective 

APR would be maximized if it reflected 

all costs imposed during the cycle 

(rather than only some costs as is 

currently the case). 

As part of the consumer testing, mock 

periodic statements were developed in 

an attempt to improve consumers’

understanding of the effective APR. A 

written explanation and varying 

terminology were tested. In most rounds 

participants showed little 

understanding of the effective APR, but 

the form was adjusted between rounds 

as to terminology and format, and in the 

last round a number of participants 

showed more understanding of the 

effective APR. 

Thus, the draft proposal includes a 

number of revisions to the presentation 

of the effective APR intended to help 

consumers understand the figure. In 

addition, the proposal seeks to improve 

consumer understanding and reduce 

creditor uncertainty by specifying more 

clearly which fees are to be included in 

the effective APR.4 As mentioned, 

however, the Board is also seeking 

comment on an alternative proposal to 

eliminate the disclosure on the basis 

that it may not provide consumers a 

meaningful benefit. 

Transactions. Currently, there are no 

format requirements for disclosing 

different types of transactions, such as 

purchases, cash advances, and balance 

transfers on periodic statements. Often, 

transactions are presented together in 

chronological order. Consumer testing 

indicated that participants found it 

helpful to have similar types of 

transactions grouped together on the 

statement. Consumers also found it 

helpful, within the broad grouping of 

fees and transactions, when transactions 

were segregated by type (e.g., listing all 

purchases together, separate from cash 

advances or balance transfers). Further, 

consumers noticed fees and interest 

charges more readily when they were 

located near the transactions. For these 

reasons, the proposal requires creditors 

to: (1) Group similar transactions 

together by type, such as purchases, 

cash advances, and balance transfers, 

and (2) group fees and interest charges 

together, itemized by type, with the list 

of transactions. 

Late payments. Currently, creditors 

must disclose the date by which 

consumers must pay a balance to avoid 

finance charges. Creditors must also 

disclose any cut-off time for receiving 

payments on the payment due date; this 

is usually disclosed on the reverse side 

of periodic statements. The Bankruptcy 

Act amendments expressly require 

creditors to disclose the payment due 

date (or if different, the date after which 

a late-payment fee may be imposed) 

along with the amount of the latepayment fee. 

Under the proposal, creditors would 

be required to disclose the payment due 

date on the front side of the periodic 

statement and, closely proximate to the 

date, any cut-off time if it is before 5 

p.m. Consumer testing indicates that 

many consumers believe cut-off times 

are the close of the business day and 

more readily notice the cut-off time 

when it is located near the due date. 

Creditors would also be required to 

disclose, in close proximity to the due 

date, the amount of the late-payment fee 

and the penalty APR that could be 

triggered by a late payment. Applying 

the penalty APR to outstanding balances 

can significantly increase costs. Thus, it 

is important for consumers to be alerted 

to the consequence of paying late. 

Minimum payments. The Bankruptcy 

Act requires creditors offering open-end 

plans to provide a warning about the 

effects of making only minimum 

payments. The proposal would 

implement this requirement solely for 

credit card issuers. Under the proposal, 

card issuers must provide (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 a specified balance in full if only 

minimum payments are made; and (3) a 

toll-free telephone number that 

consumers may call to obtain an 

estimate of the time it would take to 

repay their actual account balance using 

minimum payments. Most card issuers 

must establish and maintain their own 

toll-free telephone numbers to provide 

the repayment estimates. However, the 

Board is required to establish and 

maintain, for two years, a toll-free 

telephone number for creditors that are 

depository institutions having assets of 

$250 million or less. This number is for 

the customers of those institutions to 

call to get answers to questions about 

how long it will take to pay their 

account in full making only the 

minimum payment. The Federal Trade 

Commission (FTC) must maintain a 

similar toll-free telephone number for 

use by customers of creditors that are 

not depository institutions. In order to 

standardize the information provided to 

consumers through the toll-free 

telephone numbers, the Bankruptcy Act 

amendments direct the Board to prepare 

a ‘‘table’’ illustrating the approximate 

number of months it would take to 

repay an outstanding balance if the 

consumer pays only the required 

minimum monthly payments and if no 

other advances are made (‘‘generic 

repayment estimate’’). 

Pursuant to the Bankruptcy Act 

amendments, the proposal also allows a 

card issuer to establish a toll-free 

telephone number to provide customers 

with the actual number of months that 

it will take consumers to repay their 

outstanding balance (‘‘actual repayment 

disclosure’’) instead of providing an 

estimate based on the Board-created 

table. A card issuer that does so need 

not include a hypothetical example on 

its periodic statements, but must 

disclose the warning statement and the 

toll-free telephone number. 

The proposal also allows card issuers 

to provide the actual repayment 

disclosure on their periodic statements. 

Card issuers would be encouraged to 

use this approach. Participants in 

consumer testing who typically carry 


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credit card balances (revolvers) found 

an estimated repayment period based on 

terms that apply to their own account 

more useful than a hypothetical 

example. To encourage card issuers to 

provide the actual repayment disclosure 

on their periodic statements, the 

proposal provides that if card issuers do 

so, they need not disclose the warning, 

the hypothetical example and a toll-free 

telephone number on the periodic 

statement, nor need they maintain a tollfree telephone number to provide the 

actual repayment disclosure. 

As described above, the Bankruptcy 

Act also requires the Board to develop 

a ‘‘table’’ that creditors, the Board and 

the FTC must use to create generic 

repayment estimates. Instead of creating 

a table, the proposal contains guidance 

for how to calculate generic repayment 

estimates. Consumers that call the tollfree telephone number could be 

prompted to input information about 

their outstanding balance and the APR 

applicable to their account. Although 

issuers have the ability to program their 

systems to obtain consumers’ account 

information from their account 

management systems, for the reasons 

discussed in the section-by-section 

analysis to Appendix M–1, the proposal 

does not require issuers to do so. 

D. Changes in Consumer’s Interest Rate 

and Other Account Terms 

Regulation Z requires creditors to 

provide advance written notice of some 

changes to the terms of an open-end 

plan. The proposal includes several 

revisions to Regulation Z’s requirements 

for notifying consumers about such 

changes. 

Currently, Regulation Z requires 

creditors to send, in most cases, notices 

15 days before the effective date of 

certain changes in the account terms. 

However, creditors need not inform 

consumers in advance if the rate 

applicable to their account increases 

due to default or delinquency. Thus, 

consumers may not realize until they 

receive their monthly statement for a 

billing cycle that their late payment 

triggered application of the higher 

penalty rate, effective the first day of the 

month’s statement. 

Timing. Currently, Regulation Z 

generally requires creditors to mail a 

change-in-terms notice 15 days before a 

change takes effect. Consumer groups 

and others have criticized the 15-day 

period as providing too little time after 

the notice is sent for the consumer to 

receive the notice, shop for alternative 

credit and possibly pay off the existing 

credit card account. Under the proposal, 

notice must be sent at least 45 days 

before the effective date of the change, 

which would give consumers about a 

month to pursue their options. 

Penalty rates. Currently, creditors 

must inform consumers about rates that 

are increased due to default or 

delinquency, but not in advance of 

implementation of the increase. 

Contractual thresholds for default are 

sometimes very low, and penalty 

pricing commonly applies to all existing 

balances, including low-rate 

promotional balances. An event 

triggering the default may occur a year 

or more after the account is opened. For 

example, a consumer may open an 

account, and a year or more later may 

take advantage of a low promotional rate 

to transfer balances from another 

account. That consumer reasonably may 

not recall reading in the accountopening disclosure that a single 

transaction exceeding the credit limit 

could cause the interest rates on existing 

balances, including on the promotional 

transfer, to increase. Thus, the proposal 

would expand the events triggering 

advance notice to include increases 

triggered by default or delinquency. 

Advance notice of a potentially 

significant increase in the cost of credit 

is intended to allow consumers to 

consider alternatives before the increase 

is imposed, such as making other 

financial arrangements or choosing not 

to engage in additional transactions that 

will increase the balances on their 

account. Comment is solicited on 

whether a shorter time period than 45 

days’ advance notice would be 

adequate. Actions creditors may engage 

in to mitigate risk, such as by lowering 

credit limits or suspending credit 

privileges, are not affected by the 

proposal. 

Format. Currently, there are few 

format requirements for change-in-terms 

disclosures. As with account-opening 

disclosures, creditors commonly 

intersperse change-in-terms notices with 

other amendments to the account 

agreement, and both are provided in 

pamphlets in small print and dense 

prose. Consumer testing indicates many 

consumers set aside and do not read 

densely-worded pamphlets. 

Under the proposal, creditors may 

continue to notify consumers about 

changes to terms required to be 

disclosed by Regulation Z, along with 

other changes to the account agreement. 

However, if a changed term is one that 

must be provided in the accountopening summary table, creditors must 

provide that change in a summary table 

to enhance the effectiveness of the 

change-in-terms notice. 

Creditors commonly enclose notices 

about changes to terms or rates with 

periodic statements. Under the 

proposal, if a notice enclosed with a 

periodic statement discusses a change to 

a term that must be disclosed in the 

account-opening summary table, or 

announces that a penalty rate will be 

imposed on the account, a table 

summarizing the impending change 

must appear on the periodic statement. 

The table would have to appear directly 

above the transaction list, in light of 

testing that shows many consumers tend 

to focus on the list of transactions. 

Consumers who participated in testing 

set aside change-in-terms pamphlets 

that accompanied periodic statements. 

Participants uniformly looked at the 

front side of periodic statements and 

reviewed at least the transactions. 

E. Advertisements 

Advertising minimum payments. 

Consumers commonly are offered the 

option to finance the purchase of goods 

or services (such as appliances or 

furniture) by establishing an open-end 

credit plan. The monthly minimum 

payments associated with the purchase 

are often advertised as part of the offer. 

Under current rules, advertisements for 

open-end credit plans are not required 

to include information about the time it 

will take to pay for a purchase or the 

total cost if only minimum payments are 

made; if the transaction were a closedend installment loan, the number of 

payments and the total cost would be 

disclosed. Under the proposal, 

advertisements stating a minimum 

monthly payment for an open-end credit 

plan that would be established to 

finance the purchase of goods or 

services must state, in equal prominence 

to the minimum payment, the time 

period required to pay the balance and 

the total of payments if only minimum 

payments are made. 

Advertising ‘‘fixed’’ rates. Creditors 

sometimes advertise the APR for openend accounts as a ‘‘fixed’’ rate even 

though the creditor reserves the right to 

change the rate at any time for any 

reason. Consumer testing indicated that 

many consumers believe that a ‘‘fixed 

rate’’ will not change, and do not 

understand that creditors may use the 

term ‘‘fixed’’ as a shorthand reference 

for rates that do not vary based on 

changes in an index or formula. Under 

the proposal, an advertisement may 

refer to a rate as ‘‘fixed’’ if the 

advertisement specifies a time period 

the rate will be fixed and the rate will 

not increase during that period. If a time 

period is not specified, the 

advertisement may refer to a rate as 

‘‘fixed’’ only if the rate will not increase 

while the plan is open. 


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5The 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. 

F. Other Disclosures and Protections 

‘‘Open-end’’ plans comprised of 

closed-end features. Some creditors give 

open-end credit disclosures on credit 

plans that include closed-end features, 

that is, separate loans with fixed 

repayment periods. These creditors treat 

these loans as advances on a revolving 

credit line for purposes of Regulation Z 

even though the consumer’s credit 

information is separately evaluated and 

he or she may have to complete a 

separate application for each ‘‘advance,’’

and the consumer’s payments on the 

‘‘advance’’ do not replenish the ‘‘line.’’

Provisions in the commentary lend 

support to this approach. The proposal 

would revise these provisions to 

indicate closed-end disclosures rather 

than open-end disclosures are 

appropriate when the credit being 

extended is individual loans that are 

individually approved and 

underwritten. 

Checks that access a credit card 

account. Many credit card issuers 

provide accountholders with checks 

that can be used to obtain cash, pay the 

outstanding balance on another account, 

or purchase goods and services directly 

from merchants. The solicitation letter 

accompanying the checks may offer a 

low introductory APR for transactions 

that use the checks. The proposed 

revisions would require the checks 

mailed by card issuers to be 

accompanied by cost disclosures. 

Currently, creditors need not disclose 

costs associated with using the checks if 

the finance charges that would apply 

(that is, the interest rate and transaction 

fees) have been previously disclosed, 

such as in the account agreement. If the 

check is sent 30 days or more after the 

account is opened, creditors must refer 

consumers to their account agreements 

for more information about how the rate 

and fees are determined. 

Consumers may receive these checks 

throughout the life of the credit card 

account. Thus, significant time may 

elapse between the time accountopening disclosures are provided and 

the time a consumer considers using the 

check. In addition, consumer testing 

indicates that consumers may not notice 

references to other documents such as 

the account-opening disclosures or 

periodic statements for rate information 

because they tend to look for 

percentages and dollar figures when 

looking for the costs of using the checks. 

Under the proposed revisions, checks 

that can access credit card accounts 

must be accompanied by information 

about the rates and fees that will apply 

if the checks are used, and about 

whether a grace period exists. To ensure 

the disclosures are conspicuous, 

creditors would be required to provide 

the information in a table, on the front 

side of the page containing the checks. 

Credit insurance, debt cancellation, 

and debt suspension coverage. Under 

Regulation Z, premiums for credit life, 

accident, health, or loss-of-income 

insurance are considered finance 

charges if the insurance is written in 

connection with a credit 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 openend credit, the Board has reorganized 

some provisions to make the regulation 

easier to use. Rules affecting homeequity lines of credit (HELOCs) subject 

to § 226.5b are separately delineated in 

§ 226.6 (account-opening 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. 

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 open-end credit rules 

(Subpart B), would be amended to 

reinsert text inadvertently deleted in a 

previous rulemaking. See 54 FR 24670; 

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 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 32959 

disclosures made in languages other 

than English. See 66 FR 17339; 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 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 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 


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6The 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 

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. 

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. 

2(a)(17) Creditor 

For reasons explained in the sectionby-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 openend 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 guidance on 

whether a credit line is ‘‘reusable.’’ 6


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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 selfreplenishing 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. 

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 openend 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 sectionby-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-by-section 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 open-end plans, 

with open-end disclosures given to 

consumers, when such products would 

more appropriately be treated as closedend 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 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 openend 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 subaccount must generally replenish a 

single credit line for that sub-account 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 socalled 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 

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 open-end 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 


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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. 

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 closedend 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. 

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 


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7Board 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. 

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 2520.1023(1). 

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 openend (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 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 


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8See 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. 

9The 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). 

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 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-bysection 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 noncomparable 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. 

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 closed-end 

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: 

(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 


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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 open-end 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 closedend 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 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 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 closed-end 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. 


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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-bysection 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 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). 

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 


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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 homesecured) 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. 

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 parts 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 homesecured) 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 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 homesecured) 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 


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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. 

5(a)(1) General 

Clear and conspicuous standard. 

TILA Section 122(a) mandates that all 

TILA-required 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 changein-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 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 


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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 

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 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 TILArequired 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 

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 


rwilkins on PROD1PC63 with PROPOSALS2
32970 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

10United States Government Accountability 

Office, Credit Cards: Increased Complexity in Rates 

and Fees Heightens Need for More Effective 

Disclosures to Consumers, 06–929 (September 

2006). 

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 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 accountopening 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 home-equity 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 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 


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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 homesecured) 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 ‘‘accountopening’’ 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 

account-opening 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 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 

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 accountopening 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 homesecured) 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 home-secured) 

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)). 

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 accountopening disclosure, nor readily to find 

or obtain a copy of the account-opening 

disclosure or most recent change-interm 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. 


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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). 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 

consumers 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 accountopening 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. 

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 

open-end credit account is converted to 


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11Charge 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.’’

a closed-end transaction under a written 

agreement with the consumer, the 

creditor must provide a set of closedend 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. 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 ‘‘freeride 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).) 

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 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 

account-opening 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 


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section-by-section analysis to 

§ 226.6(b)(4). 

5a(a) General Rules 

Combining disclosures. Currently, 

comment 5a–2 states that accountopening 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 accountopening 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 accountopening 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 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-creditlimit, 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-credit-limit 

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 

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 


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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). 

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 nonFederal 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 

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, 


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32976 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

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 bypassing 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-thecredit-limit 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. 

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 


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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. 

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 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 


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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. 

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 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 G–10(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 determine the rate for which 

a consumer qualifies. For preapproved 

solicitations, issuers that engage in riskbased pricing typically will disclose the 


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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 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. 

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 


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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, overthe-credit-limit fees, and returnedpayment 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 one-time 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, 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 nonperiodic fees related to opening the 

account. Currently, issuers are required 

to disclose the amount of the nonperiodic 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 socalled ‘‘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 

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. 


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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).’’

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, 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 


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32982 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

§ 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 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 cross-reference 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. 

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 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 32983 

12The materials can be found at http:// 

www.federalreserve.gov/pubs/shop/default.htm. 

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 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 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 


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32984 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

credit card accounts, while others had 

difficulty expressing basic financial 

concepts, such as how the interest rate 

differs from a one-time fee. The Board’s 

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 would 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 

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 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 


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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, latepayment 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, 

late-payment fees, and over-the-creditlimit 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. 

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 variablerate 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 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 


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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). 

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-bysection analysis to § 226.6(b)(4). 

Therefore, the Board also is proposing 

that card issuers give this same 

information in a tabular form in takeone 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 account-opening 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 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 inperson applications and solicitations 

under § 226.5a, pursuant to the Board’s 

authority under TILA Section 105(a). 

Requiring in-person 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 


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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 

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. Accountopening 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-bysection analysis to § 226.6(b)(1), the 

Board would update references to ‘‘freeride 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 homesecured) 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 marketplace, there are few openend 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-bysection 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 accountopening 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 

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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 lessoften 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. 

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 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 homesecured) plans, but these revisions are 

not intended to be substantive. See, for 

example, proposed comments 

6(a)(1)(ii)–1 and 6(b)(2)(i)(B)–1, which 

address disclosing ranges of balances. 

Also, commentary provisions that 


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currently apply to open-end plans 

generally but are inapplicable to 

HELOCs would not be 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 open-end 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 ‘‘freeride 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-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. 

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), 

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 non-credit 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 home-secured) 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 OpenEnd (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 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 


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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. 

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 openend (not home-secured) plans. The 

proposed summary of account-opening 

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. 

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 


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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. 

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 account-opening 

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. 

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 


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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. 

& 

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 latepayment 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. 

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-the-credit-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. 

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 


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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. 

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 

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 


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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 sectionby-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 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, 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 homesecured) 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 


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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 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 openend (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 home-secured) 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 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 


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32996 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

under § 226.7(b). In consumer testing, 

consumers were able to more accurately 

and easily determine the total cost of 

non-interest 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 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 yearto-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-by-section 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 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 


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13An 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.) 

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 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 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 worseoff 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 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 


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14Consumer group comments about a ‘‘typical 

APR’’ disclosure are summarized in the section-bysection analysis to § 226.5a. 

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 transactiontriggered 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. 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 Feeinclusive APRs are the ‘‘APRs that you 

paid this period when transactions or 

fixed fees are taken into account as 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 


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15Under 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. 

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 noninterest 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 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. 

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 latepayment 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 open-end credit. Issuers of 

‘‘charge cards’’ (which are typically 

products where outstanding balances 

cannot be carried over from one billing 


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33000 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

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 latepayment 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 

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 latepayment 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 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 


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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 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 tollfree 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 touchtone 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. 

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 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 


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16Brian 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). 

moves, sells the home, or dies. 

Consumers with open-end 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 

general-purpose 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. 

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 $1,000 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 calculate the 

repayment period is 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 


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17United 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.) 

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. 

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. 

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 tollfree 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 


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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 (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 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 (nonrevolvers) 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 


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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 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, 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 


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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 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 tollfree 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 touchtone 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 tollfree 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 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 sectionby-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. 

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 


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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 

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 

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 


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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 homesecured) 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 changein-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 sectionby-section analysis to § 226.6(b)(1), the 

Board would update references to ‘‘freeride 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. 

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 accountopening disclosures, and is subject to 

the same finance charge terms 

previously disclosed in the accountopening 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 accountopening 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 account-opening 

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 homesecured) 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 accountopening 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 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 


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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. 

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 openend 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 accountopening 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-bysection analysis to § 226.6(b)(4). First, 

the Board proposes to expand the 

circumstances under which consumers 

receive advance notice of changed 

terms, or 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-creditlimit 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 


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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 alternative means of 

financing their purchases, such as using 

another credit card, utilizing a homeequity 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 accountopening 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. 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 G–17(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. 


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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 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-thelimit 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-the-credit-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 (homesecured) credit. 

The Board is aware that the current 

change-in-terms rules, which have 

applicability both to HELOCs and openend (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 openend (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 

and format requirements in that section. 


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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-bysection 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 

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 accountopening 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 accountopening 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-credit-limit 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 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 


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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. 

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 cutoff 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 cutoff 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 homesecured) 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 latepayment 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). 

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 


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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, 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 openend 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 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 accountopening 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 


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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 

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-for-one 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 

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 


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18Certain merchandise disputes, such as the 

nondelivery of goods, may also be separatel asserted 

as a ‘‘billing error’’ under §226.13(a)(3). See 

comment 12(c)–1. 

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 

re-designated 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 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 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 homesecured) 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 ‘‘paperbased 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. 


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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 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 redesignated 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. 

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 sectionby-section analysis to § 226.6(b)(1), the 

Board would update references to ‘‘freeride 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 personto-person Internet payment service. 

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 


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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 openend 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 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 billingerror 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 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 be 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 


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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 accountholding 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 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 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-bysection 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 


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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 

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 

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 homesecured) 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 


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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 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 openend 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 openend (not home-secured) plans, only 

positive terms trigger the additional 

disclosure. 

If an advertisement states a minimum 

monthly 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 directmail 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 

‘‘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 finance the purchase of 

goods or services. If a minimum 


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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 home-secured 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 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 homesecured 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. 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 


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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 sectionby-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.’’ 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 direct-mail 

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 nonvariablerate 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 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 


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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 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 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 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 


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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 

permitted to provide 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). 

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 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-byTransaction 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 bankissued credit cards). 

The Board proposes to revise 

Appendix E by inserting material 


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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 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 transactionby-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 homesecured, 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 model 

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 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-bysection 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 home-equity 

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 

home-secured) 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 

account-opening disclosures and as an 

annual disclosure or, at the creditor’s 

option, with each periodic statement) 

and the alternative billing-error rights 

statement (for use with each periodic 

statement), respectively. Like with 

Model Clause G–2, the Board is 

proposing revisions to Model Forms 

G–3 and G–4 to improve readability. 


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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 

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 homesecured) 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-bysection 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 G–17(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 from 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 headings 

are proposed for Model Form G–17(A), 

the model form for the 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 a 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 crossreference 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. 

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. 


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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 homesecured) 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-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 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 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33029 

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 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 general-purpose 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 Board gathered 

data on the minimum payment formulas 

used by the top 10 issuers of generalpurpose 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 $1,000 

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 


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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 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 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 off 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 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33031 

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 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 

responding to a request through a tollfree 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 may 

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 


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33032 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

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 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 to 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 tollfree 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 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, 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 


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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 

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 

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 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 $1,000, 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 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-bysection 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 


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33034 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

19Regulation 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.’’ Section 

226.1(c)(1). 

20Testimony 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. 

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 thirdparty 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-end credit 

disclosures, including those in 

solicitations, account opening materials, 

periodic statements, and change-interms 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 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 homeequity plans. For closed-end loans, such 

as mortgage and installment loans, cost 

disclosures are required to be provided 

prior to consummation. Special 

disclosures are required in connection 

with certain products, such as reverse 

mortgages, certain variable-rate loans, 

and certain mortgages with rates and 

fees above specified thresholds. TILA 

and Regulation Z also contain rules 

concerning credit advertising. Creditors 

are required to retain evidence of 

compliance for twenty-four months 

(§ 226.25), but Regulation Z does not 

specify the types of records that must be 

retained. 

Under the PRA, the Federal Reserve 

accounts for the paperwork burden 

associated with Regulation Z for the 

state member banks and other creditors 

supervised by the Federal Reserve that 

engage in lending covered by Regulation 

Z and, therefore, are respondents under 

the PRA. Appendix I of Regulation Z 

defines the Federal Reserve-regulated 

institutions as: state member banks, 

branches and agencies of foreign banks 

(other than federal branches, federal 

agencies, and insured state branches of 

foreign banks), commercial lending 


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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 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 changein-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) accountopening disclosures; (3) periodic 

statement disclosures; (4) change-interms 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 onetime 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 onetime burden to be 42,880 hours. 

The proposed revisions to the changein-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 one-time 

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 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., openend 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-interms 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 


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33036 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

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, 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 openend 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. 

Comment 5a(a)(2)–3 ................................................................................ Comment 5a(a)(2)–2. 

Comment 5a(a)(2)–4 ................................................................................ § 226.5a(a)(2)(ii). 

Comment 5a(a)(2)–7 ................................................................................ Comment 5a(a)(2)–4. 

Comments 5a(a)(3)–1; –3 ........................................................................ § 226.5a(a)(5). 

Comment 5a(a)(3)–2 ................................................................................ § 226.5a(a)(5); Comment 5a(a)(5)–1. 

Comment 5a(a)(5)–1 ................................................................................ Comment 5a(a)(4)–1. 

Comment 5a(b)(1)–2 ................................................................................ Comment 5a(b)(1)–1. 

Comment 5a(b)(1)–3 ................................................................................ § 226.5a(d)(3). 

Comment 5a(b)(1)–4 ................................................................................ § 226.5a(b)(1)(i); Comment 5a(b)(1)–2. 

Comment 5a(b)(1)–5 ................................................................................ § 226.5a(b)(1)(ii). 

Comment 5a(b)(1)–6 ................................................................................ § 226.5a(b)(1)(iii). 

Comment 5a(b)(1)–7 ................................................................................ § 226.5a(b)(1)(iv); Comment 5a(b)(1)–4. 

Comment 5a(c)–2 ..................................................................................... Comment 5(a)(c)–1. 

Comment 5a(e)(3)–1 ................................................................................ Comment 5a(e)(2)–1. 

Comment 5a(e)(4)–1 ................................................................................ Comment 5a(e)(3)–1. 

Comment 5a(e)(4)–2 ................................................................................ Comment 5a(e)(3)–2. 

Comment 5a(e)(4)–3 ................................................................................ Comment 5a(e)(3)–3. 

§ 226.6(a)(1) ............................................................................................. § 226.6(a)(1)(i). 

§ 226.6(a)(2) ............................................................................................. § 226.6(a)(1)(ii). 

Footnote 11 .............................................................................................. § 226.6(a)(1)(ii); § 226.6(b)(2)(i)(B). 

Footnote 12 .............................................................................................. § 226.6(a)(1)(ii); § 226.6(b)(2)(ii). 

§ 226.6(a)(3) ............................................................................................. § 226.6(a)(1)(iii). 

§ 226.6(a)(4) ............................................................................................. § 226.6(a)(1)(iv). 

Footnote 13 .............................................................................................. Comments 6(a)(1)(iv)–1 and 6(b)(1)–3. 

§ 226.6(b) .................................................................................................. § 226.6(a)(2). 

§ 226.6(c) .................................................................................................. § 226.6(c)(1). 

§ 226.6(d) .................................................................................................. § 226.6(c)(2). 

§ 226.6(e)(1) ............................................................................................. § 226.6(a)(3)(i). 

§ 226.6(e)(2) ............................................................................................. § 226.6(a)(3)(ii). 

§ 226.6(e)(3) ............................................................................................. § 226.6(a)(3)(iii). 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33037 

Current Redesignation 

§ 226.6(e)(4) ............................................................................................. § 226.6(a)(3)(iv). 

§ 226.6(e)(5) ............................................................................................. § 226.6(a)(3)(v). 

§ 226.6(e)(6) ............................................................................................. § 226.6(a)(3)(vi). 

§ 226.6(e)(7) ............................................................................................. § 226.6(a)(3)(vii). 

Comment 6(a)(1)–1 .................................................................................. Comments 6(a)(1)(i)–1 and 6(b)(1)–1. 

Comment 6(a)(1)–2 .................................................................................. Comments 6(a)(1)(i)–2 and 6(b)(1)–2. 

Comment 6(a)(2)–1 .................................................................................. Comments 6(a)(1)(ii)–1 and 6(b)(2)(i)(B)–1. 

Comment 6(a)(2)–2 .................................................................................. Comments 6(a)(1)(ii)–2 and 6(b)(2)(ii)–1. 

Comment 6(a)(2)–3 .................................................................................. Comment 6(a)(1)(ii)–3. 

Comment 6(a)(2)–4 .................................................................................. Comment 6(a)(1)(ii)–4. 

Comment 6(a)(2)–5 .................................................................................. Comment 6(a)(1)(ii)–5. 

Comment 6(a)(2)–6 .................................................................................. Comments 6(a)(1)(ii)–6 and 6(b)(2)(ii)–2. 

Comment 6(a)(2)–7 .................................................................................. Comments 6(a)(1)(ii)–7 and 6(b)(2)(ii)–3. 

Comment 6(a)(2)–8 .................................................................................. Comments 6(a)(1)(ii)–8 and 6(b)(2)(ii)–4. 

Comment 6(a)(2)–9 .................................................................................. Comment 6(a)(1)(ii)–9. 

Comment 6(a)(2)–10 ................................................................................ Comments 6(a)(1)(ii)–10 and 6(b)(2)(ii)–5. 

Comment 6(a)(2)–11 ................................................................................ Comment 6(a)(1)(ii)–11. 

Comment 6(a)(3)–1 .................................................................................. Comment 6(a)(1)(iii)–1. 

Comment 6(a)(3)–2 .................................................................................. Comment 6(a)(1)(iii)–2. 

Comment 6(a)(4)–1 .................................................................................. Comment 6(a)(1)(iv)–1. 

Comment 6(b)–1 ....................................................................................... Comment 6(a)(2)–1. 

Comment 6(b)–2 ....................................................................................... Comment 6(a)(2)–2. 

Comment 6(c)–1 ....................................................................................... Comment 6(c)(1)–1. 

Comment 6(c)–2 ....................................................................................... Comment 6(c)(1)–2. 

Comment 6(c)–3 ....................................................................................... Comment 6(c)(1)–3. 

Comment 6(c)–4 ....................................................................................... Comment 6(c)(1)–4. 

Comment 6(c)–5 ....................................................................................... Comment 6(c)(1)–5. 

Comment 6(d) ........................................................................................... Comment 6(c)(2). 

Comment 6(e)–1 ....................................................................................... Comment 6(a)(3)–1. 

Comment 6(e)–2 ....................................................................................... Comment 6(a)(3)–2. 

Comment 6(e)–3 ....................................................................................... Comment 6(a)(3)–3. 

Comment 6(e)–4 ....................................................................................... Comment 6(a)(3)–4. 

§ 226.7(a) .................................................................................................. § 226.7(a)(1); § 226.7(b)(1). 

§ 226.7(b) .................................................................................................. § 226.7(a)(2); § 226.7(b)(2). 

§ 226.7(c) .................................................................................................. § 226.7(a)(3); § 226.7(b)(3). 

§ 226.7(d) .................................................................................................. § 226.7(a)(4); § 226.7(b)(4). 

Footnote 15 .............................................................................................. § 226.7(a)(4); § 226.7(b)(4). 

§ 226.7(e) .................................................................................................. § 226.7(a)(5); § 226.7(b)(5). 

§ 226.7(f) ................................................................................................... § 226.7(a)(6)(i). 

§ 226.7(g) .................................................................................................. § 226.7(a)(7); § 226.7(b)(7). 

§ 226.7(h) .................................................................................................. § 226.7(a)(6)(ii). 

§ 226.7(i) ................................................................................................... § 226.7(a)(10); § 226.7(b)(10). 

§ 226.7(j) ................................................................................................... § 226.7(a)(8); § 226.7(b)(8). 

§ 226.7(k) .................................................................................................. § 226.7(a)(9); § 226.7(b)(9). 

Comment 7–3 ........................................................................................... Comment 7(b)–1. 

Comment 7(a)–1 ....................................................................................... Comments 7(a)(1)–1 and 7(b)(1)–1. 

Comment 7(a)–2 ....................................................................................... Comments 7(a)(1)–2 and 7(b)(1)–2. 

Comment 7(a)–3 ....................................................................................... Comments 7(a)(1)–3 and 7(b)(1)–3. 

Comment 7(b)–1 ....................................................................................... Comments 7(a)(2)–1 and 7(b)(2)–1. 

Comment 7(b)–2 ....................................................................................... Comments 7(a)(2)–2 and 7(b)(2)–2. 

Comment 7(c)–1 ....................................................................................... Comments 7(a)(3)–1 and 7(b)(3)–1. 

Comment 7(c)–2 ....................................................................................... Comment 7(a)(3)–2. 

Comment 7(c)–3 ....................................................................................... Comments 7(a)(3)–3 and 7(b)(3)–2. 

Comment 7(c)–4 ....................................................................................... Comments 7(a)(3)–4 and 7(b)(3)–3. 

Comment 7(d)–1 ....................................................................................... Comments 7(a)(4)–1 and 7(b)(4)–1. 

Comment 7(d)–2 ....................................................................................... Comments 7(a)(4)–2 and 7(b)(4)–2. 

Comment 7(d)–3 ....................................................................................... Comments 7(a)(4)–3 and 7(b)(4)–3. 

Comment 7(d)–4 ....................................................................................... Comment 7(a)(4)–4. 

Comment 7(d)–5 ....................................................................................... Comments 7(a)(4)–5 and 7(b)(4)–4. 

Comment 7(d)–6 ....................................................................................... Comments 7(a)(4)–6 and 7(b)(4)–5. 

Comment 7(d)–7 ....................................................................................... Comment 7(b)(4)–6. 

Comment 7(e)–1 ....................................................................................... Comment 7(a)(5)–1. 

Comment 7(e)–2 ....................................................................................... Comments 7(a)(5)–2 and 7(b)(5)–1. 

Comment 7(e)–3 ....................................................................................... Comments 7(a)(5)–3 and 7(b)(5)–2. 

Comment 7(e)–4 ....................................................................................... Comments 7(a)(5)–4 and 7(b)(5)–3. 

Comment 7(e)–5 ....................................................................................... Comments 7(a)(5)–5 and 7(b)(5)–4. 

Comment 7(e)–6 ....................................................................................... Comment 7(a)(5)–6. 

Comment 7(e)–7 ....................................................................................... Comments 7(a)(5)–7 and 7(b)(5)–5. 

Comment 7(e)–8 ....................................................................................... Comments 7(a)(5)–8 and 7(b)(5)–6. 

Comment 7(e)–9 ....................................................................................... Comments 7(a)(5)–9 and 7(b)(5)–7. 

Comment 7(e)–10 ..................................................................................... Comment 7(b)(5)–8. 

Comments 7(f)–1 ...................................................................................... Comment 7(a)(6)(i)–1. 

Comment 7(f)–2 ........................................................................................ Comment 7(a)(6)(i)–2. 

Comment 7(f)–3 ........................................................................................ Comment 7(a)(6)(i)–3. 


rwilkins on PROD1PC63 with PROPOSALS2
33038 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

Current Redesignation 

Comment 7(f)–4 ........................................................................................ Comment 7(a)(6)(i)–4. 

Comment 7(f)–5 ........................................................................................ Comment 7(a)(6)(i)–5. 

Comment 7(f)–6 ........................................................................................ Comment 7(a)(6)(i)–6. 

Comment 7(f)–7 ........................................................................................ Comment 7(a)(6)(i)–7. 

Comment 7(f)–8 ........................................................................................ Comment 7(a)(6)(i)–8. 

Comment 7(g)–1 ....................................................................................... Comments 7(a)(7)–1 and 7(b)(7)–1. 

Comment 7(g)–2 ....................................................................................... Comments 7(a)(7)–2 and 7(b)(7)–2. 

Comment 7(h)–1 ....................................................................................... Comment 7(a)(6)(ii)–1. 

Comment 7(h)–2 ....................................................................................... Comment 7(a)(6)(ii)–2. 

Comment 7(h)–3 ....................................................................................... Comment 7(a)(6)(ii)–3. 

Comment 7(h)–4 ....................................................................................... Comment 7(a)(6)(ii)–4. 

Comment 7(i)–1 ........................................................................................ Comments 7(a)(10)–1 and 7(b)(10)–1. 

Comment 7(i)–2 ........................................................................................ Comments 7(a)(10)–2 and 7(b)(10)–2. 

Comment 7(i)–3 ........................................................................................ Comments 7(a)(10)–3 and 7(b)(10)–3. 

Comment 7(j)–1 ........................................................................................ Comments 7(a)(8)–1 and 7(b)(8)–1. 

Comment 7(j)–2 ........................................................................................ Comment 7(b)(8)–2. 

Comment 7(k)–1 ....................................................................................... Comments 7(a)(9)–1 and 7(b)(9)–1. 

Comment 7(k)–2 ....................................................................................... Comments 7(a)(9)–2 and 7(b)(9)–2. 

Comment 8–2 ........................................................................................... Comment 8(a)–1. 

Comment 8–3 ........................................................................................... Comment 8(b)–1. 

Comment 8–5 ........................................................................................... Comment 8(a)–5. 

Comment 8(a)–1 ....................................................................................... Comment 8(a)–4.i. 

Comment 8(a)–2 ....................................................................................... Comment 8(a)–4.ii. 

Comment 8(a)–4 ....................................................................................... Comment 8(a)–2. 

Comment 8(a)(2)–1 .................................................................................. Comment 8(a)–6. 

Comment 8(a)(2)–2 .................................................................................. Comment 8(a)–6. 

Comment 8(a)(2)–5 .................................................................................. Comment 8(a)–3. 

Comment 8(a)(3)–1 .................................................................................. Comment 8(a)–7. 

Comment 8(a)(3)–2 .................................................................................. Comment 8(a)–8. 

Comment 8(a)(3)–3 .................................................................................. Comment 8(a)–8. 

Comment 8(a)(3)–4 .................................................................................. Comment 8(a)–3. 

Comment 8(b)–1 ....................................................................................... Comment 8(b)–3. 

Comment 8(b)–3 ....................................................................................... Comment 8(b)–2. 

Footnote 16 .............................................................................................. § 226.8(c)(1). 

Footnote 17 .............................................................................................. § 226.8(c)(2). 

Footnote 19 .............................................................................................. § 226.8(a)(1)(ii). 

§ 226.9(c) .................................................................................................. § 226.9(c)(1) and 226.9(c)(2). 

§ 226.9(c)(1) .............................................................................................. § 226.9(c)(1)(i) and § 226.9(c)(2)(i). 

§ 226.9(c)(2) .............................................................................................. § 226.9(c)(1)(ii) and § 226.9(c)(2)(iv). 

§ 226.9(c)(3) .............................................................................................. § 226.9(c)(1)(iii). 

Comment 9(c)–1 ....................................................................................... Comments 9(c)(1)–1 and 9(c)(2)–1. 

Comment 9(c)–2 ....................................................................................... Comment 9(c)(1)–2 and 9(c)(2)–2. 

Comment 9(c)–3 ....................................................................................... Comment 9(c)(1)–3 and 9(c)(2)–3. 

Comment 9(c)(1)–1 .................................................................................. Comment 9(c)(1)(i)–1 and 9(c)(2)(i)–1. 

Comment 9(c)(1)–2 .................................................................................. Comment 9(c)(1)(i)–2 and 9(c)(2)(i)–2. 

Comment 9(c)(1)–3 .................................................................................. Comment 9(c)(1)(i)–3 and 9(c)(2)(i)–3. 

Comment 9(c)(1)–4 .................................................................................. Comment 9(c)(1)(i)–4 and 9(c)(2)(i)–4. 

Comment 9(c)(1)–5 .................................................................................. Comment 9(c)(1)(i)–5 and 9(c)(2)(i)–5. 

Comment 9(c)(1)–6 .................................................................................. Comment 9(c)(1)(i)–6. 

Comment 9(c)(2)–1 .................................................................................. Comment 9(c)(1)(ii)–1 and 9(c)(2)(iv)–1. 

Comment 9(c)(2)–2 .................................................................................. Comment 9(c)(1)(ii)–2 and 9(c)(2)(iv)–2. 

Comment 9(c)(3)–1 .................................................................................. Comment 9(c)(1)(iii)–1. 

Comment 9(c)(3)–2 .................................................................................. Comment 9(c)(1)(iii)–2. 

§ 226.11 .................................................................................................... § 226.11(a). 

§ 226.11(a) ................................................................................................ § 226.11 (a)(1). 

§ 226.11(b) ................................................................................................ § 226.11(a)(2). 

§ 226.11(c) ................................................................................................ § 226.11(a)(3). 

Comment 11–1 ......................................................................................... Comment 11(a)–1. 

Comment 11–2 ......................................................................................... Comment 11(a)–2. 

Comment 11(b)–1 ..................................................................................... Comment 11(a)(2)–1. 

Comment 11(c)–1 ..................................................................................... Comment 11(a)(3)–1. 

Comment 11(c)–2 ..................................................................................... Comment 11(a)(3)–2. 

§ 226.12(b)(1) ........................................................................................... § 226.12(b)(1)(ii). 

§ 226.12(c)(3) ............................................................................................ § 226.12(c)(3)(i). 

§ 226.12(c)(3)(i) ........................................................................................ § 226.12(c)(3)(i)(A). 

§ 226.12(c)(3)(ii) ........................................................................................ § 226.12(c)(3)(i)(B). 

Footnote 21 .............................................................................................. Comment 12–2. 

Footnote 22 .............................................................................................. § 226.12(b)(1)(i). 

Footnote 23 .............................................................................................. Comment 12(b)(2)(ii)–2. 

Footnote 24 .............................................................................................. Comment 12(c)–3. 

Footnote 25 .............................................................................................. Comment 12(c)–4. 

Footnote 26 .............................................................................................. § 226.12(c)(3)(ii). 

Comment 12(c)(3)(i)–1 ............................................................................. Comment 12(c)(3)(i)(A)–1. 

Comment 12(c)(3)(ii)–1 ............................................................................ Comment 12(c)(3)(i)(B)–1. 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33039 

1fl[Reserved]fi [The meaning of ‘‘regularly’’ is 

explained in the definition of ‘‘creditor’’ in 

§ 226.2(a).] 

Current Redesignation 

Comment 12(c)(3)(ii)–2 ............................................................................ Comment 12(c)(3)(ii)–1. 

Footnote 27 .............................................................................................. § 226.13(d)(3). 

Footnote 28 .............................................................................................. Comment 13(b)–1. 

Footnote 29 .............................................................................................. Comment 13(b)–2. 

Footnote 30 .............................................................................................. § 226.13(d)(4). 

Comment 13–2 ......................................................................................... Comment 13–1. 

Comment 13(a)–1 ..................................................................................... Comment 13(a)(1)–1. 

Footnote 31a ............................................................................................ § 226.14(a). 

Footnote 32 .............................................................................................. § 226.14(c)(2). 

Footnote 33 .............................................................................................. § 226.14(c)(2). 

§ 226.14(d)(1) ........................................................................................... § 226.14(c)(5)(i). 

§ 226.14(d)(2) ........................................................................................... § 226.14(c)(5)(ii). 

Comment 14(c)–2 ..................................................................................... Comment 14(c)(1)–1. 

Comment 14(c)–3 ..................................................................................... Comment 14(c)(2)–1. 

Comment 14(c)–4 ..................................................................................... Comment 14(c)(2)–2. 

Comment 14(c)–5 ..................................................................................... Comment 14(c)(3)–1. 

Comment 14(c)–6 ..................................................................................... Comment 14(c)(3)–2. 

Comment 14(c)–7 ..................................................................................... Comment 14(c)–2. 

Comment 14(c)–8 ..................................................................................... Comment 14(c)–3. 

Comment 14(c)–9 ..................................................................................... Comment 14(c)–4. 

Comment 14(c)–10 ................................................................................... Comment 14(c)–5. 

Comment 14(d)–1 ..................................................................................... Comment 14(c)–6. 

Comment 14(d)–2 ..................................................................................... Comment 14(c)–6. 

§ 226.16(b)(1) ........................................................................................... § 226.16(b)(1)(i). 

§ 226.16(b)(2) ........................................................................................... § 226.16(b)(1)(ii). 

§ 226.16(b)(3) ........................................................................................... § 226.16(b)(1)(iii). 

Comment 16–2 ......................................................................................... Comment 16–3. 

Comment 16(b)–1 ..................................................................................... § 226.16(b)(1). 

Comment 16(b)–2 ..................................................................................... Comment 16(b)–1. 

Comment 16(b)–3 ..................................................................................... Comment 16(b)–2. 

Comment 16(b)–4 ..................................................................................... Comment 16(b)–3. 

Comment 16(b)–6 ..................................................................................... § 226.16(e). 

Comment 16(b)–7 ..................................................................................... Comment 16(b)–1. 

Comment 16(b)–8 ..................................................................................... § 226.16(b)(1). 

Comment 16(b)–9 ..................................................................................... Comment 16(b)–4. 

Text of Proposed Revisions 

Certain conventions have been used 

to highlight the proposed revisions. 

New language is shown inside arrows 

while language that would be deleted is 

set off with brackets. 

List of Subjects in 12 CFR Part 226 

Advertising, Consumer protection, 

Federal Reserve System, Reporting and 

recordkeeping requirements, Truth in 

Lending. 

For the reasons set forth in the 

preamble, the Board proposes to amend 

Regulation Z, 12 CFR part 226, as set 

forth below: 

PART 226—TRUTH IN LENDING 

(REGULATION Z) 

1. The authority citation for part 226 

continues to read as follows: 

Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 

and 1637(c)(5). 

2. Section 226.1 is amended by 

republishing paragraphs (a), (b), (c), and 

(e), revising paragraph (d), and 

removing and reserving footnote 1 to 

read as follows: 

Subpart A—General 

§ 226.1 Authority, purpose, coverage, 

organization, enforcement, and liability. 

(a) Authority. This regulation, known 

as Regulation Z, is issued by the Board 

of Governors of the Federal Reserve 

System to implement the Federal Truth 

in Lending Act, which is contained in 

title I of the Consumer Credit Protection 

Act, as amended (15 U.S.C. 1601 et 

seq.). This regulation also implements 

title XII, section 1204 of the Competitive 

Equality Banking Act of 1987 (Pub. L. 

100–86, 101 Stat. 552). Informationcollection requirements contained in 

this regulation have been approved by 

the Office of Management and Budget 

under the provisions of 44 U.S.C. 3501 

et seq. and have been assigned OMB No. 

7100–0199. 

(b) Purpose. The purpose of this 

regulation is to promote the informed 

use of consumer credit by requiring 

disclosures about its terms and cost. The 

regulation also gives consumers the 

right to cancel certain credit 

transactions that involve a lien on a 

consumer’s principal dwelling, 

regulates certain credit card practices, 

and provides a means for fair and timely 

resolution of credit billing disputes. The 

regulation does not govern charges for 

consumer credit. The regulation 

requires a maximum interest rate to be 

stated in variable-rate contracts secured 

by the consumer’s dwelling. It also 

imposes limitations on home equity 

plans that are subject to the 

requirements of § 226.5b and mortgages 

that are subject to the requirements of 

§ 226.32. The regulation prohibits 

certain acts or practices in connection 

with credit secured by a consumer’s 

principal dwelling. 

(c) Coverage. 

(1) In general, this regulation applies 

to each individual or business that 

offers or extends credit when four 

conditions are met: (i) the credit is 

offered or extended to consumers; (ii) 

the offering or extension of credit is 

done regularly; 1 (iii) the credit is 

subject to the finance charge or is 

payable by a written agreement in more 

than four installments; and (iv) the 

credit is primarily for personal, family, 

or household purposes. 

(2) If a credit card is involved, 

however, certain provisions apply even 

if the credit is not subject to a finance 

charge, or is not payable by a written 


rwilkins on PROD1PC63 with PROPOSALS2
33040 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

2 [Reserved]. 

agreement in more than four 

installments, or if the credit card is to 

be used for business purposes. 

(3) In addition, certain requirements 

of § 226.5b apply to persons who are not 

creditors but who provide applications 

for home equity plans to consumers. 

(d) Organization. The regulation is 

divided into subparts and appendices as 

follows: 

(1) Subpart A contains general 

information. It sets forth: (i) the 

authority, purpose, coverage, and 

organization of the regulation; (ii) the 

definitions of basic terms; (iii) the 

transactions that are exempt from 

coverage; and (iv) the method of 

determining the finance charge. 

(2) Subpart B contains the rules for 

open-end credit. It requires that 

flaccount-openingfi [initial] 

disclosures and periodic statements be 

provided, as well as additional 

disclosures for credit and charge card 

applications and solicitations and for 

home equity plans subject to the 

requirements of § 226.5a and § 226.5b, 

respectively. flIt also describes special 

rules that apply to credit card 

transactions, treatment of payments and 

credit balances, procedures for resolving 

credit billing errors, annual percentage 

rate calculations, rescission 

requirements, and advertising.fi 

(3) Subpart C relates to closed-end 

credit. It contains rules on disclosures, 

treatment of credit balances, annual 

percentage rate calculations, rescission 

requirements, and advertising. 

(4) Subpart D contains rules on oral 

disclosures, fldisclosures in languages 

other than Englishfi [Spanish-language 

disclosure in Puerto Rico], record 

retention, effect on state laws, state 

exemptions, and rate limitations. 

(5) Subpart E contains special rules 

for flcertainfi mortgage transactions. 

Section 226.32 requires certain 

disclosures and provides limitations for 

loans that have rates and fees above 

specified amounts. Section 226.33 

requires disclosures, including the total 

annual loan cost rate, for reverse 

mortgage transactions. Section 226.34 

prohibits specific acts and practices in 

connection with flcertainfi mortgage 

transactions. 

(6) Several appendices contain 

information such as the procedures for 

determinations about state laws, state 

exemptions and issuance of staff 

interpretations, special rules for certain 

kinds of credit plans, a list of 

enforcement agencies, and the rules for 

computing annual percentage rates in 

closed-end credit transactions and totalannual-loan-cost rates for reverse 

mortgage transactions. 

(e) Enforcement and liability. Section 

108 of the act contains the 

administrative enforcement provisions. 

Sections 112, 113, 130, 131, and 134 

contain provisions relating to liability 

for failure to comply with the 

requirements of the act and the 

regulation. Section 1204(c) of title XII of 

the Competitive Equality Banking Act of 

1987, Pub. L. No. 100–86, 101 Stat. 552, 

incorporates by reference administrative 

enforcement and civil liability 

provisions of sections 108 and 130 of 

the act. 

3. Section 226.2 is amended by 

revising paragraph (a), republishing 

paragraph (b) and removing and 

reserving footnote 3 to read as follows: 

§ 226.2 Definitions and rules of 

construction. 

(a) Definitions. For purposes of this 

regulation, the following definitions 

apply: 

(1) Act means the Truth in Lending 

Act (15 U.S.C. 1601 et seq.). 

(2) Advertisement means a 

commercial message in any medium 

that promotes, directly or indirectly, a 

credit transaction. 

(3) [Reserved] 2

(4) Billing cycle or cycle means the 

interval between the days or dates of 

regular periodic statements. These 

intervals shall be equal and no longer 

than a quarter a year. An interval will 

be considered equal if the number of 

days in the cycle does not vary more 

than four days from the regular day or 

date of the periodic statement. 

(5) Board means the Board of 

Governors of the Federal Reserve 

System. 

(6) Business day means a day on 

which the creditor’s offices are open to 

the public for carrying on substantially 

all of its business functions. However, 

for purposes of rescission under 

§ 226.15 and § 226.23, and for purposes 

of § 226.31, the term means all calendar 

days except Sundays and the legal 

public holidays specified in 5 U.S.C. 

6103(a), such as New Year’s Day, the 

Birthday of Martin Luther King, Jr., 

Washington’s Birthday, Memorial Day, 

Independence Day, Labor Day, 

Columbus Day, Veterans Day, 

Thanksgiving Day, and Christmas Day. 

(7) Card issuer means a person that 

issues a credit card or that person’s 

agent with respect to the card. 

(8) Cardholder means a natural person 

to whom a credit card is issued for 

consumer credit purposes, or a natural 

person who has agreed with the card 

issuer to pay consumer credit 

obligations arising from the issuance of 

credit card to another natural person. 

For purposes of § 226.12(a) and (b), the 

term includes any person to whom a 

credit card is issued for any purpose, 

including business, commercial or 

agricultural use, or a person who has 

agreed with the card issuer to pay 

obligations arising from the issuance of 

such a credit card to another person. 

(9) Cash price means the price at 

which a creditor, in the ordinary course 

of business, offers to sell for cash 

property or service that is the subject of 

the transaction. At the creditor’s option, 

the term may include the price 

accessories, services related to the sale, 

service contracts and taxes and fees for 

license, title, and registration. The term 

does not include any finance charge. 

(10) Closed-end credit means 

consumer credit other than ‘‘open end 

credit’’ as defined in this section. 

(11) Consumer means a cardholder or 

natural person to whom consumer 

credit is offered or extended. However, 

for purposes of the rescission under 

§ 226.15 and § 226.23, the term also 

includes a natural person in whose 

principal dwelling a security interest is 

or will be retained or acquired, if that 

person’s ownership interest in the 

dwelling is or will be subject to the 

security interest. 

(12) Consumer credit means credit 

offered or extended to a consumer 

primarily for personal, family, or 

household purposes. 

(13) Consummation means the time 

that a consumer becomes contractually 

obligated on credit transaction. 

(14) Credit means the right to defer 

payment of debt or to incur debt and 

defer its payment. 

(15) Credit card means any card, 

plate, [coupon book,] or other single 

credit device that may be used from 

time to time to obtain credit. Charge 

card means a credit card on an account 

for which no periodic rate is used to 

compute a finance charge. 

(16) Credit sale means a sale in which 

the seller is a creditor. The term 

includes a bailment or lease (unless 

terminable without penalty at any time 

by the consumer) under which the 

consumer—

(i) Agrees to pay as compensation for 

use a sum substantially equivalent to, or 

in excess of, the total value of the 

property and service involved; and 

(ii) Will become (or has the option to 

become), for no additional consideration 

or for nominal consideration, the owner 

of the property upon compliance with 

the agreement. 

(17) Creditor means: 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33041 

3fl[Reserved]fi [A person regularly extends 

consumer credit only if it extended credit (other 

than credit subject to the requirements of section 

226.32) more than 25 times (or more than 5 times 

for transactions secured by the dwelling) in the 

preceding calendar year. If a person did not meet 

these numerical standards in the preceding 

calendar year, the numerical standards shall be 

applied to the current calendar year. A person 

regularly extends consumer credit if, in any 12- 

month period, the person originates more than one 

credit extension that is subject to the requirements 

of section 226.32 or one or more such credit 

extensions through a mortgage broker.] 

4fl[Reserved]fi [The provisions in Section 

226.12(a) and (b) governing the issuance of credit 

cards and the liability for their unauthorized use 

apply to all credit cards, even if the credit cards are 

issued for use in connection with extensions of 

credit that otherwise are exempt under this section.] 

(i) A person (A) who regularly extends 

consumer credit 3 that is subject to a 

finance charge or is payable by written 

agreement in more than four 

installments (not including a down 

payment), and (B) to whom the 

obligation is initially payable, either on 

the face of the note or contract, or by 

agreement when there is no note or 

contract. 

(ii) For purposes of §§ 226.4(c)(8) 

(Discounts), 226.9(d) (finance charge 

imposed at time of transaction), and 

226.12(e) (prompt notification of returns 

and crediting of refunds), a person that 

honors a credit card. 

(iii) For purposes of subpart B, any 

card issuer that extends either open-end 

credit or credit that is not subject to a 

finance charge and is not payable by 

written agreement in more than four 

installments. 

(iv) For purposes of subpart B (except 

for the credit and charge card 

disclosures contained in §§ 226.5a and 

226.9(e) and (f), the finance charge 

disclosures contained in 

fl§§ 226.6(a)(1) and (b)(1) and 

§§ 226.7(a)(4) through (7) and (b)(4) 

through (7)fi [§ 226.6(a) and § 226.7(d) 

through (g)] and the right of rescission 

set forth in § 226.15) and subpart C, any 

card issuer that extends closed-end 

credit that is subject to a finance charge 

or is payable by written agreement in 

more than four installments. 

fl(v) A person regularly extends 

consumer credit only if it extended 

credit (other than credit subject to the 

requirements of § 226.32) more than 25 

times (or more than 5 times for 

transactions secured by the dwelling) in 

the preceding calendar year. If a person 

did not meet these numerical standards 

in the preceding calendar year, the 

numerical standards shall be applied to 

the current calendar year. A person 

regularly extends consumer credit if, in 

any 12-month period, the person 

originates more than one credit 

extension that is subject to the 

requirements of § 226.32 or one or more 

such credit extensions through a 

mortgage broker.fi 

(18) Downpayment means an amount, 

including the value of property used as 

a trade-in, paid to a seller to reduce the 

cash price of goods or services 

purchased in a credit sale transaction. A 

deferred portion of a downpayment may 

be treated as part of the downpayment 

if it is payable not later than the due 

date of the second otherwise regularly 

scheduled payment and is not subject to 

a finance charge. 

(19) Dwelling means a residential 

structure that contains one to four units, 

whether or not that structure is attached 

to real property. The term includes an 

individual condominium unit, 

cooperative unit, mobile home, and 

trailer, if it is used as a residence. 

(20) Open-end credit means consumer 

credit extended by a creditor under a 

plan in which: 

(i) The creditor reasonably 

contemplates repeated transactions; 

(ii) The creditor may impose a finance 

charge from time to time on an 

outstanding unpaid balance; and 

(iii) The amount of credit that may be 

extended to the consumer during the 

term of the plan (up to any limit set by 

the creditor) is generally made available 

to the extent that any outstanding 

balance is repaid. 

(21) Periodic rate means a rate of 

finance charge that is or may be 

imposed by a creditor on a balance for 

a day, week, month, or other 

subdivision of a year. 

(22) Person means a natural person or 

an organization, including a 

corporation, partnership, 

proprietorship, association, cooperative, 

estate, trust, or government unit. 

(23) Prepaid finance charge means 

any finance charge paid separately in 

cash or by check before or at 

consummation of a transaction, or 

withheld from the proceeds of the credit 

at any time. 

(24) Residential mortgage transaction 

means a transaction in which a 

mortgage, deed of trust, purchase money 

security interest arising under an 

installment sales contract, or equivalent 

consensual security interest is created or 

retained in the consumer’s principal 

dwelling to finance the acquisition or 

initial construction of that dwelling. 

(25) Security interest means an 

interest in property that secures 

performance of a consumer credit 

obligation and that is recognized by 

state or federal law. It does not include 

incidental interests such as interests in 

proceeds, accessions, additions, 

fixtures, insurance proceeds (whether or 

not the creditor is a loss payee or 

beneficiary), premium rebates, or 

interests in after-acquired property. For 

purposes of disclosures under § 226.6 

and § 226.18, the term does not include 

an interest that arises solely by 

operation of law. However, for purposes 

of the right of rescission under § 226.15 

and § 226.23, the term does include 

interests that arise solely by operation of 

law. 

(26) State means any state, the District 

of Columbia, the Commonwealth of 

Puerto Rico, and any territory or 

possession of the United States. 

(b) Rules of construction. For 

purposes of this regulation, the 

following rules of construction apply: 

(1) Where appropriate, the singular 

form of a word includes the plural form 

and plural includes singular. 

(2) Where the words obligation and 

transaction are used in the regulation, 

they refer to a consumer credit 

obligation or transaction, depending 

upon the context. Where the work credit 

is used in the regulation, it means 

consumer credit unless the context 

clearly indicates otherwise. 

(3) Unless defined in this regulation, 

the words used have the meanings given 

to them by state law or contact. 

(4) Footnotes have the same legal 

effect as the text of the regulation. 

(5) Where the word ‘‘amount’’ is used 

in this regulation to describe disclosure 

requirements, it refers to a numerical 

amount. 

4. Section 226.3 is amended by 

republishing paragraphs (a), (b), (c), (d), 

(e), and (f), adding a new paragraph (g), 

and removing and reserving footnote 4 

to read as follows: 

§ 226.3 Exempt transactions. 

This regulation does not apply to the 

following: 4

(a) Business, commercial, agricultural, 

or organizational credit. (1) An 

extension of credit primarily for a 

business, commercial or agricultural 

purpose. 

(2) An extension of credit to other 

than a natural person, including credit 

to government agencies or 

instrumentalities. 

(b) Credit over $25,000 not secured by 

real property or a dwelling. An 

extension of credit not secured by real 

property, or by personal property used 

or expected to be used as the principal 

dwelling of the consumer, 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. 

(c) Public utility credit. An extension 

of credit that involves public utility 

services provided through pipe, wire, 


rwilkins on PROD1PC63 with PROPOSALS2
33042 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

other connected facilities, or radio or 

similar transmission (including 

extensions of such facilities), if the 

charges for service, delayed payment, or 

any discounts for prompt payment are 

filed with or regulated by any 

government unit. The financing of 

durable goods or home improvements 

by a public utility is not exempt. 

(d) Securities or commodities 

accounts. Transactions in securities or 

commodities accounts in which credit is 

extended by a broker-dealer registered 

with the Securities and Exchange 

Commission or the Commodity Futures 

Trading Commission. 

(e) Home fuel budget plans. An 

installment agreement for the purchase 

of home fuels in which no finance 

charge is imposed. 

(f) Student loan programs. Loans 

made, insured, or guaranteed pursuant 

to a program authorized by title IV of 

the Higher Education Act of 1965 (20 

U.S.C. 1070 et seq.). 

fl(g) Employer-sponsored retirement 

plans. An extension of credit to a 

participant in an employer-sponsored 

retirement plan qualified under Section 

401(a) of the Internal Revenue Code or 

a tax-sheltered annuity under Section 

403(b) of the Internal Revenue Code (26 

U.S.C. 401(a); 26 U.S.C. 403(b)), 

provided that the extension of credit is 

comprised of fully vested funds from 

such participant’s account and is made 

in compliance with the Internal 

Revenue Code (26 U.S.C. 1 et seq.).fi 

5. Section 226.4 is amended by 

republishing paragraphs (a), (c), (e), and 

(f), revising paragraphs (b) and (d), and 

removing and reserving footnotes 5 and 

6 to read as follows: 

§ 226.4 Finance charge. 

(a) Definition. The finance charge is 

the cost of consumer credit as a dollar 

amount. It includes any charge payable 

directly or indirectly by the consumer 

and imposed directly or indirectly by 

the creditor as an incident to or a 

condition of the extension of credit. It 

does not include any charge of a type 

payable in a comparable cash 

transaction. 

(1) Charges by third parties. The 

finance charge includes fees and 

amounts charged by someone other than 

the creditor, unless otherwise excluded 

under this section, if the creditor: 

(i) Requires the use of a third party as 

a condition of or an incident to the 

extension of credit, even if the 

consumer can choose the third party; or 

(ii) Retains a portion of the third-party 

charge, to the extent of the portion 

retained. 

(2) Special rule; closing agent charges. 

Fees charged by a third party that 

conducts the loan closing (such as a 

settlement agent, attorney, or escrow or 

title company) are finance charges only 

if the creditor—

(i) Requires the particular services for 

which the consumer is charged; 

(ii) Requires the imposition of the 

charge; or 

(iii) Retains a portion of the thirdparty charge, to the extent of the portion 

retained. 

(3) Special rule; mortgage broker fees. 

Fees charged by a mortgage broker 

(including fees paid by the consumer 

directly to the broker or to the creditor 

for delivery to the broker) are finance 

charges even if the creditor does not 

require the consumer to use a mortgage 

broker and even if the creditor does not 

retain any portion of the charge. 

(b) Examples of finance charges. The 

finance charge includes the following 

types of charges, except for charges 

specifically excluded by paragraphs (c) 

through (e) of this section: 

(1) Interest, time price differential, 

and any amount payable under an addon or discount system of additional 

charges. 

(2) Service, transaction, activity, and 

carrying charges, including any charge 

imposed on a checking or other 

transaction account to the extent that 

the charge exceeds the charge for a 

similar account without a credit feature. 

(3) Points, loan fees, assumption fees, 

finder’s fees, and similar charges. 

(4) Appraisal, investigation, and 

credit report fees. 

(5) Premiums or other charges for any 

guarantee or insurance protecting the 

creditor against the consumer’s default 

or other credit loss. 

(6) Charges imposed on a creditor by 

another person for purchasing or 

accepting a consumer’s obligation, if the 

consumer is required to pay the charges 

in cash, as an addition to the obligation, 

or as a deduction from the proceeds of 

the obligation. 

(7) Premiums or other charges for 

credit life, accident, health, or loss-ofincome insurance, written in connection 

with a credit transaction. 

(8) Premiums or other charges for 

insurance against loss of or damage to 

property, or against liability arising out 

of the ownership or use of property, 

written in connection with a credit 

transaction. 

(9) Discounts for the purpose of 

inducing payment by a means other 

than the use of credit. 

(10) Debt cancellation fland debt 

suspensionfi fees. Charges or premiums 

paid for debt cancellation flor debt 

suspensionfi coverage written in 

connection with a credit transaction, 

whether or not the [debt cancellation] 

coverage is insurance under applicable 

law. 

(c) Charges excluded from the finance 

charge. The following charges are not 

finance charges: 

(1) Application fees charged to all 

applicants for credit, whether or not 

credit is actually extended. 

(2) Charges for actual unanticipated 

late payment, for exceeding a credit 

limit, or for delinquency, default, or a 

similar occurrence. 

(3) Charges imposed by a financial 

institution for paying items that 

overdraw an account, unless the 

payment of such items and the 

imposition of the charge were 

previously agreed upon in writing. 

(4) Fees charged for participation in a 

credit plan, whether assessed on an 

annual or other periodic basis. 

(5) Seller’s points. 

(6) Interest forfeited as a result of an 

interest reduction required by law on a 

time deposit used as security for an 

extension of credit. 

(7) Real-estate related fees. The 

following fees in a transaction secured 

by real property or in a residential 

mortgage transaction, if the fees are 

bona fide and reasonable in amount: 

(i) Fees for title examination, abstract 

of title, title insurance, property survey, 

and similar purposes. 

(ii) Fees for preparing loan-related 

documents, such as deeds, mortgages, 

and reconveyance or settlement 

documents. 

(iii) Notary and credit-report fees. 

(iv) Property appraisal fees or fees for 

inspections to assess the value or 

condition of the property if the service 

is performed prior to closing, including 

fees related to pest-infestation or floodhazard determinations. 

(v) Amounts required to be paid into 

escrow or trustee accounts if the 

amounts would not otherwise be 

included in the finance charge. 

(8) Discounts offered to induce 

payment for a purchase by cash, check, 

or other means, as provided in section 

167(b) of the Act. 

(d) Insurance and debt cancellation 

fland debt suspensionfi coverage. 

(1) Voluntary credit insurance 

premiums. Premiums for credit life, 

accident, health, or loss-of-income 

insurance may be excluded from the 

finance charge if the following 

conditions are met: 

(i) The insurance coverage is not 

required by the creditor, and this fact is 

disclosed in writing. 

(ii) The premium for the initial term 

of insurance coverage is disclosed flin 

writingfi. If the term of insurance is 

less than the term of the transaction, the 

term of insurance also shall be 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33043 

5fl[Reserved]fi [This includes single interest 

insurance if the insurer waives all right of 

subrogation against the consumer.] 

6fl[Reserved]fi [A creditor may reserve the right 

to refuse to accept, for reasonable cause, an insurer 

offered by the consumer.] 

7fl[Reserved]fi [The disclosure required by 

§ 226.9(d) when a finance charge is imposed at the 

time of a transaction need not be written.] 

8fl[Reserved]fi [The disclosures required under 

§ 226.5a for credit and charge card applications and 

solicitations, the home equity disclosures required 

under § 226.5b(d), the alternative summary billingrights statement provided for in § 226.9(a)(2), the 

credit and charge card renewal disclosures required 

under § 226.9(e), and the disclosures made under 

§ 226.10(b) about payment requirements need not 

be in a form that the consumer can keep.] 

disclosed. The premium may be 

disclosed on a unit-cost basis only in 

open-end credit transactions, closed-end 

credit transactions by mail or telephone 

under § 226.17(g), and certain closedend credit transactions involving an 

insurance plan that limits the total 

amount of indebtedness subject to 

coverage. 

(iii) The consumer signs or initials an 

affirmative written request for the 

insurance after receiving the disclosures 

specified in this paragraphfl, except as 

provided in paragraph (d)(4) of this 

sectionfi. Any consumer in the 

transaction may sign or initial the 

request. 

(2) flProperty insurance 

premiums.fi Premiums for insurance 

against loss of or damage to property, or 

against liability arising out of the 

ownership or use of property, 

flincluding single interest insurance if 

the insurer waives all right of 

subrogation against the consumer,fi5

may be excluded from the finance 

charge if the following conditions are 

met: 

(i) The insurance coverage may be 

obtained from a person of the 

consumer’s choice,6 and this fact is 

disclosed. fl(A creditor may reserve the 

right to refuse to accept, for reasonable 

cause, an insurer offered by the 

consumer.)fi 

(ii) If the coverage is obtained from or 

through the creditor, the premium for 

the initial term of insurance coverage 

shall be disclosed. If the term of 

insurance is less than the term of the 

transaction, the term of insurance shall 

also be disclosed. The premium may be 

disclosed on a unit-cost basis only in 

open-end credit transactions, closed-end 

credit transactions by mail or telephone 

under § 226.17(g), and certain closedend credit transactions involving an 

insurance plan that limits the total 

amount of indebtedness subject to 

coverage. 

(3) Voluntary debt cancellation flor 

debt suspensionfi fees. [(i)]Charges or 

premiums paid for debt cancellation 

coverage flfor amounts exceeding the 

value of the collateral securing the 

obligation or for debt cancellation or 

debt suspension coverage in the event of 

the loss of life, health, or income or in 

case of accidentfi [of the type specified 

in paragraph (d)(3)(ii) of this section] 

may be excluded from the finance 

charge, whether or not the coverage is 

insurance, if the following conditions 

are met: 

fl(i)fi [(A)] The debt cancellation 

flor debt suspensionfi agreement or 

coverage is not required by the creditor, 

and this fact is disclosed in writing; 

fl(ii)fi [(B)] The fee or premium for 

the initial term of coverage is disclosed 

flin writingfi. If the term of coverage 

is less than the term of the credit 

transaction, the term of coverage also 

shall be disclosed. The fee or premium 

may be disclosed on a unit-cost basis 

only in open-end credit transactions, 

closed-end credit transactions by mail 

or telephone under § 226.17(g), and 

certain closed-end credit transactions 

involving a debt cancellation agreement 

that limits the total amount of 

indebtedness subject to coverage; 

fl(iii) The following are disclosed, as 

applicable, for debt suspension 

coverage: that the obligation to pay loan 

principal and interest is only 

suspended, and that interest will 

continue to accrue during the period of 

suspension.fi 

fl(iv)fi [(C)] The consumer signs or 

initials an affirmative written request for 

coverage after receiving the disclosures 

specified in this paragraph fl, except as 

provided in paragraph (d)(4) of this 

sectionfi. Any consumer in the 

transaction may sign or initial the 

request. 

[(ii) Paragraph (d)(3)(i) of this section 

applies to fees paid for debt cancellation 

coverage that provides for cancellation 

of all or part of the debtor s liability for 

amounts exceeding the value of the 

collateral securing the obligation, or in 

the event of the loss of life, health, or 

income or in case of accident.] 

fl(4) Telephone purchases. If a 

consumer purchases credit insurance or 

debt cancellation or debt suspension 

coverage for an open-end (not homesecured) plan by telephone, the creditor 

must make the disclosures under 

paragraphs (d)(1)(i) and (ii) or (d)(3)(i) 

through (iii) of this section, as 

applicable, orally. In such a case, the 

creditor shall: 

(i) Maintain reasonable procedures to 

provide the disclosures to the consumer 

orally and maintain evidence that the 

consumer, after being provided the 

disclosures, affirmatively elected to 

purchase the insurance or coverage; and 

(ii) Mail the disclosures under 

paragraphs (d)(1)(i) and (ii) or (d)(3)(i) 

through (iii) of this section, as 

applicable, within three business days 

after the telephone purchase.fi 

(e) Certain security interest charges. If 

itemized and disclosed, the following 

charges may be excluded from the 

finance charge: 

(1) Taxes and fees prescribed by law 

that actually are or will be paid to 

public officials for determining the 

existence of or for perfecting, releasing, 

or satisfying a security interest. 

(2) The premium for insurance in lieu 

of perfecting a security interest to the 

extent that the premium does not 

exceed the fees described in paragraph 

(e)(1) of this section that otherwise 

would be payable. 

(3) Taxes on security instruments. 

Any tax levied on security instruments 

or on documents evidencing 

indebtedness if the payment of such 

taxes is a requirement for recording the 

instrument securing the evidence of 

indebtedness. 

(f) Prohibited offsets. Interest, 

dividends, or other income received or 

to be received by the consumer on 

deposits or investments shall not be 

deducted in computing the finance 

charge. 

6. Section 226.5 is amended by 

revising paragraphs (a) and (b), 

republishing paragraphs (c), (d), and (e), 

and removing and reserving footnotes 7 

through 10 to read as follows: 

§ 226.5 General disclosure requirements. 

(a) Form of disclosures. 

(1) flGeneral.fi 

fl(i)fi The creditor shall make the 

disclosures required by this subpart 

clearly and conspicuouslyfl.fi 

fl(ii) The creditor shall make the 

disclosures required by this subpartfi 

in writing,7 in a form that the consumer 

may keep[.] 8 fl, except that: 

(A) The following disclosures need 

not be written: disclosures under 

§ 226.6(b)(1) of charges that are imposed 

as part of the plan and may be provided 

at any time before the consumer agrees 

to pay or becomes obligated to pay for 

the charge, pursuant to the timing 

requirements of paragraph (b)(1)(ii) of 

this section and related disclosures 

under § 226.9(c)(2)(ii)(B) of charges; and 

disclosures under § 226.9(d) when a 

finance charge is imposed at the time of 

the transaction. 

(B) The following disclosures need 

not be in a retainable form: disclosures 

for credit and charge card applications 

and solicitations under § 226.5a; home 

equity disclosures under § 226.5b(d); the 


rwilkins on PROD1PC63 with PROPOSALS2
33044 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

9fl[Reserved]fi [The terms need not be more 

conspicuous when used under § 226.5a generally 

for credit and charge card applications and 

solicitations, under § 226.7(d) on periodic 

statements, under § 226.9(e) in credit and charge 

card renewal disclosures, and under § 226.16 in 

advertisements. (But see special rule for annual 

percentage rate for purchases, § 226.5a(b)(1).)] 

alternative summary billing-rights 

statement under § 226.9(a)(2); the credit 

and charge card renewal disclosures 

required under § 226.9(e); and the 

payment requirements under 

§ 226.10(b), except as provided in 

§ 226.7(b)(13). 

(iii) The disclosures required by this 

subpart may be provided to the 

consumer in electronic form, subject to 

compliance with the consumer consent 

and other applicable provisions of the 

Electronic Signatures in Global and 

National Commerce Act (E-Sign Act) (15 

U.S.C. 7001 et seq.). The disclosures 

required by §§ 226.5a, 226.5b, and 

226.16 may be provided to the 

consumer in electronic form without 

regard to the consumer consent or other 

provisions of the E-Sign Act in the 

circumstances set forth in those 

sections.fi 

fl(2) Terminology. 

(i) Terminology used in providing the 

disclosures required by this subpart 

shall be consistent. 

(ii) The terms finance charge and 

annual percentage rate, when required 

to be disclosed with a corresponding 

amount or percentage rate, shall be more 

conspicuous than any other required 

disclosure.9 The terms need not be more 

conspicuous when used for credit and 

charge card applications and 

solicitations under § 226.5a; for accountopening disclosures in a tabular format 

under § 226.6(b)(4); for periodic 

statements disclosures under 

§ 226.7(b)(4) and § 226.7(b)(7); for 

disclosures in a tabular format 

accompanying checks that access a 

credit card account under § 226.9(b)(3); 

for information in change-in-terms 

notices in a tabular format under 

§ 226.9(c)(2)(iii)(B); for information 

when rates are increased due to 

delinquency, default or penalty pricing 

under § 226.9(g)(3)(ii); for credit and 

charge card renewal disclosures under 

§ 226.9(e); and for advertisements under 

§ 226.16. 

(iii) If disclosures are required to be 

presented in a tabular format pursuant 

to paragraph (a)(3) of this section, the 

term grace period and penalty APR shall 

be used, as applicable. If credit 

insurance or debt cancellation or debt 

suspension coverage is required as part 

of the plan, the term required shall be 

used and the program shall be identified 

by its name. If an annual percentage rate 

is required to be presented in a tabular 

format pursuant to paragraph (a)(3)(i) or 

(a)(3)(iii) of this section, the term fixed, 

or a similar term, may not be used to 

describe such rate unless the creditor 

also specifies a time period that the rate 

will be fixed and the rate will not 

increase during that period, or if no 

such time period is provided, the rate 

will not increase while the plan is 

open.fi 

fl(3) Specific formats. 

(i) Certain disclosures for credit and 

charge card applications and 

solicitations must be provided in a 

tabular format in accordance with the 

requirements of § 226.5a(a)(2). 

(ii) Certain disclosures for home 

equity plans must precede other 

disclosures and must be given in 

accordance with the requirements of 

§ 226.5b(a). 

(iii) Certain account-opening 

disclosures must be provided in a 

tabular format in accordance with the 

requirements of § 226.6(b)(4). 

(iv) Certain disclosures provided on 

periodic statement must be provided in 

a tabular format in accordance with the 

requirements of § 226.7(b)(7). 

(v) Certain disclosures provided on 

periodic statements must be grouped 

together in accordance with the 

requirements of § 226.7(b)(6) and 

§ 226.7(b)(13). 

(vi) Certain disclosures accompanying 

checks that access a credit card account 

must be provided in a tabular format in 

accordance with the requirements of 

§ 226.9(b)(3). 

(vii) Certain disclosures provided in a 

change-in-terms notice must be 

provided in a tabular format in 

accordance with the requirements of 

§ 226.9(c)(2)(iii)(B). 

(viii) Certain disclosures provided 

when a rate is increased due to 

delinquency, default or as a rate must be 

provided in a tabular format in 

accordance with the requirements of 

§ 226.9(g)(3)(ii).fi 

[(2) The terms ‘‘finance charge’’ and 

‘‘annual percentage rate,’’ when 

required to be disclosed with a 

corresponding amount or percentage 

rate, shall be more conspicuous than 

any other required disclosure. 

(3) Certain disclosures required under 

§ 226.5a for credit and charge card 

applications and solicitations must be 

provided in a tabular format or in a 

prominent location in accordance with 

the requirements of that section. 

(4) For rules governing the form of 

disclosures for home equity plans, see 

§ 226.5b(a). 

(5) Electronic communication. For 

rules governing the electronic delivery 

of disclosures, including the definition 

of electronic communication, see 

§ 226.36.] 

(b) Time of disclosures. 

(1) [Initial] flAccount-openingfi 

disclosures. 

fl (i) General rule.fi The creditor 

shall furnish flaccount-opening 

disclosuresfi [the initial disclosure 

statement] required by § 226.6 before the 

first transaction is made under the plan. 

fl(ii) Charges imposed as part of an 

open-end (not home-secured) plan. 

Charges that are imposed as part of an 

open-end (not home-secured) plan and 

are not required to be disclosed under 

§ 226.6(b)(4) may be provided at any 

relevant time before the consumer 

agrees to pay or becomes obligated to 

pay for the charge. This provision does 

not apply to charges imposed as part of 

a home equity plan subject to the 

requirements of § 226.5b. 

(iii) Telephone purchases. Disclosures 

required by § 226.6 may be provided as 

soon as reasonably practicable after the 

first transaction if: 

(A) The first transaction occurs when 

a consumer contacts a merchant by 

telephone to purchase goods and at the 

same time the consumer accepts an offer 

to finance the purchase by establishing 

an open-end plan with the merchant, 

(B) The merchant permits consumers 

to return any goods financed under the 

plan and provides consumers with a 

sufficient time to reject the plan and 

return the goods free of cost after 

receiving the written disclosures 

required by § 226.6, and 

(C) The consumer’s right to reject the 

plan and return the goods is disclosed 

to the consumer as a part of the offer to 

finance the purchase. 

(iv) Membership fees. A creditor may 

collect, or obtain the consumer’s 

agreement to pay, a membership fee 

before providing account-opening 

disclosures if the consumer may reject 

the plan after receiving the disclosures. 

If the consumer rejects the plan, the 

creditor must promptly refund the 

membership fee if it has been paid, or 

take other action necessary to ensure the 

consumer is not obligated to pay the fee. 

(v) Application fees. A creditor may 

collect an application fee excludable 

from the finance charge under 

§ 226.4(c)(1) before providing accountopening disclosures.fi 

(2) Periodic statements. 

(i) The creditor shall mail or deliver 

a periodic statement as required by 

§ 226.7 for each billing cycle at the end 

of which an account has a debit or 

credit balance of more than $1 or on 

which a finance charge has been 

imposed. A periodic statement need not 

be sent for an account if the creditor 

deems it uncollectible, or if delinquency 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33045 

10fl[Reserved]fi [This timing requirement does 

not apply if the creditor is unable to meet the 

requirement because of an act of God, war, civil 

disorder, natural disaster, or strike.] 

collection proceedings have been 

instituted, or if furnishing the statement 

would violate federal law. 

(ii) The creditor shall mail or deliver 

the periodic statement at least 14 days 

prior to any date or the end of any time 

period required to be disclosed under 

fl§ 226.7(a)(8) or § 226.7(b)(8), as 

applicable,fi [§ 226.7(j) in order] for the 

consumer to avoid an additional finance 

or other charge.10 A creditor that fails to 

meet this requirement shall not collect 

any finance or other charge imposed as 

a result of such failure. 

fl(iii) The timing requirement under 

this paragraph (b)(2) does not apply if 

the creditor is unable to meet the 

requirement because of an act of God, 

war, civil disorder, natural disaster, or 

strike.fi 

(3) Credit and charge card application 

and solicitation disclosures. The card 

issuer shall furnish the disclosures for 

credit and charge card applications and 

solicitations in accordance with the 

timing requirements of § 226.5a. 

(4) Home equity plans. Disclosures for 

home equity plans shall be made in 

accordance with the timing 

requirements of § 226.5b(b). 

(c) Basis of disclosures and use of 

estimates. Disclosures shall reflect the 

terms of the legal obligation between the 

parties. If any information necessary for 

accurate disclosure is unknown to the 

creditor, it shall make the disclosure 

based on the best information 

reasonably available and shall state 

clearly that the disclosure is an 

estimate. 

(d) Multiple creditors; multiple 

consumers. If the credit plan involves 

more than one creditor, only one set of 

disclosures shall be given, and the 

creditors shall agree among themselves 

which creditor must comply with the 

requirements that this regulation 

imposes on any or all of them. If there 

is more than one consumer, the 

disclosures may be made to any 

consumer who is primarily liable on the 

account. If the right of rescission under 

§ 226.15 is applicable, however, the 

disclosures required by § 226.6 and 

§ 226.15(b) shall be made to each 

consumer having the right to rescind. 

(e) Effect of subsequent events. If a 

disclosure becomes inaccurate because 

of an event that occurs after the creditor 

mails or delivers the disclosures, the 

resulting inaccuracy is not a violation of 

this regulation, although new 

disclosures may be required under 

§ 226.9(c). 

7. Section 226.5a is amended by 

revising paragraphs (a), (b), (c), (d), (e), 

(f), and republishing paragraph (g) to 

read as follows: 

§ 226.5a Credit and charge card 

applications and solicitations. 

(a) General rules. The card issuer shall 

provide the disclosures required under 

this section on or with a solicitation or 

an application to open a credit or charge 

card account. 

(1) Definition of solicitation. For 

purposes of this section, the term 

solicitation means an offer by the card 

issuer to open a credit or charge card 

account that does not require the 

consumer to complete an application. 

flA ‘‘firm offer of credit’’ as defined in 

section 603(l) of the Fair Credit 

Reporting Act (15 U.S.C. 1681a(l)) for a 

credit or charge card is a solicitation for 

purposes of this section.fi 

(2) Form of disclosures fl; tabular 

format.fi 

(i) The disclosures in paragraphs 

(b)(1) through fl(5) and (b)(7) through 

(17)fi [(7)] of this section flmade 

pursuant to paragraph (c), (d)(2), (e)(1) 

or (f) of this section generallyfi shall be 

[provided in a prominent location on or 

with an application or a solicitation, or 

other applicable document , and] in the 

form of a table with headings, content, 

and format substantially similar to any 

of the applicable tables found in flG–

10 infi appendix G. 

fl(ii) The table described in 

paragraph (a)(2)(i) of this section shall 

contain only the information required or 

permitted by this section. Other 

information may be presented on or 

with an application or solicitation, 

provided such information appears 

outside the required table. 

(iii) Disclosures required by paragraph 

(b)(6) of this section must be placed 

directly beneath the table. 

(iv) When a tabular format is required, 

any APR required to be disclosed 

pursuant to paragraph (b)(1) of this 

section, any discounted initial rate 

permitted to be disclosed pursuant to 

paragraph (b)(1)(ii) of this section, and 

any fee or percentage amounts required 

to be disclosed pursuant to paragraphs 

(b)(2), (4), (8) through (12) or (14) of this 

section must be disclosed in bold text, 

except for any maximum limits on fee 

amounts disclosed in the table. Other 

APRs or fee amounts disclosed in the 

table shall not be in bold text. 

(v) For an application or a solicitation 

that is accessed by the consumer in 

electronic form, the disclosures required 

under this section must be provided to 

the consumer in electronic form on or 

with the application or solicitation. 

(vi)(A) Except as provided in 

paragraph (a)(2)(vi)(B) of this section, 

the table described in paragraph (a)(2)(i) 

of this section must be provided in a 

prominent location on or with an 

application or a solicitation. 

(B) If the table described in paragraph 

(a)(2)(i) of this section is provided 

electronically, it must be provided in 

close proximity to the application or 

solicitation.fi 

[(ii) The disclosures in paragraphs 

(b)(8) through (11) of this section shall 

be provided either in the table 

containing the disclosures in paragraphs 

(b)(1) through (7), or clearly and 

conspicuously elsewhere on or with the 

application or solicitation. 

(iii) The disclosure required under 

paragraph (b)(5) of this section shall 

contain the term grace period. 

(iv) The terminology in the 

disclosures under paragraph (b) of this 

section shall be consistent with that to 

be used in the disclosures under 

§§ 226.6 and 226.7. 

(3) Exceptions. This section does not 

apply to home equity plans accessible 

by a credit or charge card that are of the 

type subject to the requirements of 

§ 226.5b; overdraft lines of credit tied to 

asset accounts accessed by checkguarantee cards or by debit cards; or 

lines of credit accessed by checkguarantee cards or by debit cards that 

can be used only at automated teller 

machines.] 

fl(3)fi [(4)] Fees based on a 

percentage. If the amount of any fee 

required to be disclosed under this 

section is determined on the basis of a 

percentage of another amount, the 

percentage used and the identification 

of the amount against which the 

percentage is applied may be disclosed 

instead of the amount of the fee. 

fl(4)fi [(5)] Certain fees that vary by 

state. If the amount of any fee referred 

to in paragraphs (b)(8) through fl (12) 

fi [(11)] of this section varies from state 

to state, the 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. 

fl(5) Exceptions. This section does 

not apply to: 

(i) Home equity plans accessible by a 

credit or charge card that are subject to 

the requirements of § 226.5b; 

(ii) Overdraft lines of credit tied to 

asset accounts accessed by checkguarantee cards or by debit cards; 

(iii) Lines of credit accessed by checkguarantee cards or by debit cards that 

can be used only at automated teller 

machines; 

(iv) Lines of credit accessed solely by 

account numbers; 


rwilkins on PROD1PC63 with PROPOSALS2
33046 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

(v) Additions of a credit or charge 

card to an existing open-end plan; 

(vi) General purpose applications 

unless the application, or material 

accompanying it, indicates that it can be 

used to open a credit or charge card 

account; or 

(vii) Consumer-initiated requests for 

applications.fi 

(b) Required disclosures. The card 

issuer shall disclose the items in this 

paragraph on or with an application or 

a solicitation in accordance with the 

requirements of paragraphs (c), (d), [or 

(e)] fl(e)(1) or (f)fi of this section. A 

credit card issuer shall disclose all 

applicable items in this paragraph 

except for paragraph (b)(7) of this 

section. A charge card issuer shall 

disclose the applicable items in 

paragraphs (b)(2), (4), (7) through fl(12), 

and (16)fi [(11)] of this section. 

(1) Annual percentage rate. Each 

periodic rate that may be used to 

compute the finance charge on an 

outstanding balance for purchases, a 

cash advance, or a balance transfer, 

expressed as an annual percentage rate 

(as determined by § 226.14(b)). When 

more than one rate applies for a category 

of transactions, the range of balances to 

which each rate is applicable shall also 

be disclosed. The annual percentage rate 

for purchases disclosed pursuant to this 

paragraph shall be in at least [18-point] 

fl16-pointfi type, except for the 

following: floral disclosures of the 

annual percentage rate for purchases,fi 

a temporary initial rate that is lower 

than the rate that will apply after the 

temporary rate expires, and a penalty 

rate that flmayfi [will] apply upon the 

occurrence of one or more specific 

events. 

(i) flVariable rate information. If a 

rate disclosed under paragraph (b)(1) of 

this section is a variable rate,fi [If the 

account has a variable rate,] the card 

issuer shall also disclose the fact that 

the rate may vary and how the rate is 

determined. flIn describing how the 

applicable rate will be determined, the 

card issuer must identify the type of 

index or formula that is used in setting 

the rate. The value of the index and the 

amount of the margin that are used to 

calculate the variable rate shall not be 

disclosed in the table.fi 

fl(ii) Discounted initial rate. If the 

initial rate is temporary and is lower 

than the rate that will apply after the 

temporary rate expires, pursuant to 

paragraph (b)(1) of this section the card 

issuer must disclose the rate that would 

otherwise apply to the account. Where 

the rate is not tied to an index or 

formula, the card issuer must disclose 

the rate that will apply after the 

introductory rate expires. In a variablerate account, the card issuer must 

disclose a rate based on the applicable 

index or formula in accordance with the 

accuracy requirements set forth in 

paragraphs (c), (d), or (e) of this section, 

as applicable. The issuer may disclose 

in the table the discounted initial rate 

along with the rate that would otherwise 

apply to the account if the card issuer 

also discloses the time period during 

which the discounted initial rate will 

remain in effect, and uses the term 

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

proximity to the listing of the 

discounted initial rate. 

(iii) Premium initial rate. If the initial 

rate is temporary and is higher than the 

rate that will apply after the temporary 

rate expires, pursuant to paragraph 

(b)(1) of this section the card issuer 

must disclose the premium initial rate. 

The issuer may disclose in the table the 

rate that will apply after the premium 

initial rate expires if the issuer also 

discloses the time period during which 

the premium initial rate will remain in 

effect. The premium initial rate must be 

in at least 16-point type unless the 

issuer also discloses in the table the rate 

that will apply after the premium initial 

rate expires. In that case, the rate that 

will apply after the premium initial rate 

expires must be in at least 16-point type. 

(iv) Penalty rates. If a rate may 

increase as a penalty for one or more 

events specified in the account 

agreement, such as a late payment or an 

extension of credit that exceeds the 

credit limit, pursuant to paragraph (b)(1) 

of this section the card issuer must 

disclose the increased rate that would 

apply, a description of the types of 

balances to which the increased rate 

will apply, a brief description of the 

event or events that may result in the 

increased rate, and a brief description of 

how long the increased rate will remain 

in effect. Issuers must briefly disclose 

the circumstances under which any 

discounted initial rate may be revoked, 

and the rate that will apply after the 

revocation. The issuer need not disclose 

an increased rate that would be imposed 

if credit privileges are permanently 

terminated. 

(v) Rates depend on consumer’s 

creditworthiness. If a rate cannot be 

determined at the time disclosures are 

given because the rate depends on a 

later determination of the consumer’s 

creditworthiness, the card issuer must 

disclose the specific rates or the range 

of rates that could apply and a statement 

that the rate for which the consumer 

may qualify at account opening will 

depend on the consumer’s 

creditworthiness. 

(vi) Transaction with both rate and 

fee. If both a rate and a fee would apply 

to a balance transfer or cash advance 

transaction, the card issuer must 

disclose that a fee also applies when 

disclosing the rate, and provide a crossreference to the fee.fi 

[(ii) When variable rate disclosures 

are provided under paragraph (c) of this 

section, an annual percentage rate 

disclosure is accurate if the rate was in 

effect within 60 days before mailing the 

disclosures. When variable rate 

disclosures are provided under 

paragraph (e) of this section, an annual 

percentage rate disclosure is accurate if 

the rate was in effect within 30 days 

before printing the disclosures. 

Disclosures provided by electronic 

communication are subject to paragraph 

(b)(1)(iii) of this section. 

(iii) When variable rate disclosures 

are provided by electronic 

communication, an annual percentage 

rate disclosure is accurate if the rate was 

in effect within 30 days before mailing 

the disclosures to a consumer’s e-mail 

address. If disclosures are made 

available at another location such as the 

card issuer s Internet Web site, the 

annual percentage rate must be one in 

effect within the last 30 days.] 

(2) Fees for issuance or availability. 

fl(i)fi Any annual or other periodic fee 

[expressed as an annualized amount, or 

any other fee] that may be imposed for 

the issuance or availability of a credit or 

charge card, including any fee based on 

account activity or inactivity[.] fl; how 

frequently it will be imposed; and the 

annualized amount of the fee. 

(ii) Any non-periodic fee that relates 

to opening an account. A card issuer 

must disclose that the fee is a one-time 

fee.fi 

(3) Minimum finance charge. Any 

minimum or fixed finance charge that 

could be imposed during a billing cycle 

fland a brief description of the 

chargefi. 

(4) Transaction charges. fl(i) Except 

as provided in paragraph (b)(4)(ii) of 

this section, anyfi [Any] transaction 

charge imposed flby the card issuerfi 

for the use of the card for purchases. 

fl(ii) A card issuer shall not disclose 

in the table required by paragraph 

(a)(2)(i) of this section a fee imposed by 

the issuer for transactions in a foreign 

currency or that take place in a foreign 

country.fi 

(5) Grace period. The date by which 

or the period within which any credit 

extended for purchases may be repaid 

without incurring a finance charge 

fldue to a periodic interest rate and any 

conditions on the availability of the 

grace period.fi If no grace period is 

provided, that fact must be disclosed. If 

the length of the grace period varies, the 

card issuer may disclose the range of 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33047 

days, the minimum number of days, or 

the average number of days in the grace 

period, if the disclosure is identified as 

a range, minimum, or average. 

(6) Balance computation method. The 

name of the balance computation 

method listed in paragraph (g) of this 

section that is used to determine the 

balance for purchases on which the 

finance charge is computed, or an 

explanation of the method used if it is 

not listed. flA card issuer must provide 

this information directly below the 

table, if a tabular format is required.fi 

[The explanation of the method may 

appear outside the table if the table 

contains a reference to the explanation.] 

In determining which balance 

computation method to disclose, the 

card issuer shall assume that credit 

extended for purchases will not be 

repaid within the grace period, if any. 

(7) Statement on charge card 

payments. A statement that charges 

incurred by use of the charge card are 

due when the periodic statement is 

received. 

(8) Cash advance fee. Any fee 

imposed for an extension of credit in the 

form of cash or its equivalent. 

(9) Late payment fee. Any fee imposed 

for a late payment. 

(10) Over-the-limit fee. Any fee 

imposed for exceeding a credit limit. 

(11) Balance transfer fee. Any fee 

imposed to transfer an outstanding 

balance. 

fl(12) Returned payment fee. Any fee 

imposed by the card issuer for a 

returned payment. 

(13) Cross-reference to penalty rate. If 

a card issuer may impose a penalty rate 

as described in paragraph (b)(1)(iv) of 

this section for any of the circumstances 

for which a fee must be disclosed in 

paragraph (b)(9), (b)(10) or (b)(12), the 

card issuer must disclose the fact that 

the penalty rate also may apply, and a 

cross-reference to the penalty rate. 

(14) Required insurance, debt 

cancellation or debt suspension 

coverage. 

(i) A fee for insurance described in 

§ 226.4(b)(7) or debt cancellation or 

suspension coverage described in 

§ 226.4(b)(10), if the insurance or debt 

cancellation or suspension coverage is 

required as part of the plan; and 

(ii) A cross-reference to any additional 

information provided about the 

insurance or coverage accompanying the 

application or solicitation. 

(15) Payment allocation. If a card 

issuer offers a discounted initial rate on 

a balance transfer or cash advance that 

is lower than the rate on purchases, the 

issuer offers a grace period on 

purchases, and the issuer may allocate 

a payment to the lower rate balance 

first, then the issuer must state the 

following: the initial discounted rate 

applies to balances transfers or cash 

advances (as applicable) and not to 

purchases; 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 the consumer will 

be charged interest on all purchases 

until the entire account balance is paid 

off, including the transferred balance or 

cash advance balance (as applicable). 

This paragraph (b)(15) applies only if 

the initial discounted rate applies to 

balance transfers or cash advances that 

consumers can request as part of 

accepting the offer. 

(16) Available credit. If a card issuer 

requires fees for the issuance or 

availability of credit described in 

paragraph (b)(2) of this section, or 

requires a security deposit for such 

credit, and the total amount of those 

required fees and/or security deposit 

that will be imposed when the account 

is opened and charged to the account 

equal 25 percent or more of the 

minimum credit limit offered with the 

card, a card issuer must disclose the 

available credit remaining after these 

fees or security deposit are debited to 

the account, assuming that the 

consumer receives the minimum credit 

limit. In determining whether the 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 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, the issuer 

in providing the disclosure must 

disclose the amount of available credit 

excluding those optional fees, and the 

available credit including those optional 

fees. 

(17) Reference to Web site for 

additional information. A reference to 

the Web site established by the Board 

and a statement that consumers may 

obtain on the Web site information 

about shopping for and using credit 

cards.fi 

(c) Direct-mail and electronic 

applications and solicitations. fl(1) 

General.fi The card issuer shall 

disclose the applicable items in 

paragraph (b) of this section on or with 

an application or solicitation that is 

mailed to consumers [or provided by 

electronic communication] flor 

provided to consumers in electronic 

formfi. 

fl(2) Accuracy. (i) Disclosures in 

direct mail applications and 

solicitations must be accurate as of the 

time the disclosures are mailed. An 

accurate variable annual percentage rate 

is one in effect within 60 days before 

mailing. 

(ii) Disclosures provided in electronic 

form must be accurate as of the time 

they are sent, in the case of disclosures 

sent to a consumer’s e-mail address, or 

as of the time they are viewed by the 

public, in the case of disclosures made 

available at a location such as a card 

issuer’s Internet Web site. An accurate 

variable annual percentage rate 

provided in electronic form is one in 

effect within 30 days before it is sent to 

a consumer’s e-mail address, or viewed 

by the public, as applicable.fi 

(d) Telephone applications and 

solicitations—(1) Oral disclosure. The 

card issuer shall disclose orally the 

information in paragraphs (b)(1) through 

(7) of this section, to the extent 

applicable, in a telephone application or 

solicitation initiated by the card issuer. 

(2) Alternative disclosure. The oral 

disclosure under paragraph (d)(1) of this 

section need not be given if the card 

issuer either does not impose a fee 

described in paragraph (b)(2) of this 

section or does not impose such a fee 

unless the consumer uses the card, and 

the card issuer discloses in writing 

within 30 days after the consumer 

requests the card (but in no event later 

than the delivery of the card) the 

following: 

(i) The applicable information in 

paragraph (b) of this section; and 

(ii) The fact that the consumer need 

not accept the card or pay any fee 

disclosed unless the consumer uses the 

card. 

fl(3) Accuracy. (i) The oral 

disclosures under paragraph (d)(1) of 

this section must be accurate as of the 

time they are given. 

(ii) The alternative disclosures under 

paragraph (d)(2) of this section generally 

must be accurate as of the time they are 

mailed or delivered. A variable annual 

percentage rate is one that is accurate if 

it was: 

(A) In effect at the time the 

disclosures are mailed or delivered; or 

(B) In effect as of a specified date 

(which rate is then updated from time 

to time, but no less frequently than each 

calendar month).fi 

(e) Applications and solicitations 

made available to general public. The 

card issuer shall provide disclosures, to 

the extent applicable, on or with an 

application or solicitation that is made 

available to the general public, 

including one contained in a catalog, 

magazine, or other generally available 

publication. The disclosures shall be 

provided in accordance with paragraph 


rwilkins on PROD1PC63 with PROPOSALS2
33048 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

11fl[Reserved]fi [A creditor is not required to 

adjust the range of balances disclosure to reflect the 

balance below which only a minimum charge 

applies.] 

12fl[Reserved]fi [If a creditor is offering a 

variable-rate plan, the creditor shall also disclose, 

(1) the circumstances under which the rate(s) may 

increase; (2) any limitations on the increase; and (3) 

the effect(s) of an increase.] 

(e)(1)[,] flor (e)fi (2) [or (3)] of this 

section. 

(1) Disclosure of required credit 

information. The card issuer may 

disclose in a prominent location on the 

application or solicitation the following: 

(i) The applicable information in 

paragraph (b) of this section; 

(ii) The date the required information 

was printed, including a statement that 

the required information was accurate 

as of that date and is subject to change 

after that date; and 

(iii) A statement that the consumer 

should contact the card issuer for any 

change in the required information 

since it was printed, and a toll-free 

telephone number or a mailing address 

for that purpose. 

[(2) Inclusion of certain initial 

disclosures. The card issuer may 

disclose on or with the application or 

solicitation the following: 

(i) The disclosures required under 

§ 226.6 (a) through (c); and 

(ii) 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.] 

[(3)] fl(2)fi No disclosure of credit 

information. If none of the items in 

paragraph (b) of this section is provided 

on or with the application or 

solicitation, the card issuer may state in 

a prominent location on the application 

or solicitation the following: 

(i) There are costs associated with the 

use of the card; and 

(ii) The consumer may contact the 

card issuer to request specific 

information about the costs, along with 

a toll-free telephone number and a 

mailing address for that purpose. 

[(4)] fl(3)fi Prompt response to 

requests for information. Upon receiving 

a request for any of the information 

referred to in this paragraph, the card 

issuer shall promptly and fully disclose 

the information requested. 

fl(4) Accuracy. The disclosures given 

pursuant to paragraph (e)(1) of this 

section must be accurate as of the date 

of printing. A variable annual 

percentage rate is accurate if it was in 

effect within 30 days before printing.fi 

fl(f) In-person applications and 

solicitations—General. A card issuer 

shall disclose the information in 

paragraph (b) of this section, to the 

extent applicable, on or with an 

application or solicitation that is 

initiated by the card issuer and given to 

the consumer in person. A card issuer 

complies with the requirements of this 

paragraph if the issuer provides 

disclosures in accordance with 

paragraph (c)(1) or (e)(1) of this 

section.fi 

[(f) Special charge card rule—card 

issuer and person extending credit not 

the same person. If a cardholder may by 

use of a charge card access an open-end 

credit plan that is not maintained by the 

charge card issuer, the card issuer need 

not provide the disclosures in 

paragraphs (c), (d) or (e) of this section 

for the open-end credit plan if the card 

issuer states on or with an application 

or a solicitation the following: 

(1) The card issuer will make an 

independent decision whether to issue 

the card; 

(2) The charge card may arrive before 

the decision is made about extending 

credit under the open-end credit plan; 

and 

(3) Approval for the charge card does 

not constitute approval for the open-end 

credit plan.] 

(g) Balance computation methods 

defined. The following methods may be 

described by name. Methods that differ 

due to variations such as the allocation 

of payments, whether the finance charge 

begins to accrue on the transaction date 

or the date of posting the transaction, 

the existence or length of a grace period, 

and whether the balance is adjusted by 

charges such as late-payment fees, 

annual fees and unpaid finance charges 

do not constitute separate balance 

computation methods. 

(1)(i) Average daily balance (including 

new purchases). This balance is figured 

by adding the outstanding balance 

(including new purchases and 

deducting payments and credits) for 

each day in the billing cycle, and then 

dividing by the number of days in the 

billing cycle. 

(ii) Average daily balance (excluding 

new purchases). This balance is figured 

by adding the outstanding balance 

(excluding new purchases and 

deducting payments and credits) for 

each day in the billing cycle, and then 

dividing by the number of days in the 

billing cycle. 

(2)(i) Two-cycle average daily balance 

(including new purchases). This balance 

is the sum of the average daily balances 

for two billing cycles. The first balance 

is for the current billing cycle, and is 

figured by adding the outstanding 

balance (including new purchases and 

deducting payments and credits) for 

each day in the billing cycle, and then 

dividing by the number of days in the 

billing cycle. The second balance is for 

the preceding billing cycle. 

(ii) Two-cycle average daily balance 

(excluding new purchases). This balance 

is the sum of the average daily balances 

for two billing cycles. The first balance 

is for the current billing cycle, and is 

figured by adding the outstanding 

balance (excluding new purchases and 

deducting payments and credits) for 

each day in the billing cycle, and then 

dividing by the number of days in the 

billing cycle. The second balance is for 

the preceding billing cycle. 

(3) Adjusted balance. This balance is 

figured by deducting payments and 

credits made during the billing cycle 

from the outstanding balance at the 

beginning of the billing cycle. 

(4) Previous balance. This balance is 

the outstanding balance at the beginning 

of the billing cycle. 

8. Section 226.6 is amended by 

revising the heading, revising the 

introductory paragraph, revising 

paragraphs (a), (b), and (c), removing 

paragraphs (d) and (e), and removing 

and reserving footnotes 11 through 13 to 

read as follows: 

§ 226.6 flAccount-opening disclosuresfi 

[Initial disclosure statement].

flCreditors shall disclose the items in 

this section, to the extent applicable.fi 

[The creditor shall disclose to the 

consumer, in terminology consistent 

with that to be used on the periodic 

statement, each of the following items, 

to the extent applicable:] 

(a) flRules affecting home equity 

plans. The requirements of paragraph 

(a) of this section apply only to home 

equity plans subject to the requirements 

of § 226.5b. 

(1) fiFinance charge. The 

circumstances under which a finance 

charge will be imposed and an 

explanation of how it will be 

determined, as follows. 

fl(i)fi [(1)] A statement of when 

finance charges begin to accrue, 

including an explanation of whether or 

not any time period exists within which 

any credit extended may be repaid 

without incurring a finance charge. If 

such a time period is provided, a 

creditor may, at its option and without 

disclosure, impose no finance charge 

when payment is received after the time 

period’s expiration. 

fl(ii)fi [(2)] A disclosure of each 

periodic rate that may be used to 

compute the finance charge, the range of 

balances to which it is applicable,11 and 

the corresponding annual percentage 

rate.12 flIf a creditor offers a variablerate plan, the creditor shall also 

disclose: The circumstances under 

which the rate(s) may increase; any 

limitations on the increase; and the 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33049 

13fl[Reserved]fi [If no finance charge is 

imposed when the outstanding balance is less than 

a certain amount, no disclosure is required of that 

fact or of the balance below which no finance 

charge will be imposed.] 

effect(s) of an increase.fi When 

different periodic rates apply to 

different types of transactions, the types 

of transactions to which the periodic 

rates shall apply shall also be disclosed. 

flA creditor is not required to adjust 

the range of balances disclosure to 

reflect the balance below which only a 

minimum charge applies.fi 

fl(iii)fi [(3)] An explanation of the 

method used to determine the balance 

on which the finance charge may be 

computed. 

fl (iv) fi[(4)] An explanation of how 

the amount of any finance charge will 

be determined,13 including a 

description of how any finance charge 

other than the periodic rate will be 

determined. 

fl(2)fi [(b)] Other charges. The 

amount of any charge other than a 

finance charge that may be imposed as 

part of the plan, or an explanation of 

how the charge will be determined. 

fl(3) Home equity plan information. 

The following disclosures described in 

§ 226.5b(d), as applicable: 

(i) A statement of the conditions 

under which the creditor may take 

certain action, as described in 

§ 226.5b(d)(4)(i), such as terminating the 

plan or changing the terms. 

(ii) The payment information 

described in § 226.5b(d)(5)(i) and (ii) for 

both the draw period and any 

repayment period. 

(iii) A statement that negative 

amortization may occur as described in 

§ 226.5b(d)(9). 

(iv) A statement of any transaction 

requirements as described in 

§ 226.5b(d)(10). 

(v) A statement regarding the tax 

implications as described in 

§ 226.5b(d)(11). 

(vi) A statement that the annual 

percentage rate imposed under the plan 

does not include costs other than 

interest as described in §§ 226.5b(d)(6) 

and 226.5b(d)(12)(ii). 

(vii) The variable-rate disclosures 

described in § 226.5b(d)(12)(viii), (x), 

(xi), and (xii), as well as the disclosure 

described in § 226.5b(d)(5)(iii), unless 

the disclosures provided with the 

application were in a form the consumer 

could keep and included a 

representative payment example for the 

category of payment option chosen by 

the consumer.fi 

fl(b) Rules affecting open-end (not 

home-secured) plans. The requirements 

of paragraph (b) of this section apply to 

plans other than home equity plans 

subject to the requirements of 

§ 226.5b.fi 

fl(1) Charges imposed as part of 

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

circumstances under which a charge 

may be imposed as part of the plan, 

including the amount of the charge or 

an explanation of how the charge is 

determined. For finance charges, a 

statement of when the charge begins to 

accrue and an explanation of whether or 

not any time period exists within which 

any credit that has been extended may 

be repaid without incurring the charge. 

If such a time period is provided, a 

creditor may, at its option and without 

disclosure, elect not to impose a finance 

charge when payment is received after 

the time period expires. 

(i) Charges imposed as part of the plan 

are: 

(A) Finance charges identified under 

§ 226.4(a) and § 226.4(b). 

(B) Charges resulting from the 

consumer’s failure to use the plan as 

agreed, except amounts payable for 

collection activity after default, 

attorney’s fees whether or not 

automatically imposed, and postjudgment interest rates permitted by 

law. 

(C) Taxes imposed on the credit 

transaction by a state or other 

governmental body, such as 

documentary stamp taxes on cash 

advances. 

(D) Charges for which the payment, or 

nonpayment, affect the consumer’s 

access to the plan, the duration of the 

plan, the amount of credit extended, the 

period for which credit is extended, or 

the timing or method of billing or 

payment. 

(E) Charges imposed for terminating a 

plan. 

(F) Charges for voluntary credit 

insurance, debt cancellation or debt 

suspension. 

(ii) Charges that are not imposed as 

part of the plan include: 

(A) Charges imposed on a cardholder 

by an institution other than a creditor 

for the use of the other institution’s 

ATM in a shared or interchange system. 

(B) A charge for a package of services 

that includes an open-end credit feature, 

if the fee is required whether or not the 

open-end credit feature is included and 

the non-credit services are not merely 

incidental to the credit feature. 

(C) Charges under § 226.4(e) disclosed 

as specified.fi 

fl(2) Rules relating to rates for openend (not home-secured) plans. If a 

finance charge disclosed under 

paragraph (b)(1) of this section is 

computed by using a periodic rate: 

(i) For each periodic rate that may be 

used to calculate interest: 

(A) The rate, expressed as a periodic 

rate and a corresponding annual 

percentage rate. 

(B) The range of balances to which the 

rate is applicable; however, a creditor is 

not required to adjust the range of 

balances disclosure to reflect the 

balance below which only a minimum 

charge applies. 

(C) The type of transaction to which 

the rate applies, if different rates apply 

to different types of transactions. 

(D) An explanation of the method 

used to determine the balance to which 

the rate is applied. 

(ii) For interest rate changes that are 

specifically set forth in the account 

agreement and are tied to increases in 

an index or formula (variable-rate 

accounts): 

(A) The fact that the annual 

percentage rate may increase. 

(B) How the rate is determined, 

including the margin. 

(C) The circumstances under which 

the rate may increase. 

(D) The frequency with which the rate 

may increase. 

(E) Any limitation on the amount the 

rate may change. 

(F) The effect(s) of an increase. 

(G) A rate is accurate if it is a rate as 

of a specified date within the last 30 

days before the disclosures are 

provided. 

(iii) For interest rate changes that are 

specifically set forth in the account 

agreement and not tied to increases in 

an index or formula: 

(A) The initial rate (expressed as a 

periodic rate and a corresponding 

annual percentage rate) required under 

paragraph (b)(2)(i) of this section. 

(B) How long the initial rate will 

remain in effect or the specific events 

that cause the initial rate to change. 

(C) The rate (expressed as a periodic 

rate and a corresponding annual 

percentage rate) that will apply when 

the initial rate is no longer in effect and 

any limitation on the time period the 

new rate will remain in effect. 

(D) Whether the new rate will apply 

to balances outstanding at the time of 

the change.fi 

fl(3) Voluntary credit insurance, debt 

cancellation or debt suspension. See 

§§ 226.4(d)(1)(i) and (ii) and (d)(3)(i) 

through (iii) for disclosures required if 

optional credit insurance or debt 

cancellation or debt suspension 

coverage identified in § 226.4(b)(7) or 

§ 226.4(b)(10) is offered before the 

consumer opens the plan.fi 

fl(4) Tabular format requirements for 

open-end (not home-secured) plans. 

(i) Tabular format. The disclosures in 

paragraph (b)(4)(ii) through (b)(4)(viii) of 

this section shall be in the form of a 


rwilkins on PROD1PC63 with PROPOSALS2
33050 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

table with the headings, content, and 

format substantially similar to any of the 

applicable tables found in G–17 in 

appendix G. 

(A) The table described in paragraph 

(b)(4)(i) of this section shall contain 

only the information required or 

permitted by this section. Other 

information may be presented with the 

account agreement or account-opening 

disclosure statement, provided such 

information appears outside the 

required table. 

(B) Disclosures required by 

paragraphs (b)(4)(ix) and b(4)(x) of this 

section must be placed directly below 

the table. 

(C) When a tabular format is required, 

any annual percentage rate required to 

be disclosed pursuant to paragraph 

(b)(4)(ii) of this section and any fee 

amounts required to be disclosed 

pursuant to paragraph (b)(4)(iii) must be 

disclosed in bold text, except for any 

maximum limits on fee amounts 

disclosed in the table. Other annual 

percentage rates or fee amounts 

disclosed in the table shall not be in 

bold text. 

(ii) Annual percentage rate. Each 

periodic rate that may be used to 

compute the finance charge on an 

outstanding balance for purchases, a 

cash advance, or a balance transfer, 

expressed as an annual percentage rate 

(as determined by § 226.14(b)). When 

more than one rate applies for a category 

of transactions, the range of balances to 

which each rate is applicable shall also 

be disclosed. The annual percentage rate 

for purchases disclosed pursuant to this 

paragraph shall be in at least 16-point 

type, except for the following: a 

temporary initial rate that is lower than 

the rate that will apply after the 

temporary rate expires, and a penalty 

rate that may apply upon the occurrence 

of one or more specific events. 

(A) Variable-rate information. If a rate 

disclosed under paragraph (b)(4)(ii) of 

this section is a variable rate, the 

creditor shall also disclose the fact that 

the rate may vary and how the rate is 

determined. In describing how the 

applicable rate will be determined, the 

creditor must identify the type of index 

or formula that is used in setting the 

rate. The value of the index and the 

amount of the margin that are used to 

calculate the variable rate shall not be 

disclosed in the table. 

(B) Temporary initial rates. If an 

initial rate is temporary, the initial rate, 

the circumstances under which that rate 

expires, and the rate that will apply 

after the temporary rate will expire shall 

be disclosed. 

(C) Increased penalty rates. If a rate 

may increase upon the occurrence of 

one or more events specified in the 

account agreement, such as a late 

payment or an extension of credit that 

exceeds the credit limit, the creditor 

must disclose pursuant to paragraph 

(b)(4)(ii) of this section the increased 

penalty rate that may apply, a 

description of the types of balances to 

which the increased rate will apply, a 

brief description of the event or events 

that may result in the increased rate, 

and a brief description of how long the 

increased rate will remain in effect. If a 

temporary initial rate is lower than the 

rate that will apply after the temporary 

rate expires, creditors must briefly 

disclose the circumstances under which 

any initial discounted rates may be 

revoked, and the rate that will apply 

after the initial discounted rate is 

revoked. The creditor need not disclose 

an increased rate that would be imposed 

if credit privileges are permanently 

terminated. 

(D) Rate and fee both apply to the 

same transaction. If a rate and fee both 

apply to a balance transfer or cash 

advance transaction, the creditor must 

disclose that a fee also applies when 

disclosing the rate, and provide a cross 

reference to the fee. 

(iii) Fees. 

(A) Fees for issuance or availability of 

credit. Any annual or other periodic fee 

that may be imposed for the issuance or 

availability of an open-end plan, 

including any fee based on account 

activity or inactivity; and any nonperiodic fee that relates to opening the 

plan. A creditor must disclose the 

amount of the periodic fee, how 

frequently it will be imposed, and the 

annualized amount of the fee. A creditor 

disclosing a non-periodic fee must 

disclose that the fee is a one-time fee. 

(B) Transaction charges. Any 

transaction charge imposed on 

purchases, for cash advances or to 

transfer balances, including fees 

imposed by the creditor for using 

automated teller machines or for 

transactions in a foreign currency or that 

take place in a foreign country. 

(C) Penalty fees. Any fee imposed for 

a late payment, exceeding a credit limit, 

or for a returned payment. If a creditor 

may impose a penalty rate as described 

in paragraph (b)(4)(ii) of this section for 

any of the circumstances where a fee 

must be disclosed in this paragraph, the 

creditor must also disclose that the 

penalty rate also may apply and a cross 

reference to the fee. 

(D) Minimum finance charge. Any 

minimum or fixed finance charge that 

could be imposed during a billing cycle 

and a brief description of the charge. 

(iv) Grace period. An explanation of 

whether or not any time period exists 

within which any credit that has been 

extended may be repaid without 

incurring a finance charge. 

(v) Required insurance, debt 

cancellation or debt suspension 

coverage. A fee for insurance described 

in § 226.4(b)(7) or debt cancellation or 

suspension coverage described in 

§ 226.4(b)(10), if the insurance, or debt 

cancellation or suspension coverage is 

required as part of the plan; and a crossreference to any additional information 

provided about the insurance or 

coverage, as applicable. 

(vi) Payment allocation. If a creditor 

offers an initial discounted rate on a 

balance transfer or cash advance that is 

lower than the rate on purchases where 

the creditor offers a grace period on 

purchases, and the creditor allocates 

payments to the lower rate balance first, 

the creditor must provide a statement 

that payments will be allocated to the 

lower rate balance first during the time 

the lower rate is in effect, and during 

that time the consumer will incur 

interest on the higher rate balance until 

the lower rate balance is paid off 

completely. 

(vii) Available credit. If a creditor 

requires fees for the issuance or 

availability of an open-end plan 

described in paragraph (b)(4)(iii)(A) of 

this section, or a security deposit, and 

the total amount of those required fees 

or security deposit that will be imposed 

when the account is opened and 

charged to the account equal 25 percent 

or more of the minimum credit limit 

offered with the card, a creditor must 

disclose the amount of the available 

credit that a consumer will have 

remaining after these fees or security 

deposit are debited to the account, 

assuming that the consumer receives the 

minimum credit limit. In determining 

whether the 25 percent threshold test is 

met, the creditor must only consider 

fees for issuance or availability of credit, 

or a security deposit, that is required. If 

fees for issuance or availability are 

optional, these fees should not be 

considered in determining whether the 

disclosure must be given. Nonetheless, 

if the 25 percent threshold test is met, 

the creditor in providing the disclosure 

must disclose the amount of available 

credit excluding those optional fees, and 

the available credit including those 

optional fees. 

(viii) Web site reference. For issuers of 

credit cards that are not charge cards, a 

reference to the Web site established by 

the Board and a statement that 

consumers may obtain on the Web site 

information about shopping for and 

using credit card accounts. 

(ix) Balance computation method. 

The name of the balance computation 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33051 

14fl[Reserved]fi [See footnotes 11 and 13.] 

15fl[Reservedfi.] [If a variable-rate plan is 

involved, the creditor shall disclose the fact that the 

periodic rate(s) may vary.] 

method listed in § 226.5a(g) that is used 

to determine the balance for purchases 

on which the finance charge is 

computed, or an explanation of the 

method used if it is not listed, along 

with a statement that an explanation of 

the method required by paragraph 

(b)(2)(i)(D) of this section is provided 

with the account-opening disclosures. 

In determining which balance 

computation method to disclose, the 

card issuer shall assume that credit 

extended for purchases will not be 

repaid within any grace period. 

(x) Billing error rights reference. A 

statement that information about 

consumers’ right to dispute transactions 

is included in the account-opening 

disclosures.fi 

fl (c) Rules of general applicability. 

(1) Security interests. The fact that the 

creditor has or will acquire a security 

interest in the property purchased under 

the plan, or in other property identified 

by item or type. 

(2) Statement of billing rights. For 

plans other than home equity plans 

subject to the requirements of § 226.5b, 

a statement that outlines the consumer’s 

rights and the creditor’s responsibilities 

under §§ 226.12(c) and 226.13 and that 

is substantially similar to the statement 

found in Model Form G–3(A) in 

appendix G. Creditors offering home 

equity plans subject to the requirements 

of § 226.5b may use Model Form G–3 or 

G–3A, at their option.fi 

[(c) Security interests. The fact that 

the creditor has or will acquire a 

security interest in the property 

purchased under the plan, or in other 

property identified by item or type.] 

[(d) Statement of billing rights. A 

statement that outlines the consumer’s 

rights and the creditor’s responsibilities 

under §§ 226.12(c) and 226.13 and that 

is substantially similar to the statement 

found in appendix G.] 

[(e) Home equity plan information. 

The following disclosures described in 

§ 226.5b(d), as applicable: 

(1) A statement of the conditions 

under which the creditor may take 

certain action, as described in 

§ 226.5b(d)(4)(i), such as terminating the 

plan or changing the terms. 

(2) The payment information 

described in § 226.5b(d)(5)(i) and (ii) for 

both the draw period and any 

repayment period. 

(3) A statement that negative 

amortization may occur as described in 

§ 226.5b(d)(9). 

(4) A statement of any transaction 

requirements as described in 

§ 226.5b(d)(10). 

(5) A statement regarding the tax 

implications as described in 

§ 226.5b(d)(11). 

(6) A statement that the annual 

percentage rate imposed under the plan 

does not include costs other than 

interest as described in §§ 226.5b(d)(6) 

and 226.5b (d)(12)(ii). 

(7) The variable-rate disclosures 

described in § 226.5b(d)(12)(viii), (x), 

(xi), and (xii), as well as the disclosure 

described in § 226.5b(d)(5)(iii), unless 

the disclosures provided with the 

application were in a form the consumer 

could keep and included a 

representative payment example for the 

category of payment option chosen by 

the consumer.] 

9. Section 226.7 is amended by 

republishing the introductory text, 

revising paragraphs (a) and (b), 

removing paragraphs (c), (d), (e), (f), (g), 

(h), (i), (j), and (k), and removing and 

reserving footnotes 14 and 15 to read as 

follows: 

§ 226.7 Periodic statement. 

The creditor shall furnish the 

consumer with a periodic statement that 

discloses the following items, to the 

extent applicable: 

fl(a) Rules affecting home equity 

plans. The requirements of paragraph 

(a) of this section apply only to home 

equity plans subject to the requirements 

of § 226.5b. Alternatively, a creditor 

subject to this paragraph may, at its 

option, comply with any of the 

requirements of paragraph (b) of this 

section; however, any creditor that 

chooses to comply with paragraph (b)(6) 

of this section must also comply with 

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

fl(1)fi [(a)] Previous balance. The 

account balance outstanding at the 

beginning of the billing cycle. 

fl(2)fi [(b)] Identification of 

transactions. An identification of each 

credit transaction in accordance with 

§ 226.8. 

fl(3)fi [(c)] Credits. Any credit to the 

account during the billing cycle, 

including the amount and the date of 

crediting. The date need not be 

provided if a delay in accounting does 

not result in any finance or other charge. 

fl(4)fi [(d)] Periodic rates. Each 

periodic rate that may be used to 

compute the finance charge, the range of 

balances to which it is applicable,14 and 

the corresponding annual percentage 

rate.15 flIf no finance charge is imposed 

when the outstanding balance is less 

than a certain amount, the creditor is 

not required to disclose that fact, or the 

balance below which no finance charge 

will be imposed.fi If different periodic 

rates apply to different types of 

transactions, the types of transactions to 

which the periodic rates apply shall also 

be disclosed. flFor variable-rate plans, 

the fact that the periodic rate(s) may 

vary.fi 

fl(5)fi [(e)] Balance on which 

finance charge computed. The amount 

of the balance to which a periodic rate 

was applied and an explanation of how 

that balance was determined. When a 

balance is determined without first 

deducting all credits and payments 

made during the billing cycle, the fact 

and the amount of the credits and 

payments shall be disclosed. 

fl(6)fi [(f)] Amount of finance charge 

fl and other charges. Creditors may 

comply with paragraphs (a)(6) of this 

section, or with paragraph (b)(6) of this 

section, at their option. 

(i) Finance charges.fi The amount of 

any finance charge debited or added to 

the account during the billing cycle, 

using the term finance charge. The 

components of the finance charge shall 

be individually itemized and identified 

to show the amount(s) due to the 

application of any periodic rates and the 

amounts(s) of any other type of finance 

charge. If there is more than one 

periodic rate, the amount of the finance 

charge attributable to each rate need not 

be separately itemized and identified. 

fl(ii) Other charges. The amounts, 

itemized and identified by type, of any 

charges other than finance charges 

debited to the account during the billing 

cycle.fi 

fl(7)fi [(g)] Annual percentage rate. 

ALTERNATIVE 1—PARAGRAPH 

(a)(7). 

(i) When a finance charge is imposed 

during the billing cycle, the annual 

percentage rate(s) determined under 

§ 226.14 using the term annual 

percentage rate. 

(ii) Creditors may comply with 

paragraph (a)(7)(i) of this section or with 

paragraph (b)(7) of this section, at their 

option. If a creditor chooses to comply 

with paragraph (b)(7) of this section 

with respect to its home equity plans, 

the creditor must also comply with 

paragraph (b)(6) of this section. 

ALTERNATIVE 2—PARAGRAPH 

(a)(7). 

At a creditor’s option, when a finance 

charge is imposed during the billing 

cycle, the annual percentage rate(s) 

determined under § 226.14 using the 

term annual percentage rate. 

fl(8)fi [(j)] flGracefi [Free-ride] 

period. The date by which or the time 

period within the new balance or any 

portion of the new balance must be paid 

to avoid additional finance charges. If 

such a time period is provided, a 

creditor may, at its option and without 


rwilkins on PROD1PC63 with PROPOSALS2
33052 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

disclosure, impose no finance charge if 

payment is received after the time 

period s expiration. 

fl(9)fi [(k)] Address for notice of 

billing errors. The address to be used for 

notice of billing errors. Alternatively, 

the address may be provided on the 

billing rights statement permitted by 

§ 226.9(a)(2). 

fl(10)fi [(i)] Closing date of billing 

cycle; new balance. The closing date of 

the billing cycle and the account 

balance outstanding on that date. 

fl(b) Rules affecting open-end (not 

home-secured) plans. The requirements 

of paragraph (b) of this section apply 

only to plans other than home equity 

plans subject to the requirements of 

§ 226.5b. 

(1) Previous balance. The account 

balance outstanding at the beginning of 

the billing cycle. 

(2) Identification of transactions. An 

identification of each credit transaction 

in accordance with § 226.8, grouped by 

type of transaction in a form 

substantially similar to that shown in 

Sample G–18(A) in appendix G. 

(3) Credits. Any credit to the account 

during the billing cycle, including the 

amount and the date of crediting. The 

date need not be provided if a delay in 

crediting does not result in any finance 

or other charge. Credits must be grouped 

together, and grouped with transactions 

identified under paragraph (b)(2) of this 

section, in a form substantially similar 

to that shown in Sample G–18(A) in 

appendix G. 

(4) Periodic rates. (i) Except as 

provided in paragraph (b)(4)(ii) of this 

section, each periodic rate that may be 

used to compute the interest charge 

expressed as an annual percentage rate 

and using the term, Annual Percentage 

Rate, along with the range of balances 

to which it is applicable. If no interest 

charge is imposed when the outstanding 

balance is less than a certain amount, 

the creditor is not required to disclose 

that fact, or the balance below which no 

interest charge will be imposed. The 

types of transactions to which the 

periodic rates apply shall also be 

disclosed. For variable-rate plans, the 

fact that the annual percentage rate may 

vary. 

(ii) Exception. An annual percentage 

rate that differs from the rate that would 

otherwise apply and is offered only for 

a specific and limited time need not be 

disclosed except in periods in which the 

offered rate is actually applied. 

(5) Balance on which finance charge 

computed. The amount of the balance to 

which a periodic rate was applied and 

an explanation of how that balance was 

determined, using the term Balance 

Subject to Interest Rate. When a balance 

is determined without first deducting all 

credits and payments made during the 

billing cycle, the fact and the amount of 

the credits and payments shall be 

disclosed. As an alternative to providing 

an explanation of how the balance was 

determined, a creditor that uses a 

balance computation method identified 

in § 226.5a(g) may, at the creditor’s 

option, identify the name of the balance 

computation method and provide a tollfree telephone number where 

consumers may obtain from the creditor 

more information about the balance 

computation method and how resulting 

finance charges were determined. If the 

method used is not identified in 

§ 226.5a(g), the creditor shall provide a 

brief explanation of the method used. 

(6) Charges imposed. (i) The amounts 

of any charges imposed as part of a plan 

as stated in § 226.6(b)(1), grouped 

together, in proximity to transactions 

identified under paragraph (b)(2) of this 

section, substantially similar to Sample 

G–18(A) in appendix G. 

(ii) Interest. Finance charges 

attributable to periodic interest rates, 

using the term Interest Charge, must be 

grouped together under the heading 

Interest Charged, itemized and totaled 

by type of transaction, and a total 

interest charge, using the term Total 

Interest Charge, must be disclosed for 

the statement period and calendar year 

to date, using a format substantially 

similar to Sample G–18(A) in appendix 

G. 

(iii) Fees. Charges imposed as part of 

the plan other than interest must be 

grouped together under the heading 

Fees, identified consistent with the 

feature or type, and itemized. A total of 

charges, using the term Fees, must be 

disclosed for the statement period and 

calendar year to date. Fees identified in 

§ 226.14(e) that relate to a specific 

transaction must be labeled using the 

term Transaction fee, and fees identified 

in § 226.14(e) that do not relate to a 

specific transaction must be labeled 

using the term Fixed fee, using a format 

substantially similar to Sample G–18(A) 

in appendix G. 

ALTERNATIVE 1 ONLY—

PARAGRAPH (b)(6)(iv). 

(iv) In addition to the disclosures of 

interest and fees required under 

paragraphs (b)(6)(ii) and (b)(6)(iii) of this 

section, the creditor must also disclose, 

unless paragraph (b)(7)(ii) of this section 

applies, charges identified under this 

paragraph for the statement period, 

grouped together in a tabular format 

with the Fee-Inclusive APR information 

identified under paragraph (b)(7)(i) of 

this section, in a format substantially 

similar to Sample G–18(A) in appendix 

G. 

(A) Finance charges attributable to 

interest, using the term interest charges, 

must be totaled by type of transaction 

and identified as relating to balances for 

that type of transaction. 

(B) Charges imposed as part of the 

plan other than interest that are 

identified in § 226.14(e), using the term 

Transaction and Fixed Fees, must be 

grouped together. For multifeatured 

plans, charges that relate to a specific 

purchase transaction and charges that 

do not relate to a specific transaction 

must be totaled and identified as 

relating to purchase balances; charges 

that relate to a specific type of 

transaction other than purchases must 

be totaled and identified as relating to 

balances for that type of transaction. For 

single-featured plans, charges described 

in paragraph (b)(7)(iv) of this section 

must be grouped together and totaled. 

ALTERNATIVE 1—PARAGRAPH 

(b)(7). 

(7) Effective annual percentage rate. 

(i) Except as provided in paragraph 

(b)(7)(ii) of this section, when a finance 

charge identified in § 226.14(e) is 

imposed during the billing cycle, the 

effective annual percentage rate(s) 

determined for each type of transaction 

under § 226.14, using the term FeeInclusive APR and disclosed for each 

type of transaction; a description of the 

Fee-Inclusive APR; and a format 

substantially similar to Sample G–18(B) 

in appendix G. 

(ii) When a finance charge identified 

in § 226.14(e) is imposed during the 

billing cycle and the finance charge is 

determined solely by applying one or 

more periodic rates used to calculate 

interest, by multiplying each periodic 

rate by the number of periods in a year, 

disclosed for each type of transaction. 

ALTERNATIVE 2—PARAGRAPH 

(b)(7). 

(7) [Reserved.] 

(8) Grace period. The date by which 

or the time period within the new 

balance or any portion of the new 

balance must be paid to avoid 

additional finance charges. If such a 

time period is provided, a creditor may, 

at its option and without disclosure, 

impose no finance charge if payment is 

received after the time period’s 

expiration. 

(9) Address for notice of billing errors. 

The address to be used for notice of 

billing errors. Alternatively, the address 

may be provided on the billing rights 

statement permitted by § 226.9(a)(2). 

(10) Closing date of billing cycle; new 

balance. The closing date of the billing 

cycle and the account balance 

outstanding on that date. The new 

balance must be disclosed in accordance 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33053 

with the format requirements of 

paragraph (b)(13) of this section. 

(11) Due date; late payment costs. (i) 

Except as provided in paragraph 

(b)(11)(ii) of this section and in 

accordance with the format 

requirements in paragraph (b)(13) of this 

section: 

(A) The due date for a payment, if a 

late payment fee or penalty rate may be 

imposed. 

(B) A cut-off time, if the creditor 

imposes a cut-off time before 5 p.m. for 

payment to be received. If the cut-off 

time differs depending on the method of 

payment, the creditor must state the 

earliest time if before 5 p.m. without 

specifying the payment method to 

which it applies. 

(C) The amount of the fee and any 

increased periodic rate(s) (expressed as 

an annual percentage rate(s)) that may 

be imposed as a result of a late payment. 

If a range of fees may be assessed, the 

creditor must state the highest fee. If the 

rate may be increased for more than one 

feature or balance, the creditor must 

state the highest rate that could apply. 

(ii) Exemptions. The requirements of 

paragraph (b)(11) of this section do not 

apply to periodic statements provided 

for charge cards accounts. 

(12) Minimum payment. (i) General 

disclosure requirements. Except as 

provided in paragraphs (b)(12)(ii) and 

(b)(12)(iii) of this section, a card issuer 

shall disclose on each periodic 

statement, in accordance with the 

format requirements of paragraph (b)(13) 

of this section: 

(A) Minimum payment not exceeding 

4%. Except as provided in paragraph 

(b)(12)(i)(C) or (D) of this section, if the 

required minimum periodic payment 

does not exceed 4% of the balance upon 

which finance charges accrue, the 

following statement with a bolded 

heading: ‘‘Notice About Minimum 

Payments: If you make only the 

minimum payment each period, you 

will pay more in interest and it will take 

you longer to pay off your balance. For 

example, if you had a balance of $1,000 

at an interest rate of 17% and always 

paid only the minimum required, it 

would take over 7 years to repay this 

balance. For an estimate of the time it 

would take to repay your actual balance 

making only minimum payments, call: 

[toll-free telephone number]’’ A card 

issuer must disclose a toll-free 

telephone number established and 

maintained pursuant to paragraph 

(b)(12)(iv)(A)(1) of this section to 

provide generic repayment estimates 

discussed in appendix M1. 

Alternatively, for a two-year period after 

the date that card issuers must begin 

complying with the minimum payment 

disclosure requirement in paragraph 

(b)(12) of this section, small depository 

institution issuers (as defined in 

paragraph (b)(12)(v) of this section) may 

provide the toll-free telephone number 

operated by or on behalf of the Federal 

Reserve Board. 

(B) Minimum payment exceeding 4%. 

(1) Except as provided in paragraphs 

(b)(12)(i)(B)(2), (b)(12)(i)(C) or 

(b)(12)(i)(D) of this section, if the 

required minimum periodic payment 

exceeds 4% of the balance upon which 

finance charges accrue, the following 

statement with a bolded heading: 

‘‘Notice About Minimum Payments: If 

you make only the minimum payment 

each period, you will pay more in 

interest and it will take you longer to 

pay off your balance. For example, if 

you had a balance of $300 at an interest 

rate of 17% and always paid only the 

minimum required, it would take about 

2 years to repay this balance. For an 

estimate of the time it would take to 

repay your actual balance making only 

minimum payments, call: [toll-free 

telephone number]’’ A card issuer must 

disclose a toll-free telephone number 

established and maintained pursuant to 

paragraph (b)(12)(iv)(A)(1) of this 

section to provide generic repayment 

estimates discussed in appendix M1. 

Alternatively, for a two-year period after 

the date that card issuers must begin 

complying with the minimum payment 

disclosure requirement in paragraph 

(b)(12) of this section, small depository 

institution issuers (as defined in 

paragraph (b)(12)(v) of this section) may 

provide the toll-free telephone number 

operated by or on behalf of the Federal 

Reserve Board. 

(2) At a card issuer’s option, an issuer 

subject to this paragraph is not required 

to comply with this paragraph if the 

issuer complies with paragraph 

(b)(12)(i)(A) of this section. 

(C) FTC-regulated credit card issuers. 

Except as provided in paragraph 

(b)(12)(i)(D) of this section, if the 

Federal Trade Commission has 

authority under the Truth in Lending 

Act to enforce the act and this 

regulation as to a card issuer, the 

following statement with a bolded 

heading: ‘‘Notice About Minimum 

Payments: If you make only the 

minimum payment each period, you 

will pay more in interest and it will take 

you longer to pay off your balance. For 

example, if you had a balance of $300 

at an interest rate of 17% and always 

paid only the minimum required, it 

would take about 2 years to repay this 

balance. For an estimate of the time it 

would take to repay your actual balance 

making only minimum payments, call 

the Federal Trade Commission at this 

toll-free telephone number:llll.’’

The card issuer must disclose the tollfree telephone number established by or 

on behalf of the Federal Trade 

Commission pursuant to paragraph 

(b)(12)(iv)(B) of this section. 

(D) Alternative rate. Card issuers that 

provide the statements under 

paragraphs (b)(12)(i)(A) through 

(b)(12)(i)(C) of this section may, at their 

option, substitute an example that uses 

an annual percentage rate that is greater 

than 17 percent. 

(ii) Estimate of actual repayment 

period. A card issuer is not required to 

comply with paragraphs (b)(12)(i)(A) 

through (b)(12)(i)(D) of this section if the 

issuer, at its option: 

(A) Establishes and maintains a tollfree telephone number for the purpose 

of providing consumers with the actual 

repayment disclosure described in 

appendix M2; and discloses the 

following statement on each periodic 

statement: ‘‘Notice About Minimum 

Payments: If you make only the 

minimum payment each period, you 

will pay more in interest and it will take 

you longer to pay off your balance. For 

more information, call this toll-free 

number:llll.’’ A card issuer must 

disclose a toll-free telephone number 

established and maintained pursuant to 

paragraph (b)(12)(iv)(A)(3) of this 

section to provide the actual repayment 

disclosures described in appendix M2; 

or 

(B) Provides on the periodic statement 

a disclosure of the actual repayment 

information as described in appendix 

M2, substantially similar to Sample G–

18(D) in appendix G. 

(iii) Exemptions. Paragraph (b)(12) of 

this section does not apply to: 

(A) Home equity plans subject to the 

requirements of § 226.5b; 

(B) Overdraft lines of credit tied to 

asset accounts accessed by checkguarantee cards or by debit cards; 

(C) Lines of credit accessed by checkguarantee cards or by debit cards that 

can be used only at automated teller 

machines; 

(D) Charge card accounts that require 

payment of outstanding balances in full 

at the end of each billing cycle; 

(E) Credit card accounts where a fixed 

repayment period for the account is 

disclosed in the account agreement and 

the required minimum payments will 

amortize the outstanding balance within 

the fixed repayment period; 

(F) A billing cycle where a consumer 

has paid the entire balance in full for 

that billing cycle and the previous 

billing cycle, or had a zero outstanding 

balance or credit balance in those two 

billing cycles; and 


rwilkins on PROD1PC63 with PROPOSALS2
33054 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

16fl[Reserved]fi [Failure to disclose the 

information required by this section shall not be 

deemed a failure to comply with the regulation if 

(1) the creditor maintains procedures reasonably 

adapted to obtain and provide the information; and 

(2) the creditor treats an inquiry for clarification or 

documentation as a notice of a billing error, 

including correcting the account in accordance with 

§ 226.13(e). This applies to transactions that take 

place outside a state, as defined in § 226.2(a), 

whether or not the creditor maintains procedures 

reasonably adapted to obtain the required 

information]. 

(G) A billing cycle where the entire 

outstanding balance is subject to a fixed 

repayment period specified in the 

account agreement and the required 

minimum payments applicable to that 

feature will amortize the outstanding 

balance within the fixed repayment 

period. 

(iv) Toll-free telephone numbers. (A) 

Issuer-operated toll-free telephone 

number. 

(1) Subject to paragraph 

(b)(12)(iv)(A)(2) of this section, if a card 

issuer provides the disclosures in 

paragraphs (b)(12)(i)(A) or (b)(12)(i)(B) 

of this section, the issuer must establish 

and maintain a toll-free telephone 

number for the purpose of providing its 

customers with generic repayment 

estimates, as described in appendix M1. 

(2) For a two-year period after the date 

that card issuers must begin complying 

with the minimum payment disclosure 

requirement in paragraph (b)(12) of this 

section, small depository institution 

issuers (as defined in paragraph 

(b)(12)(v) of this section) that provide 

the disclosures in paragraphs 

(b)(12)(i)(A) or (b)(12)(i)(B) of this 

section are not required to establish and 

maintain a toll-free telephone number 

for purposes of providing their 

customers with generic repayment 

estimates, as described in appendix M1. 

Instead, small depository institutions 

may disclose the toll-free telephone 

number operated by or on behalf of the 

Federal Reserve Board. 

(3) If a card issuer provides the 

disclosure in paragraph (b)(12)(ii)(A) of 

this section, the issuer must establish 

and maintain a toll-free telephone 

number for the purpose of providing its 

customers with actual repayment 

disclosures, as described in appendix 

M2. 

(B) FTC-operated toll-free telephone 

number. The Federal Trade Commission 

is required by Section 1637(b)(11)(G) of 

the Truth in Lending Act (15 U.S.C. 

1637(b)(11)(G)) to establish and 

maintain a toll-free telephone number 

for use by customers of creditors that are 

subject to the Federal Trade 

Commission’s authority to enforce the 

act and this regulation. 

(C) Additional information. In 

responding to a request for generic 

repayment estimates or actual 

repayment disclosures, as described in 

appendices M1 and M2 respectively, 

through a toll-free telephone number, 

neither card issuers nor the FTC may 

provide any information other than the 

repayment information required or 

permitted by appendix M1 or M2, as 

applicable. 

(v) Definitions. Small depository 

institution issuers are card issuers that 

are depository institutions (as defined 

by section 3 of the Federal Deposit 

Insurance Act), including Federal credit 

unions or State credit unions (as defined 

in section 101 of the Federal Credit 

Union Act), with total assets not 

exceeding $250 million, as of December 

31 of the year prior to the year in which 

institutions must begin complying with 

the requirements in § 226.7(b)(12). 

(13) Format requirements. The due 

date required by paragraph (b)(11) of 

this section shall be disclosed on the 

front of the first page of the periodic 

statement. The cut-off time, the amount 

of the fee, and the annual percentage 

rate(s) required by paragraph (b)(11) of 

this section shall be stated in close 

proximity to the due date. The ending 

balance required by paragraph (b)(10) of 

this section and the minimum payment 

disclosure required by paragraph (b)(12) 

of this section shall be disclosed closely 

proximate to the minimum payment 

due. The due date, cut-off time, fee and 

annual percentage rate, ending balance, 

minimum payment due, and minimum 

payment disclosure shall be grouped 

together, substantially similar to 

Samples G–18(E) or G–18(F) in 

appendix G. 

(14) Change-in-terms and increased 

penalty rate summary for open-end (not 

home-secured) plans. Creditors that 

provide a change-in-term notice 

required by § 226.9(c), or a rate increase 

notice required by § 226.9(g), on or with 

the periodic statement, must disclose 

the information in § 226.9(c)(2)(iii)(A) or 

§ 226.9(g)(3)(i) on the periodic statement 

in accordance with the format 

requirements in § 226.9(c)(2)(iii)(B), and 

§ 226.9(g)(3)(ii). This information shall 

precede the transactions disclosed 

pursuant to paragraph (b)(2) of this 

section. See Forms G–18(G) and G–

18(H) in appendix G.fi 

[(c) Credits. Any credit to the account 

during the billing cycle, including the 

amount and the date of crediting. The 

date need not be provided if a delay in 

accounting does not result in any 

finance or other charge.] 

[(d) Periodic rates. Each periodic rate 

that may be used to compute the finance 

charge, the range of balances to which 

it is applicable, and the corresponding 

annual percentage rate. If different 

periodic rates apply to different types of 

transactions, the types of transactions to 

which the periodic rates apply shall also 

be disclosed.] 

[(e) Balance on which finance charge 

computed. The amount of the balance to 

which a periodic rate was applied and 

an explanation of how that balance was 

determined. When a balance is 

determined without first deducting all 

credits and payments made during the 

billing cycle, the fact and the amount of 

the credits and payments shall be 

disclosed.] 

[(f) Amount of finance charge. The 

amount of any finance charge debited or 

added to the account during the billing 

cycle, using the term finance charge. 

The components of the finance charge 

shall be individually itemized and 

identified to show the amount(s) due to 

the application of any periodic rates and 

the amounts(s) of any other type of 

finance rate, the amount of the finance 

charge attributable to each rate need not 

be separately itemized and identified.] 

[(g) Annual percentage rate. When a 

finance charge is imposed during the 

billing cycle, the annual percentage 

rate(s) determined under § 226.14, using 

the term annual percentage rate.] 

[(h) Other charges. The amounts, 

itemized and identified by type, of any 

charges other than finance charges 

debited to the account during the billing 

cycle.] 

[(i) Closing date of billing cycle; new 

balance. The closing date of the billing 

cycle and the account balance 

outstanding on that date.] 

[(j) Free-ride period. The date by 

which or the time period within the 

new balance or any portion of the new 

balance must be paid to avoid 

additional finance charges. If such a 

time period is provided, a creditor may, 

at its option and without disclosure, 

impose no finance charge payment is 

received after time period’s expiration.] 

[(k) Address for notice of billing 

errors. The address to be used for notice 

of billing errors. Alternatively, the 

address may be provided on the billing 

rights statement permitted by 

§ 226.9(a)(2).] 

10. Section 226.8 is amended by 

revising the heading, revising 

paragraphs (a) and (b), adding a new 

paragraph (c), and removing and 

reserving footnotes 16 through 20 to 

read as follows: 

§ 226.8 [Identification of] flIdentifyingfi 

transactions flon periodic statements.fi 

The creditor shall identify credit 

transactions on or with the first periodic 

statement that reflects the transaction by 

furnishing the following information, as 

applicable.16


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33055 

17fl[Reserved]fi [As an alternative to the brief 

identification, the creditor may disclose a number 

or symbol that also appears on the receipt or other 

credit document given to the consumer, if the 

number or symbol reasonably identifies that 

transaction with that creditor, and if the creditor 

treats an inquiry for clarification or documentation 

as a notice of a billing error, including correcting 

the account in accordance with § 226.13(e).] 

18fl[Reserved]fi [An identification of property 

or services may be replaced by the seller’s name 

and location of the transaction when: (1) The 

creditor and the seller are the same person; (2) the 

creditor’s open-end plan has fewer than 15,000 

accounts; (3) the creditor provides the consumer 

with point-of-sale documentation for that 

transaction; and (4) the creditor treats an inquiry for 

clarification or documentation as a notice of a 

billing error, including correcting the account in 

accordance with § 226.13(e).] 

19fl[Reserved]fi [The creditor may omit the 

address or provide any suitable designation that 

helps the consumer to identify the transaction when 

the transaction (1) took place at a location that is 

not fixed; (2) took place in the consumer’s home; 

or (3) was a mail or telephone order.] 20fl[Reserved]fi [See footnote 17]. 

(a) Sale credit. 

fl(1) Except as provided in paragraph 

(a)(2) of this section, for each credit 

transaction involving the sale of 

property or services, the creditor must 

disclose the amount and date of the 

transaction, and either: 

(i) A brief identification 17 of the 

property or services purchased, for 

creditors and sellers that are the same or 

related; 18 or 

(ii) The seller’s name; and the city, 

and state or foreign country where the 

transaction took place.19 The creditor 

may omit the address or provide any 

suitable designation that helps the 

consumer to identify the transaction 

when the transaction took place at a 

location that is not fixed; took place in 

the consumer’s home; or was a mail, 

Internet, or telephone order. 

(2) Creditors need not comply with 

paragraph (a)(1) of this section if an 

actual copy of the receipt or other credit 

document is provided with the first 

periodic statement reflecting the 

transaction, and the amount of the 

transaction and either the date of the 

transaction to the consumer’s account or 

the date of debiting the transaction are 

disclosed on the copy or on the periodic 

statement.fi 

[(a) Sale credit. For each credit 

transaction involving the sale of 

property or services, the following rules 

shall apply: 

(1) Copy of credit document provided. 

When an actual copy of the receipt or 

other credit document is provided with 

the first periodic statement reflecting 

the transaction, the transaction is 

sufficiently identified if the amount of 

the transaction and either the date of the 

transaction or the date of debiting the 

transaction to the consumer’s account 

are disclosed on the copy or on the 

periodic statement. 

(2) Copy of credit document not 

provided—creditor and seller same or 

related person(s). When the creditor and 

the seller are the same person or related 

persons, and an actual copy of the 

receipt or other credit document is not 

provided with the periodic statement, 

the creditor shall disclose the amount 

and date of the transaction, and a brief 

identification of the property or services 

purchased. 

(3) Copy of credit document not 

provided—creditor and seller not same 

or related person(s). When the creditor 

and seller are not the same person or 

related persons, and an actual copy of 

the receipt or other credit document is 

not provided with the periodic 

statement, the creditor shall disclose the 

amount and date of the transaction; the 

seller’s name; and the city, and state or 

foreign country where the transaction 

took place.] 

(b) Nonsale credit. [A nonsale credit 

transaction is sufficiently identified if 

the first periodic statement reflecting 

the transaction discloses] flFor each 

credit transaction not involving the sale 

of property or services, the creditor 

must disclosefi a brief identification of 

the transaction; 20 the amount of the 

transaction; and at least one of the 

following dates: the date of the 

transaction, the date the transaction was 

debited to the consumer’s account, or, if 

the consumer signed the credit 

document, the date appearing on the 

document. If an actual copy of the 

receipt or other credit document is 

provided and that copy shows the 

amount and at least one of the specified 

dates, the brief identification may be 

omitted. 

fl(c) Alternative creditor procedures; 

consumer inquiries for clarification or 

documentation. The following 

procedures apply to creditors that treat 

an inquiry for clarification or 

documentation as a notice of a billing 

error, including correcting the account 

in accordance with § 226.13(e): 

(1) Failure to disclose the information 

required by paragraphs (a) and (b) of 

this section is not a failure to comply 

with the regulation, provided that the 

creditor also maintains procedures 

reasonably designed to obtain and 

provide the information. This applies to 

transactions that take place outside a 

state, as defined in § 226.2(a), whether 

or not the creditor maintains procedures 

reasonably adapted to obtain the 

required information. 

(2) As an alternative to the brief 

identification for sale or nonsale credit, 

the creditor may disclose a number or 

symbol that also appears on the receipt 

or other credit document given to the 

consumer, if the number or symbol 

reasonably identifies that transaction 

with that creditor.fi 

11. Section 226.9 is amended by 

revising paragraphs (a), (b), (c), and (e), 

republishing paragraph (d) and (f), 

adding a new paragraph (g), and 

removing and reserving footnote 20a to 

read as follows: 

§ 226.9 Subsequent disclosure 

requirements. 

(a) Furnishing statement of billing 

rights—

(1) Annual statement. The creditor 

shall mail or deliver the billing rights 

statement required by fl§ 226.6(c)(2)fi 

[§ 226.6(d)] at least once per calendar 

year, at intervals of not less than 6 

months nor more than 18 months, either 

to all consumers or to each consumer 

entitled to receive a periodic statement 

under § 226.5(b)(2) for any one billing 

cycle. 

(2) Alternative summary statement. 

As an alternative to paragraph (a)(1) of 

this section, the creditor may mail or 

deliver, on or with each periodic 

statement, a statement substantially 

similar to [that in appendix G] flModel 

Forms G–4 and G–4(A) in appendix G, 

as applicablefi. 

(b) Disclosures for supplemental 

credit flaccessfi devices and 

additional features. 

(1) If a creditor, within 30 days after 

mailing or delivering the [initial] 

flaccount-openingfi disclosures under 

[§ 226.6(a)] fl§§ 226.6(a)(1) or 

226.6(b)(1), as applicablefi, adds a 

credit feature to the consumer’s account 

or mails or delivers to the consumer a 

credit flaccessfi device fl, including 

but not limited to checks that access a 

credit card account,fi for which the 

finance charge terms are the same as 

those previously disclosed, no 

additional disclosures are necessary. 

flExcept as provided in paragraph 

(b)(3) of this section, afterfi [After] 30 

days, if the creditor adds a credit feature 

or furnishes a credit flaccessfi device 

(other than as a renewal, resupply, or 

the original issuance of a credit card) on 

the same finance charge terms, the 

creditor shall disclose, before the 

consumer uses the feature or device for 

the first time, that it is for use in 

obtaining credit under the terms 

previously disclosed. 

(2) flExcept as provided in paragraph 

(b)(3) of this section, wheneverfi 

[Whenever] a credit feature is added or 

a credit flaccessfi device is mailed or 

delivered, and the finance charge terms 

for the feature or device differ from 

disclosures previously given, the 

disclosures required by [§ 226.6(a)] 


rwilkins on PROD1PC63 with PROPOSALS2
33056 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

fl§§ 226.6(a)(1) or 226.6(b)(1), as 

applicablefi, that are applicable to the 

added feature or device shall be given 

before the consumer uses the feature or 

device for the first time. 

fl(3) Checks that access a credit card 

account. (i) Disclosures. For open-end 

plans not subject to the requirements of 

§ 226.5b, if checks that can be used to 

access a credit card account are 

provided more than 30 days after 

account-opening disclosures under 

§ 226.6(b)(1) are given, or are provided 

within 30 days of the account-opening 

disclosures and the finance charge terms 

for the checks differ from disclosures 

previously given, the creditor shall 

disclose on the front of the page 

containing the checks the following 

terms in the form of a table with the 

headings, content, and form 

substantially similar to Sample G–19 in 

appendix G: 

(A) If an initial rate that applies to the 

checks is temporary and is lower than 

the rate that will apply after the 

temporary rate expires, the discounted 

initial rate and the time period during 

which the discounted initial rate will 

remain in effect. A creditor must use the 

term ‘‘introductory’’ or ‘‘intro’’ in 

immediate proximity to the listing of the 

discounted initial rate. 

(B) The type of rate that will apply to 

the checks (such as whether the 

purchase or cash advance rate applies) 

and the applicable annual percentage 

rate. 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 annual 

percentage rate that will apply after the 

discounted initial rate expires. In a 

variable-rate account, a creditor must 

disclose an annual percentage rate based 

on the applicable index or formula in 

accordance with the accuracy 

requirements set forth in paragraph 

(b)(3)(ii) of this section. 

(C) Any transaction fees applicable to 

the checks disclosed under § 226.6(b)(1); 

and 

(D) Whether or not a grace period is 

given within which any credit extended 

by use of the checks may be repaid 

without incurring a finance charge due 

to a periodic interest rate. If no grace 

period is given, the issuer must state 

that no grace period applies and interest 

will be charged immediately. 

(ii) Accuracy. The disclosures in 

paragraph (b)(3)(i) of this section 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.fi 

(c) Change in terms.—(1) [Written 

notice required.] flRules affecting home 

equity plans. (i) Written notice required. 

For home equity plans subject to the 

requirements of § 226.5b, wheneverfi 

[Whenever] any term required to be 

disclosed under § 226.6 fl(a)fi is 

changed or the required minimum 

periodic payment is increased, the 

creditor shall mail or deliver written 

notice of the change to each consumer 

who may be affected. The notice shall 

be mailed or delivered at least 15 days 

prior to the effective date of the change. 

The 15-day timing requirement does not 

apply if the change has been agreed to 

by the consumer[, or if a periodic rate 

or other finance charge is increased 

because of the consumer’s delinquency 

or default]; the notice shall be given, 

however, before the effective date of the 

change. 

fl(ii)fi [(2)] Notice not required. 

flFor home equity plans subject to the 

requirements of § 226.5b, a creditor is 

not required to providefi [No] notice 

under this section [is required] when 

the change involves [late payment 

charges, charges for documentary 

evidence, or over-the-limit charges;] a 

reduction of any component of a finance 

or other charge[; suspension of future 

credit privileges or termination of an 

account or plan;] or when the change 

results from an agreement involving a 

court proceeding[, or from the 

consumer’s default or delinquency 

(other than an increase in the periodic 

rate or other finance charge)]. 

fl(iii)fi [(3)] flNotice to restrict 

creditfi [Notice for home equity plans]. 

flFor home equity plans subject to the 

requirements of § 226.5b, if thefi [If a] 

creditor prohibits additional extensions 

of credit or reduces the credit limit 

[applicable to a home equity plan] 

pursuant to § 226.5b(f)(3)(i) or 

§ 226.5b(f)(3)(vi), the creditor shall mail 

or deliver written notice of the action to 

each consumer who will be affected. 

The notice must be provided not later 

than three business days after the action 

is taken and shall contain specific 

reasons for the action. If the creditor 

requires the consumer to request 

reinstatement of credit privileges, the 

notice also shall state that fact. 

fl(2) Rules affecting open-end (not 

home-secured) plans. 

(i) Changes where written advance 

notice is required. For plans other than 

home equity plans subject to the 

requirements of § 226.5b, except as 

provided in paragraphs (c)(2)(ii) and 

(c)(2)(iv) of this section, when a term 

required to be disclosed under 

§§ 226.6(b)(1), 226.6(b)(2) or 226.6(c)(1) 

is changed or the required minimum 

periodic payment is increased, a 

creditor must provide a written notice of 

the change at least 45 days prior to the 

effective date of the change to each 

consumer who may be affected. The 45- 

day timing requirement does not apply 

if the consumer has agreed to a 

particular change; the notice shall be 

given, however, before the effective date 

of the change. Increases in the rate 

applicable to a consumer’s account due 

to delinquency, default or as a penalty 

described in paragraph (g) of this 

section that are not due to a change in 

the contractual terms of the consumer’s 

account must be disclosed pursuant to 

paragraph 9(g) of this section instead of 

paragraph (c)(2) of this section. 

(ii) Charges not covered by 

§ 226.6(b)(4). Except as provided in 

paragraph (c)(2)(iv) of this section, if a 

creditor increases any component of a 

charge, or introduces a new charge, 

required to be disclosed under 

§ 226.6(b)(1) that is not required to be 

disclosed under § 226.6(b)(4), a creditor 

may either, at its option: 

(A) Comply with the requirements of 

paragraphs (c)(2)(i) of this section, or 

(B) Provide notice of the amount of 

the charge at a relevant time before the 

consumer agrees to or becomes 

obligated to pay the charge. The notice 

may be provided orally or in writing. 

(iii) Disclosure requirements. 

(A) Changes to terms described in 

account-opening table. If a creditor 

changes a term required to be disclosed 

pursuant under § 226.6(b)(4), the 

creditor must provide the following 

information on the notice provided 

pursuant to paragraph (c)(2)(i) of this 

section: 

(1) A summary of the changes made 

to terms described in § 226.6(b)(4); 

(2) A statement that changes are being 

made to the account; 

(3) A statement indicating the 

consumer has the right to opt-out of 

these changes, if applicable, and a 

reference to additional information 

describing the opt out right provided in 

the notice, if applicable; 

(4) The date the changes will become 

effective; 

(5) If applicable, a statement that the 

consumer may find additional 

information about the summarized 

changes, and other changes to the 

account, in the notice; and 

(6) If the creditor is changing a rate on 

the account, other than a penalty rate, 

a statement that if a penalty rate 

currently applies to the consumer’s 

account, the new rate described in the 

notice will not apply to the consumer’s 

account until the consumer’s account 

balances are no longer subject to the 

penalty rate. 

(B) Format requirements. (1) Tabular 

format. The summary of changes 

described in paragraph (c)(2)(iii)(A)(1) 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33057 

20afl[Reserved]fi [These disclosures need not be 

provided in tabular format or in a prominent 

location.] 

of this section must be in a tabular 

format, with headings and format 

substantially similar to any of the 

account-opening tables found in G–17 

in appendix G. The table must disclose 

the changed term and information 

relevant to the change, if that relevant 

information is required by § 226.6(b)(4). 

The new terms shall be described in the 

same level of detail as required when 

disclosing the terms under § 226.6(b)(4). 

(2) Notice included with periodic 

statement. If a notice required by 

paragraph (c)(2)(i) of this section is 

included on or with a periodic 

statement, the information described in 

paragraph (c)(2)(iii)(A)(1) of this section 

must be disclosed on the statement 

beginning on the front of the first page 

of the periodic statement directly above 

the grouping of transactions, credits, 

fees and interest required to be 

disclosed by §§ 226.7(b)(2), 226.7(b)(3), 

and 226.7(b)(6), but may continue on 

the front of the second page if necessary, 

so long as there is a reference on the 

first page indicating the information 

continues on the following page. The 

summary of changes described in 

paragraph (c)(1)(iii)(A)(1) of this section 

must immediately follow the 

information described in paragraph 

(c)(1)(iii)(A)(2) through (6) of this 

section, substantially similar to the 

format shown in Sample G–20 in 

appendix G. 

(3) Notice provided separately from 

periodic statement. If a notice required 

by paragraph (c)(2)(i) of this section is 

not included on or with a periodic 

statement, the information described in 

paragraph (c)(2)(iii)(A)(1) of this section 

must, at the creditor’s option, be 

disclosed on the front of the first page 

of the notice or segregated on a separate 

page from other information given with 

the notice. The summary of changes 

required to be in a table pursuant to 

paragraph (c)(2)(iii)(A)(1) of this section 

may be on more than one page, and may 

use both the front and reverse sides, so 

long as the table begins on the front of 

the first page of the notice and there is 

a reference on the first page indicating 

that the table continues on the following 

page. The summary of changes 

described in paragraph (c)(2)(iii)(A)(1) 

of this section must immediately follow 

the information described in paragraph 

(c)(1)(iii)(A)(2) through (6) of this 

section, substantially similar to the 

format shown in Sample G–20 in 

appendix G. 

(iv) Notice not required. For open-end 

plans not subject to the requirements of 

§ 226.5b, a creditor is not required to 

provide notice under this section when 

the change involves charges for 

documentary evidence; a reduction of 

any component of a finance or other 

charge; suspension of future credit 

privileges (except as provided in 

paragraph (c)(2)(v) of this section) or 

termination of an account or plan; or 

when the change results from an 

agreement involving a court proceeding. 

(v) Reduction of the credit limit. For 

open-end plans that are not subject to 

the requirements of § 226.5b, if a 

creditor decreases the credit limit on an 

account, advance notice of the decrease 

must be provided before an over-thelimit fee or a penalty rate can be 

imposed solely as a result of the 

consumer exceeding the newly 

decreased credit limit. Notice shall be 

provided in writing or orally at least 45 

days prior to imposing the over-thelimit fee or penalty rate and shall state 

that the credit limit on the account has 

been or will be decreased.fi 

(d) Finance charge imposed at time of 

transaction. (1) Any person, other than 

the card issuer, who imposes a finance 

charge at the time of honoring a 

consumer’s credit card, shall disclose 

the amount of that finance charge prior 

to its imposition. 

(2) The card issuer, other than the 

person honoring the consumer’s credit 

card, shall have no responsibility for the 

disclosure required by paragraph (d)(1) 

of this section, and shall not consider 

any such charge for the purposes of 

§fl§fi226.5a, [§ ] 226.6 and 

[§ ] 226.7. 

(e) Disclosures upon renewal of credit 

or charge card. 

(1) Notice prior to renewal. Except as 

provided in paragraph (e)(2) of this 

section, a card issuer that imposes any 

annual or other periodic fee to renew a 

credit or charge card account of the type 

subject to § 226.5a, including any fee 

based on account activity or inactivity, 

shall mail or deliver written notice of 

the renewal to the cardholder. The 

notice shall be provided at least 30 days 

or one billing cycle, whichever is less, 

before the mailing or the delivery of the 

periodic statement on which the 

renewal fee is initially charged to the 

account. The notice shall contain the 

following information: 

(i) The disclosures contained in 

§ 226.5a(b)(1) through (7) that would 

apply if the account were renewed; 20a

and 

(ii) How and when the cardholder 

may terminate credit availability under 

the account to avoid paying the renewal 

fee. 

(2) Delayed notice. flAlternatively,fi 

the disclosures required by paragraph 

(e)(1) of this section may be provided 

later than the time in paragraph (e)(1) of 

this section, but no later than the 

mailing or the delivery of the periodic 

statement on which the renewal fee is 

initially charged to the account, if the 

card issuer also discloses at that time 

thatfl:fi [—] 

(i) The cardholder has 30 days from 

the time the periodic statement is 

mailed or delivered to avoid paying the 

fee or to have the fee recredited if the 

cardholder terminates credit availability 

under the account; and 

(ii) The cardholder may use the card 

during the interim period without 

having to pay the fee. 

(3) Notification on periodic 

statements. The disclosures required by 

this paragraph may be made on or with 

a periodic statement. If any of the 

disclosures are provided on the back of 

a periodic statement, the card issuer 

shall include a reference to those 

disclosures on the front of the 

statement. 

(f) Change in credit card account 

insurance provider—(1) Notice prior to 

change. If a credit card issuer plans to 

change the provider of insurance for 

repayment of all or part of the 

outstanding balance of an open-end 

credit card account of the type subject 

to § 226.5a, the card issuer shall mail or 

deliver the cardholder written notice of 

the change not less than 30 days before 

the change in providers occurs. The 

notice shall also include the following 

items, to the extent applicable: 

(i) Any increase in the rate that will 

result from the change; 

(ii) Any substantial decrease in 

coverage that will result from the 

change; and 

(iii) A statement that the cardholder 

may discontinue the insurance. 

(2) Notice when change in provider 

occurs. If a change described in 

paragraph (f)(1) of this section occurs, 

the card issuer shall provide the 

cardholder with a written notice no later 

than 30 days after the change, including 

the following items, to the extent 

applicable: 

(i) The name and address of the new 

insurance provider; 

(ii) A copy of the new policy or group 

certificate containing the basic terms of 

the insurance, including the rate to be 

charged; and 

(iii) A statement that the cardholder 

may discontinue the insurance. 

(3) Substantial decrease in coverage. 

For purposes of this paragraph, a 

substantial decrease in coverage is a 

decrease in a significant term of 

coverage that might reasonably be 

expected to affect the cardholder’s 

decision to continue the insurance. 


rwilkins on PROD1PC63 with PROPOSALS2
33058 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

21fl[Reserved]fi [For purposes of this section, 

‘‘accepted credit card’’ means any credit card that 

a cardholder has requested or applied for and 

received, or has signed, used, or authorized another 

person to use to obtain credit. Any credit card 

issued as a renewal or substitute in accordance with 

Significant terms of coverage include, 

for example, the following: 

(i) Type of coverage provided; 

(ii) Age at which coverage terminates 

or becomes more restrictive; 

(iii) Maximum insurable loan balance, 

maximum periodic benefit payment, 

maximum number of payments, or other 

term affecting the dollar amount of 

coverage or benefits provided; 

(iv) Eligibility requirements and 

number and identity of persons covered; 

(v) Definition of a key term of 

coverage such as disability; 

(vi) Exclusions from or limitations on 

coverage; and 

(vii) Waiting periods and whether 

coverage is retroactive. 

(4) Combined notification. The 

notices required by paragraph (f)(1) and 

(2) of this section may be combined 

provided the timing requirement of 

paragraph (f)(1) of this section is met. 

The notices may be provided on or with 

a periodic statement. 

fl(g) Increase in rates due to 

delinquency or default or as a penalty. 

(1) Increases subject to this section. 

For plans other than home equity plans 

subject to the requirements of § 226.5b, 

a creditor must provide a written notice 

to each consumer who may be affected 

when: 

(i) A rate is increased due to the 

consumer’s delinquency or default; or 

(ii) A rate is increased as a penalty for 

one or more events specified in the 

account agreement, such as making a 

late payment or obtaining an extension 

of credit that exceeds the credit limit. 

(2) Timing of written notice. 

Whenever any notice is required to be 

given pursuant to paragraph (g)(1) of 

this section, the creditor shall provide 

written notice of the increase in rates at 

least 45 days prior to the effective date 

of the increase. The notice must be 

provided after the occurrence of the 

events described in paragraphs (g)(1)(i) 

and (g)(1)(ii) of this section that trigger 

the imposition of the rate increase. 

(3)(i) Disclosure requirements for rate 

increases. If a creditor is increasing the 

rate due to delinquency or default or as 

a penalty, the creditor must provide the 

following information on the notice sent 

pursuant to paragraph (g)(1) of this 

section: 

(A) A statement that the consumer’s 

actions have triggered the delinquency 

or default rate or penalty rate, as 

applicable; 

(B) The date on which the 

delinquency or default rate or penalty 

rate will apply; 

(C) 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 

(D) A statement indicating to which 

balances the delinquency or default rate 

or penalty rate will be applied, as 

applicable. 

(ii) Format requirements. (A) If a 

notice required by paragraph (g)(1) of 

this section is included on or with a 

periodic statement, the information 

described in paragraph (g)(3)(i) of this 

section must be in the form of a table 

and provided on the front of the first 

page of the periodic statement directly 

above the grouping of transactions, 

credits, fees and interest required to be 

disclosed by §§ 226.7(b)(2), 226.7(b)(3), 

and 226.7(b)(6), or above the notice 

described in paragraph (c)(2)(iii)(A) of 

this section if that notice is provided on 

the same statement. 

(B) If a notice required by paragraph 

(g)(1) of this section is not included on 

or with a periodic statement, the 

information described in paragraph 

(g)(3)(i) of this section must be disclosed 

on the front of the first page of the 

notice. Only information related to the 

increase in the rate to a penalty rate may 

be included with the notice, except that 

this notice may be combined with a 

notice described in paragraph 

(c)(2)(iii)(A) of this section.fi 

12. Section 226.10 is amended by 

republishing paragraphs (a) and (c), and 

revising paragraph (b) to read as follows: 

§ 226.10 Prompt crediting of payments. 

(a) General rule. A creditor shall 

credit a payment to the consumer’s 

account as of the date of receipt, except 

when a delay in crediting does not 

result in a finance or other charge or 

except as provided in paragraph (b) of 

this section. 

(b) Specific requirements for 

payments. If a creditor specifies, on or 

with the periodic statement, 

requirements for the consumer to follow 

in making payments, but accepts a 

payment that does not conform to the 

requirements, the creditor shall credit 

the payment within five days of receipt. 

fl(See § 226.7(b)(11) for disclosure 

requirements for certain cut-off times for 

plans other than home equity plans 

subject to the requirements of 

§ 226.5b.)fi 

(c) Adjustment of account. If a 

creditor fails to credit a payment, as 

required by paragraphs (a) or (b) of this 

section, in time to avoid the imposition 

of finance or other charges, the creditor 

shall adjust the consumer’s account so 

that the charges imposed are credited to 

the consumer’s account during the next 

billing cycle. 

13. Section 226.11 is revised to read 

as follows: 

§ 226.11 Treatment of credit balancesfl; 

account terminationfi. 

fl(a) Credit balances.fi When a 

credit balance in excess of $1 is created 

on a credit account (through transmittal 

of funds to a creditor in excess of the 

total balance due on an account, 

through rebates of unearned finance 

charges or insurance premiums, or 

through amounts otherwise owed to or 

held for the benefit of the consumer), 

the creditor shall—

fl(1)fi[(a)] Credit the amount of the 

credit balance to the consumer’s 

account; 

fl(2)fi[(b)] Refund any part of the 

remaining credit balance within seven 

business days from receipt of a written 

request from the consumer; 

fl(3)fi[(c)] Make a good faith effort to 

refund to the consumer by cash, check, 

or money order, or credit to a deposit 

account of the consumer, any part of the 

credit balance remaining in the account 

for more than six months. No further 

action is required if the consumer’s 

current location is not known to the 

creditor and cannot be traced through 

the consumer’s last known address or 

telephone number. 

fl(b) Account termination. 

(1) Creditors shall not terminate an 

account prior to its expiration date 

solely because the consumer does not 

incur a finance charge. 

(2) Nothing in paragraph (b)(1) of this 

section prohibits a creditor from 

terminating an account that is inactive 

for three consecutive months. An 

account is inactive if no credit has been 

extended (such as by purchase, cash 

advance or balance transfer) and if the 

account has no outstanding balance.fi 

14. Section 226.12 is amended by 

republishing paragraphs (a), (d), (e), (f), 

and (g), revising paragraphs (b) and (c), 

and removing and reserving footnotes 

21 through 26 to read as follows: 

§ 226.12 Special credit card provisions. 

(a) Issuance of credit cards. 

Regardless of the purpose for which a 

credit card is to be used, including 

business, commercial, or agricultural 

use, no credit card shall be issued to any 

person except—

(1) In response to an oral or written 

request or application for the card; or 

(2) As a renewal of, or substitute for, 

an accepted credit card.21


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33059 

this paragraph becomes an accepted credit card 

when received by the cardholder.] 

22fl[Reserved]fi [‘‘Unauthorized use’’ means the 

use of a credit card by a person, other than the 

cardholder, who does not have actual, implied, or 

apparent authority for such use, and from which the 

cardholder receives no benefit.] 

23fl[Reserved]fi [‘‘Adequate notice’’ means a 

printed notice to a cardholder that sets forth clearly 

the pertinent facts so that the cardholder may 

reasonably be expected to have noticed it and 

understood its meaning. The notice may be given 

by any means reasonably assuring receipt by the 

cardholder.] 

24fl[Reserved]fi [This paragraph does not apply 

to the use of a check guarantee card or a debit card 

in connection with an overdraft credit plan, or to 

a check guarantee card used in connection with 

cash advance checks]. 

25fl[Reserved]fi [The amount of the claim or 

defense that the cardholder may assert shall not 

exceed the amount of credit outstanding for the 

disputed transaction at the time the cardholder first 

notifies the card issuer or the person honoring the 

credit card of the existence of the claim or defense. 

To determine the amount of credit outstanding for 

purposes of this section, payments and other credits 

shall be applied to: (1) Late charges in the order of 

entry to the account; then to (2) finance charges in 

the order of entry to the account; and then to (3) 

any other debits in the order of entry to the account. 

If more than one item is included in a single 

extension of credit, credits are to be distributed pro 

rata according to prices and applicable taxes.] 

26fl[Reserved]fi [The limitations stated in 

paragraph (c)(3)(i)(A) of this section shall not apply 

when the person honoring the credit card: (1) Is the 

same person as the card issuer; (2) is controlled by 

the card issuer directly or indirectly; (3) is under 

the direct or indirect control of a third person that 

also directly or indirectly controls the card issuer; 

(4) controls the card issuer directly or indirectly; (5) 

is a franchised dealer in the card issuer’s products 

or services; or (6) has obtained the order for the 

disputed transaction through a mail solicitation 

made or participated in by the card issuer.] 

(b) Liability of cardholder for 

unauthorized use—(1) fl(i) Definition 

of unauthorized use. For purposes of 

this section, the term ‘‘unauthorized 

use’’ means the use of a credit card by 

a person, other than the cardholder, 

who does not have actual, implied, or 

apparent authority for such use, and 

from which the cardholder receives no 

benefit. 

(ii)fi Limitation on amount. The 

liability of a cardholder for 

unauthorized use 22 of a credit card shall 

not exceed the lesser of $50 or the 

amount of money, property, labor, or 

services obtained by the unauthorized 

use before notification to the card issuer 

under paragraph (b)(3) of this section. 

(2) Conditions of liability. A 

cardholder shall be liable for 

unauthorized use of a credit card only 

if: 

(i) The credit card is an accepted 

credit card; 

(ii) The card issuer has provided 

adequate notice 23 of the cardholder’s 

maximum potential liability and of 

means by which the card issuer may be 

notified of loss or theft of the card. The 

notice shall state that the cardholder’s 

liability shall not exceed $50 (or any 

lesser amount) and that the cardholder 

may give oral or written notification, 

and shall describe a means of 

notification (for example, a telephone 

number, an address, or both); and 

(iii) The card issuer has provided a 

means to identify the cardholder on the 

account or the authorized user of the 

card. 

(3) Notification to card issuer. 

Notification to a card issuer is given 

when steps have been taken as may be 

reasonably required in the ordinary 

course of business to provide the card 

issuer with the pertinent information 

about the loss, theft, or possible 

unauthorized use of a credit card, 

regardless of whether any particular 

officer, employee, or agent of the card 

issuer does, in fact, receive the 

information. Notification may be given, 

at the option of the person giving it, in 

person, by telephone, or in writing. 

Notification in writing is considered 

given at the time of receipt or, whether 

or not received, at the expiration of the 

time ordinarily required for 

transmission, whichever is earlier. 

(4) Effect of other applicable law or 

agreement. If state law or an agreement 

between a cardholder and the card 

issuer imposes lesser liability than that 

provided in this paragraph, the lesser 

liability shall govern. 

(5) Business use of credit cards. If 10 

or more credit cards are issued by one 

card issuer for use by the employees of 

an organization, this section does not 

prohibit the card issuer and the 

organization from agreeing to liability 

for unauthorized use without regard to 

this section. However, liability for 

unauthorized use may be imposed on an 

employee of the organization, by either 

the card issuer or the organization, only 

in accordance with this section. 

(c) Right of cardholder to assert 

claims or defenses against card 

issuer 24—(1) General rule. When a 

person who honors a credit card fails to 

resolve satisfactorily a dispute as to 

property or services purchased with the 

credit card in a consumer credit 

transaction, the cardholder may assert 

against the card issuer all claims (other 

than tort claims) and defenses arising 

out of the transaction and relating to the 

failure to resolve the dispute. The 

cardholder may withhold payment up to 

the amount of credit outstanding for the 

property or services that gave rise to the 

dispute and any finance or other charges 

imposed on that amount.25

(2) Adverse credit reports prohibited. 

If, in accordance with paragraph (c)(1) 

of this section, the cardholder withholds 

payment of the amount of credit 

outstanding for the disputed 

transaction, the card issuer shall not 

report that amount as delinquent until 

the dispute is settled or judgment is 

rendered. 

(3) Limitations. fl(i) General.fi The 

rights stated in paragraphs (c)(1) and (2) 

of this section apply only if: 

[(i)] fl(A)fi The cardholder has made 

a good faith attempt to resolve the 

dispute with the person honoring the 

credit card; and 

[(ii)] fl(B)fi The amount of credit 

extended to obtain the property or 

services that result in the assertion of 

the claim or defense by the cardholder 

exceeds $50, and the disputed 

transaction occurred in the same state as 

the cardholder’s current designated 

address or, if not within the same state, 

within 100 miles from that address.26

fl(ii) Exclusion. The limitations 

stated in paragraph (c)(3)(i)(B) of this 

section shall not apply when the person 

honoring the credit card: 

(A) Is the same person as the card 

issuer; 

(B) Is controlled by the card issuer 

directly or indirectly; 

(C) Is under the direct or indirect 

control of a third person that also 

directly or indirectly controls the card 

issuer; 

(D) Controls the card issuer directly or 

indirectly; 

(E) Is a franchised dealer in the card 

issuer’s products or services; or 

(F) Has obtained the order for the 

disputed transaction through a mail 

solicitation made or participated in by 

the card issuer.fi 

(d) Offsets by card issuer prohibited. 

(1) A card issuer may not take any 

action, either before or after termination 

of credit card privileges, to offset a 

cardholder’s indebtedness arising from a 

consumer credit transaction under the 

relevant credit card plan against funds 

of the cardholder held on deposit with 

the card issuer. 

(2) This paragraph does not alter or 

affect the right of a card issuer acting 

under state or federal law to do any of 

the following with regard to funds of a 

cardholder held on deposit with the 

card issuer if the same procedure is 

constitutionally available to creditors 

generally: obtain or enforce a 

consensual security interest in the 

funds; attach or otherwise levy upon the 

funds; or obtain or enforce a court order 

relating to the funds. 

(3) This paragraph does not prohibit 

a plan, if authorized in writing by the 

cardholder, under which the card issuer 

may periodically deduct all or part of 

the cardholder’s credit card debt from a 

deposit account held with the card 


rwilkins on PROD1PC63 with PROPOSALS2
33060 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

27fl[Reserved]fi [A creditor shall not accelerate 

any part of the consumer’s indebtedness or restrict 

or close a consumer’s account solely because the 

consumer has exercised in good faith rights 

provided by this section. A creditor may be subject 

to the forfeiture penalty under section 161(e) of the 

Act for failure to comply with any of the 

requirements of this section.] 

28fl[Reserved]fi [The creditor need not comply 

with the requirements of paragraphs (c) through (g) 

of this section if the consumer concludes that no 

billing error occurred and voluntarily withdraws 

the billing error notice]. 

29fl[Reserved]fi [The creditor may require that 

the written notice not be made on the payment 

medium or other material accompanying the 

periodic statement if the creditor so stipulates in 

the billing rights statement required by §§ 226.6(d) 

and 226.9(a)]. 

30fl[Reserved]fi [A creditor is not prohibited 

from taking action to collect any undisputed 

portion of the item or bill; from deducting any 

disputed amount and related finance or other 

charges from the consumer’s credit limit on the 

account; or from reflecting a disputed amount and 

related finance or other charges on a periodic 

statement, provided that the creditor indicates on 

or with the periodic statement that payment of any 

disputed amount and related finance or other 

charges is not required pending the creditor’s 

compliance with this section.] 

issuer (subject to the limitations in 

§ 226.13(d)(1)). 

(e) Prompt notification of returns and 

crediting of refunds. (1) When a creditor 

other than the card issuer accepts the 

return of property or forgives a debt for 

services that is to be reflected as a credit 

to the consumer’s credit card account, 

that creditor shall, within seven 

business days from accepting the return 

or forgiving the debt, transmit a credit 

statement to the card issuer through the 

card issuer’s normal channels for credit 

statements. 

(2) The card issuer shall, within three 

business days from receipt of a credit 

statement, credit the consumer’s 

account with the amount of the refund. 

(3) If a creditor other than a card 

issuer routinely gives cash refunds to 

consumers paying in cash, the creditor 

shall also give credit or cash refunds to 

consumers using credit cards, unless it 

discloses at the time the transaction is 

consummated that credit or cash 

refunds for returns are not given. This 

section does not require refunds for 

returns nor does it prohibit refunds in 

kind. 

(f) Discounts; tie-in arrangements. No 

card issuer may, by contract or 

otherwise: 

(1) Prohibit any person who honors a 

credit card from offering a discount to 

a consumer to induce the consumer to 

pay by cash, check, or similar means 

rather than by use of a credit card or its 

underlying account for the purchase of 

property or services; or 

(2) Require any person who honors 

the card issuer’s credit card to open or 

maintain any account or obtain any 

other service not essential to the 

operation of the credit card plan from 

the card issuer or any other person, as 

a condition of participation in a credit 

card plan. If maintenance of an account 

for clearing purposes is determined to 

be essential to the operation of the 

credit card plan, it may be required only 

if no service charges or minimum 

balance requirements are imposed. 

(g) Relation to Electronic Fund 

Transfer Act and Regulation E. For 

guidance on whether Regulation Z (12 

CFR part 226) or Regulation E (12 CFR 

part 205) applies in instances involving 

both credit and electronic fund transfer 

aspects, refer to Regulation E, 12 CFR 

205.12(a) regarding issuance and 

liability for unauthorized use. On 

matters other than issuance and 

liability, this section applies to the 

credit aspects of combined credit/ 

electronic fund transfer transactions, as 

applicable. 

15. Section 226.13 is amended by 

revising paragraphs (a), (b), (d), and (g), 

republishing paragraphs (c), (e), (f), (h), 

and (i), and removing and reserving 

footnotes 27 through 31 to read as 

follows: 

§ 226.13 Billing error resolution.27

(a) Definition of billing error. For 

purposes of this section, the term billing 

error means: 

(1) A reflection on or with a periodic 

statement of an extension of credit that 

is not made to the consumer or to a 

person who has actual, implied, or 

apparent authority to use the 

consumer’s credit card or open-end 

credit plan. 

(2) A reflection on or with a periodic 

statement of an extension of credit that 

is not identified in accordance with the 

requirements of §§fl§§ 226.7(a)(2) or 

(b)(2), as applicablefi [226.7(b)] and 

226.8. 

(3) A reflection on or with a periodic 

statement of an extension of credit for 

property or services not accepted by the 

consumer or the consumer’s designee, 

or not delivered to the consumer or the 

consumer’s designee as agreed. 

(4) A reflection on a periodic 

statement of the creditor’s failure to 

credit properly a payment or other 

credit issued to the consumer’s account. 

(5) A reflection on a periodic 

statement of a computational or similar 

error of an accounting nature that is 

made by the creditor. 

(6) A reflection on a periodic 

statement of an extension of credit for 

which the consumer requests additional 

clarification, including documentary 

evidence. 

(7) The creditor’s failure to mail or 

deliver a periodic statement to the 

consumer’s last known address if that 

address was received by the creditor, in 

writing, at least 20 days before the end 

of the billing cycle for which the 

statement was required. 

(b) Billing error notice.28 A billing 

error notice is a written notice 29 from a 

consumer that: 

(1) Is received by a creditor at the 

address disclosed under 

fl§§ 226.7(a)(9) or (b)(9), as 

applicable,fi [§ 226.7(k)] no later than 

60 days after the creditor transmitted 

the first periodic statement that reflects 

the alleged billing error; 

(2) Enables the creditor to identify the 

consumer’s name and account number; 

and 

(3) To the extent possible, indicates 

the consumer’s belief and the reasons 

for the belief that a billing error exists, 

and the type, date, and amount of the 

error. 

(c) Time for resolution; general 

procedures. (1) The creditor shall mail 

or deliver written acknowledgment to 

the consumer within 30 days of 

receiving a billing error notice, unless 

the creditor has complied with the 

appropriate resolution procedures of 

paragraphs (e) and (f) of this section, as 

applicable, within the 30-day period; 

and 

(2) The creditor shall comply with the 

appropriate resolution procedures of 

paragraphs (e) and (f) of this section, as 

applicable, within 2 complete billing 

cycles (but in no event later than 90 

days) after receiving a billing error 

notice. 

(d) Rules pending resolution. Until a 

billing error is resolved under paragraph 

(e) or (f) of this section, the following 

rules apply: 

(1) Consumer’s right to withhold 

disputed amount; collection action 

prohibited. The consumer need not pay 

(and the creditor may not try to collect) 

any portion of any required payment 

that the consumer believes is related to 

the disputed amount (including related 

finance or other charges).30 If the 

cardholder [maintains a deposit account 

with the card issuer and] flhas enrolled 

in an automatic payment plan offered by 

the card issuer andfi has agreed to pay 

the credit card indebtedness by periodic 

deductions from the cardholder’s 

deposit account, the card issuer shall 

not deduct any part of the disputed 

amount or related finance or other 

charges if a billing error notice is 

received any time up to 3 business days 

before the scheduled payment date. 

(2) Adverse credit reports prohibited. 

The creditor or its agent shall not 

(directly or indirectly) make or threaten 

to make an adverse report to any person 


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31fl[Reserved]fi [If a consumer submits a billing 

error notice alleging either the nondelivery of 

property or services under paragraph (a)(3) of this 

section or that information appearing on a periodic 

statement is incorrect because a person honoring 

the consumer’s credit card has made an incorrect 

report to the card issuer, the creditor shall not deny 

the assertion unless it conducts a reasonable 

investigation and determines that the property or 

services were actually delivered, mailed, or sent as 

agreed or that the information was correct]. 

31afl[Reserved]fi [An error in disclosure of the 

annual percentage rate or finance charge shall not, 

in itself, be considered a violation of this regulation 

if: (1) The error resulted from a corresponding error 

in a calculation tool used in good faith by the 

creditor; and (2) upon discovery of the error, the 

creditor promptly discontinues use of that 

calculation tool for disclosure purposes, and 

notifies the Board in writing of the error in the 

calculation tool.] 

about the consumer’s credit standing, or 

report that an amount or account is 

delinquent, because the consumer failed 

to pay the disputed amount or related 

finance or other charges. 

fl(3) Acceleration of debt and 

restriction of account prohibited. A 

creditor shall not accelerate any part of 

the consumer’s indebtedness or restrict 

or close a consumer’s account solely 

because the consumer has exercised in 

good faith rights provided by this 

section. A creditor would be subject to 

the forfeiture penalty under section 

161(e) of the Act for failure to comply 

with any of the requirements of this 

section. 

(4) Permitted creditor actions. A 

creditor is not prohibited from taking 

action to collect any undisputed portion 

of the item or bill; from deducting any 

disputed amount and related finance or 

other charges from the consumer’s 

credit limit on the account; or from 

reflecting a disputed amount and related 

finance or other charges on a periodic 

statement, provided that the creditor 

indicates on or with the periodic 

statement that payment of any disputed 

amount and related finance or other 

charges is not required pending the 

creditor’s compliance with this 

section.fi 

(e) Procedures if billing error occurred 

as asserted. If a creditor determines that 

a billing error occurred as asserted, it 

shall within the time limits in paragraph 

(c)(2) of this section: 

(1) Correct the billing error and credit 

the consumer’s account with any 

disputed amount and related finance or 

other charges, as applicable; and 

(2) Mail or deliver a correction notice 

to the consumer. 

(f) Procedures if different billing error 

or no billing error occurred. If, after 

conducting a reasonable investigation,31

a creditor determines that no billing 

error occurred or that a different billing 

error occurred from that asserted, the 

creditor shall within the time limits in 

paragraph (c)(2) of this section: 

(1) Mail or deliver to the consumer an 

explanation that sets forth the reasons 

for the creditor’s belief that the billing 

error alleged by the consumer is 

incorrect in whole or in part; 

(2) Furnish copies of documentary 

evidence of the consumer’s 

indebtedness, if the consumer so 

requests; and 

(3) If a different billing error occurred, 

correct the billing error and credit the 

consumer’s account with any disputed 

amount and related finance or other 

charges, as applicable. 

(g) Creditor’s rights and duties after 

resolution. If a creditor, after complying 

with all of the requirements of this 

section, determines that a consumer 

owes all or part of the disputed amount 

and related finance or other charges, the 

creditor: 

(1) Shall promptly notify the 

consumer in writing of the time when 

payment is due and the portion of the 

disputed amount and related finance or 

other charges that the consumer still 

owes; 

(2) Shall allow any time period 

disclosed under §§ 226.6(a)(1) flor 

226.6(b)(1), as applicablefi, and 

fl226.7(a)(8) or (b)(8), as applicablefi 

[226.7(j)], during which the consumer 

can pay the amount due under 

paragraph (g)(1) of this section without 

incurring additional finance or other 

charges; 

(3) May report an account or amount 

as delinquent because the amount due 

under paragraph (g)(1) of this section 

remains unpaid after the creditor has 

allowed any time period disclosed 

under §§ 226.6(a)(1) flor 226.6(b)(1), as 

applicablefi, and fl226.7(a)(8) or 

(b)(8), as applicablefi [226.7(j)] or 10 

days (whichever is longer) during which 

the consumer can pay the amount; but 

(4) May not report that an amount or 

account is delinquent because the 

amount due under paragraph (g)(1) of 

the section remains unpaid, if the 

creditor receives (within the time 

allowed for payment in paragraph (g)(3) 

of this section) further written notice 

from the consumer that any portion of 

the billing error is still in dispute, 

unless the creditor also: 

(i) Promptly reports that the amount 

or account is in dispute; 

(ii) Mails or delivers to the consumer 

(at the same time the report is made) a 

written notice of the name and address 

of each person to whom the creditor 

makes a report; and 

(iii) Promptly reports any subsequent 

resolution of the reported delinquency 

to all persons to whom the creditor has 

made a report. 

(h) Reassertion of billing error. A 

creditor that has fully complied with the 

requirements of this section has no 

further responsibilities under this 

section (other than as provided in 

paragraph (g)(4) of this section) if a 

consumer reasserts substantially the 

same billing error. 

(i) Relation to Electronic Fund 

Transfer Act and Regulation E. If an 

extension of credit is incident to an 

electronic fund transfer, under an 

agreement between a consumer and a 

financial institution to extend credit 

when the consumer’s account is 

overdrawn or to maintain a specified 

minimum balance in the consumer’s 

account, the creditor shall comply with 

the requirements of Regulation E, 12 

CFR 205.11 governing error resolution 

rather than those of paragraphs (a), (b), 

(c), (e), (f), and (h) of this section. 

16. Section 226.14 is amended by 

revising paragraphs (a), (b), (c), and (d), 

adding a new paragraph (e), and by 

removing and reserving footnotes 31a 

through 35 to read as follows: 

§ 226.14 Determination of annual 

percentage rate. 

(a) General rule. The annual 

percentage rate is a measure of the cost 

of credit, expressed as a yearly rate. An 

annual percentage rate shall be 

considered accurate if it is not more 

than 1⁄8 of 1 percentage point above or 

below the annual percentage rate 

determined in accordance with this 

section.31a flAn error in disclosure of 

the annual percentage rate or finance 

charge shall not, in itself, be considered 

a violation of this regulation if: 

(1) The error resulted from a 

corresponding error in a calculation tool 

used in good faith by the creditor; and 

(2) Upon discovery of the error, the 

creditor promptly discontinues use of 

that calculation tool for disclosure 

purposes, and notifies the Board in 

writing of the error in the calculation 

tool.fi 

(b) Annual percentage rate fl—in 

generalfi [for §§ 226.5a and 226.5b 

disclosures, for initial disclosures, and 

for advertising purposes]. Where one or 

more periodic rates may be used to 

compute the finance charge, the annual 

percentage rate(s) to be disclosed for 

purposes of §§ 226.5a, 226.5b, 226.6, 

fl226.7(a)(4) or (b)(4), 226.9, 226.15,fi 

[and] 226.16 fl, and 226.26fi shall be 

computed by multiplying each periodic 

rate by the number of periods in a year. 

(c) flEffectivefi annual percentage 

rate flfor home equity plansfi [for 

periodic statements]. [The annual 

percentage rate(s) to be disclosed for 

purposes of § 226.7(d) shall be 


rwilkins on PROD1PC63 with PROPOSALS2
33062 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

32fl[Reserved]fi [If there is no balance to which 

the finance charge is applicable, an annual 

percentage rate cannot be determined under this 

section.] 

33fl[Reserved]fi [Where the finance charge 

imposed during the billing cycle is or includes a 

loan fee, points, or similar charge that relates to the 

opening of the account, the amount of such charge 

shall not be included in the calculation of the 

annual percentage rate.] 

34fl[Reserved]fi [See appendix F regarding 

determination of the denominator of the fraction 

under this paragraph.] 

35fl[Reserved]fi [See footnote 33.] 

computed by multiplying each periodic 

rate by the number of periods in a year 

and, for purposes of § 226.7(g), shall be 

determined as follows:] 

ALTERNATIVE 1—PARAGRAPH (c) 

INTRODUCTORY TEXT. 

flFor home equity plans subject to 

the requirements of § 226.5b, a creditor 

may, at its option, disclose an effective 

annual percentage rate(s) pursuant to 

§ 226.7(b)(7) and compute the annual 

percentage rate in accordance with 

paragraph (d) of this section. 

Alternatively, the creditor may disclose 

an effective annual percentage rate 

pursuant to § 226.7(a)(7) and compute 

the rate as follows: 

ALTERNATIVE 2—PARAGRAPH (c) 

INTRODUCTORY TEXT. 

A creditor need not disclose an 

effective annual percentage rate. For 

home equity plans subject to the 

requirements of § 226.5b, a creditor 

may, at its option, disclose an effective 

annual percentage rate(s) pursuant to 

§ 226.7(a)(7) and compute the effective 

annual percentage rate as follows:fi 

(1) flSolely periodic rates imposed.fi 

If the finance charge is determined 

solely by applying one or more periodic 

rates, at the creditor’s option, either: 

(i) By multiplying each periodic rate 

by the number of periods in a year; or 

(ii) By dividing the total finance 

charge for the billing cycle by the sum 

of the balances to which the periodic 

rates were applied and multiplying the 

quotient (expressed as a percentage) by 

the number of billing cycles in a year. 

(2) flMinimum or fixed charge, but 

not transaction charge, imposed.fi If 

the finance charge imposed during the 

billing cycle is or includes a minimum, 

fixed, or other charge not due to the 

application of a periodic rate, other than 

a charge with respect to any specific 

transaction during the billing cycle, by 

dividing the total finance charge for the 

billing cycle by the amount of the 

balance(s) to which it is applicable 32

and multiplying the quotient (expressed 

as a percentage) by the number of billing 

cycles in a year.33 flIf there is no 

balance to which the finance charge is 

applicable, an annual percentage rate 

cannot be determined under this 

section. Where the finance charge 

imposed during the billing cycle is or 

includes a loan fee, points, or similar 

charge that relates to opening, renewing, 

or continuing an account, the amount of 

such charge shall not be included in the 

calculation of the annual percentage 

rate.fi 

(3) flTransaction charge imposed.fi 

If the finance charge imposed during the 

billing cycle is or includes a charge 

relating to a specific transaction during 

the billing cycle (even if the total 

finance charge also includes any other 

minimum, fixed, or other charge not due 

to the application of a periodic rate), by 

dividing the total finance charge 

imposed during the billing cycle by the 

total of all balances and other amounts 

on which a finance charge was imposed 

during the billing cycle without 

duplication, and multiplying the 

quotient (expressed as a percentage) by 

the number of billing cycles in a year,34

except that the annual percentage rate 

shall not be less than the largest rate 

determined by multiplying each 

periodic rate imposed during the billing 

cycle by the number of periods in a 

year.35 flWhere the finance charge 

imposed during the billing cycle is or 

includes a loan fee, points, or similar 

charge that relates to the opening, 

renewing, or continuing an account, the 

amount of such charge shall not be 

included in the calculation of the 

annual percentage rate. See appendix F 

regarding determination of the 

denominator of the fraction under this 

paragraph.fi 

(4) If the finance charge imposed 

during the billing cycle is or includes a 

minimum, fixed, or other charge not due 

to the application of a periodic rate and 

the total finance charge imposed during 

the billing cycle does not exceed 50 

cents for a monthly or longer billing 

cycle, or the pro rata part of 50 cents for 

a billing cycle shorter than monthly, at 

the creditor’s option, by multiplying 

each applicable periodic rate by the 

number of periods in a year, 

notwithstanding the provisions of 

paragraphs (c)(2) and (3) of this section. 

fl(5)fi [(d)] Calculations where daily 

periodic rate applied. If the provisions 

of paragraph (c)(1)(ii) or (2) of this 

section apply and all or a portion of the 

finance charge is determined by the 

application of one or more daily 

periodic rates, the annual percentage 

rate may be determined either: 

fl(i)fi [(1)] By dividing the total 

finance charge by the average of the 

daily balances and multiplying the 

quotient by the number of billing cycles 

in a year; or 

fl(ii)fi [(2)] By dividing the total 

finance charge by the sum of the daily 

balances and multiplying the quotient 

by 365. 

ALTERNATIVE 1 ONLY.—

PARAGRAPHS (d) AND (e). 

(d) Effective annual percentage rates 

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

For plans not subject to the 

requirements of § 226.5b, the effective 

annual percentage rate shall be 

disclosed pursuant to § 226.7(b)(7) and 

computed as follows: 

(1) Solely periodic rates imposed. If 

the finance charge identified in 

paragraph (e) of this section is 

determined solely by applying one or 

more periodic rates used to calculate 

interest, by multiplying each periodic 

rate by the number of periods in a year. 

(2) Minimum or fixed charge, but not 

transaction charge, imposed. If the 

finance charge identified in paragraph 

(e) of this section imposed during the 

billing cycle is or includes a minimum 

charge or other charge not attributable to 

a periodic rate used to calculate interest, 

and does not include a charge that 

relates to any specific transaction during 

the billing cycle, as follows: 

(i) Multifeatured plans. For 

multifeatured plans, by feature, as 

follows: 

(A) Purchases. Except as provided in 

paragraph (d)(4) of this section, for 

purchase transactions, by totaling the 

minimum charges and other charges 

identified in paragraph (e) of this 

section that are not attributable to 

periodic rates used to calculate interest 

and not related to a specific transaction, 

and any finance charge identified in 

paragraph (e) of this section attributable 

to periodic rates used to calculate 

interest on purchase balances, dividing 

that total by the amount of the balance 

to which such charges are applicable, 

and multiplying the quotient (expressed 

as a percentage) by the number of billing 

cycles in a year. If there is no balance 

to which such charges are applicable, an 

annual percentage rate cannot be 

determined under this paragraph 

(d)(2)(i)(A) and shall be disclosed as 

0.00%. If a portion of the finance charge 

described in this paragraph (d)(2)(i)(A) 

is determined by the application of one 

or more daily periodic rates, the annual 

percentage rate may be determined, at 

the creditor’s option, by dividing the 

total of the finance charges determined 

above by the average of the daily 

purchase balances and multiplying the 

quotient by the number of billing cycles 

in a year; or by dividing the total 

finance charge by the sum of the daily 

purchase balances, and multiplying the 

quotient by 365. 


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36dfl[Reserved]fi [The disclosures given in 

accordance with § 226.5a do not constitute 

Continued 

(B) Other features. For other features, 

by multiplying each applicable periodic 

rate by the number of periods in a year. 

If there is no balance on a feature to 

which a periodic interest rate is 

applicable, the annual percentage rate 

for that feature shall be disclosed as 

0.00%. 

(ii) Single-featured plans. Subject to 

paragraph (d)(4) of this section, for 

single-featured plans, the annual 

percentage rate shall be determined by 

dividing the total finance charge 

identified in paragraph (e) of this 

section by the amount of the balance(s) 

to which such charge is applicable, and 

multiplying the quotient (expressed as a 

percentage) by the number of billing 

cycles in a year. If there is no balance 

to which such charges are applicable, an 

annual percentage rate cannot be 

determined under this paragraph and 

shall be disclosed as 0.00%. If a portion 

of the finance charge described in this 

paragraph is determined by the 

application of one or more daily 

periodic rates, the annual percentage 

rate may be determined, at the creditor’s 

option, by dividing the total finance 

charge by the average of the daily 

purchase balances and multiplying the 

quotient by the number of billing cycles 

in a year; or by dividing the total 

finance charge by the sum of the daily 

purchase balances, and multiplying the 

quotient by 365. 

(3) Transaction charge imposed. If 

any finance charge imposed during the 

billing cycle is identified in paragraph 

(e) of this section and is or includes a 

charge relating to a specific transaction 

during the billing cycle, as follows: 

(i) Multifeatured plans. For 

multifeatured plans, by feature, as 

follows: 

(A) Purchases. Except as provided in 

paragraph (d)(4) of this section, for 

purchase transactions, by totaling the 

minimum charges and other charges 

identified in § 226.14(e) that are not 

attributable to periodic rates used to 

calculate interest and not related to a 

specific transaction, any finance charges 

identified in paragraph (e) of this 

section attributable to periodic rates 

used to calculate interest applicable to 

purchase transactions, and any charges 

identified in paragraph (e) of this 

section relating to a specific purchase 

transaction, dividing that total by the 

total of all balances and other amounts 

to which such charges are applicable 

without duplication, and multiplying 

the quotient (expressed as a percentage) 

by the number of billing cycles in a 

year, except that the annual percentage 

rate shall not be less than the largest rate 

determined by multiplying each 

periodic rate imposed during the billing 

cycle on purchase transactions by the 

number of periods in a year. See 

appendix F regarding determination of 

the denominator of the fraction under 

this paragraph (e)(3)(i)(A). 

(B) Other features. Except as provided 

in paragraph (d)(4) of this section, for 

other types of transactions, by totaling 

any finance charge identified in 

paragraph (e) of this section attributable 

to periodic rates used to calculate 

interest for the type of transaction, and 

any charges identified in paragraph (e) 

of this section relating to a specific 

transaction of that type, dividing that 

total by the total of all balance(s) and 

other amounts to which such charges 

are applicable without duplication, and 

multiplying the quotient (expressed as a 

percentage) by the number of billing 

cycles in a year, except that the annual 

percentage rate shall not be less than the 

largest rate determined by multiplying 

each periodic rate imposed during the 

billing cycle on that type of transaction 

by the number of periods in a year. See 

appendix F regarding determination of 

the denominator of the fraction under 

this paragraph (e)(3)(i)(B). 

(ii) Single-featured plans. Subject to 

paragraph (d)(4) of this section, for 

single-featured plans, the annual 

percentage rate shall be determined by 

dividing the total finance charge 

identified in paragraph (e) of this 

section by the total of all balance(s) and 

other amounts to which such charges 

are applicable without duplication, and 

multiplying the quotient (expressed as a 

percentage) by the number of billing 

cycles in a year, except that the annual 

percentage rate shall not be less than the 

largest rate determined by multiplying 

each periodic rate imposed during the 

billing cycle by the number of periods 

in a year. See appendix F regarding 

determination of the denominator of the 

fraction under this paragraph (e)(3)(ii). 

(4) If the finance charge identified in 

paragraph (e) of this section imposed 

during the billing cycle is or includes a 

minimum charge or other charge not 

attributable to periodic rates used to 

calculate interest and the total finance 

charge identified in paragraph (e) of this 

section imposed during the billing cycle 

does not exceed $1.00 for a monthly or 

longer billing cycle, or the pro rata part 

of $1.00 for a billing cycle shorter than 

monthly, at the creditor’s option, by 

multiplying each applicable periodic 

rate by the number of periods in a year, 

notwithstanding the provisions of 

paragraphs (d)(2) and (3) of this section. 

(e) Finance charges to be included in 

the calculation of the effective annual 

percentage rate under § 226.14(d). (1) 

Subject to paragraph (e)(2) of this 

section, for purposes of the calculations 

in paragraph (d) of this section, only the 

following finance charges shall be 

included: 

(i) Charges attributable to a periodic 

rate used to calculate interest; 

(ii) Charges that relate to a specific 

transaction; 

(iii) Charges related to required credit 

insurance or debt cancellation or debt 

suspension coverage; 

(iv) Minimum charges imposed if, and 

only if, a charge would otherwise have 

been determined by applying a periodic 

rate used to calculate interest to a 

balance except for the fact that such 

charge is smaller than the minimum; 

and 

(v) Charges based on the account 

balance, account activity or inactivity, 

or the amount of credit available; 

(2) Notwithstanding paragraph (e)(1) 

of this section, the following finance 

charges shall not be included for 

purposes of the calculations in 

paragraph (d) of this section: 

(i) A charge related to opening the 

account; or 

(ii) A charge related to continuing or 

renewing the account and imposed not 

more often than annually.fi 

17. Section 226.16 is amended by 

republishing paragraph (a), revising 

paragraphs (b), (c), and (d), adding new 

paragraphs (e), (f), and (g), and removing 

and reserving footnote 36d and footnote 

36e to read as follows: 

§ 226.16 Advertising. 

(a) Actually available terms. If an 

advertisement for credit states specific 

credit terms, it shall state only those 

terms that actually are or will be 

arranged or offered by the creditor. 

(b) Advertisement of terms that 

require additional disclosures. 

fl(1) Any term required to be 

disclosed under § 226.6(b)(1) set forth 

affirmatively or negatively in an 

advertisement for an open-end (not 

home-secured) credit plan triggers 

additional disclosures under this 

section. Any term required to be 

disclosed under §§ 226.6(a)(1) or 

226.6(a)(2) set forth affirmatively or 

negatively in an advertisement for a 

home equity plan subject to the 

requirements of § 226.5b triggers 

additional disclosures under this 

section.fi If any of the terms flthat 

trigger additional disclosures under 

paragraph (b)(1) of this sectionfi 

[required to be disclosed under § 226.6] 

is set forth in an advertisement, the 

advertisement shall also clearly and 

conspicuously set forth the 

following:36d


rwilkins on PROD1PC63 with PROPOSALS2
33064 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

advertising terms for purposes of the requirements 

of this section.] 36efl[Reserved]fi [See footnote 10b.] 

fl(i)fi [(1)] Any minimum, fixed, 

transaction, activity or similar charge 

flthat is a finance charge under 

§ 226.4fi that could be imposed. 

fl(ii)fi [(2)] Any periodic rate that 

may be applied expressed as an annual 

percentage rate as determined under 

§ 226.14(b). If the plan provides for a 

variable periodic rate, that fact shall be 

disclosed. 

fl(iii)fi [(3)] Any membership or 

participation fee that could be imposed. 

fl(2) If an advertisement for credit to 

finance the purchase of specific goods 

or services states a minimum monthly 

payment, the advertisement shall also 

state the total of payments and the time 

period to repay the obligation, assuming 

that the consumer makes only the 

minimum payment required for each 

periodic statement. The disclosure of 

the total of payments and the time 

period to repay the obligation must be 

equally prominent to the statement of 

the minimum monthly payment.fi 

(c) Catalogs or other multiple-page 

advertisements; electronic 

advertisements. 

(1) If a catalog or other multiple-page 

advertisement, or an flelectronicfi 

advertisement fl(such as an 

advertisement appearing on an Internet 

Web site)fi [using electronic 

communication], gives information in a 

table or schedule in sufficient detail to 

permit determination of the disclosures 

required by paragraph (b) of this section, 

it shall be considered a single 

advertisement if: 

(i) The table or schedule is clearly and 

conspicuously set forth; and 

(ii) Any statement of terms set forth in 

§ 226.6 appearing anywhere else in the 

catalog or advertisement clearly refers to 

the page or location where the table or 

schedule begins. 

(2) A catalog or other multiple-page 

advertisement or an flelectronicfi 

advertisement fl(such as an 

advertisement appearing on an Internet 

Web site)fi [using electronic 

communication] complies with this 

paragraph if the table or schedule of 

terms includes all appropriate 

disclosures for a representative scale of 

amounts up to the level of the more 

commonly sold higher-priced property 

or services offered. 

fl(3) For an advertisement that is 

accessed by the consumer in electronic 

form, the disclosures required under 

this section must be provided to the 

consumer in electronic form on or with 

the advertisement.fi 

(d) Additional requirements for home 

equity plans. (1) Advertisement of terms 

that require additional disclosures. If 

any of the terms required to be disclosed 

under fl§ 226.6(a)(6)fi [§ 226.6(a) or 

(b)] or the payment terms of the plan are 

set forth, affirmatively or negatively, in 

an advertisement for a home equity plan 

subject to the requirements of § 226.5b, 

the advertisement also shall clearly and 

conspicuously set forth the following: 

(i) Any loan fee that is a percentage 

of the credit limit under the plan and an 

estimate of any other fees imposed for 

opening the plan, stated as a single 

dollar amount or a reasonable range. 

(ii) Any periodic rate used to compute 

the finance charge, expressed as an 

annual percentage rate as determined 

under § 226.14(b). 

(iii) The maximum annual percentage 

rate that may be imposed in a variablerate plan. 

(2) Discounted and premium rates. If 

an advertisement states an initial annual 

percentage rate that is not based on the 

index and margin used to make later 

rate adjustments in a variable-rate plan, 

the advertisement also shall state the 

period of time such rate will be in effect, 

and, with equal prominence to the 

initial rate, a reasonably current annual 

percentage rate that would have been in 

effect using the index and margin. 

(3) Balloon payment. If an 

advertisement contains a statement 

about any minimum periodic payment, 

the advertisement also shall state, if 

applicable, that a balloon payment may 

result.36e flA balloon payment results if 

paying the minimum periodic payments 

does not fully amortize the outstanding 

balance by a specified date or time, and 

the consumer must repay the entire 

outstanding balance at such time.fi 

(4) Tax implications. An 

advertisement that states that any 

interest expense incurred under the 

home equity plan is or may be tax 

deductible may not be misleading in 

this regard. 

(5) Misleading terms. An 

advertisement may not refer to a home 

equity plan as ‘‘free money’’ or contain 

a similarly misleading term. 

fl(e) Introductory Rates. 

(1) Scope. The requirements of this 

paragraph apply to any written or 

electronic advertisement of an open-end 

(not home-secured) plan, including 

promotional materials accompanying 

applications or solicitations subject to 

§ 226.5a(c) or accompanying 

applications or solicitations subject to 

§ 226.5a(e). 

(2) Definitions. The term introductory 

rate means any rate of interest 

applicable to a credit card account for 

an introductory period if that rate is less 

than the advertised annual percentage 

rate that will be in effect at the end of 

the introductory period. An 

‘‘introductory period’’ means the 

maximum time period for which the 

introductory rate may be applicable. 

(3) Stating the term ‘‘introductory’’. If 

any annual percentage rate that may be 

applied to the account is an 

introductory rate, the term introductory 

or intro must be in immediate proximity 

to each listing of the introductory rate. 

(4) Stating the introductory period 

and post-introductory rate. If any 

annual percentage rate that may be 

applied to the account is an 

introductory rate, the following must be 

stated in a clear and conspicuous 

manner in a prominent location closely 

proximate to the first listing of the 

introductory rate: 

(i) When the introductory rate will 

end; and 

(ii) The annual percentage rate that 

will apply after the end of the 

introductory period. If such rate is 

variable, the annual percentage rate 

must comply with the accuracy 

standards in §§ 226.5a(c)(2), 

226.5a(e)(4), or 226.16(b)(1)(ii) as 

applicable. If such rate cannot be 

determined at the time disclosures are 

given because the rate depends on a 

later determination of the consumer’s 

creditworthiness, the advertisement 

must disclose the specific rates or the 

range of rates that might apply. 

(5) Envelope excluded. The 

requirements in paragraph (e)(4) of this 

section do not apply to an envelope or 

other enclosure in which an application 

or solicitation is mailed, or to a banner 

advertisement or pop-up advertisement, 

linked to an application or solicitation 

provided electronically.fi 

fl(f) Alternative disclosures—

television or radio advertisements. An 

advertisement made through television 

or radio stating any of the terms 

requiring additional disclosures under 

paragraph (b)(1) of this section may 

alternatively comply with paragraph 

(b)(1) of this section by stating the 

information required by paragraph 

(b)(1)(ii) of this section, and listing a 

toll-free telephone number along with a 

reference that such number may be used 

by consumers to obtain the additional 

cost information.fi 

fl(g) Misleading terms. An 

advertisement may not refer to an 

annual percentage rate as ‘‘fixed’’, or use 

a similar term, unless the advertisement 

also specifies a time period that the rate 

will be fixed and the rate will not 

increase during that period, or if no 

such time period is provided, the rate 

will not increase while the plan is 

open.fi 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33065 

32fl[Reserved]fi [Where a portion of the finance 

charge is determined by application of one or more 

daily periodic rates, the phrase ‘‘sum of the 

balances’’ shall also mean the ‘‘average of daily 

balances.’’] 

18. In Part 226, Appendix E is revised 

to read as follows: 

Appendix E to Part 226—Rules for Card 

Issuers That Bill on a Transaction-byTransaction Basis 

The following provisions of Subpart B 

apply if credit cards are issued and [(1)] the 

card issuer and the seller are the same or 

related persons; [(2)] no finance charge is 

imposed; [(3)] consumers are billed in full for 

each use of the card on a transaction-bytransaction basis, by means of an invoice or 

other statement reflecting each use of the 

card; and [(4)] no cumulative account is 

maintained which reflects the transactions by 

each consumer during a period of time, such 

as a month[:]fl. The term ‘‘related person’’

refers to, for example, a franchised or 

licensed seller of a creditor’s product or 

service or a seller who assigns or sells sales 

accounts to a creditor or arranges for credit 

under a plan that allows the consumer to use 

the credit only in transactions with that 

seller. A seller is not related to the creditor 

merely because the seller and the creditor 

have an agreement authorizing the seller to 

honor the creditor’s credit card.fi 

fl1.fi Section fl226.6(c)(2)fi [226.6(d)], 

and, as applicable, fl§§ 226.6(1)(i)(B) and 

226.6(c)(1)fi [section 226.6(b) and (c)]. The 

disclosure required by fl§ 226.6(b)(1)(i)(B)fi 

[section 226.6(b)] shall be limited to those 

charges that are or may be imposed as a 

result of the deferral of payment by use of the 

card, such as late payment or delinquency 

charges. flA tabular format is not 

required.fi 

fl2.fi Section fl226.7(a)(2) or 

§ 226.7(b)(2), as applicable; § 226.7(a)(9) or 

§ 226.7(b)(9), as applicablefi [226.7(b) and 

226.7(k)]. Creditors may comply by placing 

the required disclosures on the invoice or 

statement sent to the consumer for each 

transaction. 

fl3.fi Section 226.9(a). Creditors may 

comply by mailing or delivering the 

statement required by fl§ 226.6(c)(2)fi 

[section 226.6(d)] (see appendix G–3) to each 

consumer receiving a transaction invoice 

during a one-month period chosen by the 

card issuer or by sending either the statement 

prescribed by fl§ 226.6(c)(2)fi [section 

226.6(d)] or an alternative billing error rights 

statement substantially similar to that in 

appendix G–4, with each invoice sent to a 

consumer. 

fl4.fi Section 226.9(c). flA tabular format 

is not required.fi 

fl5.fi Section 226.10. 

fl6.fi Section 226.11 fl(a)fi. This 

section applies when a card issuer receives 

a payment or other credit that exceeds by 

more than $1 the amount due, as shown on 

the transaction invoice. The requirement to 

credit amounts to an account may be 

complied with by other reasonable means, 

such as by a credit memorandum. Since no 

periodic statement is provided, a notice of 

the credit balance shall be sent to the 

consumer within a reasonable period of time 

following its occurrence unless a refund of 

the credit balance is mailed or delivered to 

the consumer within seven business days of 

its receipt by the card issuer. 

fl7.fi Section 226.12 including 

fl§fi[section] 226.12(c) and (d), as 

applicable. Section 226.12(e) is inapplicable. 

fl8.fi Section 226.13, as applicable. All 

references to periodic statement shall be read 

to indicate the invoice or other statement for 

the relevant transaction. All actions with 

regard to correcting and adjusting a 

consumer’s account may be taken by issuing 

a refund or a new invoice, or by other 

appropriate means consistent with the 

purposes of the section. 

fl9.fi Section 226.15, as applicable. 

19. In Part 226, Appendix F is revised 

to read as follows: 

Appendix F to Part 226—Annual 

Percentage Rate Computations for 

Certain Open-End Credit Plans 

In determining the denominator of the 

fraction under § 226.14(c)(3), no amount will 

be used more than once when adding the 

sum of the balances 32 subject to periodic 

rates to the sum of the amounts subject to 

specific transaction charges. fl(Where a 

portion of the finance charge is determined 

by application of one or more daily periodic 

rates, the phrase ‘‘sum of the balances’’ shall 

also mean the ‘‘average of daily balances.’’)fi 

In every case, the full amount of transactions 

subject to specific transaction charges shall 

be included in the denominator. Other 

balances or parts of balances shall be 

included according to the manner of 

determining the balance subject to a periodic 

rate, as illustrated in the following examples 

of accounts on monthly billing cycles: 

1. Previous balance—none. 

A specific transaction of $100 occurs on 

the first day of the billing cycle. The average 

daily balance is $100. A specific transaction 

charge of 3 percent is applicable to the 

specific transaction. The periodic rate is 11⁄2

percent applicable to the average daily 

balance. The numerator is the amount of the 

finance charge, which is $4.50. The 

denominator is the amount of the transaction 

(which is $100), plus the amount by which 

the balance subject to the periodic rate 

exceeds the amount of the specific 

transactions (such excess in this case is 0), 

totaling $100. 

The annual percentage rate is the quotient 

(which is 41⁄2 percent) multiplied by 12 (the 

number of months in a year), i.e., 54 percent. 

2. Previous balance—$100. 

A specific transaction of $100 occurs at the 

midpoint of the billing cycle. The average 

daily balance is $150. A specific transaction 

charge of 3 percent is applicable to the 

specific transaction. The periodic rate is 11⁄2

percent applicable to the average daily 

balance. The numerator is the amount of the 

finance charge which is $5.25. The 

denominator is the amount of the transaction 

(which is $100), plus the amount by which 

the balance subject to the periodic rate 

exceeds the amount of the specific 

transaction (such excess in this case is $50), 

totaling $150. As explained in example 1, the 

annual percentage rate is 31⁄2 percent × 12 = 

42 percent. 

3. If, in example 2, the periodic rate applies 

only to the previous balance, the numerator 

is $4.50 and the denominator is $200 (the 

amount of the transaction, $100, plus the 

balance subject only to the periodic rate, the 

$100 previous balance). As explained in 

example 1, the annual percentage rate is 21⁄4

percent × 12 = 27 percent. 

4. If, in example 2, the periodic rate applies 

only to an adjusted balance (previous balance 

less payments and credits) and the consumer 

made a payment of $50 at the midpoint of the 

billing cycle, the numerator is $3.75 and the 

denominator is $150 (the amount of the 

transaction, $100, plus the balance subject to 

the periodic rate, the $50 adjusted balance). 

As explained in example 1, the annual 

percentage rate is 21⁄2 percent × 12 = 30 

percent. 

5. Previous balance—$100. 

A specific transaction (check) of $100 

occurs at the midpoint of the billing cycle. 

The average daily balance is $150. The 

specific transaction charge is $.25 per check. 

The periodic rate is 11⁄2 percent applied to 

the average daily balance. The numerator is 

the amount of the finance charge, which is 

$2.50 and includes the $.25 check charge and 

the $2.25 resulting from the application of 

the periodic rate. The denominator is the full 

amount of the specific transaction (which is 

$100) plus the amount by which the average 

daily balance exceeds the amount of the 

specific transaction (which in this case is 

$50), totaling $150. As explained in example 

1, the annual percentage rate would be 12⁄3

percent × 12 = 20 percent. 

6. Previous balance—none. 

A specific transaction of $100 occurs at the 

midpoint of the billing cycle. The average 

daily balance is $50. The specific transaction 

charge is 3 percent of the transaction amount 

or $3.00. The periodic rate is 11⁄2 percent per 

month applied to the average daily balance. 

The numerator is the amount of the finance 

charge, which is $3.75, including the $3.00 

transaction charge and $.75 resulting from 

application of the periodic rate. The 

denominator is the full amount of the 

specific transaction ($100) plus the amount 

by which the balance subject to the periodic 

rate exceeds the amount of the transaction 

($0). Where the specific transaction amount 

exceeds the balance subject to the periodic 

rate, the resulting number is considered to be 

zero rather than a negative number ($50¥ 

$100 =¥$50). The denominator, in this case, 

is $100. As explained in example 1, the 

annual percentage rate is 33⁄4 percent × 12 = 

45 percent. 

20. In Part 226, Appendix G is 

amended by: 

A. Revising the table of contents at the 

beginning of the appendix; 

B. Revising Forms G–1, G–2, G–10(A), 

G–10(B), G–11, and G–13(A) and (B); 

C. Revising the headings of Forms G–

3, G–4, and G–10(C); 

D. Adding new Forms G–2(A), G–

3(A), G–4(A), G–10(D) and (E), G–16(A) 

and (B), G–17(A) through (C), G–18(A) 


rwilkins on PROD1PC63 with PROPOSALS2
33066 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

through (H), G–19, G–20, and G–21 in 

numerical order; and 

E. Removing and removing and 

reserving Form G–12. 

Appendix G to Part 226—Open–End 

Model Forms and Clauses 

G–1 Balance Computation Methods Model 

Clauses (§§ 226.6 and 226.7) 

G–2 Liability for Unauthorized Use Model 

Clause fl(Home equity Plans)fi (§ 226.12) 

flG–2(A) Liability for Unauthorized Use 

Model Clause fl(Plans Other Than Home 

equity Plans) (§ 226.12)fi 

G–3 Long-Form Billing-Error Rights Model 

Form fl(Home equity Plans)fi (§§ 226.6 

and 226.9) 

flG–3(A) Long-Form Billing-Error Rights 

Model Form fl(Plans Other Than Home 

equity Plans) fi(§§ 226.6 and 226.9)fi 

G–4 Alternative Billing-Error Rights Model 

Form fl (Home equity Plans)fi (§ 226.9) 

flG–4(A) Alternative Billing-Error Rights 

Model Form (Plans Other Than Home 

equity Plans) (§ 226.9)fi 

G–5 Rescission Model Form (When 

Opening an Account) (§ 226.15) 

G–6 Rescission Model Form (For Each 

Transaction) (§ 226.15) 

G–7 Rescission Model Form (When 

Increasing the Credit Limit) (§ 226.15) 

G–8 Rescission Model Form (When Adding 

a Security Interest) (§ 226.15) 

G–9 Rescission Model Form (When 

Increasing the Security) (§ 226.15) 

G–10(A) Applications and Solicitations 

Model Form (Credit Cards) (§ 226.5a(b)) 

G–10(B) Applications and Solicitations 

Sample (Credit Cards) (§ 226.5a(b)) 

G–10(C) Applications and Solicitations 

flSample (Credit Cards)fi [Model Form 

(Charge Cards)] (§ 226.5a(b)) 

flG–10(D) Applications and Solicitations 

Model Form (Charge Cards) (§ 226.5a(b))fi 

flG–10(E) Applications and Solicitations 

Sample (Charge Cards) (§ 226.5a(b))fi 

G–11 Applications and Solicitations Made 

Available to General Public Model Clauses 

(§ 226.5a(e)) 

G–12 flReservedfi [Charge Card Model 

Clause (When Access to Plan Offered by 

Another) (§ 226.5a(f))] 

G–13(A) Change in Insurance Provider 

Model Form (Combined Notice) (§ 226.9(f)) 

G–13(B) Change in Insurance Provider 

Model Form (§ 226.9(f)(2)) 

G–14A Home Equity Sample 

G–14B Home Equity Sample 

G–15 Home Equity Model Clauses 

flG–16(A) Debt Suspension Model Clause 

(§ 226.4(d)(3))fi 

flG–16(B) Debt Suspension Sample 

(§ 226.4(d)(3))fi 

flG–17(A) Account-opening Model Form 

(§ 226.6(b)(4))fi 

flG–17(B) Account-opening Sample 

(§ 226.6(b)(4))fi 

flG–17(C) Account-opening Sample 

(§ 226.6(b)(4))fi 

flG–18(A) Transactions; Interest Charges; 

Fees Sample (§ 226.7(b))fi 

flG–18(B) Fee-inclusive APR Sample 

(§ 226.7(b))fi 

flG–18(C) Late Payment Fee Sample 

(§ 226.7(b))fi 

flG–18(D) Actual Repayment Period 

Sample Disclosure on Periodic Statement 

(§ 226.7(b))fi 

flG–18(E) New Balance, Due Date, Late 

Payment and Minimum Payment Sample 

(Credit cards) (§ 226.7(b))fi 

flG–18(F) New Balance, Due Date, and 

Late Payment Sample (Open-end Plans 

(Non-credit-card Accounts)) (§ 226.7(b))fi 

flG–18(G) Periodic Statement Formfi 

flG–18(H) Periodic Statement Formfi 

flG–19 Checks Accessing a Credit Card 

Account Sample (§ 226.9(b)(3))fi 

flG–20 Change-in-Terms Sample 

(§ 226.9(c)(2))fi 

flG–21 Penalty Rate Increase Sample 

(§ 226.9(g)(3))fi 

G–1—Balance Computation Methods Model 

Clauses 

(a) Adjusted balance method. 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the ‘‘adjusted balance’’ of your account. 

We get the ‘‘adjusted balance’’ by taking the 

balance you owed at the end of the previous 

billing cycle and subtracting [any unpaid 

finance charges and] any payments and 

credits received during the present billing 

cycle. 

(b) Previous balance method. 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the amount you owe at the beginning of 

each billing cycle [minus any unpaid finance 

charges]. We do not subtract any payments or 

credits received during the billing cycle. [The 

amount of payments and credits to your 

account this billing cycle was $ll.] 

(c) Average daily balance method 

(excluding current transactions). 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the ‘‘average daily balance’’ of your 

account (excluding current transactions). To 

get the ‘‘average daily balance’’ we take the 

beginning balance of your account each day 

and subtract any payments or credits [and 

any unpaid finance charges]. We do not add 

in any new [purchases/advances/loans]. This 

gives us the daily balance. Then, we add all 

the daily balances for the billing cycle 

together and divide the total by the number 

of days in the billing cycle. This gives us the 

‘‘average daily balance.’’

(d) Average daily balance method 

(including current transactions). 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the ‘‘average daily balance’’ of your 

account (including current transactions). To 

get the ‘‘average daily balance’’ we take the 

beginning balance of your account each day, 

add any new [purchases/advances/loans], 

and subtract any payments or credits, [and 

unpaid finance charges]. This gives us the 

daily balance. Then, we add up all the daily 

balances for the billing cycle and divide the 

total by the number of days in the billing 

cycle. This gives us the ‘‘average daily 

balance.’’

(e) Ending balance method. 

We figure [a portion of] the finance charge 

on your account by applying the periodic rate 

to the amount you owe at the end of each 

billing cycle (including new purchases and 

deducting payments and credits made during 

the billing cycle). 

G–2—Liability for Unauthorized Use Model 

Clause fl(Home equity Plans)fi 

You may be liable for the unauthorized use 

of your credit card [or other term that 

describes the credit card]. You will not be 

liable for unauthorized use that occurs after 

you notify [name of card issuer or its 

designee] at [address], orally or in writing, of 

the loss, theft, or possible unauthorized use. 

In any case, your liability will not exceed 

[insert $50 or any lesser amount under 

agreement with the cardholder]. 

flG–2A—Liability for Unauthorized Use 

Model Clause (Plans Other Than Home 

equity Plans) 

If you notice the loss or theft of your credit 

card or a possible unauthorized use of your 

card, you should write to us immediately at: 

[address] [address listed on your bill], or call 

us at [telephone number]. 

You will not be liable for any unauthorized 

use that occurs after you notify us. You may, 

however, be liable for unauthorized use that 

occurs before your notice to us. In any case, 

your liability will not exceed [insert $50 or 

any lesser amount under agreement with the 

cardholder].fi 

G–3—Long-Form Billing-Error Rights Model 

Form fl(Home equity Plans)fi 

Your Billing Rights 

Keep This Notice for Future Use 

This notice contains important information 

about your rights and our responsibilities 

under the Fair Credit Billing Act. 

Notify Us in Case of Errors or Questions 

About Your Bill 

If you think your bill is wrong, or if you 

need more information about a transaction on 

your bill, write us [on a separate sheet] at 

[address] [the address listed on your bill]. 

Write to us as soon as possible. We must hear 

from you no later than 60 days after we sent 

you the first bill on which the error or 

problem appeared. You can telephone us, but 

doing so will not preserve your rights. 

In your letter, give us the following 

information: 

• Your name and account number. 

• The dollar amount of the suspected 

error. 

• Describe the error and explain, if you 

can, why you believe there is an error. If you 

need more information, describe the item you 

are not sure about. 

If you have authorized us to pay your 

credit card bill automatically from your 

savings or checking account, you can stop the 

payment on any amount you think is wrong. 

To stop the payment your letter must reach 

us three business days before the automatic 

payment is scheduled to occur. 

Your Rights and Our Responsibilities After 

We Receive Your Written Notice 

We must acknowledge your letter within 

30 days, unless we have corrected the error 

by then. Within 90 days, we must either 

correct the error or explain why we believe 

the bill was correct. 

After we receive your letter, we cannot try 

to collect any amount you question, or report 

you as delinquent. We can continue to bill 

you for the amount you question, including 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33067 

finance charges, and we can apply any 

unpaid amount against your credit limit. You 

do not have to pay any questioned amount 

while we are investigating, but you are still 

obligated to pay the parts of your bill that are 

not in question. 

If we find that we made a mistake on your 

bill, you will not have to pay any finance 

charges related to any questioned amount. If 

we didn’t make a mistake, you may have to 

pay finance charges, and you will have to 

make up any missed payments on the 

questioned amount. In either case, we will 

send you a statement of the amount you owe 

and the date that it is due. 

If you fail to pay the amount that we think 

you owe, we may report you as delinquent. 

However, if our explanation does not satisfy 

you and you write to us within ten days 

telling us that you still refuse to pay, we must 

tell anyone we report you to that you have 

a question about your bill. And, we must tell 

you the name of anyone we reported you to. 

We must tell anyone we report you to that 

the matter has been settled between us when 

it finally is. 

If we don’t follow these rules, we can’t 

collect the first $50 of the questioned 

amount, even if your bill was correct. 

Special Rule for Credit Card Purchases 

If you have a problem with the quality of 

property or services that you purchased with 

a credit card, and you have tried in good faith 

to correct the problem with the merchant, 

you may have the right not to pay the 

remaining amount due on the property or 

services. 

There are two limitations on this right: 

(a) You must have made the purchase in 

your home state or, if not within your home 

state within 100 miles of your current 

mailing address; and 

(b) The purchase price must have been 

more than $50. 

These limitations do not apply if we own 

or operate the merchant, or if we mailed you 

the advertisement for the property or 

services. 

flG–3(A)—Long-Form Billing-Error Rights 

Model Form (Plans Other Than Home 

equity Plans) 

Your Billing Rights: Keep This Document for 

Future Use 

This notice tells you about your rights and 

our responsibilities under the Fair Credit 

Billing Act. 

What To Do If You Find a Mistake on Your 

Statement 

If you think there is an error on your 

statement, write to us at: 

[Creditor Name] 

[Creditor Address] 

In your letter, give us the following 

information: 

• Account information: Your name and 

account number. 

• Dollar amount: The dollar amount of the 

suspected error. 

• Description of problem: If you think 

there is an error on your bill, describe what 

you believe is wrong and why you believe it 

is a mistake. 

You must contact us: 

• Within 60 days after the error appeared 

on your statement. 

• At least 3 business days before an 

automated payment is scheduled, if you want 

to stop payment on the amount you think is 

wrong. 

You must notify us of any potential errors 

in writing. You may call us, but if you do we 

are not required to investigate any potential 

errors and you may have to pay the amount 

in question. 

What Will Happen After We Receive Your 

Letter 

When we receive your letter, we must do 

two things: 

1. Within 30 days of receiving your letter, 

we must tell you that we received your letter. 

We will also tell you if we have already 

corrected the error. 

2. Within 90 days of receiving your letter, 

we must either correct the error or explain to 

you why we believe the bill is correct. 

While we investigate whether or not there 

has been an error: 

• We cannot try to collect the amount in 

question, or report you as delinquent. 

• The charge in question may remain on 

your statement, and we may continue to 

charge you interest on that amount. 

• While you do not have to pay the 

amount in question, you are responsible for 

the remainder of your balance. 

• We can apply any unpaid amount 

against your credit limit. 

After we finish our investigation, one of 

two things will happen: 

• If we made a mistake: You will not have 

to pay the amount in question or any interest 

or other fees related to that amount. 

• If we do not believe there was a mistake: 

You will have to pay the amount in question, 

along with applicable interest and fees. We 

will send you a statement of the amount you 

owe and the date payment is due. We may 

then report you as delinquent if you do not 

pay the amount we think you owe. 

If you receive our explanation but still 

believe your bill is wrong, you must write to 

us within 10 days telling us that you still 

refuse to pay. If you do so, we cannot report 

you as delinquent without also reporting that 

you are questioning your bill. We must tell 

you the name of anyone to whom we 

reported you as delinquent, and we must let 

those organizations know when the matter 

has been settled between us. 

If we do not follow all of the rules above, 

you do not have to pay the first $50 of the 

amount you question even if your bill is 

correct. 

Your Rights If You Are Dissatisfied With 

Your Credit Card Purchases 

If you use your credit card to make a 

purchase and you are dissatisfied with the 

goods or services that you receive, you may 

have the right not to pay the remaining 

amount due on the purchase. 

To use this right, all of the following must 

be true: 

1. The purchase must have been made in 

your home state or within 100 miles of your 

current mailing address, and the purchase 

price must have been more than $50. (Note: 

Neither of these are necessary if your 

purchase was based on an advertisement we 

mailed to you, or if we own the company that 

sold you the goods or services.) 

2. You must have used your credit card for 

the purchase. Purchases made with cash 

advances from an ATM or with a check that 

accesses your credit card account do not 

qualify. 

3. You must have tried in good faith to 

correct the problem with the merchant. 

4. You must not yet have fully paid for the 

purchase. 

If you are dissatisfied with a purchase that 

conforms to the four criteria above, contact 

us in writing at: 

[Creditor Name] 

[Creditor Address] 

While we investigate, the same rules apply to 

the disputed amount as discussed above. 

After we finish our investigation, we will 

tell you our decision. At that point, if we 

think you owe an amount and you do not 

pay, we may report you as delinquent.fi 

G–4—Alternative Billing-Error Rights Model 

Form fl(Home equity Plans)fi 

Billing Rights Summary 

In Case of Errors or Questions About Your 

Bill 

If you think your bill is wrong, or if you 

need more information about a transaction on 

your bill, write us [on a separate sheet] at [ 

address] [the address shown on your bill] as 

soon as possible. We must hear from you no 

later than 60 days after we sent you the first 

bill on which the error or problem appeared. 

You can telephone us, but doing so will not 

preserve your rights. 

In your letter, give us the following 

information: 

• Your name and account number. 

• The dollar amount of the suspected 

error. 

• Describe the error and explain, if you 

can, why you believe there is an error. If you 

need more information, describe the item you 

are unsure about. 

You do not have to pay any amount in 

question while we are investigating, but you 

are still obligated to pay the parts of your bill 

that are not in question. While we investigate 

your question, we cannot report you as 

delinquent or take any action to collect the 

amount you question. 

Special Rule for Credit Card Purchases 

If you have a problem with the quality of 

goods or services that you purchased with a 

credit card, and you have tried in good faith 

to correct the problem with the merchant, 

you may not have to pay the remaining 

amount due on the goods or services. You 

have this protection only when the purchase 

price was more than $50 and the purchase 

was made in your home state or within 100 

miles of your mailing address. (If we own or 

operate the merchant, or if we mailed you the 

advertisement for the property or services, all 

purchases are covered regardless of amount 

or location of purchase. 

flG–4(A)—Alternative Billing-Error Rights 

Model Form (Plans Other Than Home 

equity Plans) 


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What To Do If You Think You Find a 

Mistake on Your Statement 

If you think there is an error on your 

statement, write to us at: 

[Creditor Name] 

[Creditor Address] 

In your letter, give us the following 

information: 

• Account information: Your name and 

account number. 

• Dollar amount: The dollar amount of the 

suspected error. 

• Description of Problem: If you think 

there is an error on your bill describe what 

you believe is wrong and why you believe it 

is a mistake. 

You must contact us within 60 days after 

the error appeared on your statement. 

You must notify us of any potential errors 

in writing. You may call us, but if you do we 

are not required to investigate any potential 

errors and you may have to pay the amount 

in question. 

While we investigate whether or not there 

has been an error, the following are true: 

• We cannot try to collect the amount in 

question, or report you as delinquent. 

• The charge in question may remain on 

your statement, and we may continue to 

charge you interest on that amount. 

• While you do not have to pay the 

amount in question, you are responsible for 

the remainder of your balance. 

• We can apply any unpaid amount 

against your credit limit. 

Your Rights If You Are Dissatisfied With 

Your Credit Card Purchases 

If you use your credit card to make a 

purchase and you are dissatisfied with the 

goods or services that you receive, you may 

have the right not to pay the remaining 

amount due on the purchase. 

To use this right, all of the following must 

be true: 

1. The purchase must have been made in 

your home state or within 100 miles of your 

current mailing address, and the purchase 

price must have been more than $50. (Note: 

Neither of these are necessary if your 

purchase was based on an advertisement we 

mailed to you, or if we own the company that 

sold you the goods or services.) 

2. You must have used your credit card for 

the purchase. Purchases made with cash 

advances from an ATM or with a check that 

accesses your credit card account do not 

qualify. 

3. You must have tried in good faith to 

correct the problem with the merchant. 

4. You must not yet have fully paid for the 

purchase. 

If you are dissatisfied with a purchase that 

conforms to the four criteria above, contact 

us in writing at: 

[Creditor Name] 

[Creditor Address] 

While we investigate, the same rules apply 

to the disputed amount as discussed above. 

After we finish our investigation, we will tell 

you our decision. At that point, if we think 

you owe an amount and you do not pay, we 

may report you as delinquent.fi 

* * * * * 

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G–11—Applications and Solicitations Made 

Available to the General Public Model 

Clauses 

(a) Disclosure of Required Credit Information 

The information about the costs of the card 

described in this [application]/[solicitation] 

is accurate as of (month/year). This 

information may have changed after that 

date. To find out what may have changed, 

[call us at (telephone number)] [write to us 

at (address)]. 

[(b) Disclosure With Account Opening 

Statement 

To find out about changes in the 

information in this [application]/ 

[solicitation], [call us at (telephone number)] 

[write to us at (address)]. 

fl(b)fi [(c)] No Disclosure of Credit 

Information 

There are costs associated with the use of 

this card. To obtain information about these 

costs, call us at (telephone number) or write 

to us at (address). 

G–12 fl [Reserved] fi [—Charge Card Model 

Clause (When Access to Plan Offered by 

Another) 

This charge card may allow you to access 

credit offered by another creditor. Our 

decision about issuing you a charge card will 

be independent of the other creditor’s 

decision about allowing you access to a line 

of credit. Therefore, approval by us to issue 

you a card does not constitute approval by 

the other creditor to grant you credit 

privileges. If we issue you a charge card, you 

may receive it before the other creditor 

decides whether or not to grant you credit 

privileges.] 

G–13(A)—Change in Insurance Provider 

Model Form (Combined Notice) 

The credit card account you have with us 

is insured. This is to notify you that we plan 

to replace your current coverage with 

insurance coverage from a different insurer. 

If we obtain insurance for your account 

from a different insurer, you may cancel the 

insurance. 

[Your premium rate will increase to 

$llperll.] 

[Your coverage will be affected by the 

following: 

[ ] The elimination of a type of coverage 

previously provided to you. [(explanation)] 

[Seellof the attached policy for details.] 


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[ ] A lowering of the age at which your 

coverage will terminate or will become more 

restrictive. [(explanation)] [See__of the 

attached policy or certificate for details.] 

[ ] A decrease in your maximum insurable 

loan balance, maximum periodic benefit 

payment, maximum number of payments, or 

any other decrease in the dollar amount of 

your coverage or benefits. [(explanation)] 

[See__of the attached policy or certificate for 

details.] 

[ ] A restriction on the eligibility for 

benefits for you or others. [(explanation)] 

[See__ of the attached policy or certificate for 

details.] 

[ ] A restriction in the definition of 

‘‘disability’’ or other key term of coverage. 

[(explanation)] [See__of the attached policy 

or certificate for details.] 

[ ] The addition of exclusions or 

limitations that are broader or other than 

those under the current coverage. 

[(explanation)] [See__ of the attached policy 

or certificate for details.] 

[ ] An increase in the elimination (waiting) 

period or a change to nonretroactive 

coverage. [(explanation)] [See__ of the 

attached policy or certificate for 

details).][The name and mailing address of 

the new insurer providing the coverage for 

your account is (name and address).] 

G–13(B)—Change in Insurance Provider 

Model Form 

We have changed the insurer providing the 

coverage for your account. The new insurer’s 

name and address are (name and address). A 

copy of the new policy or certificate is 

attached. 

You may cancel the insurance for your 

account. 

* * * * * 

flG–16(A) Debt Suspension Model Clause 

Please enroll me in the optional [insert 

name of program], and bill my account the 

fee of [how cost is determined]. I understand 

that enrollment is not required to obtain 

credit. I also understand that depending on 

the event, the protection may only 

temporarily suspend my duty to make 

minimum payments, not reduce the balance 

I owe. I understand that my balance will 

actually grow during the suspension period 

as interest continues to accumulate. 

[To Enroll, Sign Here]/[To Enroll, Initial 

Here]. X ____ fi 

flG–16(B) Debt Suspension Sample 

Please enroll me in the optional [name of 

program], and bill my account the fee of $.83 

per $100 of my month-end account balance. 

I understand that enrollment is not required 

to obtain credit. I also understand that 

depending on the event, the protection may 

only temporarily suspend my duty to make 

minimum payments, not reduce the balance 

I owe. I understand that my balance will 

actually grow during the suspension period 

as interest continues to accumulate. 

To Enroll, Initial Here. X ____ fi 

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flG–18(C) Late Payment Fee Sample 

Late Payment Warning: If we do not 

receive your minimum payment by the date 

listed above, you may have to pay a $35 late 

fee and your APRs may be increased up to 

the Penalty APR of 28.99%.fi 

flG–18(D) Actual Repayment Period Sample 

Disclosure on Periodic Statement 

(a) When Negative Amortization Does Not 

Occur. 

Notice about Minimum Payments: If you 

make only the minimum payment each 

month, it will take you about 13 months to 

repay the balance shown on this statement. 

(b) When Negative Amortization Occurs. 

Notice about Minimum Payments: You will 

never repay the outstanding balance shown 

on this statement if you only pay the 

minimum payment.fi 

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21. Under Part 226, Appendix H is 

amended by revising the table of 

contents, and adding new forms H–

17(A) and H–17(B) to read as follows: 

Appendix H to Part 226—Closed-End 

Model Forms and Clauses 

H–1 Credit Sale Model Form (§ 226.18) 

H–2 Loan Model Form (§ 226.18) 

H–3 Amount Financed Itemization Model 

Form (§ 226.18(c)) 

H–4(A) Variable-Rate Model Clauses 

(§ 226.18(f)(1)) 

H–4(B) Variable-Rate Model Clauses 

(§ 226.18(f)(2)) 

H–4(C) Variable-Rate Model Clauses 

(§ 226.19(b)) 

H–4(D) Variable-Rate Model Clauses 

(§ 226.20(c)) 

H–5 Demand Feature Model Clauses 

(§ 226.18(i)) 

H–6 Assumption Policy Model Clause 

(§ 226.18(q)) 

H–7 Required Deposit Model Clause 

(§ 226.18(r)) 

H–8 Rescission Model Form (General) 

(§ 226.23) 

H–9 Rescission Model Form (Refinancing 

(with Original Creditor)) (§ 226.23) 

H–10 Credit Sale Sample 

H–11 Installment Loan Sample 

H–12 Refinancing Sample 

H–13 Mortgage with Demand Feature 

Sample 

H–14 Variable-Rate Mortgage Sample 

(§ 226.19(b)) 

H–15 Graduated-Payment Mortgage Sample 

H–16 Mortgage Sample 

flH–17(A) Debt Suspension Model 

Clausefi 

flH–17(B) Debt Suspension Samplefi 

* * * * * 

flH–17(A) Debt Suspension Model 

Clausefi 

Please enroll me in the optional [insert 

name of program], and bill my account the 

fee of [how cost is determined ]. I understand 

that enrollment is not required to obtain 

credit. I also understand that depending on 

the event, the protection may only 

temporarily suspend my duty to make 

minimum payments, not reduce the balance 

I owe. I understand that my balance will 

actually grow during the suspension period 

as interest continues to accumulate. 

[To Enroll, Sign Here]/[To Enroll, Initial 

Here]. X llllfi 

H–17(B) Debt Suspension Sample 

Please enroll me in the optional [name of 

program], and bill my account the fee of $.83 

per $100 of my month-end account balance. 

I understand that enrollment is not required 

to obtain credit. I also understand that 

depending on the event, the protection may 

only temporarily suspend my duty to make 

minimum payments, not reduce the balance 

I owe. I understand that my balance will 

actually grow during the suspension period 

as interest continues to accumulate. 

To Enroll, Initial Here. X llllfi 

22. Under Part 226, a new Appendix 

M1, Appendix M2, and Appendix M3 

are added to read as follows: 

flAppendix M1 to Part 226—Generic 

Repayment Estimates 

(a) Calculating generic repayment 

estimates. 

(1) Definitions. (i) Retail credit card means 

a credit card that is issued by a retailer that 

can be used 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. 

(ii) ‘‘General-purpose credit card’’ means a 

credit card other than a retail credit card. 

(2) Minimum payment formula. 

(i) Issuer-operated toll-free telephone 

number. 

(A) General-purpose 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 general-purpose 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. To calculate which 

minimum payment formula is most common, 

card issuers must choose a day in the last six 

months, consider all general-purpose card 

accounts held by the issuer on that day, and 

determine which formula applies to the most 

accounts. If more than one minimum 

payment formula applies to an account, the 

card issuer must use the formula applicable 

to the general-revolving feature to determine 

which formula is most common. Card issuers 

must re-evaluate which minimum payment 

formula is most common every 12 months. 

For example, assume a card issuer is required 

to comply with the requirements in 

§ 226.7(b)(12) and this appendix by July 5 of 


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a particular year. The issuer may choose any 

day between January 5 and July 4 of that year 

to use in deciding the minimum payment 

formula that is most common. For the 

following and each subsequent year, the 

issuer must again choose a day between 

January 5 and July 4 to use in deciding the 

minimum payment formula that is most 

common, but the day that is chosen need not 

be the same day chosen the previous year. 

(B) Retail credit cards. When calculating 

the generic repayment estimate for retail 

credit cards, card issuers must use the 

minimum payment formula that applies to 

most of their retail credit card accounts. If an 

issuer offers credit card accounts on behalf of 

more than one retailer, the card issuer must 

group credit card accounts for each retailer 

separately, and determine the minimum 

payment formula that is most common to 

each retailer. The issuer must use the ‘‘most 

common’’ formula for each retailer, 

regardless of whether this formula applies to 

a particular account for that retailer. To 

calculate which minimum payment formula 

is most common, card issuers must choose a 

day in the last six months, consider all retail 

card accounts for each retailer held by the 

issuer on that day, and determine which 

formula applies to the most accounts for that 

retailer. If more than one minimum payment 

formula applies to an account, the card issuer 

must use the formula applicable to the 

general revolving feature to determine which 

formula is most common for each retailer. 

Card issuers must re-evaluate which 

minimum payment formula is most common 

for retail credit card accounts with respect to 

each retailer every 12 months. For example, 

assume a card issuer is required to comply 

with the requirements in § 226.7(b)(12) and 

this appendix by July 5 of a particular year. 

The issuer may choose any day between 

January 5 and July 4 of that year to use in 

deciding the minimum payment formula that 

is most common. For the following year, the 

issuer must again choose a day between 

January 5 and July 4 to use in deciding the 

minimum payment formula that is most 

common, but the day that is chosen need not 

be the same day the previous year. 

(ii) FTC-operated toll-free telephone 

number. When calculating the generic 

repayment estimate, the FTC must use the 

following minimum payment formula: 5 

percent of the outstanding balance, or $15, 

whichever is greater. 

(3) Annual percentage rate. When 

calculating the generic repayment estimate, 

credit card issuers and the FTC must use the 

highest annual percentage rate on which the 

consumer has outstanding balances. An 

issuer and the FTC may use an automated 

system to prompt the consumer to enter the 

highest annual percentage rate on which the 

consumer has an outstanding balance, and 

calculate the generic repayment estimate 

based on the consumer’s response. 

(4) Beginning balance. When calculating 

the generic repayment estimate, credit card 

issuers and the FTC must use as the 

beginning balance the outstanding balance on 

a consumer’s account as of the closing date 

of the last billing cycle. An issuer and the 

FTC may use an automated system to prompt 

the consumer to enter the outstanding 

balance included on the last periodic 

statement received by the consumer, and 

calculate the generic repayment estimate 

based on the consumer’s response. 

(5) Assumptions. When calculating the 

generic repayment estimate, credit card 

issuers and the FTC must make the following 

assumptions. Card issuers and the FTC must 

make these assumptions regardless of 

whether they match the actual terms of the 

consumer’s account. 

(i) Only minimum monthly payments are 

made each month. 

(ii) No additional extensions of credit are 

obtained. 

(iii) There is no grace period. 

(iv) The final payment pays the account in 

full (i.e., there is no residual interest after the 

final month in a series of payments). 

(v) The average daily balance method is 

used to calculate the balance. 

(vi) All months are the same length (i.e., 

30.41667 days long). Leap year is ignored. 

(vii) Payments are credited on the last day 

of the month. 

(b) Disclosing the generic repayment 

estimate to consumers. 

(1) Required disclosures. Except as 

provided in paragraph (b)(3) of this section, 

when responding to a request for generic 

repayment estimates through a toll-free 

telephone number, credit card issuers and 

the FTC must make the following 

disclosures: 

(i) The generic repayment estimate. If the 

generic repayment estimate calculated above 

is less than 2 years, credit card issuers and 

the FTC must disclose the estimate in 

months. Otherwise, the estimate must be 

disclosed in years. The estimate must be 

rounded down to the nearest whole year if 

the estimate contains a fractional year less 

than 0.5, and rounded up to the nearest 

whole year if the estimate contains a 

fractional year equal to or greater than 0.5. 

(ii) The beginning balance on which the 

generic repayment estimate is calculated. 

(iii) The APR on which the generic 

repayment estimate is calculated. 

(iv) The assumption that only minimum 

payments are made and no other amounts are 

added to the balance. 

(v) The fact that the repayment period is 

an estimate, and the actual time it may take 

to pay off the balance by only making 

minimum payments will differ based on the 

consumer’s account terms and future account 

activity. 

(2) Model form. Credit card issuers and the 

FTC may use the following disclosure to 

meet the requirements set forth in paragraph 

(b)(1) of this section: 

It will take approximately __ [months/ 

years] to pay off a ll balance at ll% 

APR, assuming that you only make minimum 

payments and no other amounts are added to 

the balance. This repayment period is only 

an estimate. The actual time it may take you 

to pay off this balance by only making 

minimum payments will differ based on your 

account terms and future account activity. 

(3) Negative amortization. If negative 

amortization occurs when calculating the 

repayment estimate, credit card issuers and 

the FTC must disclose to the consumer that 

based on the assumptions used to calculate 

the repayment estimate, the consumer will 

not pay off the balance by paying only the 

minimum payment. Card issuers and the FTC 

may use the following disclosure to meet the 

requirements set forth in this paragraph: 

‘‘Based on the assumptions that we used to 

calculate the time to repay your balance, you 

will never repay the balance if you only make 

the minimum payment.’’

(4) Permissible disclosures. 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 the following information is provided after 

the disclosures in paragraph (b)(1) of this 

section are given: 

(i) A description of the assumptions used 

to calculate the generic repayment estimate 

as described in paragraph (a)(5) of this 

section. 

(ii) The length of time it would take to 

repay the beginning balance described in 

paragraph (b)(1)(ii) of this section if an 

additional amount was paid each month in 

addition to the minimum payment amount, 

allowing the consumer to select the 

additional amount. In calculating this 

estimate, card issuers and the FTC must use 

the same terms described in paragraph (a) of 

this section, except they also must assume 

the additional amount was paid each month 

in addition to the minimum payment 

amount. 

(iii) The length of time it would take to 

repay the beginning balance described in 

paragraph (b)(1)(ii) of this section if the 

consumer made a fixed payment amount 

each month, allowing the consumer to select 

the amount of the fixed payment. In 

calculating this estimate, card issuers and the 

FTC must use the same terms described in 

paragraph (a) of this section, except they also 

must assume the consumer made a fixed 

payment amount each month. 

(iv) 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. In calculating the monthly payment 

amount, card issuers and the FTC must use 

the same terms described in paragraph (a) of 

this section, as appropriate. 

(v) Reference to web-based calculation 

tools that permit consumers to obtain 

additional estimates of repayment periods. 

(vi) The total interest that a consumer may 

pay if the consumer makes minimum 

payments for the length of time disclosed in 

the generic repayment estimate. 

Appendix M2 to Part 226—Actual 

Repayment Disclosures 

(a) Calculating actual repayment 

disclosures. 

(1) Definitions. (i) ‘‘Retail credit card’’

means a credit card that is issued by a retailer 

that can be used 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. 

(ii) ‘‘General purpose credit card’’ means a 

credit card other than a retail credit card. 


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(iii) ‘‘Promotional terms’’ means terms of a 

cardholder’s account that will expire in a 

fixed period of time, as set forth by the card 

issuer. 

(2) Minimum payment formulas. When 

calculating actual repayment disclosures, 

credit card issuers must use the minimum 

payment formula(s) that apply to a 

cardholder’s account. If any promotional 

terms related to payments currently apply to 

a cardholder’s account, such as a ‘‘deferred 

payment plan,’’ credit card issuers may 

assume no promotional terms apply to the 

account. 

(3) Annual percentage rate. When 

calculating annual repayment estimates, a 

credit card issuer must use the annual 

percentage rates that apply to a cardholder’s 

account, based on the portion of the balance 

to which the rate applies. If any promotional 

terms related to annual percentage rates 

currently apply to a cardholder’s account, 

such as introductory rates or deferred interest 

plans, credit card issuers may assume no 

promotional terms apply to the account. 

(4) Beginning balance. When calculating 

the actual repayment disclosure, credit card 

issuers must use as the beginning balance the 

outstanding balance on a consumer’s account 

as of the closing date of the last billing cycle. 

(5) Assumptions. When calculating the 

actual repayment disclosure, credit card 

issuers may make the following assumptions 

regardless of whether they are the same as 

the actual terms of the consumer’s account. 

(i) Only minimum monthly payments are 

made each month. 

(ii) No additional extensions of credit are 

obtained, including new purchases, 

transactions, fees, rebates, charges or other 

activity. 

(iii) The annual percentage rate or rates 

that apply to a cardholder’s account will not 

change, through either the operation of a 

variable rate or the change to a rate. 

(iv) There is no grace period. 

(v) The final payment pays the account in 

full (i.e., there is no residual finance charge 

after the final month in a series of payments). 

(vi) The average daily balance method is 

used to calculate the balance. 

(vii) All months are the same length (i.e., 

30.41667 days long). Leap year is ignored. 

(viii) Payments are credited on the last day 

of the month. 

(ix) Payments are allocated to lower APR 

balances before higher APR balances. 

(b) Disclosing the actual repayment 

disclosure to consumers through a toll-free 

telephone number. 

(1) Required disclosures. Except as 

provided in paragraph (b)(3) of this section, 

when responding to a request for actual 

repayment disclosures through a toll-free 

telephone number, credit card issuers must 

make the following disclosures: 

(i) The actual repayment disclosure. If the 

actual repayment disclosure is less than 2 

years, credit card issuers must disclose the 

estimate in months. Otherwise, the estimate 

must be disclosed in years. The estimate 

must be rounded down to the nearest whole 

year if the estimate contains a fractional year 

less than 0.5, and rounded up to the nearest 

whole year if the estimate contains a 

fractional year equal or greater than 0.5. 

(ii) The outstanding balance on which the 

actual repayment disclosure is calculated. 

(iii) The assumption that only minimum 

payments are made. 

(iv) The fact that the repayment period is 

an estimate, and is based on several 

assumptions about the consumer’s account 

terms and future activity. 

(2) Model form. Credit card issuers may use 

the following disclosure to meet the 

requirements set forth in paragraph (b)(1) of 

this section: 

Your outstanding balance as of the last 

billing statement was $lll. If you make 

only the minimum payment each month it 

would take you about lll [months/years] 

to repay this outstanding balance. This 

repayment period is only an estimate and is 

based on several assumptions about your 

account terms and future activity on the 

account. 

(3) Negative amortization. If negative 

amortization occurs when calculating the 

repayment estimate, credit card issuers must 

disclose to the consumer that based on the 

current terms applicable to the consumer’s 

account, the consumer will not pay off the 

balance by paying only the minimum 

payment. Card issuers may use the following 

disclosure to meet the requirements set forth 

in this paragraph: ‘‘Your outstanding balance 

as of the last billing statement was $lll. 

You will never repay the balance if you only 

make the minimum payment.’’

(4) Permissible disclosures. Credit card 

issuers may provide the following 

information when responding to a request for 

the actual repayment disclosure through a 

toll-free telephone number, so long as the 

following information is provided after the 

disclosures in paragraph (b)(1) of this section 

are given: 

(i) A description of the assumptions used 

to calculate the actual repayment disclosure 

as described in paragraph (a)(5) of this 

section. 

(ii) The length of time it would take to 

repay the beginning balance described in 

paragraph (b)(1)(ii) of this section if an 

additional amount was paid each month in 

addition to the minimum payment amount, 

allowing the consumer to select the 

additional amount. In calculating this 

estimate, credit card issuers must use the 

same terms described in paragraph (a) of this 

section used to calculate the actual 

repayment disclosure, except they also must 

assume the additional amount was paid each 

month in addition to the minimum payment 

amount. 

(iii) The length of time it would take to 

repay the beginning balance described in 

paragraph (b)(1)(ii) of this section if the 

consumer made a fixed payment amount 

each month, allowing the consumer to select 

the amount of the fixed payment. In 

calculating this estimate, card issuers must 

use the same terms described in paragraph (a) 

of this section to calculate the actual 

repayment disclosure, except they also must 

assume the consumer made a fixed payment 

amount each month. 

(iv) 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. In calculating the monthly payment 

amount, card issuers must use the same 

terms described in paragraph (a) of this 

section, as appropriate. 

(v) Reference to web-based calculation 

tools that permit consumers to obtain 

additional estimates of repayment periods. 

(vi) The total interest that a consumer may 

pay if the consumer makes minimum 

payments for the length of time disclosed in 

the actual repayment disclosure. 

(c) Disclosing the actual repayment 

disclosures on periodic statements. 

(1) Required disclosures. Except as 

provided in paragraph (c)(3) of this section, 

when providing the actual repayment 

disclosure on the periodic statement, credit 

card issuers must make the following 

disclosures: 

(i) The actual repayment disclosure. If the 

actual repayment disclosure is less than 2 

years, credit card issuers must disclose the 

estimate in months. Otherwise, the estimate 

must be disclosed in years. The estimate 

must be rounded down to the nearest whole 

year if the estimate contains a fractional year 

less than 0.5, and rounded up to the nearest 

whole year if the estimate contains a 

fractional year equal to or greater than 0.5. 

(ii) The fact that the repayment period is 

based on the current outstanding balance 

shown on the account. 

(iii) The assumption that only minimum 

payments are made. 

(2) Model form. Credit card issuers may use 

the disclosure in appendix G–18(D) to meet 

the requirements set forth in paragraph (c)(1) 

of this section. 

(3) Negative amortization. If negative 

amortization occurs when calculating the 

actual repayment disclosure, credit card 

issuers must disclose to the consumer that 

based on the current terms applicable to the 

consumer’s account, the consumer will not 

pay off the balance by making only the 

minimum payment. Card issuers may use the 

disclosure in appendix G–18(D) to meet the 

requirements set forth in this paragraph. 

(4) Permissible disclosures. Card issuers 

may provide the following information on 

the periodic statement, so long as the 

following information is provided after the 

disclosures in paragraph (c)(1) are given: 

(i) The fact that the repayment period is an 

estimate, and is based on several 

assumptions about the consumer’s account 

terms and future activity. 

(ii) A reference to another location on the 

statement where the consumer may find 

additional information about the repayment 

estimate. 

(iii) A description of the assumptions used 

to calculate the actual repayment disclosure 

as described in paragraph (a)(5) of this 

section. 

(iv) The length of time it would take to 

repay the outstanding balance shown on the 

statement if an additional amount was paid 

each month in addition to the minimum 

payment amount. Card issuers may choose 

the additional amount. In calculating this 

estimate, card issuers must use the same 

terms described in paragraph (a) of this 

section used to calculate the actual 

repayment period, except they also must 

assume the additional amount was paid each 


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month in addition to the minimum payment 

amount. 

(v) The length of time it would take to 

repay the outstanding balance shown on the 

statement if the consumer made a fixed 

payment amount each month. Card issuers 

may choose the amount of the fixed payment. 

In calculating this estimate, card issuers must 

use the same terms described in (a) of this 

section used to calculate the actual 

repayment disclosure, except they also must 

assume the consumer made a fixed payment 

amount each month. 

(vi) The monthly payment amount that 

would be required to pay off the outstanding 

balance within a specific number of months. 

Card issuers may choose the specific number 

of months used in the calculation. In 

calculating the monthly payment amount, 

card issuers must use the same terms 

described in paragraph (a) of this section, as 

appropriate. 

(vii) Reference to web-based calculation 

tools that permit consumers to obtain 

additional estimates of repayment periods. 

(viii) The total interest that a consumer 

may pay if the consumer makes minimum 

payments for the length of time disclosed in 

the actual repayment disclosure. 

Appendix M3 to Part 226—Sample 

Calculations of Generic Repayment 

Estimates and Actual Repayment 

Disclosures 

(a) Generic repayment estimates. The 

following is an example of how to calculate 

the generic repayment estimates 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. The following 

calculation is written in SAS code. 

DATA ONE; 

RATE1=0.17; *APR; 

TBAL=1000; *OUTSTANDING BALANCE; 

*INITIALIZE COUNTER OF MONTHS, 

PERIODIC RATE AND FINANCE 

CHARGES; 

MONTHS=0; 

PERRATE1=0; 

FC1=0; 

*ABSOLUTE MINIMUM PAYMENT RULE 

USED; 

MINPMT=20; 

*CALCULATE PERIODIC RATE; 

PERRATE1=((1+(RATE1/ 

365))**30.41667)¥1; *ADB METHOD; 

*CALCULATE MONTHS TO PAYOFF; 

DO WHILE (TBAL GT 0); 

MONTHS=MONTHS+1; 

PMT=0.02*TBAL; *TWO PERCENT MIN 

PAYMENT RULE; 

FC1=TBAL*PERRATE1; *CALCULATE 

FINANCE CHARGE; 

TBAL=TBAL+FC1; *ADD FINANCE 

CHARGE TO BALANCE; 

IF PMT LT MINPMT THEN 

PMT=MINPMT; 

TBAL = TBAL¥PMT; 

END; 

*RESULTS; 

PROC PRINT DATA=ONE; 

VAR MONTHS; 

PROC PRINT DATA=ONE; 

VAR PMT FC1 TBAL PERRATE1; 

(b) Actual Repayment Disclosures. The 

following is an example of how to calculate 

the actual repayment disclosures using the 

guidance in 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 following calculation is written 

in SAS code. 

DATA ONE; 

*INITIALIZE NUMBERS OF APRS, 

PERIODIC RATES, BALANCES, AND 

PERIODIC FINANCE CHARGES; 

ARRAY RATE(3); 

ARRAY PERRATE(3); 

ARRAY BAL(3); 

ARRAY FC(3); 

*INITIALIZE APRS AND BALANCES, 

PLACING RATES FROM LOWEST TO 

HIGHEST; 

RATE1=0.019; *APR #1; 

RATE2=0.17; *APR #2; 

RATE3=0.21; *APR #3; 

BAL1=500; *BALANCE ASSOCIATED WITH 

APR #1; 

BAL2=250; *BALANCE ASSOCIATED WITH 

APR #2; 

BAL3=250; *BALANCE ASSOCIATED WITH 

APR #3; 

*INITIALIZE TOTAL BALANCE AND 

COUNTER OF MONTHS; 

TBAL=0; 

MONTHS=0; 

*ABSOLUTE MINIMUM PAYMENT RULE 

USED; 

MINPMT=20; 

*CALCULATE PERIODIC RATES AND 

INITIAL TOTAL BALANCE; 

DO I=1 TO 3; 

PERRATE(I)=((1+(RATE(I)/ 

365))**30.41667)¥1; *ADB METHOD; 

TBAL=TBAL+BAL(I); 

END; 

*CALCULATE MONTHS TO PAYOFF FOR 

LOWEST RATE BALANCE; 

DO WHILE (BAL(1) GT 0); 

MONTHS=MONTHS+1; 

PMT=0.02*TBAL; *TWO PERCENT MIN 

PMT RULE; 

DO I=1 TO 3; FC(I)=BAL(I)*PERRATE(I); 

*CALCULATE FINANCE CHARGES; 

END; 

DO I=1 TO 3; BAL(I)=BAL(I)+FC(I); 

TBAL=TBAL+FC(I); *ADD FINANCE 

CHARGES TO BALANCES; 

END; 

IF PMT LT MINPMT THEN 

PMT=MINPMT; 

BAL(1)=BAL(1)¥PMT; *APPLYING 

PAYMENT TO LOWEST APR 

BALANCE; 

TBAL=TBAL¥PMT; 

END; 

*CALCULATE MONTHS TO PAYOFF FOR 

NEXT LOWEST RATE BALANCE, IF 

ANY, CARRYING OVER NUMBER 

FROM LOWER RATE BALANCE; 

BAL(2)=BAL(2)+BAL(1); 

DO WHILE (BAL(2) GT 0); 

MONTHS=MONTHS+1; 

PMT=0.02*TBAL; *TWO PERCENT MIN 

PMT RULE; 

DO I=2 TO 3; FC(I)=BAL(I)*PERRATE(I); 

*CALCULATE FINANCE CHARGES; 

END; 

DO I=2 TO 3; BAL(I)=BAL(I)+FC(I); 

TBAL=TBAL+FC(I); *ADD FINANCE 

CHARGES TO BALANCES; 

END; 

IF PMT LT MINPMT THEN 

PMT=MINPMT; 

BAL(2)=BAL(2)¥PMT; *APPLYING 

PAYMENT TO SECOND LOWEST APR 

BALANCE; 

TBAL=TBAL¥PMT; 

END; 

*CALCULATE MONTHS TO PAYOFF FOR 

NEXT LOWEST RATE BALANCE, IF 

ANY, CARRYING OVER NUMBER 

FROM LOWER RATE BALANCES; 

BAL(3)=BAL(3)+BAL(2); 

DO WHILE (BAL(3) GT 0); 

MONTHS=MONTHS+1; 

PMT=0.02*TBAL; *TWO PERCENT MIN 

PMT RULE; 

FC(3)=BAL(3)*PERRATE(3); 

*CALCULATE FINANCE CHARGE; 

BAL(3)=BAL(3)+FC(3); *ADD FINANCE 

CHARGES TO BALANCE; 

TBAL=TBAL+FC(3); 

IF PMT LT MINPMT THEN 

PMT=MINPMT; 

BAL(3)=BAL(3)¥PMT; *APPLYING 

PAYMENT TO REMAINING BALANCE; 

TBAL=TBAL¥PMT; 

END; 

*RESULTS; 

PROC PRINT DATA=ONE; 

VAR MONTHS; 

PROC PRINT DATA=ONE; 

VAR PMT FC1 BAL1 FC2 BAL2 FC3 BAL3 

TBAL; fi 

23. In Supplement I to Part 226: 

A. Revise the Introduction. 

B. Revise subpart A. 

C. In Subpart B, revise sections 226.5 

through 226.14 and 226.16. 

D. Revise Appendix F, and 

Appendixes G and H. 

E. Amend Appendix G by revising 

paragraphs 1. through 3. and 5. through 

6., republishing paragraph 7., and 

adding paragraph 8. 

F. Remove the References paragraph 

at the end of sections 226.1, 226.2, 

226.3, 226.4, 226.5, 226.6, 226.7, 226.8, 

226.9, 226.10, 226.11, 226.12, 226.13, 

226.14, 226.16, Appendix E and 

Appendix F. 

Supplement I to Part 226—Official Staff 

Interpretations 

Introduction 

1. Official status. This commentary is 

the vehicle by which the staff of the 

Division of Consumer and Community 

Affairs of the Federal Reserve Board 

issues official staff interpretations of 

Regulation Z. Good faith compliance 

with this commentary affords protection 

from liability under 130(f) of the Truth 

in Lending Act. Section 130(f) (15 

U.S.C. 1640) protects creditors from 

civil liability for any act done or omitted 

in good faith in conformity with any 

interpretation issued by a duly 


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authorized official or employee of the 

Federal Reserve System. 

2. Procedure for requesting 

interpretations. Under appendix C of the 

regulation, anyone may request an 

official staff interpretation. 

Interpretations that are adopted will be 

incorporated in this commentary 

following publication in the Federal 

Register. No official staff interpretations 

are expected to be issued other than by 

means of this commentary. 

[3. Status of previous interpretations. 

All statements and opinions issued by 

the Federal Reserve Board and its staff 

interpreting previous Regulation Z 

remain effective until October 1, 1982 

only insofar as they interpret that 

regulation. When compliance with 

revised Regulation Z becomes 

mandatory on October 1, 1982, the 

Board and staff interpretations of the 

previous regulation will be entirely 

superseded by the revised regulation 

and this commentary except with regard 

to liability under the previous 

regulation.] 

fl3.fi [4.] Rules of construction. (a) 

Lists that appear in the commentary 

may be exhaustive or illustrative; the 

appropriate construction should be clear 

from the context. In most cases, 

illustrative lists are introduced by 

phrases such as ‘‘including, but not 

limited to,’’ ‘‘among other things,’’ ‘‘for 

example,’’ or ‘‘such as.’’

(b) [Throughout the commentary and 

regulation, reference to the regulation 

should be construed to refer to revised 

Regulation Z, unless the context 

indicates that a reference to previous 

Regulation Z is also intended. 

(c)] Throughout the commentary, 

reference to ‘‘this section’’ or ‘‘this 

paragraph’’ means the section or 

paragraph in the regulation that is the 

subject of the comment. 

fl4. [5]. Comment designations. Each 

comment in the commentary is 

identified by a number and the 

regulatory section or paragraph which it 

interprets. The comments are designated 

with as much specificity as possible 

according to the particular regulatory 

provision addressed. For example, some 

of the comments to § 226.18(b) are 

further divided by subparagraph, such 

as comment 18(b)(1)–1 and comment 

18(b)(2)–1. In other cases, comments 

have more general application and are 

designated, for example, as comment 

18–1 or comment 18(b)–1. This 

introduction may be cited as comments 

I–1 through flI–4fi [I–7]. Comments to 

the appendixes may be cited, for 

example, as comment app. A–1. 

[6. Cross-references. The following 

cross-references to related material 

appear at the end of each section of the 

commentary: (a) ‘‘Statute’’—those 

sections of the Truth in Lending Act on 

which the regulatory provision is based 

(and any other relevant statutes); (b) 

‘‘Other sections’’—other provisions in 

the regulation necessary to understand 

that section; (c) ‘‘Previous regulation’’—

parallel provisions in previous 

Regulation Z; and (d) ‘‘1981 changes’’—

a brief description of the major changes 

made by the 1981 revisions to 

Regulation Z. Where appropriate, a fifth 

category (‘‘Other regulations’’) provides 

cross-references to other regulations. 

7. Transition rules. (a) Though 

compliance with the revised regulation 

is not mandatory until April 1, 1982, 

creditors may begin complying as of 

April 1, 1981. During the intervening 

year, a creditor may convert its entire 

operation to the new requirements at 

one time, or it may convert to the new 

requirements in stages. In general, 

however, a creditor may not mix the 

regulatory requirements when making 

disclosures for a particular closed-end 

transaction or open-end account; all the 

disclosures for a single closed-end 

transaction (or open-end account) must 

be made in accordance with the 

previous regulation, or all the 

disclosures must be made in accordance 

with the revised regulation. As an 

exception to the general rule, the 

revised rescission rules and the revised 

advertising rules may be followed even 

if the disclosures are based on the 

previous regulation. For purposes of this 

regulation, the creditor is not required 

to take any particular action beyond the 

requirements of the revised regulation to 

indicate its conversion to the revised 

regulation. 

(b) The revised regulation may be 

relied on to determine if any disclosures 

are required for a particular transaction 

or to determine if a person is a 

‘‘creditor’’ subject to Truth in Lending 

requirements, whether or not other 

operations have been converted to the 

revised regulation. For example, 

layaway plans are not subject to the 

revised regulation, nor are oral 

agreements to lend money if there is no 

finance charge. These provisions may be 

relied on even if the creditor is making 

other disclosures under the previous 

regulation. The new rules governing 

whether or not disclosures must be 

made for refinancings and assumptions 

are also available to a creditor that has 

not yet converted its operations to the 

revised regulation. 

(c) In addition to the above rules, 

applicable to both open-end and closedend credit, the following guidelines are 

relevant to open-end credit: 

• The creditor need not remake initial 

disclosures that were made under the 

previous regulation, even if the revised 

periodic statements contain terminology 

that is inconsistent with those initial 

disclosures. 

• A creditor may add inserts to its old 

open-end forms in order to convert them 

to the revised rules until such time as 

the old forms are used up. 

• No change-in-terms notice is 

required for changes resulting from the 

conversion to the revised regulation. 

• The previous billing rights 

statements are substantially similar to 

the revised billing rights statements and 

may continue to be used, except that, if 

the creditor has an automatic debit 

program, it must use the revised 

automatic debit provision. 

• For those creditors wishing to use 

the annual billing rights statement, the 

creditor may count from the date on 

which it sent its last statement under 

the previous regulation in determining 

when to give the first statement under 

the new regulation. For example, if the 

creditor sent a semiannual statement in 

June 1981 and converts to the new 

regulation in October 1981, the creditor 

must give the billing rights statement 

sometime in 1982, and it must not be 

fewer than 6 nor more than 18 months 

after the June statement. 

• Section 226.11 of the revised 

regulation affects only credit balances 

that are created on or after the date the 

creditor converts the account to the 

revised regulation.] 

Subpart A—General 

Section 226.1—Authority, Purpose, 

Coverage, Organization, Enforcement 

and Liability 

1(c) Coverage. 

1. Foreign applicability. Regulation Z 

applies to all persons (including 

branches of foreign banks and sellers 

located in the United States) that extend 

consumer credit to residents (including 

resident aliens) of any state as defined 

in § 226.2. If an account is located in the 

United States and credit is extended to 

a U.S. resident, the transaction is subject 

to the regulation. This will be the case 

whether or not a particular advance or 

purchase on the account takes place in 

the United States and whether or not the 

extender of credit is chartered or based 

in the United States or a foreign 

country. flFor example, if a U.S. 

resident has a credit card account issued 

by a bank (whether U.S.- or foreignbased) located in the consumer’s state, 

the account is covered by the regulation, 

including extensions of credit under the 

account that occur outside the United 

States. In contrast, if a U.S. resident 

residing or visiting abroad, or a foreign 

national abroad, opens a credit card 


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33088 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

account issued by a foreign branch of a 

U.S. bank, the account is not covered by 

the regulation.fi [Thus, a U.S. 

resident’s use in Europe of a credit card 

issued by a bank in the consumer’s 

home town is covered by the regulation. 

The regulation does not apply to a 

foreign branch of a U.S. bank when the 

foreign branch extends credit to a U.S. 

citizen residing or visiting abroad or to 

a foreign national abroad.] 

Section 226.2—Definitions and Rules of 

Construction 

2(a)(2) Advertisement. 

1. Coverage. Only commercial 

messages that promote consumer credit 

transactions requiring disclosures are 

advertisements. Messages inviting, 

offering, or otherwise announcing 

generally to prospective customers the 

availability of credit transactions, 

whether in visual, oral, or print media, 

are covered by Regulation Z (12 CFR 

part 226). 

i. Examples include: 

A. Messages in a newspaper, 

magazine, leaflet, promotional flyer, or 

catalog. 

B. Announcements on radio, 

television, or public address system. 

C. flElectronic advertisementsfi 

[On-line messages], such as on the 

Internet. 

D. Direct mail literature or other 

printed material on any exterior or 

interior sign. 

E. Point-of-sale displays. 

F. Telephone solicitations. 

G. Price tags that contain credit 

information. 

H. Letters sent to customers flor 

potential customersfi as part of an 

organized solicitation of business. 

I. Messages on checking account 

statements offering auto loans at a stated 

annual percentage rate. 

J. Communications promoting a new 

open-end plan or closed-end 

transaction. 

ii. The term does not include: 

A. Direct personal contacts, such as 

follow-up letters, cost estimates for 

individual consumers, or oral or written 

communication relating to the 

negotiation of a specific transaction. 

B. Informational material, for 

example, interest-rate and loan-term 

memos, distributed only to business 

entities. 

C. Notices required by federal or state 

law, if the law mandates that specific 

information be displayed and only the 

information so mandated is included in 

the notice. 

D. News articles the use of which is 

controlled by the news medium. 

E. Market-research or educational 

materials that do not solicit business. 

F. Communications about an existing 

credit account (for example, a 

promotion encouraging additional or 

different uses of an existing credit card 

account.) 

2. Persons covered. All persons must 

comply with the advertising provisions 

in §§ 226.16 and 226.24, not just those 

that meet the definition of creditor in 

§ 226.2(a)(17). Thus, home builders, 

merchants, and others who are not 

themselves creditors must comply with 

the advertising provisions of the 

regulation if they advertise consumer 

credit transactions. However, under 

section 145 of the act, the owner and the 

personnel of the medium in which an 

advertisement appears, or through 

which it is disseminated, are not subject 

to civil liability for violations. 

2(a)(4) Billing cycle or cycle. 

1. Intervals. In open-end credit plans, 

the billing cycle determines the 

intervals for which periodic disclosure 

statements are required; these intervals 

are also used as measuring points for 

other duties of the creditor. Typically, 

billing cycles are monthly, but they may 

be more frequent or less frequent (but 

not less frequent than quarterly). 

2. Creditors that do not bill. The term 

cycle is interchangeable with billing 

cycle for definitional purposes, since 

some creditors’ cycles do not involve 

the sending of bills in the traditional 

sense but only statements of account 

activity. This is commonly the case with 

financial institutions when periodic 

payments are made through payroll 

deduction or through automatic debit of 

the consumer’s asset account. 

3. Equal cycles. Although cycles must 

be equal, there is a permissible variance 

to account for weekends, holidays, and 

differences in the number of days in 

months. If the actual date of each 

statement does not vary by more than 

four days from a fixed ‘‘day’’ (for 

example, the third Thursday of each 

month) or ‘‘date’’ (for example, the 15th 

of each month) that the creditor 

regularly uses, the intervals between 

statements are considered equal. The 

requirement that cycles be equal applies 

even if the creditor applies a daily 

periodic rate to determine the finance 

charge. The requirement that intervals 

be equal does not apply to the flfirst 

billing cycle on an open-end account or 

to afi transitional billing cycle that can 

occur fliffi [when] the creditor 

occasionally changes its billing cycles 

so as to establish a new statement day 

or date. (See comments 9(c)(1)–3 and 

9(c)(2)–3[the commentary to § 226.9(c)].) 

4. Payment reminder. The sending of 

a regular payment reminder (rather than 

a late payment notice) establishes a 

cycle for which the creditor must send 

periodic statements. 

2(a)(6) Business day. 

1. Business function test. Activities 

that indicate that the creditor is open for 

substantially all of its business 

functions include the availability of 

personnel to make loan disbursements, 

to open new accounts, and to handle 

credit transaction inquiries. Activities 

that indicate that the creditor is not 

open for substantially all of its business 

functions include a retailer’s merely 

accepting credit cards for purchases or 

a bank’s having its customer-service 

windows open only for limited 

purposes such as deposits and 

withdrawals, bill paying, and related 

services. 

2. Rescission rule. A more precise rule 

for what is a business day (all calendar 

days except Sundays and the federal 

legal holidays listed in 5 U.S.C. 6103(a)) 

applies when the right of rescission or 

mortgages subject to § 226.32 are 

involved. (See also comment 31(c)(1)–

1.) Four federal legal holidays are 

identified in 5 U.S.C. 6103(a) by a 

specific date: New Year’s Day, January 

1; Independence Day, July 4; Veterans 

Day, November 11; and Christmas Day, 

December 25. When one of these 

holidays (July 4, for example) falls on a 

Saturday, federal offices and other 

entities might observe the holiday on 

the preceding Friday (July 3). The 

observed holiday (in the example, July 

3) is a business day for purposes of 

rescission or the delivery of disclosures 

for certain high-cost mortgages covered 

by § 226.32. 

2(a)(7) Card issuer. 

1. Agent. An agent of a card issuer is 

considered a card issuer. Because 

agency relationships are traditionally 

defined by contract and by state or other 

applicable law, the regulation does not 

define agent. Merely providing services 

relating to the production of credit cards 

or data processing for others, however, 

does not make one the agent of the card 

issuer. In contrast, a financial institution 

may become the agent of the card issuer 

if an agreement between the institution 

and the card issuer provides that the 

cardholder may use a line of credit with 

the financial institution to pay 

obligations incurred by use of the credit 

card. 

2(a)(8) Cardholder. 

1. General rule. A cardholder is a 

natural person at whose request a card 

is issued for consumer credit purposes 

or who is a co-obligor or guarantor for 

such a card issued to another. The 

second category does not include an 

employee who is a co-obligor or 

guarantor on a card issued to the 

employer for business purposes, nor 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33089 

does it include a person who is merely 

the authorized user of a card issued to 

another. 

2. Limited application of regulation. 

For the limited purposes of the rules on 

issuance of credit cards and liability for 

unauthorized use, a cardholder includes 

any person, including an organization, 

to whom a card is issued for any 

purpose—including a business, 

agricultural, or commercial purpose. 

3. Issuance. See the commentary to 

§ 226.12(a). 

4. Dual-purpose cards and dual-card 

systems. Some card issuers offer dualpurpose cards that are for business as 

well as consumer purposes. If a card is 

issued to an individual for consumer 

purposes, the fact that an organization 

has guaranteed to pay the debt does not 

make it business credit. On the other 

hand, if a card is issued for business 

purposes, the fact that an individual 

sometimes uses it for consumer 

purchases does not subject the card 

issuer to the provisions on periodic 

statements, billing-error resolution, and 

other protections afforded to consumer 

credit. Some card issuers offer dual-card 

systems—that is, they issue two cards to 

the same individual, one intended for 

business use, the other for consumer or 

personal use. With such a system, the 

same person may be a cardholder for 

general purposes when using the card 

issued for consumer use, and a 

cardholder only for the limited purposes 

of the restrictions on issuance and 

liability when using the card issued for 

business purposes. 

2(a)(9) Cash price. 

1. Components. This amount is a 

starting point in computing the amount 

financed and the total sale price under 

§ 226.18 for credit sales. Any charges 

imposed equally in cash and credit 

transactions may be included in the 

cash price, or they may be treated as 

other amounts financed under 

§ 226.18(b)(2). 

2. Service contracts. Service contracts 

include contracts for the repair or the 

servicing of goods, such as mechanical 

breakdown coverage, even if such a 

contract is characterized as insurance 

under state law. 

3. Rebates. The creditor has complete 

flexibility in the way it treats rebates for 

purposes of disclosure and calculation. 

See the commentary to § 226.18(b). 

2(a)(10) Closed-end credit. 

1. General. The coverage of this term 

is defined by exclusion. That is, it 

includes any credit arrangement that 

does not fall within the definition of 

open-end credit. Subpart C contains the 

disclosure rules for closed-end credit 

when the obligation is subject to a 

finance charge or is payable by written 

agreement in more than four 

installments. 

2(a)(11) Consumer. 

1. Scope. Guarantors, endorsers, and 

sureties are not generally consumers for 

purposes of the regulation, but they may 

be entitled to rescind under certain 

circumstances and they may have 

certain rights if they are obligated on 

credit card plans. 

2. Rescission rules. For purposes of 

rescission under § 226.15 and § 226.23, 

a consumer includes any natural person 

whose ownership interest in his or her 

principal dwelling is subject to the risk 

of loss. Thus, if a security interest is 

taken in A’s ownership interest in a 

house and that house is A’s principal 

dwelling, A is a consumer for purposes 

of rescission, even if A is not liable, 

either primarily or secondarily, on the 

underlying consumer credit transaction. 

An ownership interest does not include, 

for example, leaseholds or inchoate 

rights, such as dower. 

3. Land trusts. Credit extended to land 

trusts, as described in the commentary 

to § 226.3(a), is considered to be 

extended to a natural person for 

purposes of the definition of consumer. 

2(a)(12) Consumer credit. 

1. Primary purpose. There is no 

precise test for what constitutes credit 

offered or extended for personal, family, 

or household purposes, nor for what 

constitutes the primary purpose. See, 

however, the discussion of business 

purposes in the commentary to 

§ 226.3(a). 

2(a)(13) Consummation. 

1. State law governs. When a 

contractual obligation on the 

consumer’s part is created is a matter to 

be determined under applicable law; 

Regulation Z does not make this 

determination. A contractual 

commitment agreement, for example, 

that under applicable law binds the 

consumer to the credit terms would be 

consummation. Consummation, 

however, does not occur merely because 

the consumer has made some financial 

investment in the transaction (for 

example, by paying a nonrefundable fee) 

unless, of course, applicable law holds 

otherwise. 

2. Credit v. sale. Consummation does 

not occur when the consumer becomes 

contractually committed to a sale 

transaction, unless the consumer also 

becomes legally obligated to accept a 

particular credit arrangement. For 

example, when a consumer pays a 

nonrefundable deposit to purchase an 

automobile, a purchase contract may be 

created, but consummation for purposes 

of the regulation does not occur unless 

the consumer also contracts for 

financing at that time. 

2(a)(14) Credit. 

1. Exclusions. The following 

situations are not considered credit for 

purposes of the regulation: 

i. Layaway plans, unless the 

consumer is contractually obligated to 

continue making payments. Whether the 

consumer is so obligated is a matter to 

be determined under applicable law. 

The fact that the consumer is not 

entitled to a refund of any amounts paid 

towards the cash price of the 

merchandise does not bring layaways 

within the definition of credit. 

ii. Tax liens, tax assessments, court 

judgments, and court approvals of 

reaffirmation of debts in bankruptcy. 

However, third-party financing of such 

obligations (for example, a bank loan 

obtained to pay off a tax lien) is credit 

for purposes of the regulation. 

iii. Insurance premium plans that 

involve payment in installments with 

each installment representing the 

payment for insurance coverage for a 

certain future period of time, unless the 

consumer is contractually obligated to 

continue making payments. 

iv. Home improvement transactions 

that involve progress payments, if the 

consumer pays, as the work progresses, 

only for work completed and has no 

contractual obligation to continue 

making payments 

v. Borrowing against the accrued cash 

value of an insurance policy or a 

pension account, if there is no 

independent obligation to repay. 

vi. Letters of credit. 

vii. The execution of option contracts. 

However, there may be an extension of 

credit when the option is exercised, if 

there is an agreement at that time to 

defer payment of a debt. 

viii. Investment plans in which the 

party extending capital to the consumer 

risks the loss of the capital advanced. 

This includes, for example, an 

arrangement with a home purchaser in 

which the investor pays a portion of the 

downpayment and of the periodic 

mortgage payments in return for an 

ownership interest in the property, and 

shares in any gain or loss of property 

value. 

ix. Mortgage assistance plans 

administered by a government agency in 

which a portion of the consumer’s 

monthly payment amount is paid by the 

agency. No finance charge is imposed 

on the subsidy amount, and that amount 

is due in a lump-sum payment on a set 

date or upon the occurrence of certain 

events. (If payment is not made when 

due, a new note imposing a finance 

charge may be written, which may then 

be subject to the regulation.) 

2. Payday loans; deferred 

presentment. Credit includes a 


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transaction in which a cash advance is 

made to a consumer in exchange for the 

consumer’s personal check, or in 

exchange for the consumer’s 

authorization to debit the consumer’s 

deposit account, and where the parties 

agree either that the check will not be 

cashed or deposited, or that the 

consumer’s deposit account will not be 

debited, until a designated future date. 

This type of transaction is often referred 

to as a ‘‘payday loan’’ or ‘‘payday 

advance’’ or ‘‘deferred-presentment 

loan.’’ A fee charged in connection with 

such a transaction may be a finance 

charge for purposes of § 226.4, 

regardless of how the fee is 

characterized under state law. Where 

the fee charged constitutes a finance 

charge under § 226.4 and the person 

advancing funds regularly extends 

consumer credit, that person is a 

creditor and is required to provide 

disclosures consistent with the 

requirements of Regulation Z. See 

§ 226.2(a)(17). 

2(a)(15) Credit card. 

1. Usable from time to time. A credit 

card must be usable from time to time. 

Since this involves the possibility of 

repeated use of a single device, checks 

and similar instruments that can be 

used only once to obtain a single credit 

extension are not credit cards. 

2. Examples. i. Examples of credit 

cards include: 

A. A card that guarantees checks or 

similar instruments, if the asset account 

is also tied to an overdraft line or if the 

instrument directly accesses a line of 

credit. 

B. A card that accesses both a credit 

and an asset account (that is, a debitcredit card). 

C. An identification card that permits 

the consumer to defer payment on a 

purchase. 

D. An identification card indicating 

loan approval that is presented to a 

merchant or to a lender, whether or not 

the consumer signs a separate 

promissory note for each credit 

extension. 

E. A card or device that can be 

activated upon receipt to access credit, 

even if the card has a substantive use 

other than credit, such as a purchaseprice discount card. Such a card or 

device is a credit card notwithstanding 

the fact that the recipient must first 

contact the card issuer to access or 

activate the credit feature. 

ii. In contrast, credit card does not 

include, for example: 

A. A check-guarantee or debit card 

with no credit feature or agreement, 

even if the creditor occasionally honors 

an inadvertent overdraft. 

B. Any card, key, plate, or other 

device that is used in order to obtain 

petroleum products for business 

purposes from a wholesale distribution 

facility or to gain access to that facility, 

and that is required to be used without 

regard to payment terms. 

3. Charge card. Generally, charge 

cards are cards used in connection with 

an account on which outstanding 

balances cannot be carried from one 

billing cycle to another and are payable 

when a periodic statement is received. 

Under the regulation, a reference to 

credit cards generally includes charge 

cards. The term charge card is, however, 

distinguished from credit card in 

§§ 226.5a, fl226.7(b)(11), 226.7(b)(12)fi 

226.9(e), 226.9(f) and 226.28(d), and 

appendixes G–10 through G–13. When 

the term credit card is used in those 

provisions, it refers to credit cards other 

than charge cards. 

2(a)(16) Credit sale. 

1. Special disclosure. If the seller is a 

creditor in the transaction, the 

transaction is a credit sale and the 

special credit sale disclosures (that is, 

the disclosures under § 226.18(j)) must 

be given. This applies even if there is 

more than one creditor in the 

transaction and the creditor making the 

disclosures is not the seller. See the 

commentary to § 226.17(d). 

2. Sellers who arrange credit. If the 

seller of the property or services 

involved arranged for financing but is 

not a creditor as to that sale, the 

transaction is not a credit sale. Thus, if 

a seller assists the consumer in 

obtaining a direct loan from a financial 

institution and the consumer’s note is 

payable to the financial institution, the 

transaction is a loan and only the 

financial institution is a creditor. 

3. Refinancings. Generally, when a 

credit sale is refinanced within the 

meaning of § 226.20(a), loan disclosures 

should be made. However, if a new sale 

of goods or services is also involved, the 

transaction is a credit sale. 

4. Incidental sales. Some lenders sell 

a product or service—such as credit, 

property, or health insurance—as part of 

a loan transaction. Section 226.4 

contains the rules on whether the cost 

of credit life, disability or property 

insurance is part of the finance charge. 

If the insurance is financed, it may be 

disclosed as a separate credit-sale 

transaction or disclosed as part of the 

primary transaction; if the latter 

approach is taken, either loan or creditsale disclosures may be made. See the 

commentary to § 226.17(c)(1) for further 

discussion of this point. 

5. Credit extensions for educational 

purposes. A credit extension for 

educational purposes in which an 

educational institution is the creditor 

may be treated as either a credit sale or 

a loan, regardless of whether the funds 

are given directly to the student, 

credited to the student’s account, or 

disbursed to other persons on the 

student’s behalf. The disclosure of the 

total sale price need not be given if the 

transaction is treated as a loan. 

2(a)(17) Creditor. 

1. General. The definition contains 

four independent tests. If any one of the 

tests is met, the person is a creditor for 

purposes of that particular test. 

Paragraph 2(a)(17)(i). 

1. Prerequisites. This test is composed 

of two requirements, both of which 

must be met in order for a particular 

credit extension to be subject to the 

regulation and for the credit extension 

to count towards satisfaction of the 

numerical tests mentioned in 

fl§ 226.2(a)(17)(v)fi [footnote 3 to 

§ 226.2(a)(17)]. 

i. First, there must be either or both 

of the following: 

A. A written (rather than oral) 

agreement to pay in more than four 

installments. A letter that merely 

confirms an oral agreement does not 

constitute a written agreement for 

purposes of the definition. 

B. A finance charge imposed for the 

credit. The obligation to pay the finance 

charge need not be in writing. 

ii. Second, the obligation must be 

payable to the person in order for that 

person to be considered a creditor. If an 

obligation is made payable to bearer, the 

creditor is the one who initially accepts 

the obligation. 

2. Assignees. If an obligation is 

initially payable to one person, that 

person is the creditor even if the 

obligation by its terms is simultaneously 

assigned to another person. For 

example: 

i. An auto dealer and a bank have a 

business relationship in which the bank 

supplies the dealer with credit sale 

contracts that are initially made payable 

to the dealer and provide for the 

immediate assignment of the obligation 

to the bank. The dealer and purchaser 

execute the contract only after the bank 

approves the creditworthiness of the 

purchaser. Because the obligation is 

initially payable on its face to the 

dealer, the dealer is the only creditor in 

the transaction. 

3. Numerical tests. The examples 

below illustrate how the numerical tests 

of fl§ 226.2(a)(17)(v)fi [footnote 3] are 

applied. The examples assume that 

consumer credit with a finance charge 

or written agreement for more than 4 

installments was extended in the years 

in question and that the person did not 

extend such credit in fl2006fi [1982]. 


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4. Counting transactions. For 

purposes of closed-end credit, the 

creditor counts each credit transaction. 

For open-end credit, transactions means 

accounts, so that outstanding accounts 

are counted instead of individual credit 

extensions. Normally the number of 

transactions is measured by the 

preceding calendar year; if the requisite 

number is met, then the person is a 

creditor for all transactions in the 

current year. However, if the person did 

not meet the test in the preceding year, 

the number of transactions is measured 

by the current calendar year. For 

example, if the person extends 

consumer credit 26 times in fl2007fi 

[1983], it is a creditor for purposes of 

the regulation for the last extension of 

credit in fl2007fi [1983] and for all 

extensions of consumer credit in 

fl2008fi [1984]. On the other hand, if 

a business begins in fl2007fi [1983] 

and extends consumer credit 20 times, 

it is not a creditor for purposes of the 

regulation in fl2007fi [1983]. If it 

extends consumer credit 75 times in 

fl2008fi [1984], however, it becomes a 

creditor for purposes of the regulation 

(and must begin making disclosures) 

after the 25th extension of credit in that 

year and is a creditor for all extensions 

of consumer credit in fl2009fi [1985]. 

5. Relationship between consumer 

credit in general and credit secured by 

a dwelling. Extensions of credit secured 

by a dwelling are counted towards the 

25-extensions test. For example, if in 

fl2007fi [1983] a person extends 

unsecured consumer credit 23 times and 

consumer credit secured by a dwelling 

twice, it becomes a creditor for the 

succeeding extensions of credit, 

whether or not they are secured by a 

dwelling. On the other hand, extensions 

of consumer credit not secured by a 

dwelling are not counted towards the 

number of credit extensions secured by 

a dwelling. For example, if in fl2007fi 

[1983] a person extends credit not 

secured by a dwelling 8 times and credit 

secured by a dwelling 3 times, it is not 

a creditor. 

6. Effect of satisfying one test. Once 

one of the numerical tests is satisfied, 

the person is also a creditor for the other 

type of credit. For example, in fl2007fi 

[1983] a person extends consumer credit 

secured by a dwelling 5 times. That 

person is a creditor for all succeeding 

credit extensions, whether they involve 

credit secured by a dwelling or not. 

7. Trusts. In the case of credit 

extended by trusts, each individual trust 

is considered a separate entity for 

purposes of applying the criteria. For 

example: 

i. A bank is the trustee for three trusts. 

Trust A makes 15 extensions of 

consumer credit annually; Trust B 

makes 10 extensions of consumer credit 

annually; and Trust C makes 30 

extensions of consumer credit annually. 

Only Trust C is a creditor for purposes 

of the regulation. 

[8. Loans from employee savings 

plans. Some employee savings plans 

permit participants to borrow money up 

to a certain percentage of their account 

balances, and use a trust to administer 

the receipt and disbursement of funds. 

Unless each participant’s account is an 

individual plan and trust, the creditor 

should apply the numerical tests to the 

plan as a whole rather than to the 

individual account, even if the loan 

amount is determined by reference to 

the balance in the individual account 

and the repayments are credited to the 

individual account. The person to 

whom the obligation is originally made 

payable (whether the plan, the trust, or 

the trustee) is the creditor for purposes 

of the act and regulation.] 

Paragraph 2(a)(17)(ii). [Reserved] 

Paragraph 2(a)(17)(iii). 

1. Card issuers subject to Subpart B. 

Section 226.2(a)(17)(iii) makes certain 

card issuers creditors for purposes of the 

open-end credit provisions of the 

regulation. This includes, for example, 

the issuers of so-called travel and 

entertainment cards that expect 

repayment at the first billing and do not 

impose a finance charge. Since all 

disclosures are to be made only as 

applicable, such card issuers would 

omit finance charge disclosures. Other 

provisions of the regulation regarding 

such areas as scope, definitions, 

determination of which charges are 

finance charges, Spanish language 

disclosures, record retention, and use of 

model forms, also apply to such card 

issuers. 

Paragraph 2(a)(17)(iv). 

1. Card issuers subject to Subparts B 

and C. Section 226.2(a)(17)(iv) includes 

as creditors card issuers extending 

closed-end credit in which there is a 

finance charge or an agreement to pay 

in more than four installments. These 

card issuers are subject to the 

appropriate provisions of Subparts B 

and C, as well as to the general 

provisions. 

2(a)(18) Downpayment. 

1. Allocation. If a consumer makes a 

lump-sum payment, partially to reduce 

the cash price and partially to pay 

prepaid finance charges, only the 

portion attributable to reducing the cash 

price is part of the downpayment. (See 

the commentary to § 226.2(a)(23).) 

2. Pick-up payments. i. Creditors may 

treat the deferred portion of the 

downpayment, often referred to as pickup payments, in a number of ways. If 

the pick-up payment is treated as part 

of the downpayment: 

A. It is subtracted in arriving at the 

amount financed under § 226.18(b). 

B. It may, but need not, be reflected 

in the payment schedule under 

§ 226.18(g). 

ii. If the pick-up payment does not 

meet the definition (for example, if it is 

payable after the second regularly 

scheduled payment) or if the creditor 

chooses not to treat it as part of the 

downpayment: 

A. It must be included in the amount 

financed. 

B. It must be shown in the payment 

schedule. iii. Whichever way the pickup payment is treated, the total of 

payments under § 226.18(h) must equal 

the sum of the payments disclosed 

under § 226.18(g). 

3. Effect of existing liens. 

i. No cash payment. In a credit sale, 

the ‘‘downpayment’’ may only be used 

to reduce the cash price. For example, 

when a trade-in is used as the 

downpayment and the existing lien on 

an automobile to be traded in exceeds 

the value of the automobile, creditors 

must disclose a zero on the 

downpayment line rather than a 

negative number. To illustrate, assume a 

consumer owes $10,000 on an existing 

automobile loan and that the trade-in 

value of the automobile is only $8,000, 

leaving a $2,000 deficit. The creditor 

should disclose a downpayment of $0, 

not ¥$2,000. 

ii. Cash payment. If the consumer 

makes a cash payment, creditors may, at 

their option, disclose the entire cash 

payment as the downpayment, or apply 

the cash payment first to any excess lien 

amount and disclose any remaining 

cash as the downpayment. In the above 

example: 

A. If the downpayment disclosed is 

equal to the cash payment, the $2,000 

deficit must be reflected as an 

additional amount financed under 

§ 226.18(b)(2). 

B. If the consumer provides $1,500 in 

cash (which does not extinguish the 

$2,000 deficit), the creditor may 

disclose a downpayment of $1,500 or of 

$0. 

C. If the consumer provides $3,000 in 

cash, the creditor may disclose a 

downpayment of $3,000 or of $1,000. 

2(a)(19) Dwelling. 

1. Scope. A dwelling need not be the 

consumer’s principal residence to fit the 

definition, and thus a vacation or 

second home could be a dwelling. 

However, for purposes of the definition 

of residential mortgage transaction and 

the right to rescind, a dwelling must be 

the principal residence of the consumer. 


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33092 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

See the commentary to §§ 226.2(a)(24), 

226.15, and 226.23. 

2. Use as a residence. Mobile homes, 

boats, and trailers are dwellings if they 

are in fact used as residences, just as are 

condominium and cooperative units. 

Recreational vehicles, campers, and the 

like not used as residences are not 

dwellings. 

3. Relation to exemptions. Any 

transaction involving a security interest 

in a consumer’s principal dwelling (as 

well as in any real property) remains 

subject to the regulation despite the 

general exemption in § 226.3(b) for 

credit extensions over $25,000. 

2(a)(20) Open-end credit. 

1. General. This definition describes 

the characteristics of open-end credit 

(for which the applicable disclosure and 

other rules are contained in Subpart B), 

as distinct from closed-end credit. 

Open-end credit is consumer credit that 

is extended under a plan and meets all 

3 criteria set forth in the definition. 

2. Existence of a plan. The definition 

requires that there be a plan, which 

connotes a contractual arrangement 

between the creditor and the consumer. 

flThe consumer has a single account 

with the creditor, although there may be 

separate sub-accounts maintained under 

that single account. Advances and 

payments may be allocated to different 

sub-accounts for the purpose of 

prescribing different terms (such as 

different periodic rates or other payment 

options) for those advances. 

Repayments of an advance for any subaccount must generally replenish the 

credit line for that sub-account so that 

a 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. For example, a credit card 

account may permit cash advances and 

purchase transactions with different 

periodic rates and payment terms. 

Repayments allocated to the cash 

advance sub-accounts must generally 

replenish the consumer’s cash advance 

credit line and repayment allocated to 

the purchase transaction sub-account 

must generally replenish the consumer’s 

purchase transaction credit line, so that 

the consumer may continue to take 

advances under each sub-account to the 

extent that its outstanding balance is 

repaid.fi [Some creditors offer 

programs containing a number of 

different credit features. The consumer 

has a single account with the institution 

that can be accessed repeatedly via a 

number of sub-accounts established for 

the different program features and rate 

structures. Some features of the program 

might be used repeatedly (for example, 

an overdraft line) while others might be 

used infrequently (such as the part of 

the credit line available for secured 

credit). If the program as a whole is 

subject to prescribed terms and 

otherwise meets the definition of openend credit, such a program would be 

considered a single, multi-featured 

plan.] 

3. Repeated transactions. Under this 

criterion, the creditor must reasonably 

contemplate repeated transactions. This 

means that the credit plan must be 

usable from time to time and the 

creditor must legitimately expect that 

there will be repeat business rather than 

a one-time credit extension. The 

creditor must expect repeated dealings 

with consumers under the credit plan as 

a whole and need not believe a 

consumer will reuse a particular feature 

of the plan. The determination of 

whether a creditor can reasonably 

contemplate repeated transactions 

requires an objective analysis. 

Information that much of the creditor’s 

customer base with accounts under the 

plan make repeated transactions over 

some period of time is relevant to the 

determination, particularly when the 

plan is opened primarily for the 

financing of infrequently purchased 

products or services. A standard based 

on reasonable belief by a creditor 

necessarily includes some margin for 

judgmental error. The fact that 

particular consumers do not return for 

further credit extensions does not 

prevent a plan from having been 

properly characterized as open-end. For 

example, if much of the customer base 

of a clothing store makes repeat 

purchases, the fact that some consumers 

use the plan only once would not affect 

the characterization of the store’s plan 

as open-end credit. The criterion 

regarding repeated transactions is a 

question of fact to be decided in the 

context of the creditor’s type of business 

and the creditor’s relationship with its 

customers. [For example: i. It] flFor 

example, itfi would be more reasonable 

for a flbank or depository institutionfi 

[thrift institution chartered for the 

benefit of its members] to contemplate 

repeated transactions with a [member] 

flcustomerfi than for a seller of 

aluminum siding to make the same 

assumption about its customers. 

[ii. It would be more reasonable for a 

financial institution to make advances 

from a line of credit for the purchase of 

an automobile than for an automobile 

dealer to sell a car under an open-end 

plan.] 

4. Finance charge on an outstanding 

balance. The requirement that a finance 

charge may be computed and imposed 

from time to time on the outstanding 

balance means that there is no specific 

amount financed for the plan for which 

the finance charge, total of payments, 

and payment schedule can be 

calculated. A plan may meet the 

definition of open-end credit even 

though a finance charge is not normally 

imposed, provided the creditor has the 

right, under the plan, to impose a 

finance charge from time to time on the 

outstanding balance. For example, in 

some plans, [such as certain china club 

plans,] a finance charge is not imposed 

if the consumer pays all or a specified 

portion of the outstanding balance 

within a given time period. Such a plan 

could meet the finance charge criterion, 

if the creditor has the right to impose a 

finance charge, even though the 

consumer actually pays no finance 

charges during the existence of the plan 

because the consumer takes advantage 

of the option to pay the balance (either 

in full or in installments) within the 

time necessary to avoid finance charges. 

5. Reusable line. The total amount of 

credit that may be extended during the 

existence of an open-end plan is 

unlimited because available credit is 

generally replenished as earlier 

advances are repaid. A line of credit is 

self-replenishing even though the plan 

itself has a fixed expiration date, as long 

as during the plan’s existence the 

consumer may use the line, repay, and 

reuse the credit. The creditor may 

floccasionally or routinelyfi verify 

credit information such as the 

consumer’s continued income and 

employment status or information for 

security purposes flbut, to meet the 

definition of open-end credit, such 

verification of credit information may 

not be done as a condition of granting 

a consumer’s request for a particular 

advance under the plan. In general, a 

credit line is self-replenishing if the 

consumer can take further advances as 

outstanding balances are repaid without 

being required to separately apply for 

those additional advances.fi. This 

criterion of unlimited credit 

distinguishes open-end credit from a 

series of advances made pursuant to a 

closed-end credit loan commitment. For 

example: 

i. Under a closed-end commitment, 

the creditor might agree to lend a total 

of $10,000 in a series of advances as 

needed by the consumer. When a 

consumer has borrowed the full 

$10,000, no more is advanced under 

that particular agreement, even if there 

has been repayment of a portion of the 

debt. 

ii. This criterion does not mean that 

the creditor must establish a specific 

credit limit for the line of credit or that 

the line of credit must always be 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33093 

replenished to its original amount. The 

creditor may reduce a credit limit or 

refuse to extend new credit in a 

particular case due to changes in [the 

economy, ] the creditor’s financial 

condition[,] or the consumer’s 

creditworthiness. (The rules in 

§ 226.5b(f), however, limit the ability of 

a creditor to suspend credit advances for 

home equity plans.) While consumers 

should have a reasonable expectation of 

obtaining credit as long as they remain 

current and within any preset credit 

limits, further extensions of credit need 

not be an absolute right in order for the 

plan to meet the self-replenishing 

criterion. 

6. Open-end real estate mortgages. 

Some credit plans call for negotiated 

advances under so-called open-end real 

estate mortgages. Each such plan must 

be independently measured against the 

definition of open-end credit, regardless 

of the terminology used in the industry 

to describe the plan. The fact that a 

particular plan is called an open-end 

real estate mortgage, for example, does 

not, by itself, mean that it is open-end 

credit under the regulation. 

2(a)(21) Periodic rate. 

1. Basis. The periodic rate may be 

stated as a percentage (for example, 1 1⁄2

percent per month) or as a decimal 

equivalent (for example, .015 monthly). 

It may be based on any portion of a year 

the creditor chooses. Some creditors use 

1/360 of an annual rate as their periodic 

rate. These creditors: 

i. May disclose a 1/360 rate as a daily 

periodic rate, without further 

explanation, if it is in fact only applied 

360 days per year. But if the creditor 

applies that rate for 365 days, the 

creditor must note that fact and, of 

course, disclose the true annual 

percentage rate. 

ii. Would have to apply the rate to the 

balance to disclose the annual 

percentage rate with the degree of 

accuracy required in the regulation (that 

is, within 1⁄8 of 1 percentage point of the 

rate based on the actual 365 days in the 

year). 

2. Transaction charges. Periodic rate 

does not include initial one-time 

transaction charges, even if the charge is 

computed as a percentage of the 

transaction amount. 

2(a)(22) Person. 

1. Joint ventures. A joint venture is an 

organization and is therefore a person. 

2. Attorneys. An attorney and his or 

her client are considered to be the same 

person for purposes of this regulation 

when the attorney is acting within the 

scope of the attorney-client relationship 

with regard to a particular transaction. 

3. Trusts. A trust and its trustee are 

considered to be the same person for 

purposes of this regulation. 

2(a)(23) Prepaid finance charge. 

1. General. Prepaid finance charges 

must be taken into account under 

§ 226.18(b) in computing the disclosed 

amount financed, and must be disclosed 

if the creditor provides an itemization of 

the amount financed under § 226.18(c). 

2. Examples. i. Common examples of 

prepaid finance charges include: 

A. Buyer’s points. 

B. Service fees. 

C. Loan fees. 

D. Finder’s fees. 

E. Loan-guarantee insurance. 

F. Credit-investigation fees. 

ii. However, in order for these or any 

other finance charges to be considered 

prepaid, they must be either paid 

separately in cash or check or withheld 

from the proceeds. Prepaid finance 

charges include any portion of the 

finance charge paid prior to or at closing 

or settlement. 

3. Exclusions. Add-on and discount 

finance charges are not prepaid finance 

charges for purposes of this regulation. 

Finance charges are not prepaid merely 

because they are precomputed, whether 

or not a portion of the charge will be 

rebated to the consumer upon 

prepayment. See the commentary to 

§ 226.18(b). 

4. Allocation of lump-sum payments. 

In a credit sale transaction involving a 

lump-sum payment by the consumer 

and a discount or other item that is a 

finance charge under § 226.4, the 

discount or other item is a prepaid 

finance charge to the extent the lumpsum payment is not applied to the cash 

price. For example, a seller sells 

property to a consumer for $10,000, 

requires the consumer to pay $3,000 at 

the time of the purchase, and finances 

the remainder as a closed-end credit 

transaction. The cash price of the 

property is $9,000. The seller is the 

creditor in the transaction and therefore 

the $1,000 difference between the credit 

and cash prices (the discount) is a 

finance charge. (See the commentary to 

§§ 226.4(b)(9) and 226.4(c)(5).) If the 

creditor applies the entire $3,000 to the 

cash price and adds the $1,000 finance 

charge to the interest on the $6,000 to 

arrive at the total finance charge, all of 

the $3,000 lump-sum payment is a 

downpayment and the discount is not a 

prepaid finance charge. However, if the 

creditor only applies $2,000 of the 

lump-sum payment to the cash price, 

then $2,000 of the $3,000 is a 

downpayment and the $1,000 discount 

is a prepaid finance charge. 

2(a)(24) Residential mortgage 

transaction. 

1. Relation to other sections. This 

term is important in flsevenfi [six] 

provisions in the regulation: 

i. Section 226.4(c)(7)—exclusions 

from the finance charge. 

ii. Section 226.15(f)—exemption from 

the right of rescission. 

iii. Section 226.18(q)—whether or not 

the obligation is assumable. 

iv. Section 226.19—special timing 

rules. 

v. Section 226.20(b)—disclosure 

requirements for assumptions. 

vi. Section 226.23(f)—exemption from 

the right of rescission. 

flvii. Section 226.32(a)—exemption 

from rules for certain mortgages.fi 

2. Lien status. The definition is not 

limited to first lien transactions. For 

example, a consumer might assume a 

paid-down first mortgage (or borrow 

part of the purchase price) and borrow 

the balance of the purchase price from 

a creditor who takes a second mortgage. 

The second mortgage transaction is a 

residential mortgage transaction if the 

dwelling purchased is the consumer’s 

principal residence. 

3. Principal dwelling. A consumer can 

have only one principal dwelling at a 

time. Thus, a vacation or other second 

home would not be a principal 

dwelling. However, if a consumer buys 

or builds a new dwelling that will 

become the consumer’s principal 

dwelling within a year or upon the 

completion of construction, the new 

dwelling is considered the principal 

dwelling for purposes of applying this 

definition to a particular transaction. 

See the commentary to §§ 226.15(a) and 

226.23(a). 

4. Construction financing. If a 

transaction meets the definition of a 

residential mortgage transaction and the 

creditor chooses to disclose it as several 

transactions under § 226.17(c)(6), each 

one is considered to be a residential 

mortgage transaction, even if different 

creditors are involved. For example: 

i. The creditor makes a construction 

loan to finance the initial construction 

of the consumer’s principal dwelling, 

and the loan will be disbursed in five 

advances. The creditor gives six sets of 

disclosures (five for the construction 

phase and one for the permanent phase). 

Each one is a residential mortgage 

transaction. 

ii. One creditor finances the initial 

construction of the consumer’s principal 

dwelling and another creditor makes a 

loan to satisfy the construction loan and 

provide permanent financing. Both 

transactions are residential mortgage 

transactions. 

5. Acquisition. i. A residential 

mortgage transaction finances the 

acquisition of a consumer’s principal 


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dwelling. The term does not include a 

transaction involving a consumer’s 

principal dwelling if the consumer had 

previously purchased and acquired 

some interest to the dwelling, even 

though the consumer had not acquired 

full legal title. 

ii. Examples of new transactions 

involving a previously acquired 

dwelling include the financing of a 

balloon payment due under a land sale 

contract and an extension of credit 

made to a joint owner of property to buy 

out the other joint owner’s interest. In 

these instances, disclosures are not 

required under § 226.18(q) or § 226.19(a) 

(assumability policies and early 

disclosures for residential mortgage 

transactions). However, the rescission 

rules of §§ 226.15 and 226.23 do apply 

to these new transactions. 

iii. In other cases, the disclosure and 

rescission rules do not apply. For 

example, where a buyer enters into a 

written agreement with the creditor 

holding the seller’s mortgage, allowing 

the buyer to assume the mortgage, if the 

buyer had previously purchased the 

property and agreed with the seller to 

make the mortgage payments, 

§ 226.20(b) does not apply (assumptions 

involving residential mortgages). 

6. Multiple purpose transactions. A 

transaction meets the definition of this 

section if any part of the loan proceeds 

will be used to finance the acquisition 

or initial construction of the consumer’s 

principal dwelling. For example, a 

transaction to finance the initial 

construction of the consumer’s principal 

dwelling is a residential mortgage 

transaction even if a portion of the 

funds will be disbursed directly to the 

consumer or used to satisfy a loan for 

the purchase of the land on which the 

dwelling will be built. 

7. Construction on previously 

acquired vacant land. A residential 

mortgage transaction includes a loan to 

finance the construction of a consumer’s 

principal dwelling on a vacant lot 

previously acquired by the consumer. 

2(a)(25) Security interest. 

1. Threshold test. The threshold test is 

whether a particular interest in property 

is recognized as a security interest 

under applicable law. The regulation 

does not determine whether a particular 

interest is a security interest under 

applicable law. If the creditor is unsure 

whether a particular interest is a 

security interest under applicable law 

(for example, if statutes and case law are 

either silent or inconclusive on the 

issue), the creditor may at its option 

consider such interests as security 

interests for Truth in Lending purposes. 

However, the regulation and the 

commentary do exclude specific 

interests, such as after-acquired 

property and accessories, from the scope 

of the definition regardless of their 

categorization under applicable law, 

and these named exclusions may not be 

disclosed as security interests under the 

regulation. (But see the discussion of 

exclusions elsewhere in the 

commentary to § 226.2(a)(25).) 

2. Exclusions. The general definition 

of security interest excludes three 

groups of interests: incidental interests, 

interests in after-acquired property, and 

interests that arise solely by operation of 

law. These interests may not be 

disclosed with the disclosures required 

under § 226.18, but the creditor is not 

precluded from preserving these rights 

elsewhere in the contract documents, or 

invoking and enforcing such rights, if it 

is otherwise lawful to do so. If the 

creditor is unsure whether a particular 

interest is one of the excluded interests, 

the creditor may, at its option, consider 

such interests as security interests for 

Truth in Lending purposes. 

3. Incidental interests. i. Incidental 

interests in property that are not 

security interests include, among other 

things: 

A. Assignment of rents. 

B. Right to condemnation proceeds. 

C. Interests in accessories and 

replacements. 

D. Interests in escrow accounts, such 

as for taxes and insurance. 

E. Waiver of homestead or personal 

property rights. 

ii. The notion of an incidental interest 

does not encompass an explicit security 

interest in an insurance policy if that 

policy is the primary collateral for the 

transaction—for example, in an 

insurance premium financing 

transaction. 

4. Operation of law. Interests that 

arise solely by operation of law are 

excluded from the general definition. 

Also excluded are interests arising by 

operation of law that are merely 

repeated or referred to in the contract. 

However, if the creditor has an interest 

that arises by operation of law, such as 

a vendor’s lien, and takes an 

independent security interest in the 

same property, such as a UCC security 

interest, the latter interest is a 

disclosable security interest unless 

otherwise provided. 

5. Rescission rules. Security interests 

that arise solely by operation of law are 

security interests for purposes of 

rescission. Examples of such interests 

are mechanics’ and materialmen’s liens. 

6. Specificity of disclosure. A creditor 

need not separately disclose multiple 

security interests that it may hold in the 

same collateral. The creditor need only 

disclose that the transaction is secured 

by the collateral, even when security 

interests from prior transactions remain 

of record and a new security interest is 

taken in connection with the 

transaction. In disclosing the fact that 

the transaction is secured by the 

collateral, the creditor also need not 

disclose how the security interest arose. 

For example, in a closed-end credit 

transaction, a rescission notice need not 

specifically state that a new security 

interest is ‘‘acquired’’ or an existing 

security interest is ‘‘retained’’ in the 

transaction. The acquisition or retention 

of a security interest in the consumer’s 

principal dwelling instead may be 

disclosed in a rescission notice with a 

general statement such as the following: 

‘‘Your home is the security for the new 

transaction.’’

2(b) Rules of construction. 

1. Footnotes. Footnotes are used 

extensively in the regulation to provide 

special exceptions and more detailed 

explanations and examples. Material 

that appears in a footnote has the same 

legal weight as material in the body of 

the regulation. 

2. Amount. The numerical amount 

must be a dollar amount unless 

otherwise indicated. For example, in a 

closed-end transaction (Subpart C), the 

amount financed and the amount of any 

payment must be expressed as a dollar 

amount. In some cases, an amount 

should be expressed as a percentage. For 

example, in disclosures provided before 

the first transaction under an open-end 

plan (Subpart B), creditors are permitted 

to explain how the amount of any 

finance charge will be determined; 

where a cash-advance fee (which is a 

finance charge) is a percentage of each 

cash advance, the amount of the finance 

charge for that fee is expressed as a 

percentage. 

Section 226.3—Exempt Transactions 

fl1. Relationship to § 226.12. The 

provisions in § 226.12(a) and (b) 

governing the issuance of credit cards 

and the liability for their unauthorized 

use apply to all credit cards, even if the 

credit cards are issued for use in 

connection with extensions of credit 

that otherwise are exempt under this 

section.fi 

3(a) Business, commercial, 

agricultural, or organizational credit. 

1. Primary purposes. A creditor must 

determine in each case if the transaction 

is primarily for an exempt purpose. If 

some question exists as to the primary 

purpose for a credit extension, the 

creditor is, of course, free to make the 

disclosures, and the fact that disclosures 

are made under such circumstances is 

not controlling on the question of 

whether the transaction was exempt. 


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fl2. Business purpose purchases. 

i. Business-purpose credit cards—

extensions of credit for consumer 

purposes. If a business-purpose credit 

card is issued to a person, other than as 

provided in §§ 226.12(a) and 226.12(b), 

the provisions of the regulation do not 

apply, even if extensions of credit for 

consumer purposes are made using that 

business-purpose credit card. For 

example, the billing error provisions set 

forth in § 226.13 do not apply to 

consumer-purpose extensions of credit 

using a business-purpose credit card or 

a business-purpose open-end credit 

plan. 

ii. Consumer-purpose credit cards 

—extensions of credit for business 

purposes. If a consumer-purpose credit 

card is issued to a person, the 

provisions of the regulation apply, even 

to extensions of credit for business 

purposes made using that consumerpurpose credit card. For example, a 

consumer may assert a billing error with 

respect to any extension of credit using 

a consumer-purpose credit card or a 

consumer-purpose open-end credit 

plan, even if the specific extension of 

credit on such credit card or open-end 

credit plan that is the subject of the 

dispute was made for business 

purposes.fi 

[2]fl3fi. Factors. In determining 

whether credit to finance an acquisition 

such as securities, antiques, or art—is 

primarily for business or commercial 

purposes (as opposed to a consumer 

purpose), the following factors should 

be considered: 

fli. Generalfi 

A. The relationship of the borrower s 

primary occupation to the acquisition. 

The more closely related, the more 

likely it is to be business purpose. 

B. The degree to which the borrower 

will personally manage the acquisition. 

The more personal involvement there is, 

the more likely it is to be business 

purpose. 

C. The ratio of income from the 

acquisition to the total income of the 

borrower. The higher the ratio, the more 

likely it is to be business purpose. 

D. The size of the transaction. The 

larger the transaction, the more likely it 

is to be business purpose. 

E. The borrower’s statement of 

purpose for the loan. 

flii. Business-purpose examples.fi 

Examples of business-purpose credit 

include: 

A. A loan to expand a business, even 

if it is secured by the borrower s 

residence or personal property. 

B. A loan to improve a principal 

residence by putting in a business 

office. 

C. A business account used 

occasionally for consumer purposes. 

fl iii. Consumer-purpose 

examples.fi Examples of consumerpurpose credit include: 

A. Credit extensions by a company to 

its employees or agents if the loans are 

used for personal purposes. 

B. A loan secured by a mechanic’s 

tools to pay a child’s tuition. 

C. A personal account used 

occasionally for business purposes. 

[3] fl4fi. Non-owner-occupied rental 

property. Credit extended to acquire, 

improve, or maintain rental property 

(regardless of the number of housing 

units) that is not owner-occupied is 

deemed to be for business purposes. 

This includes, for example, the 

acquisition of a warehouse that will be 

leased or a single-family house that will 

be rented to another person to live in. 

If the owner expects to occupy the 

property for more than 14 days during 

the coming year, the property cannot be 

considered non-owner-occupied and 

this special rule will not apply. For 

example, a beach house that the owner 

will occupy for a month in the coming 

summer and rent out the rest of the year 

is owner occupied and is not governed 

by this special rule. See Comment 3(a)–

[4] fl5fi, however, for rules relating to 

owner-occupied rental property. 

[4] fl5fi. Owner-occupied rental 

property. If credit is extended to 

acquire, improve, or maintain rental 

property that is or will be owneroccupied within the coming year, 

different rules apply: 

i. Credit extended to acquire the 

rental property is deemed to be for 

business purposes if it contains more 

than 2 housing units. 

ii. Credit extended to improve or 

maintain the rental property is deemed 

to be for business purposes if it contains 

more than 4 housing units. Since the 

amended statute defines dwelling to 

include 1 to 4 housing units, this rule 

preserves the right of rescission for 

credit extended for purposes other than 

acquisition. Neither of these rules 

means that an extension of credit for 

property containing fewer than the 

requisite number of units is necessarily 

consumer credit. In such cases, the 

determination of whether it is business 

or consumer credit should be made by 

considering the factors listed in 

Comment 3(a)–’’fl3fi [2]. 

[5] fl6fi. Business credit later 

refinanced. Business-purpose credit that 

is exempt from the regulation may later 

be rewritten for consumer purposes. 

Such a transaction is consumer credit 

requiring disclosures only if the existing 

obligation is satisfied and replaced by a 

new obligation made for consumer 

purposes undertaken by the same 

obligor. 

fl7. Credit card renewal. A 

consumer-purpose credit card that is 

subject to the regulation may be 

converted into a business-purpose credit 

card at the time of its renewal, and the 

resulting business-purpose credit card 

would be exempt from the regulation. 

Conversely, a business-purpose credit 

card that is exempt from the regulation 

may be converted into a consumerpurpose credit card at the time of its 

renewal, and the resulting consumerpurpose credit card would be subject to 

the regulation.fi 

[6] fl8fi. Agricultural purpose. An 

agricultural purpose includes the 

planting, propagating, nurturing, 

harvesting, catching, storing, exhibiting, 

marketing, transporting, processing, or 

manufacturing of food, beverages 

(including alcoholic beverages), flowers, 

trees, livestock, poultry, bees, wildlife, 

fish, or shellfish by a natural person 

engaged in farming, fishing, or growing 

crops, flowers, trees, livestock, poultry, 

bees, or wildlife. The exemption also 

applies to a transaction involving real 

property that includes a dwelling (for 

example, the purchase of a farm with a 

homestead) if the transaction is 

primarily for agricultural purposes. 

[7] fl9fi. Organizational credit. The 

exemption for transactions in which the 

borrower is not a natural person applies, 

for example, to loans to corporations, 

partnerships, associations, churches, 

unions, and fraternal organizations. The 

exemption applies regardless of the 

purpose of the credit extension and 

regardless of the fact that a natural 

person may guarantee or provide 

security for the credit. 

[8] fl10fi. Land trusts. Credit 

extended for consumer purposes to a 

land trust is considered to be credit 

extended to a natural person rather than 

credit extended to an organization. In 

some jurisdictions, a financial 

institution financing a residential real 

estate transaction for an individual uses 

a land trust mechanism. Title to the 

property is conveyed to the land trust 

for which the financial institution itself 

is trustee. The underlying installment 

note is executed by the financial 

institution in its capacity as trustee and 

payment is secured by a trust deed, 

reflecting title in the financial 

institution as trustee. In some instances, 

the consumer executes a personal 

guaranty of the indebtedness. The note 

provides that it is payable only out of 

the property specifically described in 

the trust deed and that the trustee has 

no personal liability on the note. 

Assuming the transactions are for 

personal, family, or household 


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purposes, these transactions are subject 

to the regulation since in substance (if 

not form) consumer credit is being 

extended. 

3(b) Credit over $25,000 not secured 

by real property or a dwelling. 

1. Coverage. Since a mobile home can 

be a dwelling under § 226.2(a)(19), this 

exemption does not apply to a credit 

extension secured by a mobile home 

used or expected to be used as the 

principal dwelling of the consumer, 

even if the credit exceeds $25,000. A 

loan commitment for closed-end credit 

in excess of $25,000 is exempt even 

though the amounts actually drawn 

never actually reach $25,000. 

2. Open-end credit. i. An open-end 

credit plan is exempt under § 226.3(b) 

(unless secured by real property or 

personal property used or expected to 

be used as the consumer’s principal 

dwelling) if either of the following 

conditions is met: 

A. The creditor makes a firm 

commitment to lend over $25,000 with 

no requirement of additional credit 

information for any advances fl(except 

as permitted from time to time pursuant 

to § 226.2(a)(20))fi. 

B. The initial extension of credit on 

the line exceeds $25,000. 

ii. If a security interest is taken at a 

later time in any real property, or in 

personal property used or expected to 

be used as the consumer’s principal 

dwelling, the plan would no longer be 

exempt. The creditor must comply with 

all of the requirements of the regulation 

including, for example, providing the 

consumer with an initial disclosure 

statement. If the security interest being 

added is in the consumer’s principal 

dwelling, the creditor must also give the 

consumer the right to rescind the 

security interest. (See the commentary 

to § 226.15 concerning the right of 

rescission.) 

3. Closed-end credit—subsequent 

changes. A closed-end loan for over 

$25,000 may later be rewritten for 

$25,000 or less, or a security interest in 

real property or in personal property 

used or expected to be used as the 

consumer’s principal dwelling may be 

added to an extension of credit for over 

$25,000. Such a transaction is consumer 

credit requiring disclosures only if the 

existing obligation is satisfied and 

replaced by a new obligation made for 

consumer purposes undertaken by the 

same obligor. (See the commentary to 

§ 226.23(a)(1) regarding the right of 

rescission when a security interest in a 

consumer’s principal dwelling is added 

to a previously exempt transaction.) 

3(c) Public utility credit. 

1. Examples. Examples of public 

utility services include: 

i. General. 

A. Gas, water, or electrical services. 

B. Cable television services. 

C. Installation of new sewer lines, 

water lines, conduits, telephone poles, 

or metering equipment in an area not 

already serviced by the utility. 

flii. Extensions of credit not 

covered.fi The exemption does not 

apply to extensions of credit, for 

example: 

A. To purchase appliances such as gas 

or electric ranges, grills, or telephones. 

B. To finance home improvements 

such as new heating or air conditioning 

systems. 

3(d) Securities or commodities 

accounts. 

1. Coverage. This exemption does not 

apply to a transaction with a broker 

registered solely with the state, or to a 

separate credit extension in which the 

proceeds are used to purchase 

securities. 

3(e) Home fuel budget plans. 

1. Definition. Under a typical home 

fuel budget plan, the fuel dealer 

estimates the total cost of fuel for the 

season, bills the customer for an average 

monthly payment, and makes an 

adjustment in the final payment for any 

difference between the estimated and 

the actual cost of the fuel. Fuel is 

delivered as needed, no finance charge 

is assessed, and the customer may 

withdraw from the plan at any time. 

Under these circumstances, the 

arrangement is exempt from the 

regulation, even if a charge to cover the 

billing costs is imposed. 

3(f) Student loan programs. 

1. Coverage. This exemption applies 

to the Guaranteed Student Loan 

program (administered by the Federal 

government, State, and private nonprofit agencies), the Auxiliary Loans to 

Assist Students (also known as PLUS) 

program, and the National Direct 

Student Loan program. 

Section 226.4—Finance Charge 

4(a) Definition. 

1. Charges in comparable cash 

transactions. Charges imposed 

uniformly in cash and credit 

transactions are not finance charges. In 

determining whether an item is a 

finance charge, the creditor should 

compare the credit transaction in 

question with a similar cash transaction. 

A creditor financing the sale of property 

or services may compare charges with 

those payable in a similar cash 

transaction by the seller of the property 

or service. 

i. For example, the following items 

are not finance charges: 

A. Taxes, license fees, or registration 

fees paid by both cash and credit 

customers. 

B. Discounts that are available to cash 

and credit customers, such as quantity 

discounts. 

C. Discounts available to a particular 

group of consumers because they meet 

certain criteria, such as being members 

of an organization or having accounts at 

a particular financial institution. This is 

the case even if an individual must pay 

cash to obtain the discount, provided 

that credit customers who are members 

of the group and do not qualify for the 

discount pay no more than the 

nonmember cash customers. 

D. Charges for a service policy, auto 

club membership, or policy of insurance 

against latent defects offered to or 

required of both cash and credit 

customers for the same price. 

ii. In contrast, the following items are 

finance charges: 

A. Inspection and handling fees for 

the staged disbursement of constructionloan proceeds. 

B. Fees for preparing a Truth in 

Lending disclosure statement, if 

permitted by law (for example, the Real 

Estate Settlement Procedures Act 

prohibits such charges in certain 

transactions secured by real property). 

C. Charges for a required maintenance 

or service contract imposed only in a 

credit transaction. 

iii. If the charge in a credit transaction 

exceeds the charge imposed in a 

comparable cash transaction, only the 

difference is a finance charge. For 

example: 

A. If an escrow agent is used in both 

cash and credit sales of real estate and 

the agent’s charge is $100 in a cash 

transaction and $150 in a credit 

transaction, only $50 is a finance 

charge. 

2. Costs of doing business. Charges 

absorbed by the creditor as a cost of 

doing business are not finance charges, 

even though the creditor may take such 

costs into consideration in determining 

the interest rate to be charged or the 

cash price of the property or service 

sold. However, if the creditor separately 

imposes a charge on the consumer to 

cover certain costs, the charge is a 

finance charge if it otherwise meets the 

definition. For example: 

i. A discount imposed on a credit 

obligation when it is assigned by a 

seller-creditor to another party is not a 

finance charge as long as the discount 

is not separately imposed on the 

consumer. (See § 226.4(b)(6).) 

ii. A tax imposed by a state or other 

governmental body on a creditor is not 

a finance charge if the creditor absorbs 

the tax as a cost of doing business and 

does not separately impose the tax on 

the consumer. (For additional 


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discussion of the treatment of taxes, see 

other commentary to § 226.4(a).) 

3. Forfeitures of interest. If the 

creditor reduces the interest rate it pays 

or stops paying interest on the 

consumer’s deposit account or any 

portion of it for the term of a credit 

transaction (including, for example, an 

overdraft on a checking account or a 

loan secured by a certificate of deposit), 

the interest lost is a finance charge. (See 

the commentary to § 226.4(c)(6).) For 

example: 

i. A consumer borrows $5,000 for 90 

days and secures it with a $10,000 

certificate of deposit paying 15% 

interest. The creditor charges the 

consumer an interest rate of 6% on the 

loan and stops paying interest on $5,000 

of the $10,000 certificate for the term of 

the loan. The interest lost is a finance 

charge and must be reflected in the 

annual percentage rate on the loan. 

ii. However, the consumer must be 

entitled to the interest that is not paid 

in order for the lost interest to be a 

finance charge. For example: 

iii. A consumer wishes to buy from a 

financial institution a $10,000 certificate 

of deposit paying 15% interest but has 

only $4,000. The financial institution 

offers to lend the consumer $6,000 at an 

interest rate of 6% but will pay the 15% 

interest only on the amount of the 

consumer’s deposit, $4,000. The 

creditor’s failure to pay interest on the 

$6,000 does not result in an additional 

finance charge on the extension of 

credit, provided the consumer is 

entitled by the deposit agreement with 

the financial institution to interest only 

on the amount of the consumer’s 

deposit. 

iv. A consumer enters into a 

combined time deposit/credit agreement 

with a financial institution that 

establishes a time deposit account and 

an open-end line of credit. The line of 

credit may be used to borrow against the 

funds in the time deposit. The 

agreement provides for an interest rate 

on any credit extension of, for example, 

1%. In addition, the agreement states 

that the creditor will pay 0% interest on 

the amount of the time deposit that 

corresponds to the amount of the credit 

extension(s). The interest that is not 

paid on the time deposit by the financial 

institution is not a finance charge (and 

therefore does not affect the annual 

percentage rate computation). 

4. flTreatment of transaction fees on 

credit card plans. Any transaction 

charge imposed on a cardholder by a 

card issuer is a finance charge, 

regardless of whether the issuer imposes 

the same, greater, or lesser charge on 

withdrawals of funds from an asset 

account such as a checking or savings 

account. For example, any charge 

imposed on a credit cardholder by a 

card issuer for the use of an automated 

teller machine (ATM) to obtain a cash 

advance (whether in a proprietary, 

shared, interchange, or other system) is 

a finance charge regardless of whether 

the card issuer imposes a charge on its 

debit cardholders for using the ATM to 

withdraw cash from a consumer asset 

account, such as a checking or savings 

account. Similarly, any charge imposed 

on a credit cardholder by a card issuer 

for making a purchase outside the 

United States or in a foreign currency is 

a finance charge regardless of whether 

the card issuer imposes a charge on its 

debit cardholders for such 

transactions.fi [Treatment of fees for 

use of automated teller machines. Any 

charge imposed on a cardholder by a 

card issuer for the use of an automated 

teller machine (ATM) to obtain a cash 

advance (whether in a proprietary, 

shared, interchange, or other system) is 

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. (See the 

commentary to § 226.6(b).)] 

5. Taxes. 

i. Generally, a tax imposed by a state 

or other governmental body solely on a 

creditor is a finance charge if the 

creditor separately imposes the charge 

on the consumer. 

ii. In contrast, a tax is not a finance 

charge (even if it is collected by the 

creditor) if applicable law imposes the 

tax: 

A. Solely on the consumer; 

B. On the creditor and the consumer 

jointly; or 

C. On the credit transaction, without 

indicating which party is liable for the 

tax; or 

D. On the creditor, if applicable law 

directs or authorizes the creditor to pass 

the tax on to the consumer. (For 

purposes of this section, if applicable 

law is silent as to passing on the tax, the 

law is deemed not to authorize passing 

it on.) 

iii. For example, a stamp tax, property 

tax, intangible tax, or any other state or 

local tax imposed on the consumer, or 

on the credit transaction, is not a 

finance charge even if the tax is 

collected by the creditor. 

iv. In addition, a tax is not a finance 

charge if it is excluded from the finance 

charge by another provision of the 

regulation or commentary (for example, 

if the tax is imposed uniformly in cash 

and credit transactions). 

4(a)(1) Charges by third parties. 

1. Choosing the provider of a required 

service. An example of a third-party 

charge included in the finance charge is 

the cost of required mortgage insurance, 

even if the consumer is allowed to 

choose the insurer. 

2. Annuities associated with reverse 

mortgages. Some creditors offer 

annuities in connection with a reversemortgage transaction. The amount of the 

premium is a finance charge if the 

creditor requires the purchase of the 

annuity incident to the credit. Examples 

include the following: 

i. The credit documents reflect the 

purchase of an annuity from a specific 

provider or providers. 

ii. The creditor assesses an additional 

charge on consumers who do not 

purchase an annuity from a specific 

provider. 

iii. The annuity is intended to replace 

in whole or in part the creditor’s 

payments to the consumer either 

immediately or at some future date. 

4(a)(2) Special rule; closing agent 

charges. 

1. General. This rule applies to 

charges by a third party serving as the 

closing agent for the particular loan. An 

example of a closing agent charge 

included in the finance charge is a 

courier fee where the creditor requires 

the use of a courier. 

2. Required closing agent. If the 

creditor requires the use of a closing 

agent, fees charged by the closing agent 

are included in the finance charge only 

if the creditor requires the particular 

service, requires the imposition of the 

charge, or retains a portion of the 

charge. Fees charged by a third-party 

closing agent may be otherwise 

excluded from the finance charge under 

§ 226.4. For example, a fee that would 

be paid in a comparable cash 

transaction may be excluded under 

§ 226.4(a). A charge for conducting or 

attending a closing is a finance charge 

and may be excluded only if the charge 

is included in and is incidental to a 

lump-sum fee excluded under 

§ 226.4(c)(7). 

4(a)(3) Special rule; mortgage broker 

fees. 

1. General. A fee charged by a 

mortgage broker is excluded from the 

finance charge if it is the type of fee that 

is also excluded when charged by the 

creditor. For example, to exclude an 

application fee from the finance charge 

under § 226.4(c)(1), a mortgage broker 

must charge the fee to all applicants for 

credit, whether or not credit is 

extended. 

2. Coverage. This rule applies to 

charges paid by consumers to a 

mortgage broker in connection with a 


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33098 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

consumer credit transaction secured by 

real property or a dwelling. 

3. Compensation by lender. The rule 

requires all mortgage broker fees to be 

included in the finance charge. 

Creditors sometimes compensate 

mortgage brokers under a separate 

arrangement with those parties. 

Creditors may draw on amounts paid by 

the consumer, such as points or closing 

costs, to fund their payment to the 

broker. Compensation paid by a creditor 

to a mortgage broker under an 

agreement is not included as a separate 

component of a consumer’s total finance 

charge (although this compensation may 

be reflected in the finance charge if it 

comes from amounts paid by the 

consumer to the creditor that are finance 

charges, such as points and interest). 

4(b) Examples of finance charges. 

1. Relationship to other provisions. 

Charges or fees shown as examples of 

finance charges in § 226.4(b) may be 

excludable under § 226.4(c), (d), or (e). 

For example: 

i. Premiums for credit life insurance, 

shown as an example of a finance 

charge under § 226.4(b)(7), may be 

excluded if the requirements of 

§ 226.4(d)(1) are met. 

ii Appraisal fees mentioned in 

§ 226.4(b)(4) are excluded for real 

property or residential mortgage 

transactions under § 226.4(c)(7). 

Paragraph 4(b)(2). 

1. Checking account charges. A 

checking or transaction account charge 

imposed in connection with a credit 

feature is a finance charge under 

§ 226.4(b)(2) to the extent the charge 

exceeds the charge for a similar account 

without a credit feature. If a charge for 

an account with a credit feature does 

not exceed the charge for an account 

without a credit feature, the charge is 

not a finance charge under § 226.4(b)(2). 

To illustrate: 

i. A $5 service charge is imposed on 

an account with an overdraft line of 

credit (where the institution has agreed 

in writing to pay an overdraft), while a 

$3 service charge is imposed on an 

account without a credit feature; the $2 

difference is a finance charge. (If the 

difference is not related to account 

activity, however, it may be excludable 

as a participation fee. See the 

commentary to § 226.4(c)(4).) 

ii. A $5 service charge is imposed for 

each item that results in an overdraft on 

an account with an overdraft line of 

credit, while a $25 service charge is 

imposed for paying or returning each 

item on a similar account without a 

credit feature; the $5 charge is not a 

finance charge. 

Paragraph 4(b)(3). 

1. Assumption fees. The assumption 

fees mentioned in § 226.4(b)(3) are 

finance charges only when the 

assumption occurs and the fee is 

imposed on the new buyer. The 

assumption fee is a finance charge in the 

new buyer’s transaction. 

Paragraph 4(b)(5). 

1. Credit loss insurance. Common 

examples of the insurance against credit 

loss mentioned in § 226.4(b)(5) are 

mortgage guaranty insurance, holder in 

due course insurance, and repossession 

insurance. Such premiums must be 

included in the finance charge only for 

the period that the creditor requires the 

insurance to be maintained. 

2. Residual value insurance. Where a 

creditor requires a consumer to 

maintain residual value insurance or 

where the creditor is a beneficiary of a 

residual value insurance policy written 

in connection with an extension of 

credit (as is the case in some forms of 

automobile balloon-payment financing, 

for example), the premiums for the 

insurance must be included in the 

finance charge for the period that the 

insurance is to be maintained. If a 

creditor pays for residual-value 

insurance and absorbs the payment as a 

cost of doing business, such costs are 

not considered finance charges. (See 

comment 4(a)–2.) 

Paragraphs 4(b)(7) and (8). 

1. Pre-existing insurance policy. The 

insurance discussed in § 226.4(b)(7) and 

(8) does not include an insurance policy 

(such as a life or an automobile collision 

insurance policy) that is already owned 

by the consumer, even if the policy is 

assigned to or otherwise made payable 

to the creditor to satisfy an insurance 

requirement. Such a policy is not 

‘‘written in connection with’’ the 

transaction, as long as the insurance was 

not purchased for use in that credit 

extension, since it was previously 

owned by the consumer. 

2. Insurance written in connection 

with a transaction. Insurance sold after 

consummation in closed-end credit 

transactions or after the opening of a 

flhome equity plan subject to the 

requirements of § 226.5bfi [plan in 

open-end credit transactions] is not 

‘‘written in connection with’’ the credit 

transaction if the insurance is written 

because of the consumer’s default (for 

example, by failing to obtain or 

maintain required property insurance) 

or because the consumer requests 

insurance after consummation or the 

opening of a flhome equityfi plan 

flsubject to the requirements of 

§ 226.5bfi (although credit-sale 

disclosures may be required for the 

insurance sold after consummation if it 

is financed). flCredit insurance sold 

before or after an open-end (not homesecured) plan is opened is considered 

‘‘written in connection with a credit 

transaction.’’fi 

3. Substitution of life insurance. The 

premium for a life insurance policy 

purchased and assigned to satisfy a 

credit life insurance requirement must 

be included in the finance charge, but 

only to the extent of the cost of the 

credit life insurance if purchased from 

the creditor or the actual cost of the 

policy (if that is less than the cost of the 

insurance available from the creditor). If 

the creditor does not offer the required 

insurance, the premium to be included 

in the finance charge is the cost of a 

policy of insurance of the type, amount, 

and term required by the creditor. 

4. Other insurance. Fees for required 

insurance not of the types described in 

§ 226.4(b)(7) and (8) are finance charges 

and are not excludable. For example: 

i. The premium for a hospitalization 

insurance policy, if it is required to be 

purchased only in a credit transaction, 

is a finance charge. 

Paragraph 4(b)(9). 

1. Discounts for payment by other 

than credit. The discounts to induce 

payment by other than credit mentioned 

in § 226.4(b)(9) include, for example, the 

following situation: 

i. The seller of land offers individual 

tracts for $10,000 each. If the purchaser 

pays cash, the price is $9,000, but if the 

purchaser finances the tract with the 

seller the price is $10,000. The $1,000 

difference is a finance charge for those 

who buy the tracts on credit. 

2. Exception for cash discounts. 

i. flCreditors may exclude from the 

finance charge discounts offered to 

consumers for using cash or another 

means of payment instead of using a 

credit card or an open-end plan.fi 

[Discounts offered to induce consumers 

to pay for property or services by cash, 

check, or other means not involving the 

use of either an open-end credit plan or 

a credit card (whether open-end or 

closed-end credit is extended on the 

card) may be excluded from the finance 

charge under section 167(b) of the Act 

(as amended by Pub. L. 97–25, July 27, 

1981).] The discount may be in 

whatever amount the seller desires, 

either as a percentage of the regular 

price (as defined in section 103(z) of the 

act, as amended) or a dollar amount. 

flPursuant to section 167(b) of the Act, 

thisfi [This] provision applies only to 

transactions involving an open-end 

credit plan or a credit card fl(whether 

open-end or closed-end credit is 

extended on the card)fi. The merchant 

must offer the discount to prospective 

buyers whether or not they are 

cardholders or members of the open-end 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33099 

credit plan. The merchant may, 

however, make other distinctions. For 

example: 

A. The merchant may limit the 

discount to payment by cash and not 

offer it for payment by check or by use 

of a debit card. 

B. The merchant may establish a 

discount plan that allows a 15% 

discount for payment by cash, a 10% 

discount for payment by check, and a 

5% discount for payment by a particular 

credit card. None of these discounts is 

a finance charge. 

ii. flPursuant to sectionfi [Section] 

171(c) of the act, [excludes section 

167(b)] discounts flexcluded from the 

finance charge under this paragraph are 

also excludedfi from treatment as a 

finance charge or other charge for credit 

under any state usury or disclosure 

laws. 

3. Determination of the regular price. 

i. The regular price is critical in 

determining whether the difference 

between the price charged to cash 

customers and credit customers is a 

discount or a surcharge, as these terms 

are defined in amended section 103 of 

the Act. The regular price is defined in 

section 103 of the Act as—

* * * the tag or posted price charged 

for the property or service if a single 

price is tagged or posted, or the price 

charged for the property or service when 

payment is made by use of an open-end 

credit account or a credit card if either 

(1) no price is tagged or posted, or (2) 

two prices are tagged or posted * * *. 

ii. For example, in the sale of motor 

vehicle fuel, the tagged or posted price 

is the price displayed at the pump. As 

a result, the higher price (the open-end 

credit or credit card price) must be 

displayed at the pump, either alone or 

along with the cash price. Service 

station operators may designate separate 

pumps or separate islands as being for 

either cash or credit purchases and 

display only the appropriate prices at 

the various pumps. If a pump is capable 

of displaying on its meter either a cash 

or a credit price depending upon the 

consumer’s means of payment, both the 

cash price and the credit price must be 

displayed at the pump. A service station 

operator may display the cash price of 

fuel by itself on a curb sign, as long as 

the sign clearly indicates that the price 

is limited to cash purchases. 

4(b)(10) Debt cancellation fland debt 

suspensionfi fees. 

1. Definition. Debt cancellation 

coverage provides for payment or 

satisfaction of all or part of a debt when 

a specified event occurs. The term 

fl‘‘debt cancellation coverage’’fi 

includes guaranteed automobile 

protection, or ‘‘GAP,’’ agreements, 

which pay or satisfy the remaining debt 

after property insurance benefits are 

exhausted. flDebt suspension coverage 

provides for suspension of the 

obligation to make one or more payment 

on the date(s) otherwise required by the 

credit agreement, when a specified even 

occurs. The term ‘‘debt suspension’’

does not include loan payment deferral 

arrangements in which the triggering 

event is the borrower’s unilateral 

election to defer repayment (‘‘skip 

payments’’), or the bank’s unilateral 

decision to allow a deferral of 

payment.fi 

fl2. Coverage written in connection 

with a transaction. Coverage sold after 

consummation in closed-end credit 

transactions or after the opening of a 

home equity plan subject to the 

requirements of § 226.5b is not written 

in connection with the credit 

transaction if the coverage is written 

because the consumer requests coverage 

after consummation or the opening of a 

home equity plan subject to the 

requirements of § 226.5b (although 

credit-sale disclosures may be required 

for the coverage sold after 

consummation if it is financed). 

Coverage sold before or after an openend (not home-secured) plan is opened 

is considered ‘‘written in connection 

with a credit transaction.’’fi 

4(c) Charges excluded from the 

finance charge. 

Paragraph 4(c)(1). 

1. Application fees. An application 

fee that is excluded from the finance 

charge is a charge to recover the costs 

associated with processing applications 

for credit. The fee may cover the costs 

of services such as credit reports, credit 

investigations, and appraisals. The 

creditor is free to impose the fee in only 

certain of its loan programs, such as 

mortgage loans. However, if the fee is to 

be excluded from the finance charge 

under § 226.4(c)(1), it must be charged 

to all applicants, not just to applicants 

who are approved or who actually 

receive credit. 

Paragraph 4(c)(2). 

1. Late-payment charges. 

i. Late-payment charges can be 

excluded from the finance charge under 

§ 226.4(c)(2) whether or not the person 

imposing the charge continues to extend 

credit on the account or continues to 

provide property or services to the 

consumer. In determining whether a 

charge is for actual unanticipated late 

payment on a 30-day account, for 

example, factors to be considered 

include: 

A. The terms of the account. For 

example, is the consumer required by 

the account terms to pay the account 

balance in full each month? If not, the 

charge may be a finance charge. 

B. The practices of the creditor in 

handling the accounts. For example, 

regardless of the terms of the account, 

does the creditor allow consumers to 

pay the accounts over a period of time 

without demanding payment in full or 

taking other action to collect? If no effort 

is made to collect the full amount due, 

the charge may be a finance charge. 

ii. Section 226.4(c)(2) applies to latepayment charges imposed for failure to 

make payments as agreed, as well as 

failure to pay an account in full when 

due. 

2. Other excluded charges. Charges 

for ‘‘delinquency, default, or a similar 

occurrence’’ include, for example, 

charges for reinstatement of credit 

privileges or for submitting as payment 

a check that is later returned unpaid. 

Paragraph 4(c)(3). 

1. Assessing interest on an overdraft 

balance. A charge on an overdraft 

balance computed by applying a rate of 

interest to the amount of the overdraft 

is not a finance charge, even though the 

consumer agrees to the charge in the 

account agreement, unless the financial 

institution agrees in writing that it will 

pay such items. 

Paragraph 4(c)(4). 

1. Participation fees—periodic basis. 

The participation fees mentioned in 

§ 226.4(c)(4) do not necessarily have to 

be formal membership fees, nor are they 

limited to credit card plans. The 

provision applies to any credit plan in 

which payment of a fee is a condition 

of access to the plan itself, but it does 

not apply to fees imposed separately on 

individual closed-end transactions. The 

fee may be charged on a monthly, 

annual, or other periodic basis; a onetime, non-recurring fee imposed at the 

time an account is opened is not a fee 

that is charged on a periodic basis, and 

may not be treated as a participation fee. 

2. Participation fees—exclusions. 

Minimum monthly charges, charges for 

non-use of a credit card, and other 

charges based on either account activity 

or the amount of credit available under 

the plan are not excluded from the 

finance charge by § 226.4(c)(4). Thus, for 

example, a fee that is charged and then 

refunded to the consumer based on the 

extent to which the consumer uses the 

credit available would be a finance 

charge. (See the commentary to 

§ 226.4(b)(2). Also, see comment 

fl14(c)–2fi [14(c)–7] for treatment of 

certain types of fees excluded in 

determining the annual percentage rate 

for the periodic statement.) 

Paragraph 4(c)(5). 

1. Seller’s points. The seller’s points 

mentioned in § 226.4(c)(5) include any 


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33100 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

charges imposed by the creditor upon 

the non-creditor seller of property for 

providing credit to the buyer or for 

providing credit on certain terms. These 

charges are excluded from the finance 

charge even if they are passed on to the 

buyer, for example, in the form of a 

higher sales price. Seller’s points are 

frequently involved in real estate 

transactions guaranteed or insured by 

governmental agencies. A commitment 

fee paid by a noncreditor seller (such as 

a real estate developer) to the creditor 

should be treated as seller’s points. 

Buyer’s points (that is, points charged to 

the buyer by the creditor), however, are 

finance charges. 

2. Other seller-paid amounts. 

Mortgage insurance premiums and other 

finance charges are sometimes paid at or 

before consummation or settlement on 

the borrower’s behalf by a noncreditor 

seller. The creditor should treat the 

payment made by the seller as seller’s 

points and exclude it from the finance 

charge if, based on the seller’s payment, 

the consumer is not legally bound to the 

creditor for the charge. A creditor who 

gives disclosures before the payment 

has been made should base them on the 

best information reasonably available. 

Paragraph 4(c)(6). 

1. Lost interest. Certain federal and 

state laws mandate a percentage 

differential between the interest rate 

paid on a deposit and the rate charged 

on a loan secured by that deposit. In 

some situations because of usury limits 

the creditor must reduce the interest 

rate paid on the deposit and, as a result, 

the consumer loses some of the interest 

that would otherwise have been earned. 

Under § 226.4(c)(6), such ‘‘lost interest’’

need not be included in the finance 

charge. This rule applies only to an 

interest reduction imposed because a 

rate differential is required by law and 

a usury limit precludes compliance by 

any other means. If the creditor imposes 

a differential that exceeds that required, 

only the lost interest attributable to the 

excess amount is a finance charge. (See 

the commentary to § 226.4(a).) 

Paragraph 4(c)(7). 

1. Real estate or residential mortgage 

transaction charges. The list of charges 

in § 226.4(c)(7) applies both to 

residential mortgage transactions (which 

may include, for example, the purchase 

of a mobile home) and to other 

transactions secured by real estate. The 

fees are excluded from the finance 

charge even if the services for which the 

fees are imposed are performed by the 

creditor’s employees rather than by a 

third party. In addition, the cost of 

verifying or confirming information 

connected to the item is also excluded. 

For example, credit-report fees cover not 

only the cost of the report but also the 

cost of verifying information in the 

report. In all cases, charges excluded 

under § 226.4(c)(7) must be bona fide 

and reasonable. 

2. Lump-sum charges. If a lump sum 

charged for several services includes a 

charge that is not excludable, a portion 

of the total should be allocated to that 

service and included in the finance 

charge. However, a lump sum charged 

for conducting or attending a closing 

(for example, by a lawyer or a title 

company) is excluded from the finance 

charge if the charge is primarily for 

services related to items listed in 

§ 226.4(c)(7) (for example, reviewing or 

completing documents), even if other 

incidental services such as explaining 

various documents or disbursing funds 

for the parties are performed. The entire 

charge is excluded even if a fee for the 

incidental services would be a finance 

charge if it were imposed separately. 

3. Charges assessed during the loan 

term. Real estate or residential mortgage 

transaction charges excluded under 

§ 226.4(c)(7) are those charges imposed 

solely in connection with the initial 

decision to grant credit. This would 

include, for example, a fee to search for 

tax liens on the property or to determine 

if flood insurance is required. The 

exclusion does not apply to fees for 

services to be performed periodically 

during the loan term, regardless of when 

the fee is collected. For example, a fee 

for one or more determinations during 

the loan term of the current tax-lien 

status or flood-insurance requirements 

is a finance charge, regardless of 

whether the fee is imposed at closing, or 

when the service is performed. If a 

creditor is uncertain about what portion 

of a fee to be paid at consummation or 

loan closing is related to the initial 

decision to grant credit, the entire fee 

may be treated as a finance charge. 

4(d) Insurance and debt cancellation 

flor debt suspensionfi coverage. 

1. General. Section 226.4(d) permits 

insurance premiums and charges and 

debt cancellation fland debt 

suspensionfi charges to be excluded 

from the finance charge. The required 

disclosures must be made in writingfl, 

except as provided in § 226.4(d)(4)fi. 

The rules on location of insurance and 

debt cancellation fland debt 

suspensionfi disclosures for closed-end 

transactions are in § 226.17(a). For 

purposes of § 226.4(d), all references to 

insurance also include debt cancellation 

fland debt suspensionfi coverage 

unless the context indicates otherwise. 

2. Timing of disclosures. If disclosures 

are given early, for example under 

§ 226.17(f) or § 226.19(a), the creditor 

need not redisclose if the actual 

premium is different at the time of 

consummation. If insurance disclosures 

are not given at the time of early 

disclosure and insurance is in fact 

written in connection with the 

transaction, the disclosures under 

§ 226.4(d) must be made in order to 

exclude the premiums from the finance 

charge. 

3. Premium rate increases. The 

creditor should disclose the premium 

amount based on the rates currently in 

effect and need not designate it as an 

estimate even if the premium rates may 

increase. An increase in insurance rates 

after consummation of a closed-end 

credit transaction or during the life of an 

open-end credit plan does not require 

redisclosure in order to exclude the 

additional premium from treatment as a 

finance charge. 

4. Unit-cost disclosures. 

i. Open-end credit. The premium or 

fee for insurance or debt cancellation 

flor debt suspensionfi for the initial 

term of coverage may be disclosed on a 

unit-cost basis in open-end credit 

transactions. The cost per unit should 

be based on the initial term of coverage, 

unless one of the options under 

comment 4(d)12 is available. 

ii. Closed-end credit. One of the 

transactions for which unit-cost 

disclosures (such as 50 cents per year 

for each $100 of the amount financed) 

may be used in place of the total 

insurance premium involves a 

particular kind of insurance plan. For 

example, a consumer with a current 

indebtedness of $8,000 is covered by a 

plan of credit life insurance coverage 

with a maximum of $10,000. The 

consumer requests an additional $4,000 

loan to be covered by the same 

insurance plan. Since the $4,000 loan 

exceeds, in part, the maximum amount 

of indebtedness that can be covered by 

the plan, the creditor may properly give 

the insurance-cost disclosures on the 

$4,000 loan on a unit-cost basis. 

5. Required credit life insurance fl; 

debt cancellation or suspension 

coveragefi. Credit life, accident, health, 

or loss-of-income insurancefl, and debt 

cancellation and suspension coverage 

described in § 226.4(b)(10),fi must be 

voluntary in order for the premium or 

charges to be excluded from the finance 

charge. Whether the insurance flor 

coveragefi is in fact required or 

optional is a factual question. If the 

insurance flor coveragefi is required, 

the premiums must be included in the 

finance charge, whether the insurance 

flor coveragefi is purchased from the 

creditor or from a third party. If the 

consumer is required to elect one of 

several options—such as to purchase 

credit life insurance, or to assign an 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33101 

existing life insurance policy, or to 

pledge security such as a certificate of 

deposit—and the consumer purchases 

the credit life insurance policy, the 

premium must be included in the 

finance charge. (If the consumer assigns 

a preexisting policy or pledges security 

instead, no premium is included in the 

finance charge. The security interest 

would be disclosed under § 226.6(c) 

fl(1)fi or § 226.18(m). See the 

commentary to § 226.4(b)(7) and (8).) 

6. Other types of voluntary insurance. 

Insurance is not credit life, accident, 

health, or loss-of-income insurance if 

the creditor or the credit account of the 

consumer is not the beneficiary of the 

insurance coverage. If the premium for 

such insurance is not flimposedfi 

[required] by the creditor as an incident 

to or a condition of credit, it is not 

covered by § 226.4. 

7. Signatures. If the creditor offers a 

number of insurance options under 

§ 226.4(d), the creditor may provide a 

means for the consumer to sign or initial 

for each option, or it may provide for a 

single authorizing signature or initial 

with the options selected designated by 

some other means, such as a check 

mark. The insurance authorization may 

be signed or initialed by any consumer, 

as defined in § 226.2(a)(11), or by an 

authorized user on a credit card 

account. 

8. Property insurance. To exclude 

property insurance premiums or charges 

from the finance charge, the creditor 

must allow the consumer to choose the 

insurer and disclose that fact. This 

disclosure must be made whether or not 

the property insurance is available from 

or through the creditor. The requirement 

that an option be given does not require 

that the insurance be readily available 

from other sources. The premium or 

charge must be disclosed only if the 

consumer elects to purchase the 

insurance from the creditor; in such a 

case, the creditor must also disclose the 

term of the property insurance coverage 

if it is less than the term of the 

obligation. 

9. Single-interest insurance. Blanket 

and specific single-interest coverage are 

treated the same for purposes of the 

regulation. A charge for either type of 

single-interest insurance may be 

excluded from the finance charge if: 

i. The insurer waives any right of 

subrogation. 

ii. The other requirements of 

§ 226.4(d)(2) are met. This includes, of 

course, giving the consumer the option 

of obtaining the insurance from a person 

of the consumer’s choice. The creditor 

need not ascertain whether the 

consumer is able to purchase the 

insurance from someone else. 

10. Single-interest insurance defined. 

The term single-interest insurance as 

used in the regulation refers only to the 

types of coverage traditionally included 

in the term vendor’s single-interest 

insurance (or VSI), that is, protection of 

tangible property against normal 

property damage, concealment, 

confiscation, conversion, embezzlement, 

and skip. Some comprehensive 

insurance policies may include a variety 

of additional coverages, such as 

repossession insurance and holder-indue-course insurance. These types of 

coverage do not constitute singleinterest insurance for purposes of the 

regulation, and premiums for them do 

not qualify for exclusion from the 

finance charge under § 226.4(d). If a 

policy that is primarily VSI also 

provides coverages that are not VSI or 

other property insurance, a portion of 

the premiums must be allocated to the 

nonexcludable coverages and included 

in the finance charge. However, such 

allocation is not required if the total 

premium in fact attributable to all of the 

non-VSI coverages included in the 

policy is $1.00 or less (or $5.00 or less 

in the case of a multiyear policy). 

11. Initial term. 

i. The initial term of insurance or debt 

cancellation flor debt suspensionfi 

coverage determines the period for 

which a premium amount must be 

disclosed, unless one of the options 

discussed under comment 4(d)12 is 

available. For purposes of § 226.4(d), the 

initial term is the period for which the 

insurer or creditor is obligated to 

provide coverage, even though the 

consumer may be allowed to cancel the 

coverage or coverage may end due to 

nonpayment before that term expires. 

ii. For example: 

A. The initial term of a property 

insurance policy on an automobile that 

is written for one year is one year even 

though premiums are paid monthly and 

the term of the credit transaction is four 

years. 

B. The initial term of an insurance 

policy is the full term of the credit 

transaction if the consumer pays or 

finances a single premium in advance. 

12. Initial term; alternative. 

i. General. A creditor has the option 

of providing cost disclosures on the 

basis of one year of insurance or debt 

cancellation flor debt suspensionfi 

coverage instead of a longer initial term 

(provided the premium or fee is clearly 

labeled as being for one year) if: 

A. The initial term is indefinite or not 

clear, or 

B. The consumer has agreed to pay a 

premium or fee that is assessed 

periodically but the consumer is under 

no obligation to continue the coverage, 

whether or not the consumer has made 

an initial payment. 

ii. Open-end plans. For open-end 

plans, a creditor also has the option of 

providing unit-cost disclosure on the 

basis of a period that is less than one 

year if the consumer has agreed to pay 

a premium or fee that is assessed 

periodically, for example monthly, but 

the consumer is under no obligation to 

continue the coverage. 

iii. Examples. To illustrate: 

A. A credit life insurance policy 

providing coverage for a 30-year 

mortgage loan has an initial term of 30 

years, even though premiums are paid 

monthly and the consumer is not 

required to continue the coverage. 

Disclosures may be based on the initial 

term, but the creditor also has the 

option of making disclosures on the 

basis of coverage for an assumed initial 

term of one year. 

13. Loss-of-income insurance. The 

loss-of-income insurance mentioned in 

§ 226.4(d) includes involuntary 

unemployment insurance, which 

provides that some or all of the 

consumer’s payments will be made if 

the consumer becomes unemployed 

involuntarily. 

4(d)(3) Voluntary debt cancellation 

flor debt suspensionfi fees. 

1. General. Fees charged for the 

specialized form of debt cancellation 

agreement known as guaranteed 

automobile protection (‘‘GAP’’) 

agreements must be disclosed according 

to § 226.4(d)(3) rather than according to 

§ 226.4(d)(2) for property insurance. 

2. Disclosures. Creditors can comply 

with § 226.4(d)(3) by providing a 

disclosure that refers to debt 

cancellation flor debt suspensionfi 

coverage whether or not the coverage is 

considered insurance. Creditors may use 

the model credit insurance disclosures 

only if the debt cancellation flor debt 

suspensionfi coverage constitutes 

insurance under state law. flSee Model 

Clauses and Samples at G–16 and H–17 

in appendix G and appendix H for 

guidance on how to provide the 

disclosure required by § 226.4(d)(3)(iii) 

for debt suspension products.fi 

fl3. Multiple events. If debt 

cancellation or debt suspension 

coverage for two or more events is 

provided at a single charge, the entire 

charge may be excluded from the 

finance charge if at least one of the 

events is accident or loss of life, health, 

or income and the conditions specified 

in § 226.4(d)(3) or, as applicable, 

§ 226.4(d)(4), are satisfied.fi 

fl4(d)(4) Telephone purchases. 

1. Affirmative request. A creditor 

would not satisfy the requirement to 

obtain a consumer’s affirmative request 


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33102 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

if the ‘‘request’’ was a response to a 

script that uses leading questions or 

negative consent.fi 

4(e) Certain security interest charges. 

1. Examples. 

i. Excludable charges. Sums must be 

actually paid to public officials to be 

excluded from the finance charge under 

§ 226.4(e)(1) and (3). Examples are 

charges or other fees required for filing 

or recording security agreements, 

mortgages, continuation statements, 

termination statements, and similar 

documents, as well as intangible 

property or other taxes even when the 

charges or fees are imposed by the state 

solely on the creditor and charged to the 

consumer (if the tax must be paid to 

record a security agreement). (See 

comment 4(a)–5 regarding the treatment 

of taxes, generally.) 

ii. Charges not excludable. If the 

obligation is between the creditor and a 

third party (an assignee, for example), 

charges or other fees for filing or 

recording security agreements, 

mortgages, continuation statements, 

termination statements, and similar 

documents relating to that obligation are 

not excludable from the finance charge 

under this section. 

2. Itemization. The various charges 

described in § 226.4(e)(1) and (3) may be 

totaled and disclosed as an aggregate 

sum, or they may be itemized by the 

specific fees and taxes imposed. If an 

aggregate sum is disclosed, a general 

term such as security interest fees or 

filing fees may be used. 

3. Notary fees. In order for a notary fee 

to be excluded under § 226.4(e)(1), all of 

the following conditions must be met: 

i. The document to be notarized is one 

used to perfect, release, or continue a 

security interest. 

ii. The document is required by law 

to be notarized. 

iii. A notary is considered a public 

official under applicable law. 

iv. The amount of the fee is set or 

authorized by law. 

4. Nonfiling insurance. The exclusion 

in § 226.4(e)(2) is available only if 

nonfiling insurance is purchased. If the 

creditor collects and simply retains a fee 

as a sort of ‘‘self-insurance’’ against 

nonfiling, it may not be excluded from 

the finance charge. If the nonfiling 

insurance premium exceeds the amount 

of the fees excludable from the finance 

charge under § 226.4(e)(1), only the 

excess is a finance charge. For example: 

i. The fee for perfecting a security 

interest is $5.00 and the fee for releasing 

the security interest is $3.00. The 

creditor charges $10.00 for nonfiling 

insurance. Only $8.00 of the $10.00 is 

excludable from the finance charge. 

4(f) Prohibited offsets. 

1. Earnings on deposits or 

investments. The rule that the creditor 

shall not deduct any earnings by the 

consumer on deposits or investments 

applies whether or not the creditor has 

a security interest in the property. 

Subpart B—Open-End Credit 

Section 226.5—General Disclosure 

Requirements 

5(a) Form of disclosures. 

[Paragraph] 5(a)(1) fl—General.fi 

1. Clear and conspicuous standard. 

The ‘‘clear and conspicuous’’ standard 

flgenerallyfi requires that disclosures 

be in a reasonably understandable form. 

flDisclosures for credit card 

applications and solicitations under 

§ 226.5a, highlighted account-opening 

disclosures under § 226.6(b)(4), 

highlighted disclosure on checks that 

access a credit card under § 226.9(b)(3); 

highlighted change-in-terms disclosures 

under § 226.9(c)(2)(iii)(B), and 

highlighted disclosures when a rate is 

increased due to delinquency, default or 

for a penalty under § 226.9(g)(3)(ii) must 

also be readily noticeable to the 

consumer.fi [Except where otherwise 

provided, the standard does not require 

that disclosures be segregated from 

other material or located in any 

particular place on the disclosure 

statement, or that numerical amounts or 

percentages be in any particular type 

size. (But see comment 5a(a)(2)–1 and 

–2 for special rules concerning § 226.5a 

disclosures for credit card applications 

and solicitations.) The standard does 

not prohibit: 

• Pluralizing required terminology 

(‘‘finance charge’’ and ‘‘annual 

percentage rate’’) 

• Adding to the required disclosures 

such items as contractual provisions, 

explanations of contract terms, state 

disclosures, and translations 

• Sending promotional material with 

the required disclosures 

• Using commonly accepted or 

readily understandable abbreviations 

(such as ‘‘mo.’’ for ‘‘month’’ or ‘‘Tx.’’ for 

‘‘Texas’’) in making any required 

disclosures 

• Using codes or symbols such as 

‘‘APR’’ (for annual percentage rate), 

‘‘FC’’ (for finance charge), or ‘‘Cr’’ (for 

credit balance), so long as a legend or 

description of the code or symbol is 

provided on the disclosure statement.] 

fl2. Clear and conspicuous—

reasonably understandable form. Except 

where otherwise provided, the 

reasonably understandable form 

standard does not require that 

disclosures be segregated from other 

material or located in any particular 

place on the disclosure statement, or 

that numerical amounts or percentages 

be in any particular type size. For 

disclosures that are given orally, the 

standard requires that they be given at 

a speed and volume sufficient for a 

consumer to hear and comprehend 

them. See comment 5(b)(1)(ii)-1. Except 

where otherwise provided, the standard 

does not prohibit: 

i. Pluralizing required terminology 

(‘‘finance charge’’ and ‘‘annual 

percentage rate’’) 

ii. Adding to the required disclosures 

such items as contractual provisions, 

explanations of contract terms, state 

disclosures, and translations 

iii. Sending promotional material 

with the required disclosures 

iv. Using commonly accepted or 

readily understandable abbreviations 

(such as ‘‘mo.’’ for ‘‘month’’ or ‘‘Tx.’’ for 

‘‘Texas’’) in making any required 

disclosures 

v. Using codes or symbols such as 

‘‘APR’’ (for annual percentage rate), 

‘‘FC’’ (for finance charge), or ‘‘Cr’’ (for 

credit balance), so long as a legend or 

description of the code or symbol is 

provided on the disclosure statement.fi 

fl3. Clear and conspicuous—readily 

noticeable standard. To meet the readily 

noticeable standard, disclosures for 

credit card applications and 

solicitations under § 226.5a, highlighted 

account-opening disclosures under 

§ 226.6(b)(4), highlighted disclosures on 

checks that access a credit card account 

under § 226.9(b)(3), highlighted changein-terms disclosures under 

§ 226.9(c)(2)(iii)(B), and highlighted 

disclosures when a rate is increased due 

to delinquency, default or penalty 

pricing under § 226.9(g)(3)(ii) must be 

given in a minimum of 10-point font. 

(See special rule for font size 

requirements for the annual percentage 

rate for purchases under §§ 226.5a(b)(1) 

and 226.6(b)(4).)fi 

fl4.fi [2.] Integrated document. The 

creditor may make both the flaccountopeningfi [initial] disclosures (§ 226.6) 

and the periodic-statement disclosures 

(§ 226.7) on more than one page, and 

use both the front and the reverse sides, 

flexcept where otherwise indicated,fi 

so long as the pages constitute an 

integrated document. An integrated 

document would not include disclosure 

pages provided to the consumer at 

different times or disclosures 

interspersed on the same page with 

promotional material. An integrated 

document would include, for example: 

i. Multiple pages provided in the 

same envelope that cover related 

material and are folded together, 

numbered consecutively, or clearly 

labeled to show that they relate to one 

another 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33103 

ii. A brochure that contains 

disclosures and explanatory material 

about a range of services the creditor 

offers, such as credit, checking account, 

and electronic fund transfer features 

fl5. Disclosures covered. Disclosures 

that must meet the ‘‘clear and 

conspicuous’’ standard include all 

required communications under this 

subpart. Therefore, disclosures made by 

a person other than the card issuer, such 

as disclosures of finance charges 

imposed at the time of honoring a 

consumer’s credit card under § 226.9(d), 

and notices, such as the correction 

notice required to be sent to the 

consumer under § 226.13(e), must also 

be clear and conspicuous.fi 

[Paragraph] 5(a)(2) fl—

Terminologyfi. 

1. When disclosures must be more 

conspicuous. The terms finance charge 

and annual percentage rate, when 

required to be used with a number, must 

be disclosed more conspicuously than 

other required disclosures, except in the 

cases provided in fl§ 226.5(a)(2)(ii)fi 

[footnote 9]. At the creditor’s option, 

finance charge and annual percentage 

rate may also be disclosed more 

conspicuously than the other required 

disclosures even when the regulation 

does not so require. The following 

examples illustrate these rules: 

i. In disclosing the annual percentage 

rate as required by [§ 226.6(a)(2)] 

fl§ 226.6(a)(1)(ii)fi, the term annual 

percentage rate is subject to the more 

conspicuous rule. 

ii. In disclosing the amount of the 

finance charge, required by 

fl§ 226.7(a)(6)(i)fi [§ 226.7(f)], the term 

finance charge is subject to the more 

conspicuous rule. 

iii. Although neither finance charge 

nor annual percentage rate need be 

emphasized when used as part of 

general informational material or in 

textual descriptions of other terms, 

emphasis is permissible in such cases. 

For example, when the terms appear as 

part of the explanations required under 

[§ 226.6(a)(3) and (4)] fl§ 226.6(a)(1)(iii) 

and (iv)fi, they may be equally 

conspicuous as the disclosures required 

under §§ [226.6(a)(2) and 226.7(g)] 

fl226.6(a)(1)(ii) and 226.7(a)(7)fi. 

2. Making disclosures more 

conspicuous. In disclosing the terms 

finance charge and annual percentage 

rate more conspicuously, only the 

words finance charge and annual 

percentage rate should be accentuated. 

For example, if the term total finance 

charge is used, only finance charge 

should be emphasized. The disclosures 

may be made more conspicuous by, for 

example: 

i. Capitalizing the words when other 

disclosures are printed in lower case. 

ii. Putting them in bold print or a 

contrasting color. 

iii. Underlining them. 

iv. Setting them off with asterisks. 

v. Printing them in larger type. 

3. Disclosure of figures—exception to 

more conspicuous rule. The terms 

annual percentage rate and finance 

charge need not be more conspicuous 

than figures (including, for example, 

numbers, percentages, and dollar signs). 

fl4. Consistent terminology. 

Language used in disclosures required 

in this subpart must be close enough in 

meaning to enable the consumer to 

relate the different disclosures; 

however, the language need not be 

identical.fi 

5(b) Time of disclosures. 

5(b)(1) [Initial] flAccount-openingfi 

disclosures. 

fl5(b)(1)(i) General rule.fi 

1. Disclosure before the first 

transaction. flWhen disclosures must 

be furnished ‘‘before the first 

transaction,’’ the disclosures must be 

delivered before the consumer becomes 

obligated on the plan.fi [The rule that 

the initial disclosure statement must be 

furnished ‘‘before the first transaction’’

requires delivery of the initial 

disclosure statement before the 

consumer becomes obligated on the 

plan.] For example, the [initial] 

flaccount-openingfi disclosures must 

be given before the consumer makes the 

first purchase (such as when a consumer 

opens a credit plan and makes 

purchases contemporaneously at a retail 

store) flexcept when the consumer 

places a telephone call to make the 

purchase and opens the plan 

contemporaneously (see commentary to 

paragraph 5(b)(1)(iii) below);fi receives 

the first advance fl;fi [,] or pays any 

fees or charges under the plan other 

than an application fee or refundable 

membership fee [(see below)]. The 

prohibition on the payment of fees other 

than application or refundable 

membership fees before initial 

disclosures are provided does not apply 

to home equity plans subject to § 226.5b. 

See the commentary to § 226.5b(h) 

regarding the collection of fees for home 

equity plans covered by § 226.5b. 

[If the consumer pays a membership 

fee before receiving the Truth in 

Lending account-opening disclosures, or 

the consumer agrees to the imposition of 

a membership fee at the time of 

application and the Truth in Lending 

disclosure statement is not given at that 

time, disclosures are timely as long as 

the consumer, after receiving the 

disclosures, can reject the plan. The 

creditor must refund the membership 

fee if it has been paid, or clear the 

account if it has been debited to the 

consumer’s account. 

If the consumer receives a cash 

advance check at the same time the 

Truth in Lending disclosures are 

provided, disclosures are still timely if 

the consumer can, after receiving the 

disclosures, return the cash advance 

check to the creditor without obligation 

(for example, without paying finance 

charges). 

Account-opening disclosures need not 

be given before the imposition of an 

application fee under § 226.4(c)(1).] 

i. If, after receiving the disclosures, 

the consumer uses the account, pays a 

fee, or negotiates a cash advance check, 

the creditor may consider the account 

not rejected for purposes of this section. 

flIf the only ‘‘use’’ of the account is the 

creditor’s 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.fi 

2. Reactivation of suspended account. 

If an account is temporarily suspended 

(for example, because the consumer has 

exceeded a credit limit, or because a 

credit card is reported lost or stolen) 

and then is reactivated, no new [initial] 

flaccount-openingfi disclosures are 

required. 

3. Reopening closed account. If an 

account has been closed (for example, 

due to inactivity, cancellation, or 

expiration) and then is reopened, new 

[initial] flaccount-openingfi 

disclosures are required. No new 

[initial] flaccount-openingfi 

disclosures are required, however, when 

the account is closed merely to assign it 

a new number (for example, when a 

credit card is reported lost or stolen) 

and the ‘‘new’’ account then continues 

on the same terms. 

4. Converting closed-end to open-end 

credit. If a closed-end credit transaction 

is converted to an open-end credit 

account under a written agreement with 

the consumer, [initial] flaccountopeningfi disclosures under § 226.6 

must be given before the consumer 

becomes obligated on the open-end 

credit plan. (See the commentary to 

§ 226.17 on converting open-end credit 

to closed-end credit.) 

5. Balance transfers. A creditor that 

solicits the transfer by a consumer of 

outstanding balances from an existing 

account to a new open-end plan must 

flfurnish the disclosures required by 

§ 226.6 so that the consumer has an 

opportunity, after reviewing the 

disclosures, to contact the creditor 

before the balance is transferred and 

decline the transfer.fi [comply with 


rwilkins on PROD1PC63 with PROPOSALS2
33104 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

§ 226.6 before the balance transfer 

occurs.] flFor example, assume a 

consumer responds to a card issuer’s 

solicitation for a credit card account 

subject to § 226.5a that offers a range of 

balance transfer annual percentage rates, 

based on the consumer’s 

creditworthiness. If the creditor opens 

an account for the consumer, the card 

issuer would comply with the timing 

rules of this section by providing the 

consumer with the annual percentage 

rate (along with the fees and other 

required disclosures) that would apply 

to the balance transfer in time for the 

consumer to contact the card issuer and 

withdraw the request.fi Card issuers 

that are subject to the requirements of 

§ 226.5a may establish procedures that 

comply with both sections in a single 

disclosure statement. 

fl5(b)(1)(ii) Charges imposed as part 

of an open-end (not home-secured) 

plan. 

1. Disclosing charges before the fee is 

imposed. Creditors may disclose charges 

imposed as part of an open-end (not 

home-secured) plan orally or in writing 

at any time before a consumer agrees to 

pay the fee or becomes obligated for the 

charge, unless the charge is specified 

under § 226.6(b)(4)(ii). Creditors meet 

the standard to provide disclosures at a 

relevant time if the oral or written 

disclosure of such 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.fi 

fl5(b)(1)(iii) Telephone purchases. 

1. Return policies. Creditors that 

choose to provide disclosures in 

accordance with the timing 

requirements of this paragraph must 

maintain a return policy that provides 

for the return of merchandise purchased 

at the time the plan was established 

without mailing or return-shipment 

costs. Creditors may impose costs to 

return subsequent purchases of 

merchandise under the plan, or to 

return merchandise purchased by other 

means such as a credit card issued by 

another creditor. A reasonable return 

policy would be of sufficient duration 

that the consumer is likely to have 

received the disclosures and had 

sufficient time to make a decision about 

the financing plan before his or her right 

to return the goods expires. Creditors, 

policies regarding the return of 

merchandise need not provide a right to 

return goods if the consumer consumes 

or damages the goods.fi 

5(b)(2) Periodic statements. 

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

1. Periodic statements not required. 

Periodic statements need not be sent in 

the following cases: 

i. If the creditor adjusts an account 

balance so that at the end of the cycle 

the balance is less than $1—so long as 

no finance charge has been imposed on 

the account for that cycle. 

ii. If a statement was returned as 

undeliverable. If a new address is 

provided, however, within a reasonable 

time before the creditor must send a 

statement, the creditor must resume 

sending statements. Receiving the 

address at least 20 days before the end 

of a cycle would be a reasonable amount 

of time to prepare the statement for that 

cycle. For example, if an address is 

received 22 days before the end of the 

June cycle, the creditor must send the 

periodic statement for the June cycle. 

(See § 226.13(a)(7).) 

2. Termination of fldrawfi [credit] 

privileges. When fla consumer’s ability 

to draw onfi an open-end account is 

terminated without being converted to 

closed-end credit under a written 

agreement, the creditor must continue to 

provide periodic statements to those 

consumers entitled to receive them 

under § 226.5(b)(2)(i)[ (]fl, for example, 

when flthe draw period offi an openend credit plan ends and consumers are 

paying off outstanding balances 

flaccording to the account agreement or 

under the terms of a workout agreement 

that is not converted to a closed-end 

transaction. fi[) and]fl In addition, 

creditors mustfi continue to follow all 

of the other open-end credit 

requirements and procedures in subpart 

B. 

fl3. Instituting collection 

proceedings. Creditors institute a 

delinquency collection proceeding by 

filing a court action or initiating an 

adjudicatory process with a third party. 

Assigning a debt to a debt collector or 

other third party would not constitute 

instituting a collection proceeding.fi 

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

1. 14-day rule. The 14-day rule for 

mailing or delivering periodic 

statements does not apply if charges (for 

example, transaction or activity charges) 

are imposed regardless of the timing of 

a periodic statement. The 14-day rule 

does apply, for example: 

i. If current debits retroactively 

become subject to finance charges when 

the balance is not paid in full by a 

specified date. 

ii. If charges other than finance 

charges will accrue when the consumer 

does not make timely payments (for 

example, late payment charges or 

charges for exceeding a credit limit). 

[2. Computer malfunction. Footnote 

10 does not extend to the failure to 

provide a periodic statement because of 

computer malfunction.] 

flParagraph 5(b)(2)(iii).fi 

fl1.fi [2.] Computer malfunction. 

The exceptions identified in paragraph 

5(b)(2)(iii) of this section do not extend 

to the failure to provide a periodic 

statement because of computer 

malfunction. 

fl2.fi [3.]. Calling for periodic 

statements. When the consumer 

initiates a request, the creditor may 

permit, but may not require, consumers 

to pick up their periodic statements. If 

the consumer wishes to pick up the 

statement and the plan has a free-ride 

period, the statement must be made 

available in accordance with the 14-day 

rule. [If the consumer wishes to receive 

the statement by electronic 

communication, the creditor must 

comply with the consumer-consent 

requirements in section 226.36(b).] 

5(c) Basis of disclosures and use of 

estimates. 

1. Legal obligation. The disclosures 

should reflect the credit terms to which 

the parties are legally bound at the time 

of giving the disclosures. 

i. The legal obligation is determined 

by applicable state or other law. 

ii. The fact that a term or contract may 

later be deemed unenforceable by a 

court on the basis of equity or other 

grounds does not, by itself, mean that 

disclosures based on that term or 

contract did not reflect the legal 

obligation. 

iii. The legal obligation normally is 

presumed to be contained in the 

contract that evidences the agreement. 

But this may be rebutted if another 

agreement between the parties legally 

modifies that contract. 

2. Estimates—obtaining information. 

Disclosures may be estimated when the 

exact information is unknown at the 

time disclosures are made. Information 

is unknown if it is not reasonably 

available to the creditor at the time 

disclosures are made. The reasonably 

available standard requires that the 

creditor, acting in good faith, exercise 

due diligence in obtaining information. 

In using estimates, the creditor is not 

required to disclose the basis for the 

estimated figures, but may include such 

explanations as additional information. 

The creditor normally may rely on the 

representations of other parties in 

obtaining information. For example, the 

creditor might look to insurance 

companies for the cost of insurance. 

3. Estimates—redisclosure. If the 

creditor makes estimated disclosures, 


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redisclosure is not required for that 

consumer, even though more accurate 

information becomes available before 

the first transaction. For example, in an 

open-end plan to be secured by real 

estate, the creditor may estimate the 

appraisal fees to be charged; such an 

estimate might reasonably be based on 

the prevailing market rates for similar 

appraisals. If the exact appraisal fee is 

determinable after the estimate is 

furnished but before the consumer 

receives the first advance under the 

plan, no new disclosure is necessary. 

[4. Deferred-payment transactions. 

See comment 7–3(iv).] 

5(d) Multiple creditors; multiple 

consumers. 

1. Multiple creditors. Under 

§ 226.5(d): 

i. Creditors must choose which of 

them will make the disclosures. 

ii. A single, complete set of 

disclosures must be provided, rather 

than partial disclosures from several 

creditors. 

iii. All disclosures for the open-end 

credit plan must be given, even if the 

disclosing creditor would not otherwise 

have been obligated to make a particular 

disclosure. 

2. Multiple consumers. Disclosures 

may be made to either obligor on a joint 

account. Disclosure responsibilities are 

not satisfied by giving disclosures to 

only a surety or guarantor for a principal 

obligor or to an authorized user. In 

rescindable transactions, however, 

separate disclosures must be given to 

each consumer who has the right to 

rescind under § 226.15. 

fl3. Card issuer and person 

extending credit not the same person. 

Section 127(c)(4)(D) of the Truth in 

Lending Act (15 U.S.C. 1637(c)(4)(D)) 

contains rules pertaining to charge card 

issuers with plans that allow access to 

an open-end credit plan that is 

maintained by a person other than the 

charge card issuer. These rules are not 

implemented in Regulation Z (although 

they were formerly implemented in 

§ 226.5a(f)). However, the statutory 

provisions remain in effect and may be 

used by charge card issuers with plans 

meeting the specified criteria.fi 

5(e) Effect of subsequent events. 

1. Events causing inaccuracies. 

Inaccuracies in disclosures are not 

violations if attributable to events 

occurring after disclosures are made. 

For example, when the consumer fails 

to fulfill a prior commitment to keep the 

collateral insured and the creditor then 

provides the coverage and charges the 

consumer for it, such a change does not 

make the original disclosures 

inaccurate. The creditor may, however, 

be required to provide a new 

disclosure(s) under § 226.9(c). 

2. Use of inserts. When changes in a 

creditor’s plan affect required 

disclosures, the creditor may use inserts 

with outdated disclosure forms. Any 

insert: 

i. Should clearly refer to the 

disclosure provision it replaces. 

ii. Need not be physically attached or 

affixed to the basic disclosure statement. 

iii. May be used only until the supply 

of outdated forms is exhausted. 

Section 226.5a—Credit and Charge Card 

Applications and Solicitations 

1. General. Section 226.5a generally 

requires that credit disclosures be 

contained in application forms and 

[preapproved] solicitations initiated by 

a card issuer to open a credit or charge 

card account. (See [the commentary to] 

§ 226.5a(a) fl(5)fi [(3)] and (e) fl(2)fi 

for exceptions; see fl§ 226.5a(a)(1) and 

accompanying commentary for the 

definition of solicitation;fi see also 

§ 226.2(a)(15) and accompanying 

commentary for the definition of charge 

card.) 

2. flSubstitution of account-opening 

summary table for the disclosures 

required by § 226.5a. In complying with 

§ 226.5a(c), § 226.5a(d)(2), § 226.5a(e)(1) 

or § 226.5a(f), a card issuer may provide 

the account-opening summary table 

described in § 226.6(b)(4) in lieu of the 

disclosures required by § 226.5a, if the 

issuer provides the disclosures required 

by § 226.6 on or with the application or 

solicitation.fi [Combining disclosures. 

The initial 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 

statement meets the requirements of 

both sections. For example, if a card 

issuer in complying with § 226.5a(e)(2) 

provides all the applicable disclosures 

required under § 226.6, in a form that 

the consumer may keep and in 

accordance with the other format and 

timing requirements for that section, the 

issuer satisfies the initial disclosure 

requirements under § 226.6 as well as 

the disclosure requirements of 

§ 226.5a(e)(2). Or if, in complying with 

§ 226.5a(c) or § 226.5a(d)(2), a card 

issuer provides an integrated document 

that the consumer may keep, and 

provides the § 226.5a disclosures (in a 

tabular format) along with the 

additional disclosures required under 

§ 226.6 (presented outside of the table), 

the card issuer satisfies the 

requirements of both §§ 226.5a and 

226.6.] 

fl3. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

§ 226.5a disclosures.fi 

5a(a) General Rules. 

fl5a(a)(1) Definition of Solicitation. 

1. Invitations to apply. A card issuer 

may contact a consumer who has not 

been preapproved for a card account 

about opening an account (whether by 

direct mail, telephone, or other means) 

and invite the consumer to complete an 

application. Such a contact does not 

meet the definition of solicitation, nor is 

it covered by this section, unless the 

contact itself includes an application 

form in a direct mailing, electronic 

communication or ‘‘take one’’, an oral 

application in a telephone contact 

initiated by the card issuer, or an 

application in an in-person contact 

initiated by the card issuer.fi 

5a(a)(2) Form of Disclosuresfl; 

tabular formatfi 

[1. Clear and conspicuous standard. 

For purposes of § 226.5a disclosures, 

clear and conspicuous means in a 

reasonably understandable form and 

readily noticeable to the consumer. As 

to type size, disclosures in 12-point type 

are deemed to be readily noticeable for 

purposes of § 226.5a. Disclosures 

printed in less than 12-point type do not 

automatically violate the standard; 

however, disclosures in less than 8- 

point type would likely be too small to 

satisfy the standard. Disclosures that are 

transmitted by electronic 

communication are judged for purposes 

of the clear and conspicuous standard 

based on the form in which they are 

provided even though they may be 

viewed by the consumer in a different 

form.] 

[2. Prominent location. i. Generally. 

Certain of the required disclosures 

provided on or with an application or 

solicitation must be prominently 

located.] fl1. Location of table. i. 

General. Except for disclosures given 

electronically, disclosures in § 226.5a(b) 

that are required to be provided in a 

table must be prominently located on or 

with the application or solicitation.fi 

Disclosures are deemed to be 

prominently located, for example, if the 

disclosures are on the same page as an 

application or solicitation reply form. If 

the disclosures appear elsewhere, they 

are deemed to be prominently located if 

the application or solicitation reply 

form contains a clear and conspicuous 

reference to the location of the 

disclosures and indicates that they 

contain rate, fee, and other cost 

information, as applicable. [Disclosures 

required by § 226.5a(b) that are placed 

outside the table must begin on the 

same page as the table but need not end 

on the same page.] 


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ii. Electronic disclosures. [Electronic 

disclosures are deemed to be 

prominently located if:] flIf the table is 

provided electronically, the table must 

be provided in close proximity to the 

application or solicitation. Electronic 

disclosures are deemed to be closely 

proximate to an application or 

solicitation if: 

(A) They automatically appear on the 

screen when the application or reply 

form appears; 

(B) 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 

(C) fi[A.] 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 the disclosures before 

submitting the application or reply form 

fl.fi[; or] 

[B. They are located on the same page 

as an application or solicitation reply 

form, that 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.] 

fl2.fi [3.] Multiple accounts or 

varying terms. If a tabular format is 

required to be used, card issuers offering 

several types of accounts may disclose 

the various terms for the accounts in a 

single table or may provide a separate 

table for each account. Similarly, if rates 

or other terms vary from state to state, 

card issuers may list the states and the 

various disclosures in a single table or 

in separate tables. 

fl3. Information permitted in the 

table. See the commentary to 

§ 226.5a(b), (d)(2)(ii) and (e)(1) for 

guidance on additional information 

permitted in the table. 

4. Deletion of inapplicable 

disclosures. Generally, disclosures need 

only be given as applicable. Card issuers 

may, therefore, omit inapplicable 

headings and their corresponding boxes 

in the table. For example, if no 

transaction fee is imposed for 

purchases, the disclosure form may 

contain the heading Transaction fee for 

purchases and a disclosure showing 

none, or the heading and disclosure may 

be deleted from the table. There is an 

exception for the grace period 

disclosure; even if no grace period 

exists, that fact must be stated. 

5. Highlighting of annual percentage 

rates and fee amounts. See Samples G–

10(B) and G–10(C) for guidance on 

providing the disclosures described in 

§ 226.5a(a)(2)(vi) in bold text. Other 

annual percentage rates or fee amounts 

disclosed in the table may not be in bold 

text. Samples G–10(B) and G–10(C) also 

provide guidance to issuers on how to 

disclose the rates and fees described in 

§ 226.5a(a)(2)(iv) in a clear and 

conspicuous manner, by including these 

rates and fees generally as the first text 

in the applicable rows of the table so 

that the highlighted rates and fees 

generally are aligned vertically on the 

table. 

6. Form of disclosures. If a consumer 

accesses an application or solicitation in 

electronic form, the required disclosures 

must be provided to the consumer in 

electronic form on or with the 

application or solicitation; providing the 

disclosures at a different time or place, 

or in paper form, would not comply. 

Conversely, if a consumer is provided 

with a paper application or solicitation, 

the required disclosures must be 

provided in paper form on or with the 

application or solicitation. For example, 

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. 

7. Terminology. Section 226.5a(a)(2)(i) 

generally requires that the headings, 

content and format of the tabular 

disclosures be substantially similar, but 

need not be identical, to the applicable 

tables in G–10; but see § 226.5(a)(2) for 

terminology requirements applicable to 

§ 226.5a disclosures. 

8. Form of electronic disclosures 

provided on or with electronic 

applications or solicitations. Card 

issuers must provide the disclosures 

required by this section on or with a 

blank application or reply form that is 

made available to the consumer in 

electronic form, such as on a card 

issuer’s Internet Web site. Card issuers 

have flexibility in satisfying this 

requirement. For example, the 

disclosures could automatically appear 

on the screen when the application or 

reply form appears. Alternatively, the 

disclosures could be 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, card issuers could 

provide a link to the electronic 

disclosures on or with the application 

(or reply form) as long as consumers 

cannot bypass the disclosures before 

submitting the application or reply 

form. Whatever method is used, a card 

issuer need not confirm that the 

consumer has read the disclosures. For 

disclosures required to be provided in 

tabular form, card issuers must satisfy 

the requirements with respect to 

electronic disclosures set forth in 

comment 5a(a)(2)–1(ii).fi 

[4. Additional information. The table 

containing the disclosures required by 

§ 226.5a should contain only the 

information required or permitted by 

this section. (See the commentary to 

§ 226.5a(b) for guidance on information 

permitted in the table.) Other credit 

information may be presented on or 

with an application or solicitation, 

provided such information appears 

outside the required table. 

5. Location of certain disclosures. A 

card issuer has the option of disclosing 

any of the fees in § 226.5a(b)(8) through 

(10) in the required table or outside the 

table. 

6. Terminology. In general, 

§ 226.5a(a)(2)(iv) requires that the 

terminology used for the disclosures 

specified in § 226.5a(b) be consistent 

with that used in the disclosures under 

§§ 226.6 and 226.7. This standard 

requires that the § 226.5a(b) disclosures 

be close in meaning to those under 

§§ 226.6 and 226.7; however, the 

terminology used need not be identical. 

In addition, § 226.5a(a)(2)(i) requires 

that the headings, content, and format of 

the tabular disclosures be substantially 

similar, but need not be identical, to the 

tables in Appendix G. A special rule 

applies to the grace period disclosure, 

however: the term grace period must be 

used, either in the heading or in the text 

of the disclosure. 

7. Deletion of inapplicable 

disclosures. Generally, disclosures need 

only be given as applicable. Card issuers 

may, therefore, delete inapplicable 

headings and their corresponding boxes 

in the table. For example, if no 

transaction fee is imposed for 

purchases, the disclosure form may 

contain the heading Transaction fee for 

purchases and a box showing none, or 

the heading and box may be deleted 

from the table. There is an exception for 

the grace period disclosure, however: 

even if no grace period exists, that fact 

must be stated. 

8. Timing of disclosures for electronic 

applications or solicitations. In all 

cases, a consumer must be able to access 

the disclosures at the time the blank 

application or reply form is made 

available by electronic communication, 

such as on a card issuer’s Internet Web 

site. Card issuers have flexibility in 

satisfying this requirement. For 


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example, if a link is not used, the 

application or reply form must clearly 

and conspicuously refer to the fact that 

rate, fee, and other cost information 

either precedes or follows the 

application or reply form. Alternatively, 

card issuers may provide a link to 

electronic disclosures on or with the 

application (or reply form) as long as 

consumers cannot bypass the 

disclosures before submitting the 

application or reply form. Or the 

disclosures could automatically appear 

on the screen when the application or 

reply form appears. A card issuer need 

not confirm that the consumer has read 

the disclosures.] 

[5a(a)(3) Exceptions. 

1. Coverage. Certain exceptions to the 

coverage of § 226.5a are stated in 

§ 226.5a(a)(3); in addition, the 

requirements of § 226.5a do not apply to 

the following: 

• Lines of credit accessed solely by 

account numbers 

• Addition of a credit or charge card 

to an existing open-end plan 

2. Consumer initiated requests not 

covered. Applications provided to a 

consumer upon request are not covered 

by § 226.5a, even if the request is made 

in response to the card issuer’s 

invitation to apply for a card account. 

To illustrate, if a card issuer invites 

consumers to call a toll-free number or 

to return a response card to obtain an 

application, the application sent in 

response to the consumer’s request need 

not contain the disclosures required 

under § 226.5a. Similarly, if the card 

issuer invites consumers to call and 

make an oral application on the 

telephone, § 226.5a does not apply to 

the application made by the consumer. 

If, however, the card issuer calls a 

consumer or initiates a telephone 

discussion with a consumer about 

opening a card account and 

contemporaneously takes an oral 

application, such applications are 

subject to § 226.5a, specifically 

§ 226.5a(d). 

3. General purpose applications. The 

requirements of this section do not 

apply to general purpose applications 

unless the application, or material 

accompanying it, indicates that it can be 

used to open a credit or charge card 

account.] 

fl[5a(a)(5)] fl5a(a)(4)fi Certain Fees 

that Vary by State. 

1. Manner of disclosing range. If the 

card issuer discloses a range of fees 

instead of disclosing the amount of the 

fee imposed in each state, the range may 

be stated as the lowest authorized fee 

(zero, if there are one or more states 

where no fee applies) to the highest 

authorized fee. 

fl5a(a)(5) Exceptions. 

1. Noncoverage of consumer-initiated 

requests. Applications provided to a 

consumer upon request are not covered 

by § 226.5a, even if the request is made 

in response to the card issuer’s 

invitation to apply for a card account. 

To illustrate, if a card issuer invites 

consumers to call a toll-free number or 

to return a response card to obtain an 

application, the application sent in 

response to the consumer’s request need 

not contain the disclosures required 

under § 226.5a. Similarly, if the card 

issuer invites consumers to call and 

make an oral application on the 

telephone, § 226.5a does not apply to 

the application made by the consumer. 

If, however, the card issuer calls a 

consumer or initiates a telephone 

discussion with a consumer about 

opening a card account and 

contemporaneously takes an oral 

application, such applications are 

subject to § 226.5a, specifically 

§ 226.5a(d). Likewise, if the card issuer 

initiates an in-person discussion with a 

consumer about opening a card account 

and contemporaneously takes an 

application, such applications are 

subject to § 226.5a, specifically 

§ 226.5a(f).fi 

5a(b) Required Disclosures. 

fl1. Tabular format. Provisions in 

§ 226.5a(b) and its commentary provide 

that certain information must appear or 

is permitted to appear in a table. The 

tabular format is required for § 226.5a(b) 

disclosures given pursuant to 

paragraphs (c), (d)(2), (e)(1) and (f) of 

this section. The tabular format does not 

apply to oral disclosures given pursuant 

to paragraph (d)(1) of this section. See 

§ 226.5a(a)(2). 

2. Accuracy. Rules concerning 

accuracy of the disclosures required by 

§ 226.5a(b), including variable rate 

disclosures, are stated in § 226.5a(c), (d), 

and (e), as applicable.fi 

5a(b)(1) Annual Percentage Rate. 

[1. Periodic rate. The periodic rate, 

expressed as such, may be disclosed in 

the table in addition to the required 

disclosure of the corresponding annual 

percentage rate.] 

[2.] fl1.fi Variable-rate accounts—

definition. For purposes of 

§ 226.5a(b)(1), a variable-rate account 

exists when rate changes are part of the 

plan and are tied to an index or formula. 

(See the commentary to § 226.6(a)(2) for 

examples of variable-rate plans.) 

fl2. Variable-rate accounts—fact that 

rate varies and how the rate will be 

determined. In describing how the 

applicable rate will be determined, the 

card issuer must identify in the table the 

type of index or formula used, such as 

the prime rate. In describing the index, 

the issuer may not include in the table 

details about the index. For example, if 

the issuer uses a prime rate, the issuer 

must disclose the rate as a ‘‘prime rate’’

and may not disclose in the table other 

details about the prime rate, such as the 

fact that it is the highest prime rate 

published in the Wall Street Journal two 

business days before the closing date of 

the statement for each billing period. 

The issuer shall not disclose in the table 

the current value of the index (such as 

that the prime rate is currently 7.5 

percent) or the amount of the margin or 

spread added to the index or formula in 

setting the applicable rate. See Samples 

G–10(B) and G–10(C) for guidance on 

how to disclose the fact that the 

applicable rate varies and how it is 

determined. 

3. Discounted initial rates. If the term 

‘‘introductory’’ is in the same phrase as 

the discounted initial annual percentage 

rate, it will be deemed to be in 

immediate proximity of the listing. For 

example, an issuer that uses the phrase 

‘‘introductory balance transfer rate X 

percent’’ has used the word 

‘‘introductory’’ within the same phrase 

as the rate. See Samples G–10(B) and G–

10(C) for guidance on how to disclose 

clearly and conspicuously the 

expiration date of the discounted initial 

rate and the rate that will apply after the 

discounted initial rate expires, if an 

initial discounted rate is disclosed in 

the table.fi 

[7.] fl4.fi Increased penalty rates. 

flThis paragraph applies if any rate, 

including a discounted initial rate, 

could be increased because of one or 

more events specified in the account 

agreement, such as a late payment or an 

extension of credit that exceeds the 

credit limit. The description of the 

specific event or events that may result 

in an increased rate should be brief. For 

example, if an issuer may increase a rate 

to the penalty rate 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.’’ See Samples G–10(B) 

and G–10(C) for additional guidance on 

the level of detail in which the specific 

event or events should be described. 

The description of how long the 

increased rate will remain in effect also 

should be brief. If a card issuer reserves 

the right to apply the increased rate 

indefinitely, that fact should be stated. 

See Samples G–10(B) and G–10(C) for 

additional guidance on the level of 

detail in which the issuer should use to 

describe how long the increased rate 

will remain in effect. A card issuer will 

be deemed to meet the standard to 

clearly and conspicuously disclose the 


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33108 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

information required by 

§ 226.5a(b)(1)(iv) if the issuer uses the 

format shown in Samples G–10(B) and 

G–10(C) to disclose this information.fi 

[If the initial rate may increase upon the 

occurrence of one or more specific 

events, such as a late payment or an 

extension of credit that exceeds the 

credit limit, the card issuer must 

disclose in the table the initial rate and 

the increased penalty rate that may 

apply. If the penalty rate is based on an 

index and an increased margin, the 

issuer must also disclose in the table the 

index and the margin as well as the 

specific event or events that may result 

in the increased rate, such as ‘‘applies 

to accounts 60 days late.’’ If the penalty 

rate cannot be determined at the time 

disclosures are given, the issuer must 

provide an explanation of the specific 

event or events that may result in 

imposing an increased rate. In 

describing the specific event or events 

that may result in an increased rate, 

issuers need not be as detailed as for the 

disclosures required under § 226.6(a)(2). 

For issuers using a tabular format, the 

specific event or events must be placed 

outside the table and an asterisk or other 

means shall be used to direct the 

consumer to the additional information. 

At its option, the issuer may include in 

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 when credit 

privileges are permanently terminated.] 

fl5. Rate depends on consumer’s 

creditworthiness. The card issuer, at its 

option, may disclose the possible rates 

that may apply as either specific rates, 

or a range of rates. For example, if there 

are three possible rates that may apply 

(9.99, 12.99 or 17.99 percent), an issuer 

may disclose specific rates (9.99, 12.99 

or 17.99 percent) or a range of rates 

(9.99 to 17.99 percent). See Samples G–

10(B) and G–10(C) for guidance on how 

to disclose a range of rates. 

6. Cross-reference between rates and 

fees. If a rate and fee both apply to a 

balance transfer or cash advance 

transaction, the card issuer must 

disclose that a fee also applies when 

disclosing the rate, and a cross-reference 

to the fee. See Sample G–10(B) and G–

10(C) for guidance on how to provide 

these disclosures.fi 

[3. Variable-rate accounts—rates in 

effect. For variable-rate disclosures in 

direct mail applications and 

solicitations subject to § 226.5a(c), and 

in applications and solicitations made 

available to the general public subject to 

§ 226.5a(e), the rules concerning 

accuracy of the annual percentage rate 

are stated in § 226.5a(b)(1)(ii). For 

variable-rate disclosures in telephone 

applications and solicitations subject to 

§ 226.5a(d), the card issuer must provide 

an annual percentage rate currently 

applicable when oral disclosures are 

provided under § 226.5a(d)(1). For the 

alternate disclosures under 

§ 226.5a(d)(2), the card issuer must 

provide the annual percentage rate in 

effect at the time the disclosures are 

mailed or delivered. A rate in effect also 

includes the rate as of a specified date 

(which rate is then updated from time 

to time, for example, each calendar 

month) or an estimated rate provided in 

accordance with § 226.5(c). 

4. Variable-rate accounts—other 

disclosures. In describing how the 

applicable rate will be determined, the 

card issuer must identify the index or 

formula 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. 

5. Introductory rates—discounted 

rates. If the initial rate is temporary and 

is lower than the rate that will apply 

after the temporary rate expires, the card 

issuer must disclose the annual 

percentage rate that would otherwise 

apply to the account. In a fixed-rate 

account, the card issuer must disclose 

the rate that will apply after the 

introductory rate expires. In a variablerate account, the card issuer must 

disclose a rate based on the index or 

formula applicable to the account in 

accordance with the rules in 

§ 226.5a(b)(1)(ii) and comment 5a(b)(1)–

3. An initial discounted 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. 

6. Introductory rates—premium rates. 

If the initial rate is temporary and is 

higher than the permanently applicable 

rate, the card issuer must disclose the 

initial rate in the table. The initial rate 

must be in at least 18-point type unless 

the issuer also discloses in the table the 

permanently applicable rate. The issuer 

may disclose in the table the 

permanently applicable rate that would 

otherwise apply if the issuer also 

discloses the time period during which 

the initial rate will remain in effect. In 

that case, the permanently applicable 

rate must be in at least 18-point type.] 

5a(b)(2) Fees for Issuance or 

Availability. 

1. Membership fees. Membership fees 

for opening an account must be 

disclosed under this paragraph. A 

membership fee to join an organization 

that provides a credit or charge card as 

a privilege of membership must be 

disclosed only if the card is issued 

automatically upon membership. Such a 

fee [need] flshallfi not be disclosed 

flin the tablefi if membership results 

merely in eligibility to apply for an 

account. 

2. Enhancements. Fees for optional 

services in addition to basic 

membership privileges in a credit or 

charge card account (for example, travel 

insurance or card-registration services) 

[should] flshallfi not be disclosed in 

the table if the basic account may be 

opened without paying such fees. 

3. One-time fees. Disclosure of nonperiodic fees is limited to fees related to 

opening the account, such as one-time 

membership flor participationfi fees. 

The following are examples of fees that 

[should] flshallfi not be disclosed in 

the table: 

i. Fees for reissuing a lost or stolen 

card. 

ii. Statement reproduction fees. 

[• Application fees described in 

§ 226.4(c)(1)] 

4. Waived or reduced fees. If fees 

required to be disclosed are waived or 

reduced for a limited time, the 

introductory fees or the fact of fee 

waivers may be provided in the table in 

addition to the required fees if the card 

issuer also discloses how long the fees 

or waivers will remain in effect. 

5. flPeriodic fees and one-time fees. 

A card issuer disclosing a periodic fee 

must disclose the amount of the fee, 

how frequently it will be imposed, and 

the annualized amount of the fee. A 

card issuer disclosing a non-periodic fee 

must disclose that the fee is a one-time 

fee. See Sample G–10(B) for guidance on 

how to meet these requirements.fi 

[Fees stated as annual amount. Fees 

imposed periodically must be stated as 

an annual total. For example, if a fee is 

imposed quarterly, the disclosures 

would state the total amount of the fees 

for one year. (See, however, the 

commentary to § 226.9(e) with regard to 

disclosure of such fees in renewal 

notices.)] 

fl5a(b)(3) Minimum Finance Charge. 

1. Example of brief statement. See 

Samples G–10(B) and G–10(C) for 

guidance on how to provide a brief 

description of a minimum interest 

charge.fi 

5a(b)(4) Transaction Charges. 

1. Charges imposed by person other 

than card issuer. Charges imposed by a 

third party, such as a seller of goods, 

[would] flshallfi not be disclosed flin 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33109 

the tablefi under this section; the third 

party would be responsible for 

disclosing the charge under 

§ 226.9(d)(1). 

5a(b)(5) Grace Period. 

1. How disclosure is made. flThe 

card issuer must state any conditions on 

the applicability of the grace period. An 

issuer that conditions the grace period 

on the consumer paying his or her 

balance in full by the due date each 

month, or on the consumer paying the 

previous balance in full by the due date 

the prior month will be deemed to meet 

these requirements by providing the 

following disclosure: ‘‘If you pay your 

entire balance in full each month, you 

have [at least] ll days after the close 

of each period to pay your balance on 

purchases without being charged 

interest.’’fi [The 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).’’] 

5a(b)(6) Balance Computation 

Method. 

1. Form of disclosure. In cases where 

the card issuer uses a balance 

computation method that is identified 

by name in the regulation, the card 

issuer must [only] disclose flbelow the 

tablefi only the name of the method [in 

the table]. In cases where the card issuer 

uses a balance computation method that 

is not identified by name in the 

regulation, the disclosure below the 

table must clearly explain the method in 

as much detail as set forth in the 

descriptions of balance methods in 

§ 226.5a(g). The explanation need not be 

as detailed as that required for the 

disclosures under [§ 226.6(a)(3)] 

fl§ 226.6(b)(2)(i)(D)fi. (See the 

commentary to § 226.5a(g) for guidance 

on particular methods.) 

2. Determining the method. In 

determining the appropriate balance 

computation method for purchases for 

disclosure purposes, the card issuer 

must assume that a purchase balance 

will exist at the end of any grace period. 

Thus, for example, if the average daily 

balance method will include new 

purchases or cover two billing cycles 

only if purchase balances are not paid 

within the grace period, the card issuer 

would disclose the name of the average 

daily balance method that includes new 

purchases or covers two billing cycles, 

respectively. The card issuer must not 

assume the existence of a purchase 

balance, however, in making other 

disclosures under § 226.5a(b). 

5a(b)(7) Statement on Charge Card 

Payments. 

1. Applicability and content. The 

disclosure that charges are payable upon 

receipt of the periodic statement is 

applicable only to charge card accounts. 

In making this disclosure, the card 

issuer may make such modifications as 

are necessary to more accurately reflect 

the circumstances of repayment under 

the account. For example, the disclosure 

might read, ‘‘Charges are due and 

payable upon receipt of the periodic 

statement and must be paid no later 

than 15 days after receipt of such 

statement.’’

5a(b)(8) Cash Advance Fee. 

1. flContent. See Samples G–10(B) 

and G–10(C) for guidance on how to 

disclose clearly and conspicuously the 

cash advance fee.fi [Applicability. The 

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. (See comment 4(a)–5 for a 

description of such a fee.)] 

5a(b)(9) Late Payment Fee. 

1. Applicability. The disclosure of the 

fee for a late payment includes only 

those fees that will be imposed for 

actual, unanticipated late payments. 

(See the commentary to § 226.4(c)(2) for 

additional guidance on late payment 

fees.) flSee Samples G–10(B) and G–

10(C) for guidance on how to disclose 

clearly and conspicuously the late 

payment fee.fi 

5a(b)(10) Over-the-Limit Fee. 

1. Applicability. The disclosure of fees 

for exceeding a credit limit does not 

include fees for other types of default or 

for services related to exceeding the 

limit. For example, no disclosure is 

required of fees for reinstating credit 

privileges or fees for the dishonor of 

checks on an account that, if paid, 

would cause the credit limit to be 

exceeded. flSee Samples G–10(B) and 

G–10(C) for guidance on how to disclose 

clearly and conspicuously the over-thelimit fee.fi 

fl5a(b)(13) Cross References from 

Fees to Penalty Rates. 

1. Content. See Samples G–10(B) and 

G–10(C) for guidance on how to provide 

the disclosure in § 226.5a(b)(13).fi 

fl5a(b)(14) Required Insurance or 

Debt Cancellation or Suspension Plans. 

1. Content. See Sample G–10(B) for 

guidance on how to comply with the 

requirements in § 226.5a(b)(14).fi 

fl5a(b)(15) Payment Allocation. 

1. Examples. i. The following are 

examples of situations where these 

disclosures would apply (assuming 

there is a grace period that applies to 

purchases, and consumers may transfer 

balances as part of accepting the offer): 

A. A card issuer offers a discounted 

initial rate on balance transfers that is 

lower than the rate that applies for 

purchases. 

B. A card issuer offers the same 

discounted initial rate on balance 

transfers and purchases for a specified 

period of time, but the discounted 

initial rate on balance transfers (and not 

the discounted initial rate for purchases) 

may be extended until the balance 

transfer is paid off in certain 

circumstances (e.g., if the consumer 

makes two purchases each billing 

cycle). 

ii. The following is an example of a 

situation where these disclosures do not 

apply (assuming there is a grace period 

that applies to purchases): A card issuer 

offers a discounted initial rate on 

balance transfers that is lower than the 

rate that applies for purchases, but this 

discounted initial rate does not apply to 

balance transfers that can be initiated 

with the offer and only applies to 

subsequent balance transfers. 

2. Content. See Samples G–10(B) or 

G–10(C) for guidance on how to meet 

the requirements set forth in 

§ 226.5a(b)(15).fi 

fl5a(b)(16) Available Credit. 

1. Calculating available credit. If the 

25 percent threshold test is met, the 

issuer must disclose the available credit 

excluding optional fees, and the 

available credit including optional fees. 

In calculating the available credit to 

disclose in the table, the issuer must 

consider all fees for the issuance or 

availability of credit described in 

§ 226.5a(b)(2), and any security deposit, 

that will be imposed 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 (as 

applicable) if they are charged to the 

account on the first billing statement. 

2. Content. See Sample G–10(B) for 

guidance on how to provide the 

disclosure required by § 226.5a(b)(16) 

clearly and conspicuously.fi 

fl5a(b)(17) Reference to Web Site for 

Additional Information. 

1. Content. See Samples G–10(B) and 

G–10(C) for guidance on disclosing a 

reference to the Web site established by 

the Board and a statement that 

consumers may obtain on the Web site 

information about shopping for and 

using credit cards.fi 


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33110 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

5a(c) Direct Mail fland Electronicfi 

Applications and Solicitations. 

[1. Accuracy. In general, disclosures 

in direct mail applications and 

solicitations must be accurate as of the 

time of mailing. (An accurate variable 

annual percentage rate is one in effect 

within 60 days before mailing.)] 

[2.] fl1.fi Mailed publications. 

Applications or solicitations contained 

in generally available publications 

mailed to consumers (such as 

subscription magazines) are subject to 

the requirements applicable to take-ones 

in § 226.5a(e), rather than the direct 

mail requirements of § 226.5a(c). 

However, if a primary purpose of a card 

issuer’s mailing is to offer credit or 

charge card accounts—for example, 

where a card issuer ‘‘prescreens’’ a list 

of potential cardholders using credit 

criteria, and then mails to the targeted 

group its catalog containing an 

application or a solicitation for a card 

account—the direct mail rules apply. In 

addition, a card issuer may use a single 

application form as a take-one (in racks 

in public locations, for example) and for 

direct mailings, if the card issuer 

complies with the requirements of 

§ 226.5a(c) even when the form is used 

as a take-one—that is, by presenting the 

required § 226.5a disclosures in a 

tabular format. When used in a direct 

mailing, the credit term disclosures 

must be accurate as of the mailing date 

whether or not the § 226.5a(e)(1) (ii) and 

(iii) disclosures are included; when 

used in a take-one, the disclosures must 

be accurate for as long as the take-one 

forms remain available to the public if 

the § 226.5a(e)(1) (ii) and (iii) 

disclosures are omitted. (If those 

disclosures are included in the take-one, 

the credit term disclosures need only be 

accurate as of the printing date.) 

5a(d) Telephone Applications and 

Solicitations. 

1. Coverage. i. This paragraph applies 

if: 

A. A telephone conversation between 

a card issuer and consumer may result 

in the issuance of a card as a 

consequence of an issuer-initiated offer 

to open an account for which the issuer 

does not require any application (that is, 

a prescreened telephone solicitation). 

B. The card issuer initiates the contact 

and at the same time takes application 

information over the telephone. 

ii. This paragraph does not apply to: 

A. Telephone applications initiated 

by the consumer. 

B. Situations where no card will be 

issued—because, for example, the 

consumer indicates that he or she does 

not want the card, or the card issuer 

decides either during the telephone 

conversation or later not to issue the 

card. 

fl2. Form of disclosures. The 

disclosure specified in § 226.5a(d)(2)(ii) 

may appear either in or outside the table 

containing the required credit 

disclosures.fi 

5a(e) Applications and Solicitations 

Made Available to General Public. 

1. Coverage. Applications and 

solicitations made available to the 

general public include what are 

commonly referred to as take-one 

applications typically found at counters 

in banks and retail establishments, as 

well as applications contained in 

catalogs, magazines and other generally 

available publications. In the case of 

credit unions, this paragraph applies to 

applications and solicitations to open 

card accounts made available to those in 

the general field of membership. 

[2. Cross-selling. If a card issuer 

invites a consumer to apply for a credit 

or charge card (for example, where the 

issuer engages in cross-selling), an 

application provided to the consumer at 

the consumer’s request is not 

considered an application made 

available to the general public and 

therefore is not subject to § 226.5a(e). 

For example, the following are not 

covered: 

i. A consumer applies in person for a 

car loan at a financial institution and 

the loan officer invites the consumer to 

apply for a credit or charge card 

account; the consumer accepts the 

invitation. 

ii. An employee of a retail 

establishment, in the course of 

processing a sales transaction using a 

bank credit card, asks a customer if he 

or she would like to apply for the 

retailer’s credit or charge card; the 

customer responds affirmatively.] 

fl2. In-person applications and 

solicitations. In-person applications and 

solicitations initiated by a card issuer 

are subject to § 226.5a(f), not § 226.5a(e). 

See § 226.5a(f) and accompanying 

commentary for rules relating to inperson applications and solicitations.fi 

3. Toll-free telephone number. If a 

card issuer, in complying with any of 

the disclosure options of § 226.5a(e), 

provides a telephone number for 

consumers to call to obtain credit 

information, the number must be tollfree for nonlocal calls made from an 

area code other than the one used in the 

card issuer’s dialing area. Alternatively, 

a card issuer may provide any telephone 

number that allows a consumer to call 

for information and reverse the 

telephone charges. 

5a(e)(1) Disclosure of Required Credit 

Information. 

1. Date of printing. Disclosure of the 

month and year fulfills the requirement 

to disclose the date an application was 

printed. 

2. Form of disclosures. The 

disclosures specified in § 226.5a(e)(1)(ii) 

and (iii) may appear either in or outside 

the table containing the required credit 

disclosures. 

[5a(e)(2) Inclusion of Certain Initial 

Disclosures. 

1. Accuracy of disclosures. The 

disclosures required by § 226.5a(e)(2) 

generally must be current as of the time 

they are made available to the public. 

Disclosures are considered to be made 

available at the time they are placed in 

public locations (in the case of takeones) or mailed to consumers (in the 

case of publications). 

2. Accuracy—exception. If a card 

issuer discloses all the information 

required by § 226.5a(e)(1)(ii) on the 

application or solicitation, the 

disclosures under § 226.5a(e)(2) need 

only be current as of the date of 

printing. (A current variable annual 

percentage rate would be one in effect 

within 30 days before printing.)] 

[5a(e)(3)] fl5a(e)(2)fi No Disclosure 

of Credit Information. 

1. When disclosure option available. 

A card issuer may use this option only 

if the issuer does not include on or with 

the application or solicitation any 

statement that refers to the credit 

disclosures required by § 226.5a(b). 

Statements such as no annual fee, low 

interest rate, favorable rates, and low 

costs are deemed to refer to the required 

credit disclosures and, therefore, may 

not be included on or with the 

solicitation or application, if the card 

issuer chooses to use this option. 

[5a(e)(4)] fl5a(e)(3)fi Prompt 

Response to Requests for Information. 

1. Prompt disclosure. Information is 

promptly disclosed if it is given within 

30 days of a consumer’s request for 

information but in no event later than 

delivery of the credit or charge card. 

2. Information disclosed. When a 

consumer requests credit information, 

card issuers need not provide all the 

required credit disclosures in all 

instances. For example, if disclosures 

have been provided in accordance with 

§ 226.5a(e) (1) [or (2)] and a consumer 

calls or writes a card issuer to obtain 

information about changes in the 

disclosures, the issuer need only 

provide the items of information that 

have changed from those previously 

disclosed on or with the application or 

solicitation. If a consumer requests 

information about particular items, the 

card issuer need only provide the 

requested information. If, however, the 

card issuer has made disclosures in 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33111 

accordance with the option in 

§ 226.5a(e) fl(2)fi [(3)] and a consumer 

calls or writes the card issuer requesting 

information about costs, all the required 

disclosure information must be given. 

3. Manner of response. A card issuer’s 

response to a consumer’s request for 

credit information may be provided 

orally or in writing, regardless of the 

manner in which the consumer’s 

request is received by the issuer. 

Furthermore, the card issuer flmustfi 

[may] provide the information listed in 

either § 226.5a(e)(1) [or (2)]. Information 

provided in writing need not be in a 

tabular format. 

fl5a(f) In-person applications and 

solicitations. 

1. Coverage. i. This paragraph applies 

if: 

A. An in-person conversation between 

a card issuer and consumer may result 

in the issuance of a card as a 

consequence of an issuer-initiated offer 

to open an account for which the issuer 

does not require any application (that is, 

a preapproved in-person solicitation). 

B. The card issuer initiates the contact 

and at the same time takes application 

information in person. For example, the 

following are covered: 

1. A consumer applies in person for 

a car loan at a financial institution and 

the loan officer invites the consumer to 

apply for a credit or charge card 

account; the consumer accepts the 

invitation and submits an application. 

2. An employee of a retail 

establishment, in the course of 

processing a sales transaction using a 

bank credit card, asks a customer if he 

or she would like to apply for the 

retailer’s credit or charge card; the 

customer responds affirmatively and 

submits an application. 

ii. This paragraph does not apply to: 

A. In-person applications initiated by 

the consumer. 

B. Situations where no card will be 

issued—because, for example, the 

consumer indicates that he or she does 

not want the card, or the card issuer 

decides during the in-person 

conversation not to issue the card.fi 

[5a(f) Special Charge Card Rule—

Card Issuer and Person Extending Credit 

Not the Same Person. 

1. Duties of charge card issuer. 

Although the charge card issuer is not 

required to disclose information about 

the underlying open-end credit plan if 

the card issuer meets the conditions set 

forth in § 226.5a(f), the card issuer must 

disclose the information relating to the 

charge card plan itself. 

2. Duties of creditor maintaining 

open-end plan. Section 226.5a does not 

impose disclosure requirements on the 

creditor that maintains the underlying 

open-end credit plan. This is the case 

even though the creditor offering the 

open-end credit plan may be considered 

an agent of the charge card issuer. (See 

comment 2(a)(7)–1.) 

3. Form of disclosures. The 

disclosures required by § 226.5a(f) may 

appear either in or outside the table 

containing the required credit 

disclosures in circumstances where a 

tabular format is required.] 

5a(g) Balance Computation Methods 

Defined 

1. Daily balance method. Card issuers 

using the daily balance method may 

disclose it using the name average daily 

balance (including new purchases) or 

average daily balance (excluding new 

purchases), as appropriate. 

Alternatively, such card issuers may 

explain the method. (See comment 7(e)–

5 for a discussion of the daily balance 

method.) 

2. Two-cycle average daily balance 

methods. The two-cycle average daily 

balance methods described in 

§ 226.5a(g)(2)(i) and (ii) include those 

methods in which the average daily 

balances for two billing cycles may be 

added together to compute the finance 

charge. Such methods also include 

those in which a periodic rate is applied 

separately to the balance in each cycle, 

and the resulting finance charges are 

added together. The method is a twocycle average daily balance even if the 

finance charge is based on both the 

current and prior cycle balances only 

under certain circumstances, such as 

when purchases during a prior cycle 

were carried over into the current cycle 

and no finance charge was assessed 

during the prior cycle. Furthermore, the 

method is a two-cycle average daily 

balance method if the balances for both 

the current and prior cycles are average 

daily balances, even if those balances 

are figured differently. For example, the 

name two-cycle average daily balance 

(excluding new purchases) should be 

used to describe a method in which the 

finance charge for the current cycle, 

figured on an average daily balance 

excluding new purchases, will be added 

to the finance charge for the prior cycle, 

figured on an average daily balance of 

only new purchases during that prior 

cycle. 

Section 226.6—flAccount-opening 

Disclosuresfi [Initial Disclosure 

Statement] 

[1. Consistent terminology. Language 

on the initial account-opening and 

periodic disclosure statements must be 

close enough in meaning to enable the 

consumer to relate the two sets of 

disclosures; however, the language need 

not be identical. For example, in making 

the disclosure under § 226.6(a)(3), the 

creditor may refer to the ‘‘outstanding 

balance at the end of the billing cycle,’’

while the disclosure for § 226.7(i) refers 

to the ‘‘ending balance’’ or ‘‘new 

balance.’’

2. Separate initial disclosures 

permitted. In a certain open-end credit 

program involving more than one 

creditor—a card issuer of travel-andentertainment cards and a financial 

institution—the consumer has the 

option to pay the card issuer directly or 

to transfer to the financial institution all 

or part of the amount owing. In this 

case, the creditors may send separate 

initial disclosure statements.] 

6(a) flRules affecting home equity 

plansfi [Finance charge]. 

fl6(a)(1) Finance charge.fi 

Paragraph fl6(a)(1)(i).fi 

1. When finance charges accrue. 

[Creditors may provide a general 

explanation about finance charges 

beginning to run and need not disclose 

a specific date. For example, a 

disclosure] flCreditors are not required 

to disclose a specific date when finance 

charges will begin to accrue. Creditors 

may provide a general explanation such 

asfi that the consumer has 30 days from 

the closing date to pay the new balance 

before finance charges will accrue on 

the account [would describe when 

finance charges begin to run]. 

2. [Free-ride] flGracefi periods. In 

disclosing whether or not a flgracefi 

[free-ride] period exists, the creditor 

need not use ‘‘free period’’, ‘‘free-ride’’

period, flgrace periodfi or any other 

particular descriptive phrase or term. 

For example, a statement that ‘‘the 

finance charge begins on the date the 

transaction is posted to your account’’

adequately discloses that no free-ride 

period exists. In the same fashion, a 

statement that ‘‘finance charges will be 

imposed on any new purchases only if 

they are not paid in full within 25 days 

after the close of the billing cycle’’

indicates that a flgracefi [free-ride] 

period exists in the interim. 

Paragraph fl6(a)(1)(ii)fi [6(a)(2)]. 

1. Range of balances. The range of 

balances disclosure is inapplicable: 

i. If only one periodic rate may be 

applied to the entire account balance. 

ii. If only one periodic rate may be 

applied to the entire balance for a 

feature (for example, cash advances), 

even though the balance for another 

feature (purchases) may be subject to 

two rates (a 1.5% flmonthlyfi periodic 

rate on purchase balances of $0–$500, 

fland a 1% monthly periodic rate for 

balances above $500)fi [while balances 

above $500 are subject to a 1% periodic 

rate)]. [Of course] flIn this examplefi, 

the creditor must give a range of 


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33112 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

balances disclosure for the purchase 

feature. 

2. Variable-rate disclosures—

coverage. 

fli. Examples.fi This section covers 

open-end credit plans under which rate 

changes are specifically set forth in the 

account agreement and are tied to an 

index or formula. A creditor would use 

variable-rate disclosures [(and thus be 

excused from the requirement of giving 

a change-in-terms notice when rate 

increases occur as disclosed)] for plans 

involving rate changes such as the 

following: 

A. Rate changes that are tied to the 

rate the creditor pays on its flsix-month 

certificate of depositsfi [six-month 

money market certificates]. 

B. Rate changes that are tied to 

Treasury bill rates. 

C. Rate changes that are tied to 

changes in the creditor’s commercial 

lending rate. 

ii. [In contrast, the creditor’s contract 

reservation to increase the rate without 

reference to such an index or formula 

(for example, a plan that simply 

provides that the creditor reserves the 

right to raise its rates) would not be 

considered a variable-rate plan for Truth 

in Lending disclosure purposes. (See the 

rule in § 226.5b(f)(1) applicable to home 

equity plans, however, which prohibits 

rate-reservation clauses.) Moreover, an] 

flAnfi open-end credit plan in which 

the employee receives a lower rate 

contingent upon employment (that is, 

with the rate to be increased upon 

termination of employment) is not a 

variable-rate plan. [(With regard to such 

employee preferential-rate plans, 

however, see comment 9(c)–1, which 

provides that if the specific change that 

would occur is disclosed on the initial 

disclosure statement, no notice of a 

change in terms need be given when the 

term later changes as disclosed.)] 

3. Variable-rate plan—rate(s) in effect. 

In disclosing the rate(s) in effect at the 

time of the flaccount-openingfi 

[initial] disclosures (as is required by 

§fl226.6(a)(1)(ii)fi [§ 226.6(a)(2)]), the 

creditor may use an insert showing the 

current rate; may give the rate as of a 

specified date and then update the 

disclosure from time to time, for 

example, each calendar month; or may 

disclose an estimated rate under 

§ 226.5(c). 

4. Variable-rate plan—additional 

disclosures required. In addition to 

disclosing the rates in effect at the time 

of the flaccount-openingfi [initial] 

disclosures, the disclosures under 

fl§ 226.6(a)(1)(ii)fi [footnote 12] also 

must be made. 

5. Variable-rate—plan index. The 

index to be used must be clearly 

identified; the creditor need not give, 

however, an explanation of how the 

index is determined or provide 

instructions for obtaining it. 

6. Variable-rate plan—circumstances 

for increase. 

i. Circumstances under which the 

rate(s) may increase include, for 

example: 

A. An increase in the Treasury bill 

rate. 

B. An increase in the Federal Reserve 

discount rate. 

ii. The creditor must disclose when 

the increase will take effect; for 

example: 

A. ‘‘An increase will take effect on the 

day that the Treasury bill rate 

increases,’’ or 

B. ‘‘An increase in the Federal 

Reserve discount rate will take effect on 

the first day of the creditor’s billing 

cycle.’’

7. Variable-rate plan—limitations on 

increase. In disclosing any limitations 

on rate increases, limitations such as the 

maximum increase per year or the 

maximum increase over the duration of 

the plan must be disclosed. When there 

are no limitations, the creditor may, but 

need not, disclose that fact. (A 

maximum interest rate must be included 

in dwelling-secured open-end credit 

plans under which the interest rate may 

be changed. See § 226.30 and the 

commentary to that section.) Legal 

limits such as usury or rate ceilings 

under state or federal statutes or 

regulations need not be disclosed. 

Examples of limitations that must be 

disclosed include: 

i. ‘‘The rate on the plan will not 

exceed 25 % annual percentage rate.’’

ii. ‘‘Not more than 1⁄2% increase in the 

annual percentage rate per year will 

occur.’’

8. Variable-rate plan—effects of 

increase. Examples of effects flof rate 

increasesfi that must be disclosed 

include: 

i. Any requirement for additional 

collateral if the annual percentage rate 

increases beyond a specified rate. 

ii. Any increase in the scheduled 

minimum periodic payment amount. 

9. Variable-rate plan—change-interms notice not required. No notice of 

a change in terms is required for a rate 

increase under a variable-rate plan as 

defined in comment fl6(a)(1)(ii)–2fi 

[6(a)(2)–2]. 

10. Discounted variable-rate plans. In 

some variable-rate plans, creditors may 

set an initial interest rate that is not 

determined by the index or formula 

used to make later interest rate 

adjustments. Typically, this initial rate 

is lower than the rate would be if it were 

calculated using the index or formula. 

i. For example, a creditor may 

calculate interest rates according to a 

formula using the six-month Treasury 

bill rate plus a 2 percent margin. If the 

current Treasury bill rate is 10 percent, 

the creditor may forgo the 2 percent 

spread and charge only 10 percent for a 

limited time, instead of setting an initial 

rate of 12 percent, or the creditor may 

disregard the index or formula and set 

the initial rate at 9 percent. 

ii. When creditors use an initial rate 

that is not calculated using the index or 

formula for later rate adjustments, the 

[initial] flaccount-openingfi disclosure 

statement should reflect: 

A. The initial rate (expressed as a 

periodic rate and a corresponding 

annual percentage rate), together with a 

statement of how long [it] flthe initial 

ratefi will remain in effect; 

B. The current rate that would have 

been applied using the index or formula 

(also expressed as a periodic rate and a 

corresponding annual percentage rate); 

and 

C. The other variable-rate information 

required [by footnote 12 to] flin 

§ 226.6(a)(1)(ii)fi. 

iii. In disclosing the current periodic 

and annual percentage rates that would 

be applied using the index or formula, 

the creditor may use any of the 

disclosure options described in 

comment fl6(a)(1)(ii)–3fi [6(a)(2)–3]. 

11. Increased penalty rates. If the 

initial rate may increase upon the 

occurrence of one or more specific 

events, such as a late payment or an 

extension of credit that exceeds the 

credit limit, the creditor must disclose 

the initial rate and the increased penalty 

rate that may apply. If the penalty rate 

is based on an index and an increased 

margin, the issuer must disclose the 

index and the margin. The creditor must 

also disclose the specific event or events 

that may result in the increased rate, 

such as ‘‘22% APR, if 60 days late.’’ If 

the penalty rate cannot be determined at 

the time disclosures are given, the 

creditor must provide an explanation of 

the specific event or events that may 

result in the increased rate. At the 

creditor’s option, the creditor may 

disclose the period for which the 

increased rate will remain in effect, 

such as ‘‘until you make three timely 

payments.’’ The creditor need not 

disclose an increased rate that is 

imposed when credit privileges are 

permanently terminated. 

Paragraph fl6(a)(1)(iii)fi [6(a)(3)]. 

1. Explanation of balance 

computation method. A shorthand 

phrase such as previous balance method 

does not suffice in explaining the 

balance computation method. (See 


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flModel Clauses infi appendix G–1[ 

for model clauses].) 

2. Allocation of payments. 

flCreditors may, but need not, explain 

how payments and other credits are 

allocated to outstanding balances.fi 

[Disclosure about the allocation of 

payments and other credits is not 

required.] For example, the creditor 

need not disclose that payments are 

applied to late charges, overdue 

balances, and finance charges before 

being applied to the principal balance; 

or in a multifeatured plan, that 

payments are applied first to finance 

charges, then to purchases, and then to 

cash advances. (See comment 7–1 for 

definition of multifeatured plan.) 

Paragraph fl6(a)(1)(iv)fi [6(a)(4)]. 

1. Finance charges. In addition to 

disclosing the periodic rate(s) under 

[§ 226.6(a)(2),] fl§ 226.6(a)(1)(ii), 

creditors must disclosefi [disclosure is 

required of] any other type of finance 

charge that may be imposed, such as 

minimum, fixed, transaction, and 

activity charges; required insurance; or 

appraisal or credit report fees (unless 

excluded from the finance charge under 

§ 226.4(c)(7).) flCreditors are not 

required to disclose the fact that no 

finance charge is imposed when the 

outstanding balance is less than a 

certain amount or the balance below 

which no finance charge will be 

imposed.fi 

fl6(a)(2)fi [6(b)] Other charges. 

1. General; examples of other charges. 

Under fl§ 226.6(a)(2)fi [§ 226.6(b)], 

significant charges related to the plan 

(that are not finance charges) must also 

be disclosed. For example: 

i. Late payment and over-the-creditlimit charges. 

ii. Fees for providing documentary 

evidence of transactions requested 

under § 226.13 (billing error resolution). 

iii. Charges imposed in connection 

with flresidential mortgage 

transactions orfi real estate transactions 

such as title, appraisal, and credit-report 

fees (see § 226.4(c)(7)). 

iv. A tax imposed on the credit 

transaction by a state or other 

governmental body, such as a 

documentary stamp tax on cash 

advances (see the commentary to 

§ 226.4(a)). 

v. A membership or participation fee 

for a package of services that includes 

an open-end credit feature, unless the 

fee is required whether or not the openend credit feature is included. For 

example, a membership fee to join a 

credit union is not an ‘‘other charge,’’

even if membership is required to apply 

for credit. For example, if the primary 

benefit of membership in an 

organization is the opportunity to apply 

for a credit card, and the other benefits 

offered (such as a newsletter or a 

member information hotline) are merely 

incidental to the credit feature, the 

membership fee would be disclosed as 

an ‘‘other charge.’’

[vi. Automated teller machine (ATM) 

charges described in comment 4(a)–4 

that are not finance charges.] 

flvi.fi [vii.] Charges imposed for the 

termination of an open-end credit plan. 

2. Exclusions. The following are 

examples of charges that are not ‘‘other 

charges’’: 

i. Fees charged for documentary 

evidence of transactions for income tax 

purposes. 

ii. Amounts payable by a consumer 

for collection activity after default; 

attorney’s fees, whether or not 

automatically imposed; foreclosure 

costs; post-judgment interest rates 

imposed by law; and reinstatement or 

reissuance fees. 

iii. Premiums for voluntary credit life 

or disability insurance, or for property 

insurance, that are not part of the 

finance charge. 

iv. Application fees under 

§ 226.4(c)(1). 

v. A monthly service charge for a 

checking account with overdraft 

protection that is applied to all checking 

accounts, whether or not a credit feature 

is attached. 

vi. Charges for submitting as payment 

a check that is later returned unpaid 

(see commentary to § 226.4(c)(2). 

vii. Charges imposed on a cardholder 

by an institution other than the card 

issuer for the use of the other 

institution’s ATM in a shared or 

interchange system. (See also comment 

7(b)–2.) 

viii. Taxes and filing or notary fees 

excluded from the finance charge under 

§ 226.4(e). 

ix. A fee to expedite delivery of a 

credit card, either at account opening or 

during the life of the account, provided 

delivery of the card is also available by 

standard mail service (or other means at 

least as fast) without paying a fee for 

delivery. 

x. A fee charged for arranging a single 

payment on the credit account, upon the 

consumer’s request (regardless of how 

frequently the consumer requests the 

service), if the credit plan provides that 

the consumer may make payments on 

the account by another reasonable 

means, such as by standard mail service, 

without paying a fee to the creditor. 

fl6(a)(3)fi [6(e)] Home equity plan 

information. 

1. Additional disclosures required. 

For home equity plans, creditors must 

provide several of the disclosures set 

forth in § 226.5b(d) along with the 

disclosures required under § 226.6. 

Creditors also must disclose a list of the 

conditions that permit the creditor to 

terminate the plan, freeze or reduce the 

credit limit, and implement specified 

modifications to the original terms. (See 

comment 5b(d)(4)(iii)–1.) 

2. Form of disclosures. The home 

equity disclosures provided under this 

section must be in a form the consumer 

can keep, and are governed by 

§ 226.5(a)(1). The segregation standard 

set forth in § 226.5b(a) does not apply to 

home equity disclosures provided under 

§ 226.6. 

3. Disclosure of payment and 

variable-rate examples. 

i. The payment-example disclosure in 

§ 226.5b(d)(5)(iii) and the variable-rate 

information in § 226.5b(d)(12)(viii), (x), 

(xi), and (xii) need not be provided with 

the disclosures under § 226 if the 

disclosures under § 226.5b(d) were 

provided in a form the consumer could 

keep; and the disclosures of the 

payment example under 

§ 226.5b(d)(5)(iii), the maximumpayment example under 

§ 226.5b(d)(12)(x) and the historical 

table under § 226.5b(d)(12)(xi) included 

a representative payment example for 

the category of payment options the 

consumer has chosen. 

ii. For example, if a creditor offers 

three payment options (one for each of 

the categories described in the 

commentary to § 226.5b(d)(5)), describes 

all three options in its early disclosures, 

and provides all of the disclosures in a 

retainable form, that creditor need not 

provide the § 226.5b(d)(5)(iii) or 

§ 226.5b(d)(12) disclosures again when 

the account is opened. If the creditor 

showed only one of the three options in 

the early disclosures (which would be 

the case with a separate disclosure form 

rather than a combined form, as 

discussed under § 226.5b(a)), the 

disclosures under § 226.5b(d)(5)(iii) and 

226.5b(d)(12)(viii), (x), (xi) and (xii) 

must be given to any consumer who 

chooses one of the other two options. If 

the § 226.5b(d)(5)(iii) and 226.5b(d)(12) 

disclosures are provided with the 

second set of disclosures, they need not 

be transaction-specific, but may be 

based on a representative example of the 

category of payment option chosen. 

4. Disclosures for the repayment 

period. The creditor must provide 

disclosures about both the draw and 

repayment phases when giving the 

disclosures under § 226.6. Specifically, 

the creditor must make the disclosures 

in fl§ 226.6(a)(3)fi [§ 226.6(e)], state 

the corresponding annual percentage 

rate and provide the variable-rate 

information required in 

fl§ 226.6(a)(1)(ii)fi [footnote 12] for the 


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repayment phase. To the extent the 

corresponding annual percentage rate, 

the information in fl§ 226.6(a)(1)(ii)fi 

[footnote 12], and any other required 

disclosures are the same for the draw 

and repayment phase, the creditor need 

not repeat such information, as long as 

it is clear that the information applies to 

both phases. 

fl6(b) Rules affecting open-end (not 

home-secured) plansfi [Other charges]. 

fl6(b)(1) Charges imposed as part of 

open-end (not home-secured) plans. 

1. When finance charges accrue. 

Creditors are not required to disclose a 

specific date when a cost that is a 

finance charge under § 226.4 will begin 

to accrue. 

2. Grace periods. In disclosing in the 

account agreement or disclosure 

statement whether or not a grace period 

exists, the creditor need not use any 

particular descriptive phrase or term. 

For example, a statement that ‘‘interest 

begins on the date the transaction is 

posted to your account’’ adequately 

discloses that no grace period exists. In 

the same fashion, a statement that 

‘‘interest will be imposed on any new 

purchases only if the new balance from 

the previous statement was not paid in 

full within 25 days after the close of the 

billing cycle’’ indicates that a grace 

period exists in the interim. 

fl3. No finance charge imposed 

below certain balance. Creditors are not 

required to disclose the fact that no 

finance charge is imposed when the 

outstanding balance is less than a 

certain amount or the balance below 

which no finance charge will be 

imposed.fi 

Paragraph 6(b)(1)(i). 

1. Failure to use the plan as agreed. 

Late payment fees, over-the-credit-limit 

fees, and fees for payments returned 

unpaid are examples of charges 

resulting from consumers’ failure to use 

the plan as agreed. 

2. Examples of fees that affect the 

plan. Examples of charges the payment, 

or nonpayment, of which affects the 

consumer’s account are: 

i. Access to the plan. Fees for using 

the card at the creditor’s ATM to obtain 

a cash advance, fees to obtain additional 

cards including replacements for lost or 

stolen cards, fees to expedite delivery of 

cards or other credit devices, 

application and membership fees, and 

annual or other participation fees 

identified in § 226.4(c)(4). 

ii. Amount of credit extended. Fees 

for increasing the credit limit on the 

account, whether at the consumer’s 

request or unilaterally by the creditor. 

iv. Timing or method of billing or 

payment. Fees to pay by telephone or 

via the Internet, and fees to receive 

paper statements. 

Paragraph 6(b)(1)(ii). 

1. Fees for package of services. A fee 

to join a credit union is an example of 

a fee for a package of services that is not 

imposed as part of the plan, even if the 

consumer must join the credit union to 

apply for credit. In contrast, a 

membership fee is an example of a fee 

for a package of services that is 

considered to be imposed as part of a 

plan where the primary benefit of 

membership in the organization is the 

opportunity to apply for a credit card, 

and the other benefits offered (such as 

a newsletter or a member information 

hotline) are merely incidental to the 

credit feature.fi 

fl6(b)(2) Rules relating to rates for 

open-end (not home-secured) plans. 

Paragraph 6(b)(2)(i)(B). 

1. Range of balances. Creditors are not 

required to disclose the range of 

balances: 

i. If only one periodic interest rate 

may be applied to the entire account 

balance. 

ii. If only one periodic interest rate 

may be applied to the entire balance for 

a feature (for example, cash advances), 

even though the balance for another 

feature (purchases) may be subject to 

two rates (a 1.5% monthly periodic 

interest rate on purchase balances of $0–

$500, and a 1% periodic interest rate for 

balances above $500). In this example, 

the creditor must give a range of 

balances disclosure for the purchase 

feature. 

Paragraph 6(b)(2)(i)(D). 

1. Explanation of balance 

computation method. Creditors do not 

provide a sufficient explanation of a 

balance computation method by using a 

shorthand phrase such as ‘‘previous 

balance method’’ or the name of a 

balance computation method listed in 

§ 226.5a(g). (See Model Clauses G–1 in 

appendix G.) See § 226.6(b)(4) regarding 

balance computation descriptions in the 

account-opening summary. 

2. Allocation of payments. Except as 

required by § 226.6(b)(4)(vi), creditors 

may, but need not, explain how 

payments and other credits are allocated 

to outstanding balances. For example, 

the creditor need not disclose that 

payments are applied to late charges, 

overdue balances, and finance charges 

before being applied to the principal 

balance; or in a multifeatured plan, that 

payments are applied first to finance 

charges, then to purchases, and then to 

cash advances. (See comment 7–1 for 

definition of multifeatured plan.) 

Paragraph 6(b)(2)(ii). 

1. Variable-rate disclosures—

coverage. 

i. Examples. Examples of open-end 

plans that permit the rate to change and 

are considered variable-rate plans 

include: 

A. Rate changes that are tied to the 

rate the creditor pays on its six-month 

certificate of deposits. 

B. Rate changes that are tied to 

Treasury bill rates. 

C. Rate changes that are tied to 

changes in the creditor’s commercial 

lending rate. 

ii. Examples of open-end plans that 

permit the rate to change and are not 

considered variable-rate include: 

A. Rate changes that are invoked 

under a creditor’s contract reservation to 

increase the rate without reference to 

such an index or formula (for example, 

a plan that simply provides that the 

creditor reserves the right to raise its 

rates). 

B. Rate changes that are triggered by 

a specific event such as an open-end 

credit plan in which the employee 

receives a lower rate contingent upon 

employment, and the rate increases 

upon termination of employment. 

2. Variable-rate plan—circumstances 

for increase. 

i. The following are examples that 

comply with the requirement to disclose 

circumstances under which the rate(s) 

may increase: 

A. ‘‘The Treasury bill rate increases.’’

B. ‘‘The Federal Reserve discount rate 

increases.’’

ii. Disclosing the frequency with 

which the rate may increase includes 

disclosing when the increase will take 

effect; for example: 

A. ‘‘An increase will take effect on the 

day that the Treasury bill rate increases’’

B. ‘‘An increase in the Federal 

Reserve discount rate will take effect on 

the first day of the creditor’s billing 

cycle.’’

3. Variable-rate plan—limitations on 

increase. In disclosing any limitations 

on rate increases, limitations such as the 

maximum increase per year or the 

maximum increase over the duration of 

the plan must be disclosed. When there 

are no limitations, the creditor may, but 

need not, disclose that fact. Legal limits 

such as usury or rate ceilings under 

state or federal statutes or regulations 

need not be disclosed. Examples of 

limitations that must be disclosed 

include: 

i. ‘‘The rate on the plan will not 

exceed 25% annual percentage rate.’’

ii. ‘‘Not more than 1⁄2 of 1% increase 

in the annual percentage rate per year 

will occur.’’

4. Variable-rate plan—effects of 

increase. Examples of effects of rate 

increases that must be disclosed 

include: 


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i. Any requirement for additional 

collateral if the annual percentage rate 

increases beyond a specified rate. 

ii. Any increase in the scheduled 

minimum periodic payment amount. 

5. Discounted variable-rate plans. In 

some variable-rate plans, creditors may 

set an initial interest rate that is not 

determined by the index or formula 

used to make later interest rate 

adjustments. Typically, this initial rate 

is lower than the rate would be if it were 

calculated using the index or formula. 

i. For example, a creditor may 

calculate interest rates according to a 

formula using the six-month Treasury 

bill rate plus a 2 percent margin. If the 

current Treasury bill rate is 10 percent, 

the creditor may forgo the 2 percent 

spread and charge only 10 percent for a 

limited time, instead of setting an initial 

rate of 12 percent, or the creditor may 

disregard the index or formula and set 

the initial rate at 9 percent. 

ii. When creditors use an initial rate 

that is not calculated using the index or 

formula for later rate adjustments, the 

account-opening disclosure should 

reflect: 

A. The initial rate (expressed as a 

periodic rate and a corresponding 

annual percentage rate), together with a 

statement of how long the initial rate 

will remain in effect; 

B. The current rate that would have 

been applied using the index or formula 

(also expressed as a periodic rate and a 

corresponding annual percentage rate); 

and 

C. The other variable-rate information 

required by § 226.6(b)(2)(ii). 

Paragraph 6(b)(2)(iii). 

1. Events that cause the initial rate to 

change. 

i. Changes based on expiration of time 

period. If the initial rate will change at 

the expiration of a time period, creditors 

must identify the expiration date and 

the fact that the initial rate will end at 

that time. 

ii. Changes based on specified 

contract terms. If the account agreement 

provides that the creditor may change 

the initial rate upon the occurrence of 

specified event or events, the creditor 

must identify the events or events. 

Examples include the consumer not 

making the required minimum payment 

when due, or the termination of an 

employee preferred rate when the 

employment relationship is terminated. 

2. Rate that will apply after initial rate 

changes. 

i. Increased margins. If the initial rate 

is based on an index and the rate may 

increase due to a change in the margin 

applied to the index, the creditor must 

disclose the increased margin. If more 

than one margin could apply, the 

creditor may disclose the highest 

margin. 

ii. Risk-based pricing. In some plans, 

the amount of the rate change depends 

on how the creditor weighs the 

occurrence of events specified in the 

account agreement that authorize the 

creditor to change rates, as well as other 

factors. Creditors must state the 

increased rate that may apply. At the 

creditor’s option, the creditor may state 

the possible rates as a range, or by 

stating the highest rate that could be 

assessed. The creditor must disclose the 

period for which the increased rate will 

remain in effect, such as ‘‘until you 

make three timely payments,’’ or if there 

is no limitation, the fact that the 

increased rate may remain indefinitely. 

iii. Terminating credit privileges. 

Creditors need not disclose an increased 

rate that is imposed if credit privileges 

are permanently terminated. 

3. Effect of rate change on balances. 

Creditors must disclose whether the rate 

change will affect outstanding balances, 

by type. 

6(b)(4) Tabular format requirements 

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

1. Relation to tabular summary for 

applications and solicitations. See 

commentary to § 226.5a(a), (b), and (c) 

regarding format and content 

requirements, except for the following: 

i. Creditors must disclose any initial 

discounted rate that is offered and the 

time period during which the rate will 

remain in effect. 

ii. Creditors must use the accuracy 

standard for annual percentage rates in 

§ 226.6(b)(ii)(G). 

iii. Creditors must disclose the 

specific rate for each feature that applies 

to the account if, at the time of 

application or solicitation, the creditor 

disclosed a number of specific rates or 

range of rates that might apply after the 

creditor has later determined the 

consumer’s creditworthiness. 

iv. Creditors must disclose fees 

imposed for transactions in a foreign 

currency or that take place in a foreign 

country. 

v. Creditors must explain whether or 

not a grace period exists for all features 

on the account. 

vi. Creditors must, in addition to 

naming the balance computation 

method used, state that an explanation 

of the balance computation method is 

provided in the account-opening 

disclosures. 

vii. Creditors must state that 

consumers’ billing rights are provided 

in the account-opening disclosures. 

viii. The applicable forms providing 

safe harbors for account-opening tables 

are under appendix G–17. 

2. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

§ 226.6 disclosures. 

3. Terminology. Section 226.6(b)(4)(i) 

generally requires that the headings, 

content, and format of the tabular 

disclosures be substantially similar, but 

need not be identical, to the tables in 

Appendix G; but see § 226.5(a)(2) for 

special rules that apply to the penalty 

rate disclosure required by 

§ 226.6(b)(4)(ii)(C), the grace period 

disclosure required by § 226.6(b)(4)(iv), 

and to the disclosure of required 

insurance products or debt cancellation 

or suspension products pursuant to 

§ 226.6(b)(4)(v). 

6(b)(4)(ii) Annual percentage rates. 

1. Rates. The only rates that shall be 

disclosed in the account-opening table 

are annual percentage rates determined 

under § 226.14(b). Periodic rates shall 

not be disclosed in the table. The index 

and margin values shall not be disclosed 

in the table.fi 

fl6(c) Rules of general 

applicability.fi 

6(c) fl(1)fi Security interests. 

1. General. flCreditors are not 

required to use specific terms to 

describe a security interest, or to explain 

the type of security or the creditor s 

rights with respect to the collateral.fi 

[Disclosure is not required about the 

type of security interest, or about the 

creditor’s rights with respect to that 

collateral. In other words, the creditor 

need not expand on the term security 

interest. Also, since no specified 

terminology is required, the creditor 

may designate its interests by using, for 

example, pledge, lien, or mortgage 

(instead of security interest)]. 

2. Identification of property. 

flCreditors sufficiently identify 

collateral by typefi [Identification of 

the collateral by type is satisfied] by 

stating, for example, motor vehicle or 

household appliances. (Creditors should 

be aware, however, that the federal 

credit practices rules, as well as some 

state laws, prohibit certain security 

interests in household goods.) The 

creditor may, at its option, provide a 

more specific identification (for 

example, a model and serial number.) 

3. Spreader clause. flIf collateral for 

preexisting credit with the creditor will 

secure the plan being opened, the 

creditor must disclose that fact. (Such 

security interests may be known as 

‘‘spreader’’ or ‘‘dragnet’’ clauses, or as 

‘‘cross-collateralization’’ clauses.) The 

creditor need not specifically identify 

the collateral; a reminder such as 

‘‘collateral securing other loans with us 

may also secure this loan’’ is 

sufficient.fi[The fact that collateral for 


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33116 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

preexisting credit extensions with the 

institution is being used to secure the 

present obligation constitutes a security 

interest and must be disclosed. (Such 

security interests may be known as 

‘‘spreader’’ or ‘‘dragnet’’ clauses, or as 

‘‘cross-collateralization’’ clauses.) A 

specific identification of that collateral 

is unnecessary, but a reminder of the 

interest arising from the prior 

indebtedness is required. This may be 

accomplished by using language such as 

‘‘collateral securing other loans with us 

may also secure this loan.’’] At the 

creditor’s option, a more specific 

description of the property involved 

may be given. 

4. Additional collateral. If collateral is 

required when advances reach a certain 

amount, the creditor should disclose the 

information available at the time of the 

flaccount-openingfi [initial] 

disclosures. For example, if the creditor 

knows that a security interest will be 

taken in household goods if the 

consumer’s balance exceeds $1,000, the 

creditor should disclose accordingly. If 

the creditor knows that security will be 

required if the consumer’s balance 

exceeds $1,000, but the creditor does 

not know what security will be 

required, the creditor must disclose on 

the initial disclosure statement that 

security will be required if the balance 

exceeds $1,000, and the creditor must 

provide a change-in-terms notice under 

§ 226.9(c) at the time the security is 

taken. (See comment 6(c) fl(1)fi –2.) 

5. Collateral from third party. 

flSecurity interests taken in connection 

with the plan must be disclosed, 

whether the collateral is owned by the 

consumer or a third party.fi [In certain 

situations, the consumer’s obligation 

may be secured by collateral belonging 

to a third party. For example, an openend credit plan may be secured by an 

interest in property owned by the 

consumer’s parents. In such cases, the 

security interest is taken in connection 

with the plan and must be disclosed, 

even though the property encumbered is 

owned by someone other than the 

consumer.] 

[6(d)] fl6(c)(2)fi Statement of billing 

rights. 

See the commentary to appendix G–

3fl, G–3(A), G–4,and G–4(A)fi. 

Section 226.7—Periodic Statement 

1. Multifeatured plans. Some plans 

involve a number of different features, 

such as purchases, cash advances, or 

overdraft checking. Groups of 

transactions subject to different finance 

charge terms because of the dates on 

which the transactions took place are 

treated like different features for 

purposes of disclosures on the periodic 

statements. The commentary includes 

fladditional guidancefi [some special 

rules] for multifeatured plans. 

[2. Separate periodic statements 

permitted. In a certain open-end credit 

program involving more than one 

creditor—a card issuer of travel-andentertainment cards and a financial 

institution—the consumer has the 

option to pay the card issuer directly or 

to transfer to the financial institution all 

or part of the amount owing. In this 

case, the creditors may send separate 

periodic statements that reflect the 

separate obligations owed to each.] 

[3. Deferred payment transactions. 

Creditors offer a variety of payment 

plans for purchases that permit 

consumers to avoid finance charges if 

the purchase balance is paid in full by 

a certain date. The following provides 

guidance for one type of deferredpayment plan where, for example, no 

finance charge is imposed on a $500 

purchase made in January if the $500 

balance is paid by March 31. 

i. Periodic rates. Under § 226.7(d), 

creditors must disclose each periodic 

rate that may be used to compute the 

finance charge. Under some plans with 

a deferred-payment feature, if the 

deferred-payment balance is not paid by 

the payment-due date, finance charges 

attributable to periodic rates applicable 

to the billing cycles between the date of 

purchase and the payment-due date 

(January through March in this example) 

may be imposed. Periodic rates that may 

apply to the deferred-payment balance 

($500 in this example) if the balance is 

not paid in full by the payment-due date 

must appear on periodic statements for 

the billing cycles between the date of 

purchase and the payment-due date. 

However, if the consumer does not pay 

the deferred-payment balance by the 

due date, the creditor is not required to 

identify, on the periodic statement 

disclosing the finance charge for the 

deferred-payment balance, periodic 

rates that have been disclosed in 

previous billing cycles between the date 

of purchase and the payment due date. 

ii. Balances subject to periodic rates. 

Under § 226.7(e), creditors must 

disclose the balances subject to periodic 

rates during a billing cycle. The 

deferred-payment balance ($500 in this 

example) is not subject to a periodic rate 

for billing cycles between the date of 

purchase and the payment-due date. 

Periodic statements sent for those 

billing cycles should not include the 

deferred-payment balance in the balance 

disclosed under § 226.7(e). At the 

creditor’s option, this amount may be 

disclosed on periodic statements 

provided it is identified by a term other 

than the term used to identify the 

balance disclosed under § 226.7(e) (such 

as ‘‘deferred-payment balance’’). During 

any billing cycle in which a periodicrate finance charge on the deferredpayment balance is debited to the 

account, the balance disclosed under 

§ 226.7(e) should include the deferredpayment balance for that billing cycle. 

iii. Amount of finance charge. Under 

§ 226.7(f), creditors must disclose 

finance charges imposed during a 

billing cycle. For some deferredpayment purchases, the creditor may 

impose a finance charge from the date 

of purchase if the deferred-payment 

balance ($500 in this example) is not 

paid in full by the due date, but 

otherwise will not impose finance 

charges for billing cycles between the 

date of purchase and the payment-due 

date. Periodic statements for billing 

cycles preceding the payment-due date 

should not include in the finance charge 

disclosed under § 226.7(f) the amounts a 

consumer may owe if the deferredpayment balance is not paid in full by 

the payment-due date. In this example, 

the February periodic statement should 

not identify as finance charges interest 

attributable to the $500 January 

purchase. At the creditor’s option, this 

amount may be disclosed on periodic 

statements provided it is identified by a 

term other than ‘‘finance charge’’ (such 

as ‘‘contingent finance charge’’ or 

‘‘deferred finance charge’’). The finance 

charge on a deferred-payment balance 

should be reflected on the periodic 

statement under § 226.7(f) for the billing 

cycle in which the finance charge is 

debited to the account. 

iv. Free-ride period. Assuming 

monthly billing cycles ending at monthend and a free-ride period ending on the 

25th of the following month, here are 

four examples illustrating how a 

creditor may comply with the 

requirement to disclose the free-ride 

period applicable to a deferred-payment 

balance ($500 in this example) and with 

the 14-day rule for mailing or delivering 

periodic statements before imposing 

finance charges (see § 226.5): 

A. The creditor could include the 

$500 purchase on the periodic statement 

reflecting account activity for February 

and sent on March 1 and identify March 

31 as the payment-due date for the $500 

purchase. (The creditor could also 

identify March 31 as the payment-due 

date for any other amounts that would 

normally be due on March 25.) 

B. The creditor could include the 

$500 purchase on the periodic statement 

reflecting activity for March and sent on 

April 1 and identify April 25 as the 

payment-due date for the $500 

purchase, permitting the consumer to 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33117 

avoid finance charges if the $500 is paid 

in full by April 25. 

C. The creditor could include the 

$500 purchase and its due date on each 

periodic statement sent during the 

deferred-payment period (January, 

February, and March in this example). 

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

March 31), the creditor could include 

the $500 purchase and its due date on 

the periodic statement reflecting activity 

for January and sent on February 1, the 

most recent statement sent at least 14 

days prior to the due date.] 

7(a) flRules affecting home equity 

plansfi [Previous balance]. 

fl7(a)(1) Previous balance.fi 

1. Credit balances. If the previous 

balance is a credit balance, it must be 

disclosed in such a way so as to inform 

the consumer that it is a credit balance, 

rather than a debit balance. 

2. Multifeatured plans. In a 

multifeatured plan, the previous balance 

may be disclosed either as an aggregate 

balance for the account or as separate 

balances for each feature (for example, 

a previous balance for purchases and a 

previous balance for cash advances). If 

separate balances are disclosed, a total 

previous balance is optional. 

3. Accrued finance charges allocated 

from payments. Some open-end credit 

plans provide that the amount of the 

finance charge that has accrued since 

the consumer’s last payment is directly 

deducted from each new payment, 

rather than being separately added to 

each statement and reflected as an 

increase in the obligation. In such a 

plan, the previous balance need not 

reflect finance charges accrued since the 

last payment. 

fl7(a)(2)fi [7(b)] Identification of 

transactions. 

1. Multifeatured plans. In identifying 

transactions under fl§ 226.7(a)(2)fi 

[§ 226.7(b)] for multifeatured plans, 

creditors may, for example, choose to 

arrange transactions by feature (such as 

disclosing sale transactions separately 

from cash advance transactions) or in 

some other clear manner, such as by 

arranging the transactions in general 

chronological order. 

2. Automated teller machine (ATM) 

charges imposed by other institutions in 

shared or interchange systems. A charge 

imposed on the cardholder by an 

institution other than the card issuer for 

the use of the other institution’s ATM in 

a shared or interchange system and 

included by the terminal-operating 

institution in the amount of the 

transaction need not be separately 

disclosed on the periodic statement. 

fl7(a)(3)fi [7(c)] Credits. 

1. Identification—sufficiency. The 

creditor need not describe each credit 

by type (returned merchandise, rebate of 

finance charge, etc.)—‘‘credit’’ would 

suffice—except if the creditor is using 

the periodic statement to satisfy the 

billing-error correction notice 

requirement. (See the commentary to 

§§ 226.13(e) and (f).) 

2. Format. A creditor may list credits 

relating to credit extensions (payments, 

rebates, etc.) together with other types of 

credits (such as deposits to a checking 

account), as long as the entries are 

identified so as to inform the consumer 

which type of credit each entry 

represents. 

3. Date. If only one date is disclosed 

(that is, the crediting date as required by 

the regulation), no further identification 

of that date is necessary. More than one 

date may be disclosed for a single entry, 

as long as it is clear which date 

represents the date on which credit was 

given. 

3. Totals. flA total of amounts 

credited during the billing cycle is not 

required.fi [Where the creditor lists the 

credits made to the account during the 

billing cycle, the creditor need not 

disclose total figures for the amounts 

credited.] 

fl7(a)(4)fi [7(d)] Periodic rates. 

1. Disclosure of periodic rates—

whether or not actually applied. Any 

periodic rate that may be used to 

compute finance charges (and its 

corresponding annual percentage rate 

must be disclosed whether or not it is 

applied during the billing cycle. For 

example: 

i. If the consumer’s account has both 

a purchase feature and a cash advance 

feature, the creditor must disclose the 

rate for each, even if the consumer only 

makes purchases on the account during 

the billing cycle. 

ii. If the rate varies (such as when it 

is tied to a particular index), the creditor 

must disclose each rate in effect during 

the cycle for which the statement was 

issued. 

2. Disclosure of periodic rates 

required only if imposition possible. 

With regard to the periodic rate 

disclosure (and its corresponding 

annual percentage rate), only rates that 

could have been imposed during the 

billing cycle reflected on the periodic 

statement need to be disclosed. For 

example: 

i. If the creditor is changing rates 

effective during the next billing cycle 

([either because it is changing terms or] 

because of a variable-rate plan), the rates 

required to be disclosed under 

fl§ 226.7(a)(4)fi [§ 226.7(d)] are only 

those in effect during the billing cycle 

reflected on the periodic statement. For 

example, if the monthly rate applied 

during May was 1.5%, but the creditor 

will increase the rate to 1.8% effective 

June 1, 1.5% (and its corresponding 

annual percentage rate) is the only 

required disclosure under 

fl§ 226.7(a)(4)fi [§ 226.7(d)] for the 

periodic statement reflecting the May 

account activity. 

ii. [If the consumer has an overdraft 

line that might later be expanded upon 

the consumer’s request to include 

secured advances, the rates for the 

secured advance feature need not be 

given until such time as the consumer 

has requested and received access to the 

additional feature. 

iii.] If rates applicable to a particular 

type of transaction changed after a 

certain date and the old rate is only 

being applied to transactions that took 

place prior to that date, the creditor 

need not continue to disclose the old 

rate for those consumers that have no 

outstanding balances to which that rate 

could be applied. 

3. Multiple rates—same transaction. If 

two or more periodic rates are applied 

to the same balance for the same type 

of transaction (for example, if the 

finance charge consists of a monthly 

periodic rate of 1.5% applied to the 

outstanding balance and a required 

credit life insurance component 

calculated at .1% per month on the 

same outstanding balance), the creditor 

may do either of the following: 

i. Disclose each periodic rate, the 

range of balances to which it is 

applicable, and the corresponding 

annual percentage rate for each. (For 

example, 1.5% monthly, 18% annual 

percentage rate; .1% monthly, 1.2% 

annual percentage rate.) 

ii. Disclose one composite periodic 

rate (that is, 1.6% per month) along with 

the applicable range of balances and 

corresponding annual percentage rate. 

4. Corresponding annual percentage 

rate. In disclosing the annual percentage 

rate that corresponds to each periodic 

rate, the creditor may use 

‘‘corresponding annual percentage rate,’’

‘‘nominal annual percentage rate,’’

‘‘corresponding nominal annual 

percentage rate,’’ or similar phrases. 

5. Rate same as actual annual 

percentage rate. When the 

corresponding rate is the same as the 

actual annual percentage rate (historical 

rate) required to be disclosed 

(fl§ 226.7(a)(7)fi [§ 226.7(g)]), the 

creditor need disclose only one annual 

percentage rate, but must use the phrase 

‘‘annual percentage rate.’’

6. See comment fl6(a)(1)(ii)–1fi 

[6(a)(2)–1]. flA creditor is not required 

to adjust the range of balances 

disclosure to reflect the balance below 


rwilkins on PROD1PC63 with PROPOSALS2
33118 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

which only a minimum charge 

applies.fi 

[7. Deferred-payment transactions. 

See comment 7–3.i.] 

fl7(a)(5)fi [7(e)] Balance on which 

finance charge computed. 

1. Limitation to periodic rates. Section 

fl§ 226.7(a)(5)fi [§ 226.7(e)] only 

requires disclosure of the balance(s) to 

which a periodic rate was applied and 

does not apply to balances on which 

other kinds of finance charges (such as 

transaction charges) were imposed. For 

example, if a consumer obtains a $1,500 

cash advance subject to both a 1% 

transaction fee and a 1% monthly 

periodic rate, the creditor need only 

disclose the balance subject to the 

monthly rate (which might include 

portions of earlier cash advances not 

paid off in previous cycles). 

2. Split rates applied to balance 

ranges. If split rates were applied to a 

balance because different portions of the 

balance fall within two or more balance 

ranges, the creditor need not separately 

disclose the portions of the balance 

subject to such different rates since the 

range of balances to which the rates 

apply has been separately disclosed. For 

example, a creditor could disclose a 

balance of $700 for purchases even 

though a monthly periodic rate of 1.5% 

applied to the first $500, and a monthly 

periodic rate of 1% to the remainder. 

This option to disclose a combined 

balance does not apply when the 

finance charge is computed by applying 

the split rates to each day’s balance (in 

contrast, for example, to applying the 

rates to the average daily balance). In 

that case, the balances must be 

disclosed using any of the options that 

are available if two or more daily rates 

are imposed. (See comment fl7(a)(5)–

5fi [7(e)–5].) 

3. Monthly rate on average daily 

balance. flCreditors may apply a 

monthly periodic rate to an average 

daily balance.fi [If a creditor computes 

a finance charge on the average daily 

balance by application of a monthly 

periodic rate or rates, the balance is 

adequately disclosed if the statement 

gives the amount of the average daily 

balance on which the finance charge 

was computed and also states how the 

balance is determined.] 

4. Multifeatured plans. In a 

multifeatured plan, the creditor must 

disclose a separate balance (or balances, 

as applicable) to which a periodic rate 

was applied for each feature or group of 

features subject to different periodic 

rates or different balance computation 

methods. Separate balances are not 

required, however, merely because a 

flgracefi [free-ride] period is available 

for some features but not others. A total 

balance for the entire plan is optional. 

This does not affect how many balances 

the creditor must disclose—or may 

disclose—within each feature. (See, for 

example, comment fl7(a)(5)–5fi [7(e)–

5].) 

5. Daily rate on daily balances. i. If 

the finance charge is computed on the 

balance each day by application of one 

or more daily periodic rates, the balance 

on which the finance charge was 

computed may be disclosed in any of 

the following ways for each feature: 

ii. If a single daily periodic rate is 

imposed, the balance to which it is 

applicable may be stated as: 

A. A balance for each day in the 

billing cycle. 

B. A balance for each day in the 

billing cycle on which the balance in 

the account changes. 

C. The sum of the daily balances 

during the billing cycle. 

D. The average daily balance during 

the billing cycle, in which case the 

creditor shall explain that the average 

daily balance is or can be multiplied by 

the number of days in the billing cycle 

and the periodic rate applied to the 

product to determine the amount of the 

finance charge. 

iii. If two or more daily periodic rates 

may be imposed, the balances to which 

the rates are applicable may be stated as: 

A. A balance for each day in the 

billing cycle. 

B. A balance for each day in the 

billing cycle on which the balance in 

the account changes. 

C. Two or more average daily 

balances, each applicable to the daily 

periodic rates imposed for the time that 

those rates were in effect, as long as the 

creditor explains that the finance charge 

is or may be determined by (1) 

multiplying each of the average balances 

by the number of days in the billing 

cycle (or if the daily rate varied during 

the cycle, by multiplying by the number 

of days the applicable rate was in 

effect), (2) multiplying each of the 

results by the applicable daily periodic 

rate, and (3) adding these products 

together. 

6. Explanation of balance 

computation method. See the 

commentary to fl6(a)(1)(iii)fi [6(a)(3)]. 

7. Information to compute balance. In 

connection with disclosing the finance 

charge balance, the creditor need not 

give the consumer all of the information 

necessary to compute the balance if that 

information is not otherwise required to 

be disclosed. For example, if current 

purchases are included from the date 

they are posted to the account, the 

posting date need not be disclosed. 

8. Non-deduction of credits. The 

creditor need not specifically identify 

the total dollar amount of credits not 

deducted in computing the finance 

charge balance. Disclosure of the 

amount of credits not deducted is 

accomplished by listing the credits 

(fl§ 226.7(a)(3)fi [§ 226.7(c)]) and 

indicating which credits will not be 

deducted in determining the balance 

(for example, credits after the 15th of 

the month are not deducted in 

computing the finance charge. ). 

9. Use of one balance computation 

method explanation when multiple 

balances disclosed. Sometimes the 

creditor will disclose more than one 

balance to which a periodic rate was 

applied, even though each balance was 

computed using the same balance 

computation method. For example, if a 

plan involves purchases and cash 

advances that are subject to different 

rates, more than one balance must be 

disclosed, even though the same 

computation method is used for 

determining the balance for each 

feature. In these cases, one explanation 

of the balance computation method is 

sufficient. Sometimes the creditor 

separately discloses the portions of the 

balance that are subject to different rates 

because different portions of the balance 

fall within two or more balance ranges, 

even when a combined balance 

disclosure would be permitted under 

comment fl7(a)(5)–2fi [7(e)–2]. In 

these cases, one explanation of the 

balance computation method is also 

sufficient (assuming, of course, that all 

portions of the balance were computed 

using the same method). 

[10. Deferred payment transactions. 

See comment 7–3.ii.] 

fl7(a)(6) Amount of finance charge 

and other charges.fi [7(f) Amount of 

finance charge.] 

flParagraph 7(a)(6)(i).fi 

1. Total. A total finance charge 

amount for the plan is not required. 

2. Itemization—types of finance 

charges. Each type of finance charge 

(such as periodic rates, transaction 

charges, and minimum charges) 

imposed during the cycle must be 

separately itemized; for example, 

disclosure of only a combined finance 

charge attributable to both a minimum 

charge and transaction charges would 

not be permissible. Finance charges of 

the same type may be disclosed, 

however, individually or as a total. For 

example, five transaction charges of $1 

may be listed separately or as $5. 

3. Itemization—different periodic 

rates. Whether different periodic rates 

are applicable to different types of 

transactions or to different balance 

ranges, the creditor may give the finance 

charge attributable to each rate or may 

give a total finance charge amount. For 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33119 

example, if a creditor charges 1.5% per 

month on the first $500 of a balance and 

1% per month on amounts over $500, 

the creditor may itemize the two 

components ($7.50 and $1.00) of the 

$8.50 charge, or may disclose $8.50. 

4. Multifeatured plans. In a 

multifeatured plan, in disclosing the 

amount of the finance charge 

attributable to the application of 

periodic rates no total periodic rate 

disclosure for the entire plan need be 

given. 

5. Finance charges not added to 

account. A finance charge that is not 

included in the new balance because it 

is payable to a third party (such as 

required life insurance) must still be 

shown on the periodic statement as a 

finance charge. 

6. Finance charges other than 

periodic rates. See comment 

fl6(a)(1)(iv)–1fi [6(a)(4)–] for 

examples. 

7. Accrued finance charges allocated 

from payments. Some plans provide that 

the amount of the finance charge that 

has accrued since the consumer’s last 

payment is directly deducted from each 

new payment, rather than being 

separately added to each statement and 

therefore reflected as an increase in the 

obligation. In such a plan, no disclosure 

is required of finance charges that have 

accrued since the last payment. 

8. Start-up fees. Points, loan fees, and 

similar finance charges relating to the 

opening of the account that are paid 

prior to the issuance of the first periodic 

statement need not be disclosed on the 

periodic statement. If, however, these 

charges are financed as part of the plan, 

including charges that are paid out of 

the first advance, the charges must be 

disclosed as part of the finance charge 

on the first periodic statement. 

However, they need not be factored into 

the annual percentage rate. (See 

fl§ 226.14(c)(3)fi [footnote 33] in the 

regulation.) 

[9. Deferred-payment transactions. 

See comment 7–3.iii.] 

flParagraph 7(a)(6)(ii).fi [7(h) Other 

charges.] 

1. Identification. In identifying any 

other charges actually imposed during 

the billing cycle, the type is adequately 

described as late charge or membership 

fee, for example. Similarly, closing costs 

or settlement costs, for example, may be 

used to describe charges imposed in 

connection with real estate transactions 

that are excluded from the finance 

charge under § 226.4(c)(7), if the same 

term (such as closing costs) was used in 

the initial disclosures and if the creditor 

chose to itemize and individually 

disclose the costs included in that term. 

Even though the taxes and filing or 

notary fees excluded from the finance 

charge under § 226.4(e) are not required 

to be disclosed as other charges under 

fl§ 226.6(a)(2)fi [§ 226.6(b)], these 

charges may be included in the amount 

shown as closing costs or settlement 

costs on the periodic statement, if the 

charges were itemized and disclosed as 

part of the closing costs or settlement 

costs on the initial disclosure statement. 

(See comment fl6(a)(2)–1fi [6(b)–1] for 

examples of other charges.) 

2. Date. The date of imposing or 

debiting other charges need not be 

disclosed. 

3. Total. Disclosure of the total 

amount of other charges is optional. 

4. Itemization—types of other charges. 

Each type of other charge (such as latepayment charges, over-the-credit-limit 

charges[, ATM fees that are not finance 

charges], and membership fees) imposed 

during the cycle must be separately 

itemized; for example, disclosure of 

only a total of other charges attributable 

to both an over-the-credit-limit charge 

and a late-payment charge would not be 

permissible. Other charges of the same 

type may be disclosed, however, 

individually or as a total. For example, 

three flfees of $3 for providing copies 

related to the resolution of a billing 

error could be listed separately or as 

$9fi [ATM fees of $1 may be listed 

separately or as $3]. 

fl7(a)(7)fi [7(g)] Annual percentage 

rate. 

1. Rate same as corresponding annual 

percentage rate. See comment 

fl7(a)(4)–5fi [7(d)–5]. 

2. Multifeatured plans. In a 

multifeatured plan, the [actual] 

fleffectivefi annual percentage rate 

fldetermined under § 226.14(c)fi that 

reflects the finance charge imposed 

during the cycle may be separately 

stated for each feature or may be 

described as a composite for the whole 

plan. flWhere more than one rate 

applies for each feature, creditors may 

describe the annual percentage rate as a 

composite for each feature.fi 

ALTERNATIVE 2—PARAGRAPH 

7(a)(7)3. 

fl3. Plans not subject to the 

requirements of § 226.5b. For home 

equity plans not subject to the 

requirements of § 226.5b, creditors are 

not required to disclose an effective 

APR.fi 

fl7(a)(8)fi [7(j)] Grace [free-ride] 

period.fi 

1. flTerminologyfi [Wording]. 

Although the creditor is required to 

indicate any time period the consumer 

may have to pay the balance 

outstanding without incurring 

additional finance charges, no specific 

wording is required, so long as the 

language used is consistent with that 

used on the flaccount-openingfi 

[initial] disclosure statement. For 

example, ‘‘To avoid additional finance 

charges, pay the new balance before 

llllll’’ would suffice. 

[2. Deferred-payment transactions. 

See comment 7–3.iv.] 

fl7(a)(9)fi [7(k)] Address for notice 

of billing errors. 

1. flTerminologyfi [Wording]. The 

periodic statement l[must contain the 

address for consumers to use in 

asserting billing errors under § 226.13. 

Since all disclosures must be ‘‘clear’’, 

the statement] should indicate the 

general purpose for the address flfor 

billing-error inquiriesfi, although fla 

detailedfi [no elaborate] explanation or 

particular wording is flnotfi required. 

2. Telephone number. A telephone 

number fl, e-mail address, or Web site 

locationfi may be included, but the 

flmailingfi address for billing-error 

inquiries, which is the required 

disclosure, must be clear and 

conspicuous. flThe 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.fi [One way to ensure that 

the address is clear and conspicuous is 

to include a precautionary instruction 

that telephoning will not preserve the 

consumer’s billing-error rights. Both of 

the billing rights statements in appendix 

G contain such a precautionary 

instruction, so that a creditor could, by 

including either of these statements 

with each periodic statement, ensure 

that the required address is provided in 

a clear and conspicuous manner.] 

fl7(a)(10)fi [7(i)] Closing date of 

billing cycle; new balance. 

1. Credit balances. See comment 

fl7(a)(1)–1fi [7(a)–1]. 

2. Multifeatured plans. In a 

multifeatured plan, the new balance 

may be disclosed for each feature or for 

the plan as a whole. If separate new 

balances are disclosed, a total new 

balance is optional. 

3. Accrued finance charges allocated 

from payments. Some plans provide that 

the amount of the finance charge that 

has accrued since the consumer’s last 

payment is directly deducted from each 

new payment, rather than being 

separately added to each statement and 

therefore reflected as an increase in the 

obligation. In such a plan, the new 


rwilkins on PROD1PC63 with PROPOSALS2
33120 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

balance need not reflect finance charges 

accrued since the last payment. 

fl7(b) Rules affecting open-end (not 

home-secured) plans. 

1. Deferred payment transactions. 

Creditors offer a variety of payment 

plans for purchases that permit 

consumers to avoid interest charges if 

the purchase balance is paid in full by 

a certain date. The following provides 

guidance for one type of deferredpayment plan where, for example, no 

interest charge is imposed on a $500 

purchase made in January if the $500 

balance is paid by March 31. 

i. Annual percentage rates. Under 

§ 226.7(b)(4), creditors must disclose 

each annual percentage rate that may be 

used to compute the interest charge. 

Under some plans with a deferredpayment feature, if the deferredpayment balance is not paid by the 

payment-due date, interest charges 

applicable to the billing cycles between 

the date of purchase and the paymentdue date (January through March in this 

example) may be imposed. Annual 

percentage rates that may apply to the 

deferred-payment balance ($500 in this 

example) if the balance is not paid in 

full by the payment-due date must 

appear on periodic statements for the 

billing cycles between the date of 

purchase and the payment-due date. 

However, if the consumer does not pay 

the deferred-payment balance by the 

due date, the creditor is not required to 

identify, on the periodic statement 

disclosing the interest charge for the 

deferred-payment balance, annual 

percentage rates that have been 

disclosed in previous billing cycles 

between the date of purchase and the 

payment due date. 

ii. Balances subject to periodic rates. 

Under § 226.7(b)(5), creditors must 

disclose the balances subject to interest 

during a billing cycle. The deferredpayment balance ($500 in this example) 

is not subject to interest for billing 

cycles between the date of purchase and 

the payment-due date. Periodic 

statements sent for those billing cycles 

should not include the deferredpayment balance in the balance 

disclosed under § 226.7(b)(5). At the 

creditor’s option, this amount may be 

disclosed on periodic statements 

provided it is identified by a term other 

than the term used to identify the 

balance disclosed under § 226.7(b)(5) 

(such as ‘‘deferred-payment balance’’). 

During any billing cycle in which a 

interest charge on the deferred-payment 

balance is debited to the account, the 

balance disclosed under § 226.7(b)(5) 

should include the deferred-payment 

balance for that billing cycle. 

iii. Amount of interest charge. Under 

§ 226.7(b)(6)(ii), creditors must disclose 

interest charges imposed during a 

billing cycle. For some deferredpayment purchases, the creditor may 

impose interest from the date of 

purchase if the deferred-payment 

balance ($500 in this example) is not 

paid in full by the due date, but 

otherwise will not impose interest for 

billing cycles between the date of 

purchase and the payment-due date. 

Periodic statements for billing cycles 

preceding the payment-due date should 

not include in the interest charge 

disclosed under § 226.7(b)(6)(ii) the 

amounts a consumer may owe if the 

deferred-payment balance is not paid in 

full by the payment-due date. In this 

example, the February periodic 

statement should not identify as interest 

charges interest attributable to the $500 

January purchase. At the creditor’s 

option, this amount may be disclosed on 

periodic statements provided it is 

identified by a term other than ‘‘interest 

charge’’ (such as ‘‘contingent interest 

charge’’ or ‘‘deferred interest charge’’). 

The interest charge on a deferredpayment balance should be reflected on 

the periodic statement under 

§ 226.7(b)(6)(ii) for the billing cycle in 

which the interest charge is debited to 

the account. 

iv. Grace period. Assuming monthly 

billing cycles ending at month-end and 

a grace period ending on the 25th of the 

following month, here are four examples 

illustrating how a creditor may comply 

with the requirement to disclose the 

grace period applicable to a deferredpayment balance ($500 in this example) 

and with the 14-day rule for mailing or 

delivering periodic statements before 

imposing finance charges (see § 226.5): 

A. The creditor could include the 

$500 purchase on the periodic statement 

reflecting account activity for February 

and sent on March 1 and identify March 

31 as the payment-due date for the $500 

purchase. (The creditor could also 

identify March 31 as the payment-due 

date for any other amounts that would 

normally be due on March 25.) 

B. The creditor could include the 

$500 purchase on the periodic statement 

reflecting activity for March and sent on 

April 1 and identify April 25 as the 

payment-due date for the $500 

purchase, permitting the consumer to 

avoid finance charges if the $500 is paid 

in full by April 25. 

C. The creditor could include the 

$500 purchase and its due date on each 

periodic statement sent during the 

deferred-payment period (January, 

February, and March in this example). 

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

March 31), the creditor could include 

the $500 purchase and its due date on 

the periodic statement reflecting activity 

for January and sent on February 1, the 

most recent statement sent at least 14 

days prior to the due date.fi 

fl7(b)(1) Previous balance. 

1. Credit balances. If the previous 

balance is a credit balance, it must be 

disclosed in such a way so as to inform 

the consumer that it is a credit balance, 

rather than a debit balance. 

2. Multifeatured plans. In a 

multifeatured plan, the previous balance 

may be disclosed either as an aggregate 

balance for the account or as separate 

balances for each feature (for example, 

a previous balance for purchases and a 

previous balance for cash advances). If 

separate balances are disclosed, a total 

previous balance is optional. 

3. Accrued finance charges allocated 

from payments. Some open-end credit 

plans provide that the amount of the 

finance charge that has accrued since 

the consumer’s last payment is directly 

deducted from each new payment, 

rather than being separately added to 

each statement and reflected as an 

increase in the obligation. In such a 

plan, the previous balance need not 

reflect finance charges accrued since the 

last payment.fi 

fl7(b)(2) Identification of 

transactions. 

1. Multifeatured plans. Creditors must 

arrange transactions by feature (such as 

disclosing sale transactions separately 

from cash advance transactions). 

2. Automated teller machine (ATM) 

charges imposed by other institutions in 

shared or interchange systems. A charge 

imposed on the cardholder by an 

institution other than the card issuer for 

the use of the other institution’s ATM in 

a shared or interchange system and 

included by the terminal-operating 

institution in the amount of the 

transaction need not be separately 

disclosed on the periodic statement.fi 

fl7(b)(3) Credits. 

1. Identification—sufficiency. The 

creditor need not describe each credit 

by type (returned merchandise, rebate of 

finance charge, etc.)—’’credit’’ would 

suffice—except if the creditor is using 

the periodic statement to satisfy the 

billing-error correction notice 

requirement. (See the commentary to 

§§ 226.13(e) and (f).) 

2. Date. If only one date is disclosed 

(that is, the crediting date as required by 

the regulation), no further identification 

of that date is necessary. More than one 

date may be disclosed for a single entry, 

as long as it is clear which date 

represents the date on which credit was 

given. 


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3. Totals. A total of amounts credited 

during the billing cycle is not 

required.fi 

fl7(b)(4) Periodic rates. 

1. Disclosure of periodic interest 

rates—whether or not actually applied. 

Except as provided in § 226.7(b)(4)(ii), 

any periodic interest rate that may be 

used to compute finance charges, 

expressed as and labeled ‘‘Annual 

Percentage Rate,’’ must be disclosed 

whether or not it is applied during the 

billing cycle. For example: 

i. If the consumer’s account has both 

a purchase feature and a cash advance 

feature, the creditor must disclose the 

interest rate for each, even if the 

consumer only makes purchases on the 

account during the billing cycle. 

ii. If the interest rate varies (such as 

when it is tied to a particular index), the 

creditor must disclose each interest rate 

in effect during the cycle for which the 

statement was issued. 

2. Disclosure of periodic interest rates 

required only if imposition possible. 

With regard to the periodic interest rate 

disclosure (and its corresponding 

annual percentage rate), only rates that 

could have been imposed during the 

billing cycle reflected on the periodic 

statement need to be disclosed. For 

example: 

i. If the creditor is changing interest 

rates effective during the next billing 

cycle (either because it is changing 

terms or because of a variable-rate plan), 

the annual percentage rates required to 

be disclosed under § 226.7(b)(4) are only 

those in effect during the billing cycle 

reflected on the periodic statement. For 

example, if the annual percentage rate 

applied during May was 18%, but the 

creditor will increase the rate to 21% 

effective June 1, 18% is the only 

required disclosure under § 226.7(b)(4) 

for the periodic statement reflecting the 

May account activity. 

ii. If the consumer has an overdraft 

line that might later be expanded upon 

the consumer’s request to include 

secured advances, the rates for the 

secured advance feature need not be 

given until such time as the consumer 

has requested and received access to the 

additional feature. 

iii. If interest rates applicable to a 

particular type of transaction changed 

after a certain date and the old rate is 

only being applied to transactions that 

took place prior to that date, the creditor 

need not continue to disclose the old 

rate for those consumers that have no 

outstanding balances to which that rate 

could be applied. 

3. Multiple rates—same transaction. If 

two or more periodic rates are applied 

to the same balance for the same type 

of transaction (for example, if the 

interest charge consists of a monthly 

periodic interest rate of 1.5% applied to 

the outstanding balance and a required 

credit life insurance component 

calculated at .1% per month on the 

same outstanding balance), creditors 

must disclose the interest periodic rate, 

expressed as an 18% annual percentage 

rate and the range of balances to which 

it is applicable. Costs attributable to the 

credit life insurance component must be 

disclosed as a fee under 

§ 226.7(b)(6)(iii). 

ALTERNATIVE 1—PARAGRAPH 

7(b)(4)4. 

4. Rate same as effective annual 

percentage rate. When the effective 

annual percentage rate disclosed under 

§ 226.7(b)(7) is computed solely by 

application of periodic rates, the 

effective annual percentage rate is the 

same as the corresponding annual 

percentage rate. In that case, only one 

annual percentage rate needs to be 

disclosed, labeled as ‘‘annual percentage 

rate.’’

ALTERNATIVE 2—PARAGRAPH 

7(b)(4)4. 

4. [Reserved.] 

5. Ranges of balances. See comment 

6(b)(2)(ii)–1. A creditor is not required 

to adjust the range of balances 

disclosure to reflect the balance below 

which only a minimum charge applies. 

6. Deferred-payment transactions. See 

comment 7–2.i. 

7. Fees. Creditors that identify fees in 

accordance with § 226.7(b)(6)(iii) need 

not identify the periodic rate at which 

a fee would accrue if the fee remains 

unpaid. For example, assume a fee is 

imposed for a late payment in the 

previous cycle and that the fee, unpaid, 

would be included in the purchases 

balance and accrue interest at the rate 

for purchases. The creditor need not 

separately disclose that the purchase 

rate applies to the portion of the 

purchases balance attributable to the 

unpaid fee.fi 

fl 7(b)(5) Balance on which finance 

charge computed. 

1. Split rates applied to balance 

ranges. If split rates were applied to a 

balance because different portions of the 

balance fall within two or more balance 

ranges, the creditor need not separately 

disclose the portions of the balance 

subject to such different rates since the 

range of balances to which the rates 

apply has been separately disclosed. For 

example, a creditor could disclose a 

balance of $700 for purchases even 

though a monthly periodic rate of 1.5% 

applied to the first $500, and a monthly 

periodic rate of 1% to the remainder. 

This option to disclose a combined 

balance does not apply when the 

interest charge is computed by applying 

the split rates to each day’s balance (in 

contrast, for example, to applying the 

rates to the average daily balance). In 

that case, the balances must be 

disclosed using any of the options that 

are available if two or more daily rates 

are imposed. (See comment 7(b)(5)–4.) 

2. Monthly rate on average daily 

balance. Creditors may apply a monthly 

periodic rate to an average daily 

balance. fi 

3. Multifeatured plans. In a 

multifeatured plan, the creditor must 

disclose a separate balance (or balances, 

as applicable) to which a periodic rate 

was applied for each feature. Separate 

balances are not required, however, 

merely because a grace period is 

available for some features but not 

others. A total balance for the entire 

plan is optional. This does not affect 

how many balances the creditor must 

disclose—or may disclose—within each 

feature. (See, for example, comment 

7(b)(5)–4 and 7(b)(4)–5.) 

4. Daily rate on daily balance. i. If a 

finance charge is computed on the 

balance each day by application of one 

or more daily periodic interest rates, the 

balance on which the interest charge 

was computed may be disclosed in any 

of the following ways for each feature: 

ii. If a single daily periodic interest 

rate is imposed, the balance to which it 

is applicable may be stated as: 

A. A balance for each day in the 

billing cycle. 

B. A balance for each day in the 

billing cycle on which the balance in 

the account changes. 

C. The sum of the daily balances 

during the billing cycle. 

D. The average daily balance during 

the billing cycle, in which case the 

creditor may, at its option explain that 

the average daily balance is or can be 

multiplied by the number of days in the 

billing cycle and the periodic rate 

applied to the product to determine the 

amount of interest. 

iii. If two or more daily periodic 

interest rates may be imposed, the 

balances to which the rates are 

applicable may be stated as: 

A. A balance for each day in the 

billing cycle. 

B. A balance for each day in the 

billing cycle on which the balance in 

the account changes. 

C. Two or more average daily 

balances, each applicable to the daily 

periodic interest rates imposed for the 

time that those rates were in effect. The 

creditor may, at its option, explain that 

interest is or may be determined by (1) 

multiplying each of the average balances 

by the number of days in the billing 

cycle (or if the daily rate varied during 

the cycle, by multiplying by the number 


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33122 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

of days the applicable rate was in 

effect), (2) multiplying each of the 

results by the applicable daily periodic 

rate, and (3) adding these products 

together. 

5. Information to compute balance. In 

connection with disclosing the finance 

charge balance, the creditor need not 

give the consumer all of the information 

necessary to compute the balance if that 

information is not otherwise required to 

be disclosed. For example, if current 

purchases are included from the date 

they are posted to the account, the 

posting date need not be disclosed. 

6. Non-deduction of credits. The 

creditor need not specifically identify 

the total dollar amount of credits not 

deducted in computing the finance 

charge balance. Disclosure of the 

amount of credits not deducted is 

accomplished by listing the credits 

(§ 226.7(b)(3)) and indicating which 

credits will not be deducted in 

determining the balance (for example, 

‘‘credits after the 15th of the month are 

not deducted in computing the finance 

charge.’’). 

7. Use of one balance computation 

method explanation when multiple 

balances disclosed. Sometimes the 

creditor will disclose more than one 

balance to which a periodic rate was 

applied, even though each balance was 

computed using the same balance 

computation method. For example, if a 

plan involves purchases and cash 

advances that are subject to different 

rates, more than one balance must be 

disclosed, even though the same 

computation method is used for 

determining the balance for each 

feature. In these cases, one explanation 

or a single identification of the name of 

the balance computation method is 

sufficient. Sometimes the creditor 

separately discloses the portions of the 

balance that are subject to different rates 

because different portions of the balance 

fall within two or more balance ranges, 

even when a combined balance 

disclosure would be permitted under 

comment 7(b)(5)–1. In these cases, one 

explanation or a single identification of 

the name of the balance computation 

method is also sufficient (assuming, of 

course, that all portions of the balance 

were computed using the same method). 

8. Deferred payment transactions. See 

comment 7(b)–1.fi 

fl7(b)(6) Charges imposed. 

1. Examples of charges. See 

commentary to § 226.6(b)(1). 

2. Fees. Costs attributable to periodic 

rates other than interest charges shall be 

disclosed as a fee. For example, if a 

consumer is required to obtain credit 

life insurance that is calculated at 0.1% 

per month on an outstanding balance 

and a monthly interest rate of 1.5% 

applies to the same balance, the creditor 

must disclose the dollar cost attributable 

to interest as an ‘‘interest charge’’ and 

the credit insurance cost as a ‘‘fee.’’ 3. Total fees for calendar year to date. 

Some creditors’’ statement periods do 

not coincide with the calendar month. 

In such cases, the creditor may disclose 

a calendar-year-to-date total at the end 

of the calendar year by aggregating fees 

for 12 monthly cycles, starting with the 

period that begins during January and 

finishing with the period that begins 

during December. For example, if 

statement periods begin on the 10th day 

of each month, the statement covering 

December 10, 2008, through January 9, 

2009, may disclose the year-to-date total 

for fees imposed from January 10, 2008, 

through January 9, 2009. Alternatively, 

the institution could provide a 

statement for the cycle ending January 

9, 2009, showing the year-to-date total 

for fees imposed January 1, 2008, 

through December 31, 2008. 

4. Minimum charge in lieu of interest. 

A minimum charge imposed if a charge 

would otherwise have been determined 

by applying a periodic rate to a balance 

except for the fact that such charge is 

smaller than the minimum must be 

disclosed as a fee. For example, assume 

a creditor imposes a minimum charge of 

$1.50 in lieu of interest if the calculated 

interest for a billing period is less than 

that minimum charge. If the interest 

calculated on a consumer’s account for 

a particular billing period is 50 cents, 

the minimum charge of $1.50 would 

apply. In this case, the entire $1.50 

would be disclosed as a fee; the periodic 

statement would reflect the $1.50 as a 

fee, and $0 in interest. 

ALTERNATIVE 1—PARAGRAPH 

7(b)(6)5. 

5. Purchase transactions. If there are 

several features relating to purchase 

transactions (such as a standard 

purchase feature and a promotional 

purchase feature), any minimum, fixed 

or other charges identified in § 226.14(e) 

that is not due to the application of 

periodic rates used to calculate interest 

and not related to a specific transaction 

must be grouped together with any other 

charges relating to standard purchase 

balances for purchases of 

§ 226.7(b)(6)(iv)(B). 

fl 7(b)(7) Effective annual percentage 

rate. 

ALTERNATIVE 1—PARAGRAPH. 

7(b)(7). 

1. Rate same as corresponding annual 

percentage rate when § 226.14(d)(1) is 

applicable. See comment 7(b)(4)–4. 

2. Itemized by type of transaction. In 

a multifeatured plan, the effective 

annual percentage rate determined 

under § 226.14(d) must be separately 

stated for each type of transaction, for 

example, purchases, balance transfers, 

and cash advances. 

ALTERNATIVE 2—PARAGRAPH 

7(b)(7). 

1. Plans not subject to the 

requirements of § 226.5b. For plans not 

subject to the requirements of § 226.5b, 

creditors are not required to disclose an 

effective annual percentage rate.fi 

fl7(b)(8) Grace period. 

1. Terminology. In describing the 

grace period, the language used must be 

consistent with that used on the 

account-opening disclosure statement. 

See § 226.5(a)(2)(i). 

2. Deferred-payment transactions. See 

comment 7(b)–1. fi 

fl7(b)(9) Address for notice of billing 

errors. 

1. Terminology. The periodic 

statement should indicate the general 

purpose for the address for billing-error 

inquiries, although a detailed 

explanation or particular wording is not 

required. 

2. Telephone number. A telephone 

number, e-mail address, or Web site 

location may be included, but the 

mailing address for billing-error 

inquiries, which is the required 

disclosure, must be clear and 

conspicuous. The address is deemed to 

be clear and conspicuous if a 

precautionary instruction is included 

that telephoning or notifying the 

creditor by e-mail or Web site will not 

preserve the consumer’s billing rights, 

unless the creditor has agreed to treat 

billing error notices provided by 

electronic means as written notices, in 

which case the precautionary 

instruction is required only for 

telephoning.fi 

fl7(b)(10) Closing date of billing 

cycle; new balance. 

1. Credit balances. See comment 

7(b)(1)–1. 

2. Multifeatured plans. In a 

multifeatured plan, the new balance 

may be disclosed for each feature or for 

the plan as a whole. If separate new 

balances are disclosed, a total new 

balance is optional. 

3. Accrued finance charges allocated 

from payments.Some plans provide that 

the amount of the finance charge that 

has accrued since the consumer’s last 

payment is directly deducted from each 

new payment, rather than being 

separately added to each statement and 

therefore reflected as an increase in the 

obligation. In such a plan, the new 

balance need not reflect finance charges 

accrued since the last payment.fi 

fl7(b)(11) Due date; late payment 

costs. 

1. Informal periods affecting late 

payments. Although the terms of the 


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account agreement may provide that a 

creditor may assess a late-payment fee if 

a payment is not received by a certain 

date, creditors sometimes have an 

informal policy that delays the 

assessment of the late-payment fee for 

payments received a brief period of time 

after the date upon which a creditor has 

the contractual right to impose the fee. 

Creditors must disclose the due date 

according to the legal obligation 

between the parties, and need not 

consider the end of an informal 

‘‘courtesy period’’ as the due date under 

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

fl7(b)(12) Minimum payment. 

7(b)(12)(iii) Exemptions. 

1. Exemption for credit card accounts 

with a fixed repayment period. The 

exemption in § 226.7(b)(12)(iii)(E) 

applies only if the account agreement 

specifies a fixed repayment period, such 

as providing that the minimum payment 

will pay off the entire balance on the 

account in one year. This exemption 

would apply, for example, to 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. This exemption would not 

apply where a feature of a credit card 

may have a fixed repayment period, but 

the account as a whole does not. For 

example, assume a retail credit card has 

several features. One feature is a general 

revolving feature, where the minimum 

payment for this feature does not pay off 

the balance in a fixed period of time. 

Another feature allows consumers to 

make specific types of purchases (such 

as furniture purchases, or other large 

purchases), with a minimum payment 

that will pay off the purchase within a 

fixed period of time, such as one year. 

This exemption would not apply 

because the retail card account as a 

whole does not have a fixed repayment 

period. Nonetheless, these types of retail 

cards may qualify for the exemption in 

§ 226.7(b)(12)(iii)(G). 

2. Exemption for certain credit card 

accounts with fixed repayment period 

feature. The exemption applies if the 

entire outstanding balance for a 

particular billing cycle falls within a 

feature with a fixed repayment period 

that is specified in the account 

agreement, such as providing that the 

minimum payment will pay off the 

entire balance on that feature in one 

year. For example, assume a retail card 

card has several features. One feature is 

a general revolving feature, where the 

minimum payment for this feature does 

not pay off the balance in a fixed period 

of time. Another feature allows 

consumers to make specific types of 

purchases (such as furniture purchases, 

or other large purchases), with a 

minimum payment that will pay off the 

purchase within a fixed period of time, 

such as one year. This exemption 

applies if the entire outstanding balance 

for a particular billing cycle falls with 

the feature with the fixed repayment 

period. In that case, the issuer would 

not need to provide the minimum 

payment disclosures for that billing 

cycle. If the consumer used a general 

revolving feature during a billing 

period, this exemption would not apply. 

7(b)(12)(iv) Toll-free telephone 

numbers. 

1. Third parties. At their option, card 

issuers and the Federal Trade 

Commission (FTC) may use a thirdparty to establish and maintain a tollfree telephone number for use by the 

issuer or the FTC to provide the generic 

repayment estimates or actual 

repayment disclosures, as applicable. 

2. Automated response systems or 

devices. At their option, card issuers 

and the FTC may use toll-free telephone 

numbers that connect consumers to 

automated systems, such as an 

interactive voice response system, 

through which consumers may obtain 

the generic repayment estimates or 

actual repayment disclosures described 

in appendix M1 or M2, as applicable, by 

inputting information using a touchtone telephone or similar device. 

However, consumers whose telephones 

are not equipped to use such automated 

device must be provided the 

opportunity to be connected to an 

individual from whom the information 

may be obtained. 

3. Advertising or marketing 

information. If a consumer requests the 

generic repayment estimate or the actual 

repayment disclosure, as applicable, the 

card issuer may not provide 

advertisements or marketing materials 

to the consumer prior to providing the 

information required or permitted by 

appendix M1 or M2, as applicable.fi 

Section 226.8—[Identification of 

Transactions] flIdentifying 

Transactions on Periodic Statementsfi 

fl8(a) Sale credit. 

1. Sale credit. The term ‘‘sale credit’’

refers to a purchase in which the 

consumer uses a credit card or 

otherwise directly accesses an open-end 

line of credit (see comment 8(b)–1 if 

access is by means of a check) to obtain 

goods or services from a merchant, 

whether or not the merchant is the card 

issuer. ‘‘Sale credit’’ includes: 

i. Premiums for voluntary credit life 

insurance whether sold by the card 

issuer or another person. 

ii. The purchase of funds-transfer 

services (such as telegrams) from an 

intermediary or an expedited payment 

service from a creditor. 

2. Amount—transactions not billed in 

full. If sale transactions are not billed in 

full on any single statement, but are 

billed periodically in precomputed 

installments, the first periodic statement 

reflecting the transaction must show 

either the full amount of the transaction 

together with the date the transaction 

actually took place; or the amount of the 

first installment that was debited to the 

account together with the date of the 

transaction or the date on which the 

first installment was debited to the 

account. In any event, subsequent 

periodic statements should reflect each 

installment due, together with either 

any other identifying information 

required by § 226.8(a) (such as the 

seller’s name and address in a threeparty situation) or other appropriate 

identifying information relating the 

transaction to the first billing. The 

debiting date for the particular 

installment, or the date the transaction 

took place, may be used as the date of 

the transaction on these subsequent 

statements. 

3. Date—when a transaction takes 

place. 

i. If the consumer conducts the 

transaction in person, the date of the 

transaction is the calendar date on 

which the consumer made the purchase 

or order, or secured the advance. 

ii. For transactions billed to the 

account on an ongoing basis (other than 

installments to pay a precomputed 

amount), the date of the transaction is 

the date on which the amount is debited 

to the account. This might include, for 

example, monthly insurance premiums. 

iii. For mail, Internet, or telephone 

orders, a creditor may disclose as the 

transaction date either the invoice date, 

the debiting date, or the date the order 

was placed by telephone or via the 

Internet. 

iv. In a foreign transaction, the 

debiting date may be considered the 

transaction date. 

4. Date—sufficiency of description. 

i. If the creditor discloses only the 

date of the transaction, the creditor need 

not identify it as the ‘‘transaction date.’’

If the creditor discloses more than one 

date (for example, the transaction date 

and the posting date), the creditor must 

identify each. 

ii. The month and day sufficiently 

identify the transaction date, unless the 

posting of the transaction is delayed so 

long that the year is needed for a clear 

disclosure to the consumer. 

5. Same or related persons. i. For 

purposes of identifying transactions, the 


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term same or related persons refers to, 

for example: 

A. Franchised or licensed sellers of a 

creditor’s product or service. 

B. Sellers who assign or sell open-end 

sales accounts to a creditor or arrange 

for such credit under a plan that allows 

the consumer to use the credit only in 

transactions with that seller. 

ii. A seller is not related to the 

creditor merely because the seller and 

the creditor have an agreement 

authorizing the seller to honor the 

creditor’s credit card. 

6. Brief identification—sufficiency of 

description. The ‘‘brief identification’’

provision in § 226.8(a)(2)(i) requires a 

designation that will enable the 

consumer to reconcile the periodic 

statement with the consumer’s own 

records. In determining the sufficiency 

of the description, the following rules 

apply: 

i. While item-by-item descriptions are 

not necessary, reasonable precision is 

required. For example, ‘‘merchandise,’’

‘‘miscellaneous,’’ ‘‘second-hand goods,’’

or ‘‘promotional items’’ would not 

suffice. 

ii. A reference to a department in a 

sales establishment that accurately 

conveys the identification of the types 

of property or services available in the 

department is sufficient—for example, 

‘‘jewelry,’’ or ‘‘sporting goods.’’

iii. A number or symbol that is related 

to an identification list printed 

elsewhere on the statement that 

reasonably identifies the transaction 

with the creditor is sufficient. 

7. Seller’s name—sufficiency of 

description. The requirement 

contemplates that the seller’s name will 

appear on the periodic statement in 

essentially the same form as it appears 

on transaction documents provided to 

the consumer at the time of the sale. The 

seller’s name may also be disclosed as, 

for example: 

i. A more complete spelling of the 

name that was alphabetically 

abbreviated on the receipt or other 

credit document. 

ii. An alphabetical abbreviation of the 

name on the periodic statement even if 

the name appears in a more complete 

spelling on the receipt or other credit 

document. Terms that merely indicate 

the form of a business entity, such as 

‘‘Inc.,’’ ‘‘Co.,’’ or ‘‘Ltd.,’’ may always be 

omitted. 

8. Location of transaction. 

i. If the seller has multiple stores or 

branches within a city, the creditor need 

not identify the specific branch at which 

the sale occurred. 

ii. When no meaningful address is 

available because the consumer did not 

make the purchase at any fixed location 

of the seller, the creditor may omit the 

address, or may provide some other 

identifying designation, such as ‘‘aboard 

plane,’’ ‘‘ABC Airways Flight,’’

‘‘customer’s home,’’ ‘‘telephone order,’’

‘‘Internet order or mail order.’’fi 

fl8(b) Nonsale credit. 

1. Nonsale credit. The term nonsale 

credit refers to any form of loan credit 

including, for example: 

i. A cash advance. 

ii. An advance on a credit plan that 

is accessed by overdrafts on a checking 

account. 

iii. The use of a ‘‘supplemental credit 

device’’ in the form of a check or draft 

or the use of the overdraft credit plan 

accessed by a debit card, even if such 

use is in connection with a purchase of 

goods or services. 

iv. Miscellaneous debits to remedy 

mispostings, returned checks, and 

similar entries. 

2. Amount—overdraft credit plans. If 

credit is extended under an overdraft 

credit plan tied to a checking account or 

by means of a debit card tied to an 

overdraft credit plan: 

i. The amount to be disclosed is that 

of the credit extension, not the face 

amount of the check or the total amount 

of the debit/credit transaction. 

ii. The creditor may disclose the 

amount of the credit extensions on a 

cumulative daily basis, rather than the 

amount attributable to each check or 

each use of the debit card that accesses 

the credit plan. 

3. Date of transaction. See comment 

8(a)–4. 

4. Nonsale transaction—sufficiency of 

identification. The creditor sufficiently 

identifies a nonsale transaction by 

describing the type of advance it 

represents, such as cash advance, loan, 

overdraft loan, or any readily 

understandable trade name for the 

credit program.fi 

[1. Application of identification rules. 

Section 226.8 deals with the 

requirement (imposed by § 226.7(b)) for 

identification of each credit transaction 

made during the billing cycle. The rules 

for identifying transactions on periodic 

statements vary, depending on whether: 

• The transaction involves sale credit 

(purchases) or nonsale credit (cash 

advances, for example). 

• An actual copy of the credit 

document reflecting the transaction 

accompanies the statement (this is the 

distinction between so-called country 

club and descriptive billing). 

• The creditor and seller are the same 

or related persons. 

2. Sale credit. The term sale credit 

refers to a purchase in which the 

consumer uses a credit card or 

otherwise directly accesses an open-end 

line of credit (see comment 8–3 if access 

is by means of a check) to obtain goods 

or services from a merchant, whether or 

not the merchant is the card issuer. Sale 

credit even includes: 

• Premiums for voluntary credit life 

insurance whether sold by the card 

issuer or another person. 

• The purchase of funds-transfer 

services (such as telegrams) from an 

intermediary. 

3. Nonsale credit. The term nonsale 

credit refers to any form of loan credit 

including, for example: 

• Cash advances. 

• Overdraft checking. 

• The use of a supplemental credit 

device in the form of a check or draft or 

the use of the overdraft feature of debit 

card, even if such use is in connection 

with a purchase of goods or services. 

• Miscellaneous debits to remedy 

mispostings, returned checks, and 

similar entries. 

4. Actual copy. An actual copy does 

not include a recreated document. It 

includes, for example, a duplicate, 

carbon, or photographic copy, but does 

not include a so-called ‘‘facsimile draft’’

in which the required information is 

typed, printed, or otherwise recreated. If 

a facsimile draft is used, the creditor 

must follow the rules that apply when 

a copy of the credit document is not 

furnished. 

5. Same or related persons. For 

purposes of identifying transactions, the 

term same or related persons refers to, 

for example: 

• Franchised or licensed sellers of a 

creditor’s product or service. 

• Sellers who assign or sell open-end 

sales accounts to a creditor or arrange 

for such credit under a plan that allows 

the consumer to use the credit only in 

transactions with that seller. 

• A seller is not related to the creditor 

merely because the seller and the 

creditor have an agreement authorizing 

the seller to honor the creditor’s credit 

card. 

6. Transactions resulting from 

promotional material. In describing 

transactions with third-party sellers 

resulting from promotional material 

mailed by the creditor, creditors may 

use the rules either for ‘‘related’’ or for 

‘‘nonrelated’’ sellers and creditors. 

7. Credit insurance offered through 

the creditor. When credit insurance that 

is not part of the finance charge (for 

example, voluntary credit life 

insurance) is offered to the consumer 

through the creditor but is actually 

provided by another company, the 

creditor has the option of identifying the 

premiums in one of two ways on the 

periodic statement. The creditor may 

describe the premiums using either the 


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rule in § 226.8(a)(2) for related sellers 

and creditors, or the rule in § 226.8(a)(3) 

for nonrelated sellers and creditors. 

This means, therefore, that the creditor 

may identify the insurance either by 

providing, under § 226.8(a)(2), a brief 

identification of the services provided 

(for example, credit life insurance), or 

by disclosing, under § 226.8(a)(3), the 

name and address of the company 

providing the insurance (for example, 

ABC Insurance Company, New York, 

New York). In either event, the creditor 

would, of course, also provide the 

amount and the date of the transaction. 

8. Transactions involving creditors 

and sellers with corporate connections. 

In a credit card plan established for use 

primarily with sellers that have no 

corporate connection with the creditor, 

the creditor may describe all 

transactions under the plan by using the 

rules in § 226.8(a)(3)—creditor and 

seller not same or related persons—

including transactions involving a seller 

that has a corporate connection with the 

creditor. In other credit card plans, the 

creditor may describe transactions 

involving a seller that has a corporate 

connection with the creditor, such as 

subsidiary-parent, using the rules in 

§ 226.8(a)(3) where it is unlikely that the 

consumer would know of the corporate 

connection between the creditor and the 

seller—for example, where the names of 

the creditor and the seller are not 

similar, and the periodic statement is 

issued in the name of the creditor only. 

8(a) Sale credit. 

1. Date—disclosure of only one date. 

If only the required date is disclosed for 

a transaction, the creditor need not 

identify it as the ‘‘transaction date.’’ If 

the creditor discloses more than one 

date (for example, the transaction date 

and the posting date), the creditor must 

identify each. 

2. Date—disclosure of month and day 

only. The month and day are sufficient 

disclosure of the date on which the 

transaction took place, unless the 

posting of the transaction is delayed so 

long that the year is needed for a clear 

disclosure to the consumer. 

3. When transaction takes place. If the 

consumer conducts the transaction in 

person, the date of the transaction is the 

calendar date on which the consumer 

made the purchase or order, or secured 

the advance. For transactions billed to 

the account on an ongoing basis (other 

than installments to pay a precomputed 

amount), the date of the transaction is 

the date on which the amount is debited 

to the account. This might include, for 

example, monthly insurance premiums. 

For mail, or telephone orders, a creditor 

may disclose as the transaction date 

either the invoice date, the debiting 

date, or the date the order was placed 

by telephone. 

4. Transactions not billed in full. If 

sale transactions are not billed in full on 

any single statement, but are billed 

periodically in precomputed 

installments, the first periodic statement 

reflecting the transaction must show 

either the full amount of the transaction 

together with the date the transaction 

actually took place; or the amount of the 

first installment that was debited to the 

account together with the date of the 

transaction or the date on which the 

first installment was debited to the 

account. In any event, subsequent 

periodic statements should reflect each 

installment due, together with either 

any other identifying information 

required by § 226.8(a) (such as the 

seller’s name and address in a threeparty situation) or other appropriate 

identifying information relating the 

transaction to the first billing. The 

debiting date for the particular 

installment, or the date the transaction 

took place, may be used as the date of 

the transaction on these subsequent 

statements. 

8(a)(1) Copy of credit document 

provided. 

1. Format. The information required 

by § 226.8(a)(1) may appear either on 

the copy of the credit document 

reflecting the transaction or on the 

periodic statement. 

8(a)(2) Copy of credit document not 

provided—creditor and seller same or 

related person(s). 

1. Property identification—sufficiency 

of description. The ‘‘brief identification’’

provision in § 226.8(a)(2) requires a 

designation that will enable the 

consumer to reconcile the periodic 

statement with the consumer’s own 

records. In determining the sufficiency 

of the description, the following rules 

apply: 

• While item-by-item descriptions are 

not necessary, reasonable precision is 

required. For example, merchandise, 

miscellaneous, second-hand goods, or 

promotional items would not suffice. 

• A reference to a department in a 

sales establishment that accurately 

conveys the identification of the types 

of property or services available in the 

department is sufficient—for example, 

jewelry, sporting goods. 

2. Property identification—number or 

symbol. The ‘‘brief identification’’ may 

be made by disclosing on the periodic 

statement a number or symbol that is 

related to an identification list printed 

elsewhere on the statement. 

3. Property identification—additional 

document. In making the ‘‘brief 

identification’’ required by § 226.8(a)(2), 

the creditor may identify the property 

by describing the transaction on a 

document accompanying the periodic 

statement (for example, on a facsimile 

draft). (See also footnote 17.) 

4. Small creditors. Under footnote 18, 

which provides a further identification 

alternative to a creditor with fewer than 

15,000 accounts, the creditor need count 

only its own accounts and not others 

serviced by the same data processor or 

other shared-service provider. 

5. Date of transaction—foreign 

transactions. In a foreign transaction, 

the debiting date may be considered the 

transaction date. 

8(a)(3) Copy of credit document not 

provided—creditor and seller not same 

or related person(s). 

1. Seller’s name. The requirement 

contemplates that the seller’s name will 

appear on the periodic statement in 

essentially the same form as it appears 

on transaction documents provided to 

the consumer at the time of the sale. The 

seller’s name may also be disclosed as, 

for example: 

• A more complete spelling of the 

name that was alphabetically 

abbreviated on the receipt or other 

credit document. 

• An alphabetical abbreviation of the 

name on the periodic statement even if 

the name appears in a more complete 

spelling on the receipt or other credit 

document. Terms that merely indicate 

the form of a business entity, such as 

Inc., Co., or Ltd., may always be 

omitted. 

2. Location of transaction. The 

disclosure of the location where the 

transaction took place generally requires 

an indication of both the city, and the 

state or foreign country. If the seller has 

multiple stores or branches within that 

city, the creditor need not identify the 

specific branch at which the sale 

occurred. 

3. No fixed location. When no 

meaningful address is available because 

the consumer did not make the 

purchase at any fixed location of the 

seller, the creditor: 

• May omit the address. 

• May provide some other identifying 

designation, such as aboard plane, ABC 

Airways Flight, customer’s home, 

telephone order, or mail order. 

4. Date of transaction—foreign 

transactions. See comment 8(a)(2)–5.] 

[8(b) Nonsale credit. 1. Date of 

transaction. If only one of the required 

dates is disclosed for a transaction, the 

creditor need not identify it. If the 

creditor discloses more than one date 

(for example, transaction date and 

debiting date), the creditor must identify 

each. 

2. Amount of transaction. If credit is 

extended under an overdraft checking 


rwilkins on PROD1PC63 with PROPOSALS2
33126 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

account plan or by means of a debit card 

with an overdraft feature, the amount to 

be disclosed is that of the credit 

extension, not the face amount of the 

check or the total amount of the debit/ 

credit transaction. 

3. Amount—disclosure on cumulative 

basis. If credit is extended under an 

overdraft checking account plan or by 

means of a debit card with an overdraft 

feature, the creditor may disclose the 

amount of the credit extensions on a 

cumulative daily basis, rather than the 

amount attributable to each check or 

each use of the debit/credit card. 

4. Identification of transaction type. 

The creditor may identify a transaction 

by describing the type of advance it 

represents, such as cash advance, loan, 

overdraft loan, or any readily 

understandable trade name for the 

credit program.] 

Section 226.9—Subsequent Disclosure 

Requirements 

9(a) Furnishing Statement of Billing 

Rights. 

9(a)(1) Annual Statement. 

1. General. The creditor may provide 

the annual billing rights statement: 

i. By sending it in one billing period 

per year to each consumer that gets a 

periodic statement for that period; or 

ii. By sending a copy to all of its 

accountholders sometime during the 

calendar year but not necessarily all in 

one billing period (for example, sending 

the annual notice in connection with 

renewal cards or when imposing annual 

membership fees). 

2. Substantially similar. See the 

commentary to [appendix G–3] flModel 

Form G–3 and G–3(A) in appendix Gfi. 

9(a)(2) Alternative Summary 

Statement 

1. Changing from long-form to shortform statement and vice versa. If the 

creditor has been sending the long-form 

annual statement, and subsequently 

decides to use the alternative summary 

statement, the first summary statement 

must be sent no later than 12 months 

after the last long-form statement was 

sent. Conversely, if the creditor wants to 

switch to the long-form, the first longform statement must be sent no later 

than 12 months after the last summary 

statement. 

2. Substantially similar. See the 

commentary to [appendix G–4] flModel 

Forms G–4 and G–4(A) in appendix 

Gfi. 

9(b) Disclosures for Supplemental 

Credit flAccessfi Devices and 

Additional Features. 

1. Credit flaccessfi device—

examples. Credit flaccessfi device 

includes, for example, a blank check, 

payee-designated check, blank draft or 

order, or authorization form for issuance 

of a check; it does not include a check 

issued payable to a consumer 

representing loan proceeds or the 

disbursement of a cash advance. 

2. Credit flaccountfi feature 

examples. A new credit flaccountfi 

feature would include, for example: 

fli.fi The addition of overdraft 

checking to an existing account 

(although the regular checks that could 

trigger the overdraft feature are not 

themselves ‘‘devices’’ ) 

flii.fi The option to use an existing 

credit card to secure cash advances, 

when previously the card could only be 

used for purchases 

[Paragraph 9(b)(1) 

1. Same finance charge terms. If the 

new means of accessing the account is 

subject to the same finance charge terms 

as those previously disclosed, the 

creditor: 

• Need only provide a reminder that 

the new device or feature is covered by 

the earlier disclosures. (For example, in 

mailing special checks that directly 

access the credit line, the creditor might 

give a disclosure such as ‘‘Use this as 

you would your XYZ card to obtain a 

cash advance from our bank’’) or 

• May remake the section 226.6(a) 

finance charge disclosures.] 

Paragraph 9(b)(2) 

1. Different finance charge terms. 

flExcept as provided in § 226.9(b)(3) for 

checks that access a credit card account, 

iffi [If] the finance charge terms are 

different from those previously 

disclosed, the creditor may satisfy the 

requirement to give the finance charge 

terms either by giving a complete set of 

new [initial] flaccount-openingfi 

disclosures reflecting the terms of the 

added device or feature or by giving 

only the finance charge disclosures for 

the added device or feature. 

flParagraph 9(b)(3) 

1. Discounted initial rate. If the term 

‘‘introductory’’ or ‘‘intro’’ is in the same 

phrase as the discounted initial annual 

percentage rate, it will be deemed to be 

in immediate proximity of the listing of 

the discounted rate.fi 

9(c) Change in Terms. 

fl9(c)(1) Rules Affecting Home equity 

Plansfi 

1. Changes initially disclosed. No 

notice of a change in terms need be 

given if the specific change is set forth 

initially, such as: Rate increases under 

a properly disclosed variable-rate plan, 

a rate increase that occurs when an 

employee has been under a preferential 

rate agreement and terminates 

employment, or an increase that occurs 

when the consumer has been under an 

agreement to maintain a certain balance 

in a savings account in order to keep a 

particular rate and the account balance 

falls below the specified minimum. [In 

contrast, notice must be given if the 

contract allows the creditor to increase 

the rate at its discretion but does not 

include specific terms for an increase 

(for example, when an increase may 

occur under the creditor’s contract 

reservation right to increase the periodic 

rate).] The rules in § 226.5b(f) relating to 

home equity plans limit the ability of a 

creditor to change the terms of such 

plans. 

2. State law issues. Examples of issues 

not addressed by § 226.9(c) because they 

are controlled by State or other 

applicable law include: 

i. The types of changes a creditor may 

make. (But see § 226.5b(f)) 

ii. How changed terms affect existing 

balances, such as when a periodic rate 

is changed and the consumer does not 

pay off the entire existing balance before 

the new rate takes effect. 

3. Change in billing cycle. Whenever 

the creditor changes the consumer’s 

billing cycle, it must give a change-interms notice if the change either affects 

any of the terms required to be disclosed 

under § 226.6 fl(a)fi or increases the 

minimum payment, unless an exception 

under fl§ 226.9(c)(1)(ii)fi 

[§ 226.9(c)(2)] applies; for example, the 

creditor must give advance notice if the 

creditor initially disclosed a 25-day 

flgracefi [free-ride] period on 

purchases and the consumer will have 

fewer days during the billing cycle 

change. 

9(c)(1) fl(i)fi Written Notice 

Required 

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

consumers who may be affected by the 

change. For example, a change in the 

periodic rate for check overdraft credit 

need not be disclosed to consumers who 

do not have that feature on their 

accounts. 

2. Timing—effective date of change. 

The rule that the notice of the change in 

terms be provided at least 15 days 

before the change takes effect permits 

mid-cycle changes when there is clearly 

no retroactive effect, such as the 

imposition of a transaction fee. Any 

change in the balance computation 

method, in contrast, would need to be 

disclosed at least 15 days prior to the 

billing cycle in which the change is to 

be implemented. 

3. Timing—advance notice not 

required. Advance notice of 15 days is 

not necessary—that is, a notice of 

change in terms is required, but it may 

be mailed or delivered as late as the 

effective date of the change—in two 

circumstances: 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33127 

i. If there is an increased periodic rate 

or any other finance charge attributable 

to the consumer’s delinquency or 

default. 

ii. If the consumer agrees to the 

particular change. This provision is 

intended for use in the unusual instance 

when a consumer substitutes collateral 

or when the creditor can advance 

additional credit only if a change 

relatively unique to that consumer is 

made, such as the consumer’s providing 

additional security or paying an 

increased minimum payment amount. 

Therefore, the following are not 

‘‘agreements’’ between the consumer 

and the creditor for purposes of 

§ 226.9(c)(1) fl(i)fi: The consumer’s 

general acceptance of the creditor’s 

contract reservation of the right to 

change terms; the consumer’s use of the 

account (which might imply acceptance 

of its terms under State law); and the 

consumer’s acceptance of a unilateral 

term change that is not particular to that 

consumer, but rather is of general 

applicability to consumers with that 

type of account. 

4. Form of change-in-terms notice. A 

complete new set of the initial 

disclosures containing the changed term 

complies with § 226.9(c) fl(1)(i)fi if the 

change is highlighted in some way on 

the disclosure statement, or if the 

disclosure statement is accompanied by 

a letter or some other insert that 

indicates or draws attention to the term 

change. 

5. Security interest change—form of 

notice. A copy of the security agreement 

that describes the collateral securing the 

consumer’s account may be used as the 

notice, when the term change is the 

addition of a security interest or the 

addition or substitution of collateral. 

6. Changes to home equity plans 

entered into on or after November 7, 

1989. Section 226.9(c) fl(1)fi applies 

when, by written agreement under 

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

terms of a home equity plan—entered 

into on or after November 7, 1989—at or 

before its scheduled expiration, for 

example, by renewing a plan on terms 

different from those of the original plan. 

In disclosing the change: 

i. If the index is changed, the 

maximum annual percentage rate is 

increased (to the limited extent 

permitted by § 226.30), or a variable-rate 

feature is added to a fixed-rate plan, the 

creditor must include the disclosures 

required by § 226.5b(d)(12)(x) and 

(d)(12)(xi), unless these disclosures are 

unchanged from those given earlier. 

ii. If the minimum payment 

requirement is changed, the creditor 

must include the disclosures required 

by § 226.5flbfi(d)(5)(iii) (and, in 

variable-rate plans, the disclosures 

required by § 226.5b(d)(12)(x) and 

(d)(12)(xi)) unless the disclosures given 

earlier contained representative 

examples covering the new minimim 

payment requirement. (See the 

commentary to § 226.5b(d)(5)(iii), 

(d)(12)(x) and (d)(12)(xi) for a discussion 

of representative examples.) 

iii. When the terms are changed 

pursuant to a written agreement as 

described in § 226.5b(f)(3)(iii), the 

advance-notice requirement does not 

apply. 

[9(c)(2)] fl9(c)(1)(ii)fi Notice Not 

Required 

1. Changes not requiring notice. The 

following are examples of changes that 

do not require a change-in-terms notice: 

i. A change in the consumer’s credit 

limit. 

ii. A change in the name of the credit 

card or credit card plan. 

iii. The substitution of one insurer for 

another. 

iv. A termination or suspension of 

credit privileges. (But see § 226.5b(f)) 

v. Changes arising merely by 

operation of law; for example, if the 

creditor’s security interest in a 

consumer’s car automatically extends to 

the proceeds when the consumer sells 

the car. 

2. Skip features. If a credit program 

allows consumers to skip or reduce one 

or more payments during the year, or 

involves temporary reductions in 

finance charges, no notice of the change 

in terms is required either prior to the 

reduction or upon resumption of the 

higher rates or payments if these 

features are explained on the initial 

disclosure statement (including an 

explanation of the terms upon 

resumption). For example, a merchant 

may allow consumers to skip the 

December payment to encourage 

holiday shopping, or a teachers’ credit 

union may not require payments during 

summer vacation. Otherwise, the 

creditor must give notice prior to 

resuming the original schedule or rate, 

even though no notice is required prior 

to the reduction. The change-in-terms 

notice may be combined with the notice 

offering the reduction. For example, the 

periodic statement reflecting the 

reduction or skip feature may also be 

used to notify the consumer of the 

resumption of the original schedule or 

rate, either by stating explicitly when 

the higher payment or charges resume, 

or by indicating the duration of the skip 

option. Language such as ‘‘You may 

skip your October payment,’’ or ‘‘We 

will waive your finance charges for 

January,’’ may serve as the change-interms notice. 

fl9(c)(1)(iii) Notice to Restrict 

Creditfi [9(c)(3) Notice for Home Equity 

Plans] 

1. Written request for reinstatement. If 

a creditor requires the request for 

reinstatement of credit privileges to be 

in writing, the notice under 

fl§ 226.9(c)(1)(iii)fi [§ 226.9(c)(3)] must 

state that fact. 

2. Notice not required. A creditor 

need not provide a notice under this 

paragraph if, pursuant to the 

commentary to § 226.5b(f)(2), a creditor 

freezes a line or reduces a credit line 

rather than terminating a plan and 

accelerating the balance. 

fl9(c)(2) Rules Affecting Open-end 

(Not Home-secured) Plans 

1. Changes initially disclosed. Except 

as provided in § 226.9(g)(1), no notice of 

a change in terms need be given if the 

specific change is set forth initially, 

such as: rate increases under a properly 

disclosed variable-rate plan, a rate 

increase that occurs when an employee 

has been under a preferential rate 

agreement and terminates employment, 

or an increase that occurs when the 

consumer has been under an agreement 

to maintain a certain balance in a 

savings account in order to keep a 

particular rate and the account balance 

falls below the specified minimum. In 

contrast, notice must be given if the 

contract allows the creditor to increase 

the rate at its discretion. 

2. State law issues. Some issues are 

not addressed by § 226.9(c)(2) because 

they are controlled by state or other 

applicable law. These issues include: 

i. The types of changes a creditor may 

make. 

ii. How changed terms affect existing 

balances, such as when a periodic rate 

is changed and the consumer does not 

pay off the entire existing balance before 

the new rate takes effect. 

3. Change in billing cycle. Whenever 

the creditor changes the consumer’s 

billing cycle, it must give a change-interms notice if the change either affects 

any of the terms described in 

§ 226.9(c)(2)(i), unless an exception 

under § 226.9(c)(2)(ii) or (c)(2)(iv) 

applies; for example, the creditor must 

give advance notice if the creditor 

initially disclosed a 25-day grace period 

on purchases and the consumer will 

have fewer days during the billing cycle 

change. 

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

Advance Notice Is Required 

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

consumers who may be affected by the 

change. For example, a change in the 

periodic rate for check overdraft credit 

need not be disclosed to consumers who 

do not have that feature on their 


rwilkins on PROD1PC63 with PROPOSALS2
33128 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

accounts. If a single credit account 

involves multiple consumers that may 

be affected by the change, the creditor 

should refer to § 226.5(d) to determine 

the number of notices that must be 

given. 

2. Timing—effective date of change. 

The rule that the notice of the change in 

terms be provided at least 45 days 

before the change takes effect permits 

midcycle changes when there is clearly 

no retroactive effect, such as the 

imposition of a transaction fee. Any 

change in the balance computation 

method, in contrast, would need to be 

disclosed at least 45 days prior to the 

billing cycle in which the change is to 

be implemented. 

3. Timing—advance notice not 

required. Advance notice of 45 days is 

not necessary—that is, a notice of 

change in terms is required, but it may 

be mailed or delivered as late as the 

effective date of the change if the 

consumer agrees to the particular 

change. This provision is intended for 

use in the unusual instance when a 

consumer substitutes collateral or when 

the creditor can advance additional 

credit only if a change relatively unique 

to that consumer is made, such as the 

consumer’s providing additional 

security or paying an increased 

minimum payment amount. Therefore, 

the following are not ‘‘agreements’’

between the consumer and the creditor 

for purposes of § 226.9(c)(2)fl(i)fi: The 

consumer’s general acceptance of the 

creditor’s contract reservation of the 

right to change terms; the consumer’s 

use of the account (which might imply 

acceptance of its terms under State law); 

and the consumer’s acceptance of a 

unilateral term change that is not 

particular to that consumer, but rather is 

of general applicability to consumers 

with that type of account. 

4. Form of change-in-terms notice. 

Except if § 226.9(c)(2)(iii) applies, a 

complete new set of the initial 

disclosures containing the changed term 

complies with § 226.9(c)(2)(i) if the 

change is highlighted in some way on 

the disclosure statement, or if the 

disclosure statement is accompanied by 

a letter or some other insert that 

indicates or draws attention to the term 

being changed. 

5. Security interest change—form of 

notice. A copy of the security agreement 

that describes the collateral securing the 

consumer’s account may be used as the 

notice, when the term change is the 

addition of a security interest or the 

addition or substitution of collateral. 

9(c)(2)(ii) Charges not covered by 

§ 226.6(b)(4). 

1. Applicability. Generally, if a 

creditor increases any component of a 

charge, or introduces a new charge, that 

is imposed as part of the plan under 

§ 226.6(b)(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 to comply with the 

requirements of § 226.9(c)(2)(i), or (2) 

provide notice orally or in writing of the 

amount of the charge to an affected 

consumer any 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 oral or written notice of the 

amount of the charge to an affected 

consumer any time before the consumer 

agrees to or becomes obligated to pay 

the charge. 

2. Relevant time. Creditors meet the 

standard to provide the notice under 

§ 226.9(c)(2)(ii)(B) 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. 

9(c)(2)(iii) Disclosure Requirements 

9(c)(2)(iii)(A) Changes to Terms in 

§ 226.6(b)(4). 

1. Changing margin for calculating a 

variable rate. If a creditor is changing a 

margin used to calculate a variable rate, 

the creditor must disclose the amount of 

the new rate (as calculated using the 

new margin) in the table described in 

§ 226.9(c)(2)(iii), and include a reminder 

that the rate is a variable rate. For 

example, if a creditor is changing the 

margin for a variable rate that uses the 

prime rate as an index, the creditor must 

disclose in the table the new rate (as 

calculated using the new margin) and 

indicate that the rate varies with the 

market based on the prime rate. 

2. Changing index for calculating a 

variable rate. If a creditor is changing 

the index used to calculate a variable 

rate, the creditor must disclose the 

amount of the new rate (as calculated 

using the new index) and indicate that 

the rate varies and how the rate is 

determined, as explained in 

§ 226.6(b)(4). For example, if a creditor 

is changing from using a prime rate in 

calculating a variable rate to using the 

LIBOR, the creditor would disclose in 

the table the new rate (using the new 

index) and indicate that the rate varies 

with the market based on the LIBOR. 

3. Changing from a variable rate to a 

non-variable rate. If a creditor is 

changing from a variable rate to a nonvariable rate, the creditor must disclose 

the amount of the new rate (that is, the 

non-variable rate) in the table. 

4. Changing from a non-variable rate 

to a variable rate. If a creditor is 

changing from a non-variable rate to a 

variable rate, the creditor must disclose 

the amount of the new rate (the variable 

rate using the index and margin), and 

indicate that the rate varies with the 

market based on the [insert the index 

used, such as the prime rate or the 

LIBOR.] 

5. Changes in the penalty rate, the 

triggers for the penalty rate, or how long 

the penalty rate applies. If a creditor is 

changing the amount of the penalty rate, 

the creditor must also redisclose the 

triggers for the penalty rate and the 

information about how long the penalty 

rate applies even if those terms are not 

changing. Likewise, if a creditor is 

changing the triggers for the penalty 

rate, the creditor must redisclose the 

amount of the penalty rate and 

information about how long the penalty 

rate applies. If a creditor is changing 

how long the penalty rate applies, the 

creditor must redisclose the amount of 

the penalty rate and the triggers for the 

penalty rate, even if they are not 

changing. 

6. Changes in fees. If a creditor is 

changing part of how a fee that is 

disclosed in a tabular format under 

§ 226.6(b)(4) is determined, the creditor 

must redisclose all relevant information 

related to that fee regardless of whether 

this other information is changing. For 

example, if a creditor currently charges 

a cash advance fee of ‘‘Either $5 or 3% 

of the transaction amount, whichever is 

greater. (Max: $100)’’, and the creditor is 

only changing the minimum dollar 

amount from $5 to $10, the issuer must 

redisclose the other information related 

to how the fee is determined. For 

example, the creditor in this example 

would disclose the following: ‘‘Either 

$10 or 3% of the transaction amount, 

whichever is greater. (Max: $100).’’

7. Combining a notice described in 

§ 226.9(c)(2)(iii) with a notice described 

in § 226.9(g)(3). If a creditor is required 

to provide a notice described in 

§ 226.9(c)(2)(iii) and a notice described 

in § 226.9(g)(3) to a consumer, the 


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creditor may combine the two notices. 

This would occur if a consumer’s 

actions trigger penalty pricing, and 

other terms are changing on the 

consumer’s account at the same time. 

8. Content. Model Clause G–20 

contains an example of how to comply 

with the requirements in 

§ 226.9(c)(2)(iii) when the following 

terms are being changed: (1) A variable 

rate is being changed to a non-variable 

rate of 16.99%; and (2) the late payment 

fee is being increased to $32 if the 

consumer’s balance is less than or equal 

to $1,000 and $39 if the consumer’s 

balance is more than $1,000. 

9. Clear and conspicuous standard. 

See comment 5(a)(1)-1 for the clear and 

conspicuous standard applicable to 

disclosures required under 

§ 226.9(c)(2)(iii)(A)(1). 

10. Terminology. See § 226.5(a)(2) for 

terminology requirements applicable to 

disclosures required under 

§ 226.9(c)(2)(iii)(A)(1).fi 

fl9(c)(2)(iv) Notice Not Required. 

1. Changes not requiring notice. The 

following are examples of changes that 

do not require a change-in-terms notice: 

i. A change in the consumer s credit 

limit except as otherwise required by 

§ 226.9(c)(2)(v). 

ii. A change in the name of the credit 

card or credit card plan. 

iii. The substitution of one insurer for 

another. 

iv. A termination or suspension of 

credit privileges. 

v. Changes arising merely by 

operation of law; for example, if the 

creditor’s security interest in a 

consumer’s car automatically extends to 

the proceeds when the consumer sells 

the car. 

2. Skip features. If a credit program 

allows consumers to skip or reduce one 

or more payments during the year, or 

involves temporary reductions in 

finance charges, no notice of the change 

in terms is required either prior to the 

reduction or upon resumption of the 

higher rates or payments if these 

features are explained on the accountopening disclosure statement (including 

an explanation of the terms upon 

resumption). For example, a merchant 

may allow consumers to skip the 

December payment to encourage 

holiday shopping, or a teacher’s credit 

union may not require payments during 

summer vacation. Otherwise, the 

creditor must give notice prior to 

resuming the original schedule or rate, 

even though no notice is required prior 

to the reduction. The change-in-terms 

notice may be combined with the notice 

offering the reduction. For example, the 

periodic statement reflecting the 

reduction or skip feature may also be 

used to notify the consumer of the 

resumption of the original schedule or 

rate, either by stating explicitly when 

the higher payment or charges resume 

or by indicating the duration of the skip 

option. Language such as ‘‘You may 

skip your October payment, ‘‘or’’ We 

will waive your interest charges for 

January may serve as the change-interms notice.fi 

9(d) Finance Charge Imposed at Time 

of Transaction. 

1. Disclosure prior to imposition. A 

person imposing a finance charge at the 

time of honoring a consumer’s credit 

card must disclose the amount of the 

charge, or an explanation of how the 

charge will be determined, prior to its 

imposition. This must be disclosed 

before the consumer becomes obligated 

for property or services that may be paid 

for by use of a credit card. For example, 

disclosure must be given before the 

consumer has dinner at a restaurant, 

stays overnight at a hotel, or makes a 

deposit guaranteeing the purchase of 

property or services. 

9(e) Disclosures Upon Renewal of 

Credit or Charge Card. 

1. Coverage. This paragraph applies to 

credit and charge card accounts of the 

type subject to § 226.5a. (See § 226.5a(a) 

fl(5)fi [(3)] and the accompanying 

commentary for discussion of the types 

of accounts subject to § 226.5a.) The 

disclosure requirements are triggered 

when a card issuer imposes any annual 

or other periodic fee on such an 

account, whether or not the card issuer 

originally was required to provide the 

application and solicitation disclosures 

described in § 226.5a. 

2. Form. The disclosures under this 

paragraph must be clear and 

conspicuous, but need not appear in a 

tabular format or in a prominent 

location. The disclosures need not be in 

a form the cardholder can retain. 

3. Terms at renewal. Renewal notices 

must reflect the terms actually in effect 

at the time of renewal. For example, a 

card issuer that offers a preferential 

annual percentage rate to employees 

during their employment must send a 

renewal notice to employees disclosing 

the lower rate actually charged to 

employees (although the card issuer also 

may show the rate charged to the 

general public). 

4. Variable rate. If the card issuer 

cannot determine the rate that will be in 

effect if the cardholder chooses to renew 

a variable-rate account, the card issuer 

may disclose the rate in effect at the 

time of mailing or delivery of the 

renewal notice. Alternatively, the card 

issuer may use the rate as of a specified 

date flwithin the last 30 days before the 

disclosure is providedfi [(and then 

update the rate from time to time, for 

example, each calendar month) or use 

an estimated rate under § 226.5(c)]. 

5. Renewals more frequent than 

annual. If a renewal fee is billed more 

often than annually, the renewal notice 

should be provided each time the fee is 

billed. In this instance, the fee need not 

be disclosed as an annualized amount. 

Alternatively, the card issuer may 

provide the notice no less than once 

every 12 months if the notice explains 

the amount and frequency of the fee that 

will be billed during the time period 

covered by the disclosure, and also 

discloses the fee as an annualized 

amount. The notice under this 

alternative also must state the 

consequences of a cardholder’s decision 

to terminate the account after the 

renewal-notice period has expired. For 

example, if a $2 fee is billed monthly 

but the notice is given annually, the 

notice must inform the cardholder that 

the monthly charge is $2, the 

annualized fee is $24, and $2 will be 

billed to the account each month for the 

coming year unless the cardholder 

notifies the card issuer. If the cardholder 

is obligated to pay an amount equal to 

the remaining unpaid monthly charges 

if the cardholder terminates the account 

during the coming year but after the first 

month, the notice must disclose the fact. 

6. Terminating credit availability. 

Card issuers have some flexibility in 

determining the procedures for how and 

when an account may be terminated. 

However, the card issuer must clearly 

disclose the time by which the 

cardholder must act to terminate the 

account to avoid paying a renewal fee. 

State and other applicable law govern 

whether the card issuer may impose 

requirements such as specifying that the 

cardholder’s response be in writing or 

that the outstanding balance be repaid 

in full upon termination. 

7. Timing of termination by 

cardholder. When a card issuer provides 

notice under § 226.9(e)(1), a cardholder 

must be given at least 30 days or one 

billing cycle, whichever is less, from the 

date the notice is mailed or delivered to 

make a decision whether to terminate an 

account. When notice is given under 

§ 226.9(e)(2), a cardholder has 30 days 

from mailing or delivery to decide to 

terminate an account. 

8. Timing of notices. A renewal notice 

is deemed to be provided when mailed 

or delivered. Similarly, notice of 

termination is deemed to be given when 

mailed or delivered. 

9. Prompt reversal of renewal fee 

upon termination. In a situation where 

a cardholder has provided timely notice 

of termination and a renewal fee has 

been billed to a cardholder’s account, 


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the card issuer must reverse or 

otherwise withdraw the fee promptly. 

Once a cardholder has terminated an 

account, no additional action by the 

cardholder may be required. 

9(e)(3) Notification on Periodic 

Statements 

1. Combined disclosures. If a single 

disclosure is used to comply with both 

§ 226.9(e) and § 226.7, the periodic 

statement must comply with the rules in 

§ 226.5a and § 226.7. For example, the 

words grace period must be used and 

the name of the balance-calculation 

method must be identified (if listed in 

§ 226.5a(g)) to comply with the 

requirements of § 226.5a [, even though 

the use of those terms would not 

otherwise be required for periodic 

statements under § 226.7]. A card issuer 

may include some of the renewal 

disclosures on a periodic statement and 

others on a separate document so long 

as there is some reference indicating 

that flthe disclosuresfi [they] relate to 

one another. flAn example of a 

sufficient reference for creditors using 

the delayed notice method is: ‘‘Your 

annual fee of [$ amount] is billed on this 

statement. Please see [other side/inserts] 

for important information about the 

terms that apply to the renewal of your 

account and how to close your account 

to avoid paying the annual fee.’’fi All 

renewal disclosures must be provided to 

a cardholder at the same time. 

2. Preprinted notices on periodic 

statements. A card issuer may preprint 

the required information on its periodic 

statements. A card issuer that does so, 

however, using the advance-notice 

option under § 226.9(e)(1), must make 

clear on the periodic statement when 

the preprinted renewal disclosures are 

applicable. For example, the card issuer 

could include a special notice (not 

preprinted) at the appropriate time that 

the renewal fee will be billed in the 

following billing cycle, or could show 

the renewal date as a regular 

(preprinted) entry on all periodic 

statements. 

9(f) Change in Credit Card Account 

Insurance Provider. 

1. Coverage. This paragraph applies to 

credit card accounts of the type subject 

to § 226.5a if credit insurance (typically 

life, disability, and unemployment 

insurance) is offered on the outstanding 

balance of such an account. (Credit card 

accounts subject to § 226.9(f) are the 

same as those subject to § 226.9(e); see 

comment 9(e)–1.) Charge card accounts 

are not covered by this paragraph. In 

addition, the disclosure requirements of 

this paragraph apply only where the 

card issuer initiates the change in 

insurance providers. For example, if the 

card issuer’s current insurance provider 

is merged into or acquired by another 

company, these disclosures would not 

be required. Disclosures also need not 

be given in cases where card issuers pay 

for credit insurance themselves and do 

not separately charge the cardholder. 

2. No increase in rate or decrease in 

coverage. The requirement to provide 

the disclosure arises when the card 

issuer changes the provider of 

insurance, even if there will be no 

increase in the premium rate charged 

the consumer and no decrease in 

coverage under the insurance policy. 

3. Form of notice. If a substantial 

decrease in coverage will result from the 

change in providers, the card issuer 

either must explain the decrease or refer 

to an accompanying copy of the policy 

or group certificate for details of the 

new terms of coverage. (See the 

commentary to appendix G–13.) 

4. Discontinuation of insurance. In 

addition to stating that the cardholder 

may cancel the insurance, the card 

issuer may explain the effect the 

cancellation would have on the 

consumer’s credit card plan. 

5. Mailing by third party. Although 

the card issuer is responsible for the 

disclosures, the insurance provider or 

another third party may furnish the 

disclosures on the card issuer’s behalf. 

9(f)(3) Substantial Decrease in 

Coverage. 

1. Determination. Whether a 

substantial decrease in coverage will 

result from the change in providers is 

determined by the two-part test in 

§ 226.9(f)(3): First, whether the decrease 

is in a significant term of coverage; and 

second, whether the decrease might 

reasonably be expected to affect a 

cardholder’s decision to continue the 

insurance. If both conditions are met, 

the decrease must be disclosed in the 

notice. 

fl9(g) Increase in Rates Due to 

Delinquency or Default or as a Penalty. 

1. Applicability. Section 226.9(g) 

requires a creditor to provide written 

notice to a consumer when (1) a rate is 

increased due to the consumer’s 

delinquency or default, or (2) a rate is 

increased as a penalty for one or more 

events specified in the account 

agreement, such as making a late 

payment or obtaining an extension of 

credit that exceeds the credit limit. This 

notice must be provided after the 

occurrence of the event that triggered 

the imposition of the rate increase and 

at least 45 days prior to the effective 

date of the increase. For example, 

assume a credit card account agreement 

indicates that the annual percentage 

rates on the account may increase to 28 

percent if the consumer pays late once, 

and assume that the consumer pays late 

one month. If the creditor will increase 

the rates on the account because of this 

late payment, the creditor must provide 

the consumer written notice of the 

increase at least 45 days before the 

increase becomes effective. 

2. Affected consumers. If a single 

credit account involves multiple 

consumers that may be affected by the 

change, the creditor should refer to 

§ 226.5(d) to determine the number of 

notices that must be given. 

3. Combining a notice described in 

§ 226.9(g)(3) with a notice described in 

§ 226.9(c)(2)(iii). If a creditor is required 

to provide a notice described in 

§ 226.9(c)(2)(iii) and a notice described 

in § 226.9(g)(3) to a consumer, the 

creditor may combine the two notices. 

This would occur when a consumer has 

triggered penalty pricing, and other 

terms are changing on the consumer’s 

account at the same time. 

4. Content. Model Clause G–21 

contains an example of how to comply 

with the requirements in § 226.9(g)(3)(i) 

when the rate on a consumer’s account 

is being increased to a penalty rate as 

described in § 226.9(g)(1)(ii). 

5. Clear and conspicuous standard. 

See comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

disclosures required under § 226.9(g). 

6. Terminology. See § 226.5(a)(2) for 

terminology requirements applicable to 

disclosures required under § 226.9(g).fi 

Section 226.10—Prompt Crediting of 

Payments 

10(a) General rule. 

1. Crediting date. Section 226.10(a) 

does not require the creditor to post the 

payment to the consumer’s account on 

a particular date; the creditor is only 

required to credit the payment as of the 

date of receipt. 

2. Date of receipt. The ‘‘date of 

receipt’’ is the date that the payment 

instrument or other means of 

completing the payment reaches the 

creditor. For example: 

i. Payment by check is received when 

the creditor gets it, not when the funds 

are collected. 

ii. In a payroll deduction plan in 

which funds are deposited to an asset 

account held by the creditor, and from 

which payments are made periodically 

to an open-end credit account, payment 

is received on the date when it is 

debited to the asset account (rather than 

on the date of the deposit), provided the 

payroll deduction method is voluntary 

and the consumer retains use of the 

funds until the contractual payment 

date. 

iii. If the consumer elects to have 

payment made by a third party payor 

such as a financial institution, through 


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a preauthorized payment or telephone 

bill-payment arrangement, payment is 

received when the creditor gets the third 

party payor’s check or other transfer 

medium, such as an electronic fund 

transfer, as long as the payment meets 

the creditor’s requirements as specified 

under section 226.10(b). 

fliv. Payment made via the creditor’s 

Web site is received on the date on 

which the consumer authorizes the 

creditor to effect the payment, even if 

the consumer gives the instruction 

authorizing that payment in advance of 

the date on which the creditor is 

authorized to effect the payment. If the 

consumer authorizes the creditor to 

effect the payment immediately, but the 

consumer’s instruction is received after 

any cut-off time specified by the 

creditor, the date on which the 

consumer authorizes the creditor to 

effect the payment is deemed to be the 

next business day.fi 

10(b) Specific requirements for 

payments. 

1. Payment requirements. i. The 

creditor may specify requirements for 

making payments, such as: 

A. Requiring that payments be 

accompanied by the account number or 

the payment stub. 

B. Setting a cut-off time for payment 

to be received, or set a different time for 

payments by mailfl, payments by 

electronic means,fi and payments made 

in person. 

C. Specifying that only checks or 

money orders should be sent by mail. 

D. Specifying that payment is to be 

made in U.S. dollars. 

E. Specifying one particular address 

for receiving payments, such as a post 

office box. 

ii. The creditor may be prohibited, 

however, from specifying payment for 

preauthorized electronic fund transfer. 

(See section 913 of the Electronic Fund 

Transfer Act.) 

2. Payment requirements—

limitations. Requirements for making 

payments must be reasonable; it should 

not be difficult for most consumers to 

make conforming payments. For 

example, it would not be reasonable to 

require that all payments be made in 

person between 10 a.m. and 11 a.m., 

since this would require consumers to 

take time off from their jobs to deliver 

payments. flIf a creditor promotes 

electronic payment via its Web site 

(such as by disclosing on the Web site 

itself that payments may be made via 

the Web site), any payments made via 

the creditor’s Web site would generally 

be conforming payments for purposes of 

§ 226.10(b).fi 

3. Acceptance of nonconforming 

payments. If the creditor accepts a 

nonconforming payment (for example, 

payment at a branch office, when it had 

specified that payment be sent to 

headquarters), finance charges may 

accrue for the period between receipt 

and crediting of payments. 

4. Implied guidelines for payments. In 

the absence of specified requirements 

for making payments (see § 226.10(b)): 

i. Payments may be made at any 

location where the creditor conducts 

business. 

ii. Payments may be made any time 

during the creditor’s normal business 

hours. 

iii. Payment may be by cash, money 

order, draft, or other similar instrument 

in properly negotiable form, or by 

electronic fund transfer if the creditor 

and consumer have so agreed. 

Section 226.11—Treatment of Credit 

Balancesfl; Account Terminationfi 

fl11(a) Credit balances.fi 

1. Timing of refund. The creditor may 

also fulfill its obligations under § 226.11 

by: 

i. Refunding any credit balance to the 

consumer immediately. 

ii. Refunding any credit balance prior 

to receiving a written request (under 

§ 226.11(b)) from the consumer. 

fliii. Refunding any credit balance 

upon the consumer’s oral or electronic 

request.fi 

iv. Making a good faith effort to 

refund any credit balance before 6 

months have passed. If that attempt is 

unsuccessful, the creditor need not try 

again to refund the credit balance at the 

end of the 6-month period. 

2. Amount of refund. The phrase any 

part of the credit balance remaining in 

the account in § 226.11(b) and (c) means 

the amount of the credit balance at the 

time the creditor is required to make the 

refund. The creditor may take into 

consideration intervening purchases or 

other debits to the consumer’s account 

(including those that have not yet been 

reflected on a periodic statement) that 

decrease or eliminate the credit balance. 

Paragraph fl11(a)(2)fi [11(b)]. 

1. Written requests—standing orders. 

The creditor is not required to honor 

standing orders requesting refunds of 

any credit balance that may be created 

on the consumer’s account. 

Paragraph fl11(a)(3)fi [11(c)]. 

1. Good faith effort to refund. The 

creditor must take positive steps to 

return any credit balance that has 

remained in the account for over 6 

months. This includes, if necessary, 

attempts to trace the consumer through 

the consumer’s last known address or 

telephone number, or both. 

2. Good faith effort unsuccessful. 

Section 226.11 imposes no further 

duties on the creditor if a good faith 

effort to return the balance is 

unsuccessful. The ultimate disposition 

of the credit balance (or any credit 

balance of $1 or less) is to be 

determined under other applicable law. 

fl11(b) Account termination. 

Paragraph 11(b)(1). 

1. Expiration Date. The credit 

agreement determines whether or not an 

open-end plan has a stated expiration 

(maturity) date. Creditors that offer 

accounts with no stated expiration date 

are prohibited from terminating those 

accounts solely because a consumer 

uses the account and does not incur a 

finance charge, even if credit cards or 

other access devices associated with the 

account expire after a stated period.fi 

Section 226.12—Special Credit Card 

Provisions 

1. Scope. Sections 226.12(a) and (b) 

deal with the issuance and liability 

rules for credit cards, whether the card 

is intended for consumer, business, or 

any other purposes. Sections 226.12(a) 

and (b) are exceptions to the general 

rule that the regulation applies only to 

consumer credit. (See §§ 226.1 and 

226.3.) 

fl2. Definition of ‘‘accepted credit 

card’’. For purposes of this section, 

accepted credit card means any credit 

card that a cardholder has requested or 

applied for and received, or has signed, 

used, or authorized another person to 

use to obtain credit. Any credit card 

issued as a renewal or substitute in 

accordance with this paragraph becomes 

an accepted credit card when received 

by the cardholder.fi 

12(a) Issuance of credit cards. 

Paragraph 12(a)(1) 

1. Explicit request. A request or 

application for a card must be explicit. 

For example, a request for flan 

overdraft plan tied tofi [overdraft 

privileges on] a checking account does 

not constitute an application for a credit 

card with overdraft checking features. 

2. Addition of credit features. If the 

consumer has a non-credit card, the 

addition of credit features to the card 

(for example, the granting of overdraft 

privileges on a checking account when 

the consumer already has a check 

guarantee card) constitutes issuance of a 

credit card. 

3. Variance of card from request. The 

request or application need not 

correspond exactly to the card that is 

issued. For example: 

i. The name of the card requested may 

be different when issued. 

ii. The card may have features in 

addition to those reflected in the request 

or application. 


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33132 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

4. Permissible form of request. The 

request or application may be oral (in 

response to a telephone solicitation by 

a card issuer, for example) or written. 

5. Time of issuance. A credit card may 

be issued in response to a request made 

before any cards are ready for issuance 

(for example, if a new program is 

established), even if there is some delay 

in issuance. 

6. Persons to whom cards may be 

issued. A card issuer may issue a credit 

card to the person who requests it, and 

to anyone else for whom that person 

requests a card and who will be an 

authorized user on the requester’s 

account. In other words, cards may be 

sent to consumer A on A’s request, and 

also (on A’s request) to consumers B and 

C, who will be authorized users on A’s 

account. In these circumstances, the 

following rules apply: 

i. The additional cards may be 

imprinted in either A’s name or in the 

names of B and C. 

ii. No liability for unauthorized use 

(by persons other than B and C), not 

even the $50, may be imposed on B or 

C since they are merely users and not 

cardholders as that term is defined in 

§ 226.2 and used in § 226.12(b); of 

course, liability of up to $50 for 

unauthorized use of B’s and C’s cards 

may be imposed on A. 

iii. Whether B and C may be held 

liable for their own use, or on the 

account generally, is a matter of state or 

other applicable law. 

7. Issuance of non-credit cards. 

i. General. Under § 226.12(a)(1), a 

credit card cannot be issued except in 

response to a request or an application. 

(See comment 2(a)(15)–2 for examples 

of cards or devices that are and are not 

credit cards.) A non-credit card may be 

sent on an unsolicited basis by an issuer 

that does not propose to connect the 

card to any credit plan; a credit feature 

may be added to a previously issued 

non-credit card only upon the 

consumer’s specific request. 

ii. Examples. A purchase-price 

discount card may be sent on an 

unsolicited basis by an issuer that does 

not propose to connect the card to any 

credit plan. An issuer demonstrates that 

it proposes to connect the card to a 

credit plan by, for example, including 

promotional materials about credit 

features or account agreements and 

disclosures required by § 226.6. The 

issuer will violate the rule against 

unsolicited issuance if, for example, at 

the time the card is sent a credit plan 

can be accessed by the card or the 

recipient of the unsolicited card has 

been preapproved for credit that the 

recipient can access by contacting the 

issuer and activating the card. 

8. Unsolicited issuance of PINs. A 

card issuer may issue personal 

identification numbers (PINs) to existing 

credit cardholders without a specific 

request from the cardholders, provided 

the PINs cannot be used alone to obtain 

credit. For example, the PINs may be 

necessary if consumers wish to use their 

existing credit cards at automated teller 

machines or at merchant locations with 

point-of-sale terminals that require 

PINs. 

Paragraph 12(a)(2) 

1. Renewal. Renewal generally 

contemplates the regular replacement of 

existing cards because of, for example, 

security reasons or new technology or 

systems. It also includes the re-issuance 

of cards that have been suspended 

temporarily, but does not include the 

opening of a new account after a 

previous account was closed. 

2. Substitution—examples. 

Substitution encompasses the 

replacement of one card with another 

because the underlying account 

relationship has changed in some way—

such as when the card issuer has: 

i. Changed its name. 

ii. Changed the name of the card. 

iii. Changed the credit or other 

features available on the account. For 

example, the original card could be used 

to make purchases and obtain cash 

advances at teller windows. The 

substitute card might be usable, in 

addition, for obtaining cash advances 

through automated teller machines. (If 

the substitute card constitutes an access 

device, as defined in Regulation E, then 

the Regulation E issuance rules would 

have to be followed.) The substitution of 

one card with another on an unsolicited 

basis is not permissible, however, where 

in conjunction with the substitution an 

additional credit card account is opened 

and the consumer is able to make new 

purchases or advances under both the 

original and the new account with the 

new card. For example, if a retail card 

issuer replaces its credit card with a 

combined retailer/bank card, each of the 

creditors maintains a separate account, 

and both accounts can be accessed for 

new transactions by use of the new 

credit card, the card cannot be provided 

to a consumer without solicitation. 

iv. Substituted a card user’s name on 

the substitute card for the cardholder’s 

name appearing on the original card. 

v. Changed the merchant base. 

However, the new card must be honored 

by at least one of the persons that 

honored the original card. 

3. Substitution—successor card 

issuer. Substitution also occurs when a 

successor card issuer replaces the 

original card issuer (for example, when 

a new card issuer purchases the 

accounts of the original issuer and 

issues its own card to replace the 

original one). A permissible substitution 

exists even if the original issuer retains 

the existing receivables and the new 

card issuer acquires the right only to 

future receivables, provided use of the 

original card is cut off when use of the 

new card becomes possible. 

4. Substitution—non-credit-card plan. 

A credit card that replaces a retailer’s 

open-end credit plan not involving a 

credit card is not considered a substitute 

for the retailer’s plan—even if the 

consumer used the retailer’s plan. A 

credit card cannot be issued in these 

circumstances without a request or 

application. 

5. One-for-one rule. An accepted card 

may be replaced by no more than one 

renewal or substitute card. For example, 

the card issuer may not replace a credit 

card permitting purchases and cash 

advances with two cards, one for the 

purchases and another for the cash 

advances. 

6. One-for-one rule—exceptions. The 

regulation does not prohibit the card 

issuer from: 

i. Replacing a debit/credit card with a 

credit card and another card with only 

debit functions (or debit functions plus 

an associated overdraft capability), since 

the latter card could be issued on an 

unsolicited basis under Regulation E. 

ii. Replacing an accepted card with 

more than one renewal or substitute 

card, provided that: 

A. No replacement card accesses any 

account not accessed by the accepted 

card; 

B. For terms and conditions required 

to be disclosed under § 226.6, all 

replacement cards are issued subject to 

the same terms and conditions, except 

that a creditor may vary terms for which 

no change in terms notice is required 

under § 226.9(c); and 

C. Under the account’s terms the 

consumer’s total liability for 

unauthorized use with respect to the 

account does not increase. 

7. Methods of terminating replaced 

card. The card issuer need not 

physically retrieve the original card, 

provided the old card is voided in some 

way; for example: 

i. The issuer includes with the new 

card a notification that the existing card 

is no longer valid and should be 

destroyed immediately. 

ii. The original card contained an 

expiration date. 

iii. The card issuer, in order to 

preclude use of the card, reprograms 

computers or issues instructions to 

authorization centers. 

8. Incomplete replacement. If a 

consumer has duplicate credit cards on 


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the same account (Card A—one type of 

bank credit card, for example), the card 

issuer may not replace the duplicate 

cards with one Card A and one Card B 

(Card B—another type of bank credit 

card) unless the consumer requests Card 

B. 

9. Multiple entities. Where multiple 

entities share responsibilities with 

respect to a credit card issued by one of 

them, the entity that issued the card 

may replace it on an unsolicited basis, 

if that entity terminates the original card 

by voiding it in some way, as described 

in comment 12(a)(2)–7. The other entity 

or entities may not issue a card on an 

unsolicited basis in these 

circumstances. 

12(b) Liability of cardholder for 

unauthorized use. 

1. Meaning of cardholder. For 

purposes of this provision, cardholder 

includes any person (including 

organizations) to whom a credit card is 

issued for any purpose, including 

business. When a corporation is the 

cardholder, required disclosures should 

be provided to the corporation (as 

opposed to an employee user). 

2. Imposing liability. A card issuer is 

not required to impose liability on a 

cardholder for the unauthorized use of 

a credit card; if the card issuer does not 

seek to impose liability, the issuer need 

not conduct any investigation of the 

cardholder’s claim. 

3. Reasonable investigation. If a card 

issuer seeks to impose liability when a 

claim of unauthorized use is made by a 

cardholder, the card issuer must 

conduct a reasonable investigation of 

the claim. In conducting its 

investigation, the card issuer may 

reasonably request the cardholder’s 

cooperation. The card issuer may not 

automatically deny a claim based solely 

on the cardholder’s failure or refusal to 

comply with a particular request; 

however, if the card issuer otherwise 

has no knowledge of facts confirming 

the unauthorized use, the lack of 

information resulting from the 

cardholder’s failure or refusal to comply 

with a particular request may lead the 

card issuer reasonably to terminate the 

investigation. The procedures involved 

in investigating claims may differ, but 

actions such as the following represent 

steps that a card issuer may take, as 

appropriate, in conducting a reasonable 

investigation: 

i. Reviewing the types or amounts of 

purchases made in relation to the 

cardholder’s previous purchasing 

pattern. 

ii. Reviewing where the purchases 

were delivered in relation to the 

cardholder’s residence or place of 

business. 

iii. Reviewing where the purchases 

were made in relation to where the 

cardholder resides or has normally 

shopped. 

iv. Comparing any signature on credit 

slips for the purchases to the signature 

of the cardholder or an authorized user 

in the card issuer’s records, including 

other credit slips. 

v. Requesting documentation to assist 

in the verification of the claim. 

vi. Requesting a written, signed 

statement from the cardholder or 

authorized user. 

vii. Requesting a copy of a police 

report, if one was filed. 

viii. Requesting information regarding 

the cardholder’s knowledge of the 

person who allegedly used the card or 

of that person’s authority to do so. 

fl4. Checks that access a credit card 

account. The liability provisions for 

unauthorized use under paragraph (b)(1) 

of this section only apply to transactions 

involving the use of a credit card, and 

not if an unauthorized transaction is 

made using a check accessing the credit 

card account. However, the billing error 

provisions in § 226.13 apply to both of 

these types of transactions.fi 

12(b)(1)(ii) Limitation on amount. 

1. Meaning of authority. [Footnote 22] 

flSection 226.12(b)(1)(i)fi defines 

unauthorized use in terms of whether 

the user has actual, implied, or 

apparent authority. Whether such 

authority exists must be determined 

under state or other applicable law. 

2. Liability limits—dollar amounts. As 

a general rule, the cardholder’s liability 

for a series of unauthorized uses cannot 

exceed either $50 or the value obtained 

through the unauthorized use before the 

card issuer is notified, whichever is less. 

fl3. Implied or apparent authority. If 

a cardholder furnishes a credit card and 

grants authority to make credit 

transactions to a person (such as a 

family member or co-worker) who 

exceeds the authority given, the 

cardholder is liable for the transaction(s) 

unless the cardholder has notified the 

creditor that use of the credit card by 

that person is no longer authorized. 

4. Credit card obtained through 

robbery or fraud. An unauthorized use 

includes a transaction initiated by a 

person who obtained the credit card 

from the consumer, or otherwise 

initiated the transaction, through fraud 

or robbery.fi 

12(b)(2) Conditions of liability. 

1. Issuer s option not to comply. A 

card issuer that chooses not to impose 

any liability on cardholders for 

unauthorized use need not comply with 

the disclosure and identification 

requirements discussed [below] flin 

§ 226.12(b)(2)fi. 

Paragraph 12(b)(2)(ii). 

1. Disclosure of liability and means of 

notifying issuer. The disclosures 

referred to in § 226.12(b)(2)(ii) may be 

given, for example, with the initial 

disclosures under § 226.6, on the credit 

card itself, or on periodic statements. 

They may be given at any time 

preceding the unauthorized use of the 

card. 

fl2. Meaning of ‘‘adequate notice’’. 

For purposes of this provision, 

‘‘adequate notice’’ means a printed 

notice to a cardholder that sets forth 

clearly the pertinent facts so that the 

cardholder may reasonably be expected 

to have noticed it and understood its 

meaning. The notice may be given by 

any means reasonably assuring receipt 

by the cardholder.fi 

Paragraph 12(b)(2)(iii). 

1. Means of identifying cardholder or 

user. To fulfill the condition set forth in 

§ 226.12(b)(2)(iii), the issuer must 

provide some method whereby the 

cardholder or the authorized user can be 

identified. This could include, for 

example, signature, photograph, or 

fingerprint on the card flor other 

biometric meansfi, or electronic or 

mechanical confirmation. 

2. Identification by magnetic strip. 

Unless a magnetic strip (or similar 

device not readable without physical 

aids) must be used in conjunction with 

a secret code or the like, it would not 

constitute sufficient means of 

identification. Sufficient identification 

also does not exist if a ‘‘pool’’ or group 

card, issued to a corporation and signed 

by a corporate agent who will not be a 

user of the card, is intended to be used 

by another employee for whom no 

means of identification is provided. 

3. Transactions not involving card. 

The cardholder may not be held liable 

under § 226.12(b) when the card itself 

(or some other sufficient means of 

identification of the cardholder) is not 

presented. Since the issuer has not 

provided a means to identify the user 

under these circumstances, the issuer 

has not fulfilled one of the conditions 

for imposing liability. For example, 

when merchandise is ordered by 

telephone flor the Internetfi by a 

person without authority to do so, using 

a credit card account number flby itself 

or with other information that appears 

on the card (for example, the card 

expiration date and a 3- or 4-digit 

cardholder identification number)fi [or 

other number only (which may be 

widely available)], no liability may be 

imposed on the cardholder. 

12(b)(3) Notification to card issuer. 

1. How notice must be provided. 

Notice given in a normal business 

manner—for example, by mail, 


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telephone, or personal visit—is effective 

even though it is not given to, or does 

not reach, some particular person 

within the issuer’s organization. Notice 

also may be effective even though it is 

not given at the address or phone 

number disclosed by the card issuer 

under § 226.12(b)(2)(ii). 

2. Who must provide notice. Notice of 

loss, theft, or possible unauthorized use 

need not be initiated by the cardholder. 

Notice is sufficient so long as it gives 

the ‘‘pertinent information’’ which 

would include the name or card number 

of the cardholder and an indication that 

unauthorized use has or may have 

occurred. 

3. Relationship to § 226.13. The 

liability protections afforded to 

cardholders in § 226.12 do not depend 

upon the cardholder’s following the 

error resolution procedures in § 226.13. 

For example, the written notification 

and time limit requirements of § 226.13 

do not affect the § 226.12 protections. 

flSee also comment 12(b)(1)–4.fi 

12(b)(5) Business use of credit cards. 

1. Agreement for higher liability for 

business use cards. The card issuer may 

not rely on § 226.12(b)(5) if the business 

is clearly not in a position to provide 10 

or more cards to employees (for 

example, if the business has only 3 

employees). On the other hand, the 

issuer need not monitor the personnel 

practices of the business to make sure 

that it has at least 10 employees at all 

times. 

2. Unauthorized use by employee. The 

protection afforded to an employee 

against liability for unauthorized use in 

excess of the limits set in § 226.12(b) 

applies only to unauthorized use by 

someone other then the employee. If the 

employee uses the card in an 

unauthorized manner, the regulation 

sets no restriction on the employee’s 

potential liability for such use. 

12(c) Right of cardholder to assert 

claims or defenses against card issuer. 

1. Relationship to § 226.13. The 

§ 226.12(c) credit card ‘‘holder in due 

course’’ provision deals with the 

consumer’s right to assert against the 

card issuer a claim or defense 

concerning property or services 

purchased with a credit card, if the 

merchant has been unwilling to resolve 

the dispute. Even though certain 

merchandise disputes, such as nondelivery of goods, may also constitute 

‘‘billing errors’’ under § 226.13, that 

section operates independently of 

§ 226.12(c). The cardholder whose 

asserted billing error involves 

undelivered goods may institute the 

error resolution procedures of § 226.13; 

but whether or not the cardholder has 

done so, the cardholder may assert 

claims or defenses under § 226.12(c). 

Conversely, the consumer may pay a 

disputed balance and thus have no 

further right to assert claims and 

defenses, but still may assert a billing 

error if notice of that billing error is 

given in the proper time and manner. 

An assertion that a particular 

transaction resulted from unauthorized 

use of the card could also be both a 

‘‘defense’’ and a billing error. 

2. Claims and defenses assertible. 

Section 226.12(c) merely preserves the 

consumer’s right to assert against the 

card issuer any claims or defenses that 

can be asserted against the merchant. It 

does not determine what claims or 

defenses are valid as to the merchant; 

this determination must be made under 

state or other applicable law. 

fl3. Transactions excluded. This 

paragraph does not apply to the use of 

a check-guarantee card or a debit card 

in connection with an overdraft credit 

plan, or to a check-guarantee card used 

in connection with cash-advance 

checks. 

4. Method of calculating the amount 

of credit outstanding. The amount of the 

claim or defense that the cardholder 

may assert shall not exceed the amount 

of credit outstanding for the disputed 

transaction at the time the cardholder 

first notifies the card issuer or the 

person honoring the credit card of the 

existence of the claim or defense. To 

determine the amount of credit 

outstanding for purposes of this section, 

payments and other credits shall be 

applied to: (1) Late charges in the order 

of entry to the account; then to (2) 

finance charges in the order of entry to 

the account; and then to (3) any other 

debits in the order of entry to the 

account. If more than one item is 

included in a single extension of credit, 

credits are to be distributed pro rata 

according to prices and applicable 

taxes.fi 

12(c)(1) General rule. 

1. Situations excluded and included. 

The consumer may assert claims or 

defenses only when the goods or 

services are ‘‘purchased with the credit 

card.’’ This could include mailfl, the 

Internetfi or telephone orders, if the 

purchase is charged to the credit card 

account. But it would exclude: 

i. Use of a credit card to obtain a cash 

advance, even if the consumer then uses 

the money to purchase goods or 

services. Such a transaction would not 

involve ‘‘property or services purchased 

with the credit card.’’

ii. The purchase of goods or services 

by use of a check accessing an overdraft 

account and a credit card used solely for 

identification of the consumer. (On the 

other hand, if the credit card is used to 

make partial payment for the purchase 

and not merely for identification, the 

right to assert claims or defenses would 

apply to credit extended via the credit 

card, although not to the credit 

extended on the overdraft line.) 

iii. Purchases made by use of a check 

guarantee card in conjunction with a 

cash advance check (or by cash advance 

checks alone). See flcomment 12(c)–

3fi [footnote 24]. A cash advance check 

is a check that, when written, does not 

draw on an asset account; instead, it is 

charged entirely to an open-end credit 

account. 

iv. Purchases effected by use of either 

a check guarantee card or a debit card 

when used to draw on overdraft credit 

[lines] flplansfi (see flcomment 

12(c)–3fi [footnote 24]). The debit card 

exemption applies whether the card 

accesses an asset account via point-ofsale terminals, automated teller 

machines, or in any other way[, and 

whether the card qualifies as an ‘‘access 

device’’ under Regulation E or is only a 

paper-based debit card]. If a card serves 

both as an ordinary credit card and also 

as check guarantee or debit card, a 

transaction will be subject to this rule 

on asserting claims and defenses when 

used as an ordinary credit card, but not 

when used as a check guarantee or debit 

card. 

12(c)(2) Adverse credit reports 

prohibited. 

1. Scope of prohibition. Although an 

amount in dispute may not be reported 

as delinquent until the matter is 

resolved: 

i. That amount may be reported as 

disputed. 

ii. Nothing in this provision prohibits 

the card issuer from undertaking its 

normal collection activities for the 

delinquent and undisputed portion of 

the account. 

2. Settlement of dispute. A card issuer 

may not consider a dispute settled and 

report an amount disputed as 

delinquent or begin collection of the 

disputed amount until it has completed 

a reasonable investigation of the 

cardholder’s claim. A reasonable 

investigation requires an independent 

assessment of the cardholder’s claim 

based on information obtained from 

both the cardholder and the merchant, 

if possible. In conducting an 

investigation, the card issuer may 

request the cardholder’s reasonable 

cooperation. The card issuer may not 

automatically consider a dispute settled 

if the cardholder fails or refuses to 

comply with a particular request. 

However, if the card issuer otherwise 

has no means of obtaining information 

necessary to resolve the dispute, the 

lack of information resulting from the 


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cardholder’s failure or refusal to comply 

with a particular request may lead the 

card issuer reasonably to terminate the 

investigation. 

12(c)(3) Limitations. 

Paragraph 12(c)(3)(i) fl(A)fi. 

1. Resolution with merchant. The 

consumer must have tried to resolve the 

dispute with the merchant. This does 

not require any special procedures or 

correspondence between them, and is a 

matter for factual determination in each 

case. The consumer is not required to 

seek satisfaction from the manufacturer 

of the goods involved. When the 

merchant is in bankruptcy proceedings, 

the consumer is not required to file a 

claim in those proceedingsfl, and may 

instead file a claim for the property or 

service purchased with the credit card 

with the card issuer directlyfi. 

Paragraph 12(c)(3)[(ii)] fl(i)(B)fi. 

1. Geographic limitation. The 

question of where a transaction occurs 

(as in the case of mailfl, Internet,fi or 

telephone orders, for example) is to be 

determined under state or other 

applicable law. 

flParagraph 12(c)(3)(ii).fi 

fl1.fi [2.] Merchant honoring card. 

The exceptions (stated in 

fl§ 226.13(c)(3)(ii)fi [footnote 26]) to 

the amount and geographic limitations 

flin § 226.13(c)(3)(i)(B)fi do not apply 

if the merchant merely honors, or 

indicates through signs or advertising 

that it honors, a particular credit card. 

12(d) Offsets by card issuer 

prohibited. 

Paragraph 12(d)(1). 

1. Holds on accounts. ‘‘Freezing’’ or 

placing a hold on funds in the 

cardholder’s deposit account is the 

functional equivalent of an offset and 

would contravene the prohibition in 

§ 226.12(d)(1), unless done in the 

context of one of the exceptions 

specified in § 226.12(d)(2). For example, 

if the terms of a security agreement 

permitted the card issuer to place a hold 

on the funds, the hold would not violate 

the offset prohibition. Similarly, if an 

order of a bankruptcy court required the 

card issuer to turn over deposit account 

funds to the trustee in bankruptcy, the 

issuer would not violate the regulation 

by placing a hold on the funds in order 

to comply with the court order. 

2. Funds intended as deposits. If the 

consumer tenders funds as a deposit (to 

a checking account, for example), the 

card issuer may not apply the funds to 

repay indebtedness on the consumer’s 

credit card account. 

3. Types of indebtedness; overdraft 

accounts. The offset prohibition applies 

to any indebtedness arising from 

transactions under a credit card plan, 

including accrued finance charges and 

other charges on the account. The 

prohibition also applies to balances 

arising from transactions not using the 

credit card itself but taking place under 

plans that involve credit cards. For 

example, if the consumer writes a check 

that accesses an overdraft line of credit, 

the resulting indebtedness is subject to 

the offset prohibition since it is incurred 

through a credit card plan, even though 

the consumer did not use an associated 

check guarantee or debit card. 

4. When prohibition applies in case of 

termination of account. The offset 

prohibition applies even after the card 

issuer terminates the cardholder’s credit 

card privileges, if the indebtedness was 

incurred prior to termination. If the 

indebtedness was incurred after 

termination, the prohibition does not 

apply. 

Paragraph 12(d)(2). 

1. Security interest—limitations. In 

order to qualify for the exception stated 

in § 226.12(d)(2), a security interest 

must be affirmatively agreed to by the 

consumer and must be disclosed in the 

issuer’s initial disclosures under 

§ 226.6. The security interest must not 

be the functional equivalent of a right of 

offset; as a result, routinely including in 

agreements contract language indicating 

that consumers are giving a security 

interest in any deposit accounts 

maintained with the issuer does not 

result in a security interest that falls 

within the exception in § 226.12(d)(2). 

For a security interest to qualify for the 

exception under § 226.12(d)(2), the 

following conditions must be met: 

i. The consumer must be aware that 

granting a security interest is a 

condition for the credit card account (or 

for more favorable account terms) and 

must specifically intend to grant a 

security interest in a deposit account. 

Indicia of the consumer’s awareness and 

intent could include, for example: 

A. Separate signature or initials on the 

agreement indicating that a security 

interest is being given 

B. Placement of the security 

agreement on a separate page, or 

otherwise separating the security 

interest provisions from other contract 

and disclosure provisions 

C. Reference to a specific amount of 

deposited funds or to a specific deposit 

account number 

ii. The security interest must be 

obtainable and enforceable by creditors 

generally. If other creditors could not 

obtain a security interest in the 

consumer’s deposit accounts to the 

same extent as the card issuer, the 

security interest is prohibited by 

§ 226.12(d)(2). 

2. Security interest—after-acquired 

property. As used in § 226.12(d), the 

term ‘‘security interest’’ does not 

exclude (as it does for other Regulation 

Z purposes) interests in after-acquired 

property. Thus, a consensual security 

interest in deposit-account funds, 

including funds deposited after the 

granting of the security interest would 

constitute a permissible exception to the 

prohibition on offsets. 

3. Court order. If the card issuer 

obtains a judgment against the 

cardholder, and if State and other 

applicable law and the terms of the 

judgment do not so prohibit, the card 

issuer may offset the indebtedness 

against the cardholder’s deposit 

account. 

Paragraph 12(d)(3). 

1. Automatic payment plans—scope 

of exception. With regard to automatic 

debit plans under § 226.12(d)(3), the 

following rules apply: 

i. The cardholder’s authorization must 

be in writing and signed or initialed by 

the cardholder. 

ii. The authorizing language need not 

appear directly above or next to the 

cardholder’s signature or initials, 

provided it appears on the same 

document and that it clearly spells out 

the terms of the automatic debit plan. 

iii. If the cardholder has the option to 

accept or reject the automatic debit 

feature (such option may be required 

under section 913 of the Electronic 

Fund Transfer Act), the fact that the 

option exists should be clearly 

indicated. 

2. Automatic payment plans—

additional exceptions. The following 

practices are not prohibited by 

§ 226.12(d)(1): 

i. Automatically deducting charges for 

participation in a program of banking 

services (one aspect of which may be a 

credit card plan). 

ii. Debiting the cardholder’s deposit 

account on the cardholder’s specific 

request rather than on an automatic 

periodic basis (for example, a 

cardholder might check a box on the 

credit card bill stub, requesting the 

issuer to debit the cardholder’s account 

to pay that bill). 

12(e) Prompt notification of returns 

and crediting of refunds. 

Paragraph 12(e)(1). 

1. Normal channels. The term normal 

channels refers to any network or 

interchange system used for the 

processing of the original charge slips 

(or equivalent information concerning 

the transaction). 

Paragraph 12(e)(2). 

1. Crediting account. The card issuer 

need not actually post the refund to the 

consumer’s account within three 

business days after receiving the credit 

statement, provided that it credits the 


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33136 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

account as of a date within that time 

period. 

Section 226.13—Billing-Error 

Resolution 

[1. General prohibitions. Footnote 27 

prohibits a creditor from responding to 

a consumer’s billing error allegation by 

accelerating the debt or closing the 

account, and reflects protections 

authorized by section 161(d) of the 

Truth in Lending Act and section 701 of 

the Equal Credit Opportunity Act. The 

footnote also alerts creditors that failure 

to comply with the error resolution 

procedures may result in the forfeiture 

of disputed amounts as prescribed in 

section 161(e) of the Act. (Any failure to 

comply may also be a violation subject 

to the liability provisions of section 130 

of the Act.)] 

fl1.fi [2.] Charges for error 

resolution. If a billing error occurred, 

whether as alleged or in a different 

amount or manner, the creditor may not 

impose a charge related to any aspect of 

the error resolution process (including 

charges for documentation or 

investigation) and must credit the 

consumer’s account if such a charge was 

assessed pending resolution. Since the 

Act grants the consumer error resolution 

rights, the creditor should avoid any 

chilling effect on the good faith 

assertion of errors that might result if 

charges are assessed when no billing 

error has occurred. 

13(a) Definition of billing error. 

flParagraph 13(a)(1).fi 

1. Actual, implied, or apparent 

authority. Whether use of a credit card 

or open-end credit plan is authorized is 

determined by state or other applicable 

law. flSee comments 12(b)(1)–1, –2.fi 

Paragraph 13(a)(3). 

1. Coverage. Section 226.13(a)(3) 

covers disputes about goods or services 

that are ‘‘not accepted’’ or ‘‘not 

delivered * * * as agreed’’; for 

example: 

i. The appearance on a periodic 

statement of a purchase, when the 

consumer refused to take delivery of 

goods because they did not comply with 

the contract. 

ii. Delivery of property or services 

different from that agreed upon. 

iii. Delivery of the wrong quantity. 

iv. Late delivery. 

v. Delivery to the wrong location. 

Section 226.13(a)(3) does not apply to 

a dispute relating to the quality of 

property or services that the consumer 

accepts. Whether acceptance occurred is 

determined by state or other applicable 

law. 

fl2. Application to purchases made 

using a third-party payment 

intermediary. Section 226.13(a)(3) 

applies to disputes about goods and 

services that are purchased using a 

third-party payment intermediary, such 

as a person-to-person Internet payment 

service, funded through use of a 

consumer’s open-end credit plan when 

the goods or services are not accepted 

by the consumer or not delivered to the 

consumer as agreed. Under these 

circumstances, the property or service 

for which the extension of credit is 

made is not the payment service, but 

rather the good or service that the 

consumer has purchased using the 

payment service. 

3. Notice to merchant not required. A 

consumer is not required to first notify 

the merchant or other payee from whom 

they have purchased goods or services 

in order to provide a billing-error notice 

to the creditor under paragraph (a)(3) of 

this section asserting that the goods or 

services were not accepted or delivered 

as agreed.fi 

Paragraph 13(a)(5). 

1. Computational errors. In periodic 

statements that are combined with other 

information, the error resolution 

procedures are triggered only if the 

consumer asserts a computational 

billing error in the credit-related portion 

of the periodic statement. For example[: 

i. If]fl iffi a bank combines a 

periodic statement reflecting the 

consumer’s credit card transactions with 

the consumer’s monthly checking 

statement, a computational error in the 

checking account portion of the 

combined statement is not a billing 

error. 

Paragraph 13(a)(6). 

1. Documentation requests. A request 

for documentation such as receipts or 

sales slips, unaccompanied by an 

allegation of an error under § 226.13(a) 

or a request for additional clarification 

under § 226.13(a)(6), does not trigger the 

error resolution procedures. For 

example, a request for documentation 

merely for purposes such as tax 

preparation or recordkeeping does not 

trigger the error resolution procedures. 

13(b) Billing error notice. 

1. Withdrawal flof billing error notice 

by consumerfi. flThe creditor need not 

comply with the requirements of 

paragraphs (c) through (g) of this section 

if the consumer concludes that no 

billing error occurred and voluntarily 

withdraws the billing error notice.fi 

The consumer’s withdrawal of a billing 

error notice may be oral or written. 

fl2. Form of written notice. The 

creditor may require that the written 

notice not be made on the payment 

medium or other material 

accompanying the periodic statement if 

the creditor so stipulates in the billing 

rights statement required by §§ 226.6(d) 

and 226.9(a). In addition, if the creditor 

stipulates in the billing rights statement 

that it accepts billing error notices 

submitted electronically, and states the 

means by which a consumer may 

electronically submit a billing error 

notice, a notice sent in such manner 

will be deemed to satisfy the written 

notice requirement for purposes of 

§ 226.13(b).fi 

Paragraph 13(b)(1). 

1. Failure to send periodic 

statement—timing. If the creditor has 

failed to send a periodic statement, the 

60-day period runs from the time the 

statement should have been sent. Once 

the statement is provided, the consumer 

has another 60 days to assert any billing 

errors reflected on it. flSee also 

§ 226.12(e).fi 

2. Failure to reflect credit—timing. If 

the periodic statement fails to reflect a 

credit to the account, the 60-day period 

runs from transmittal of the statement 

on which the credit should have 

appeared. 

3. Transmittal. If a consumer has 

arranged for periodic statements to be 

held at the financial institution until 

called for, the statement is 

‘‘transmitted’’ when it is first made 

available to the consumer. 

Paragraph 13(b)(2). 

1. Identity of the consumer. The 

billing error notice need not specify 

both the name and the account number 

if the information supplied enables the 

creditor to identify the consumer’s name 

and account. 

13(c) Time for resolution; general 

procedures. 

1. Temporary or provisional 

corrections. A creditor may temporarily 

correct the consumer’s account in 

response to a billing error notice, but is 

not excused from complying with the 

remaining error resolution procedures 

within the time limits for resolution. 

2. Correction without investigation. A 

creditor may correct a billing error in 

the manner and amount asserted by the 

consumer without the investigation or 

the determination normally required. 

The creditor must comply, however, 

with all other applicable provisions. If 

a creditor follows this procedure, no 

presumption is created that a billing 

error occurred. 

fl3. Relationship with § 226.12. The 

consumer s rights under the billing error 

provisions in § 226.13 are independent 

of the provisions set forth in § 226.12(b) 

and (c). See comments 12(b)(1)–4, 

12(b)(4)–3, and 12(c)–1.fi 

Paragraph 13(c)(2). 

1. Time for resolution. The phrase two 

complete billing cycles means 2 actual 

billing cycles occurring after receipt of 

the billing error notice, not a measure of 

time equal to 2 billing cycles. For 


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example, if a creditor on a monthly 

billing cycle receives a billing error 

notice mid-cycle, it has the remainder of 

that cycle plus the next 2 full billing 

cycles to resolve the error. 

fl2. Finality of error resolution 

procedure. A creditor must complete its 

investigation and conclusively 

determine whether an error occurred 

within the time period set forth in 

paragraph (c)(2) of this section. Thus, 

for example, once the two-billing cycle 

period for completing an investigation 

of an alleged billing error has expired, 

a creditor may not reverse any amounts 

previously credited related to that 

alleged billing error, even if the creditor 

subsequently obtains evidence 

indicating that the billing error did not 

occur as asserted by the consumer.fi 

13(d) Rules pending resolution. 

1. Disputed amount. Disputed amount 

is the dollar amount alleged by the 

consumer to be in error. When the 

allegation concerns the description or 

identification of the transaction (such as 

the date or the seller’s name) rather than 

a dollar amount, the disputed amount is 

the amount of the transaction or charge 

that corresponds to the disputed 

transaction identification. If the 

consumer alleges a failure to send a 

periodic statement under § 226.13(a)(7), 

the disputed amount is the entire 

balance owing. 

13(d)(1) Consumer’s right to withhold 

disputed amount; collection action 

prohibited. 

1. Prohibited collection actions. 

During the error resolution period, the 

creditor is prohibited from trying to 

collect the disputed amount from the 

consumer. Prohibited collection actions 

include, for example, instituting court 

action, taking a lien, or instituting 

attachment proceedings. 

2. Right to withhold payment. If the 

creditor reflects any disputed amount or 

related finance or other charges on the 

periodic statement, and is therefore 

required to make the disclosure under 

flparagraph (d)(4) of this sectionfi 

[footnote 30], the creditor may comply 

with that disclosure requirement by 

indicating that payment of any disputed 

amount is not required pending 

resolution. Making a disclosure that 

only refers to the disputed amount 

would, of course, in no way affect the 

consumer s right under § 226.13(d)(1) to 

withhold related finance and other 

charges. The disclosure under 

flparagraph (d)(4) of this sectionfi 

[footnote 30] need not appear in any 

specific place on the periodic statement, 

need not state the specific amount that 

the consumer may withhold, and may 

be preprinted on the periodic statement. 

3. Imposition of additional charges on 

undisputed amounts. The consumer’s 

withholding of a disputed amount from 

the total bill cannot subject undisputed 

balances (including new purchases or 

cash advances made during the present 

or subsequent cycles) to the imposition 

of finance or other charges. For 

example, if on an account with a 

flgracefi [free-ride] period (that is, an 

account in which paying the new 

balance in full allows the consumer to 

avoid the imposition of additional 

finance charges), a consumer disputes a 

$2 item out of a total bill of $300 and 

pays $298 within the flgracefi [freeride] period, the consumer would not 

lose the flgrace periodfi [free-ride] as 

to any undisputed amounts, even if the 

creditor determines later that no billing 

error occurred. Furthermore, finance or 

other charges may not be imposed on 

any new purchases or advances that, 

absent the unpaid disputed balance, 

would not have finance or other charges 

imposed on them. Finance or other 

charges that would have been incurred 

even if the consumer had paid the 

disputed amount would not be affected. 

4. Automatic payment plans—

coverage. The coverage of this provision 

is limited to the card issuer’s 

flautomaticfi [intra-institutional] 

payment plansfl, whether or not the 

consumer’s asset account is held by the 

card issuer or by another financial 

institutionfi. It does not apply to[: 

[• Inter-institutional payment plans 

that permit a cardholder to pay 

automatically any credit card 

indebtedness from an asset account not 

held by the card issuer receiving 

payment. 

• I]fl ifintra-institutional automatic 

payment plans offered by financial 

institutions that are not credit card 

issuers. 

5. Automatic payment plans—time of 

notice. While the card issuer does not 

have to restore or prevent the debiting 

of a disputed amount if the billing error 

notice arrives after the 3-business-day 

cut-off, the card issuer must, however, 

prevent the automatic debit of any part 

of the disputed amount that is still 

outstanding and unresolved at the time 

of the next scheduled debit date. 

13(d)(2) Adverse credit reports 

prohibited. 

1. Report of dispute. Although the 

creditor must not issue an adverse credit 

report because the consumer fails to pay 

the disputed amount or any related 

charges, the creditor may report that the 

amount or the account is in dispute. 

Also, the creditor may report the 

account as delinquent if undisputed 

amounts remain unpaid. 

2. Person. During the error resolution 

period, the creditor is prohibited from 

making an adverse credit report about 

the disputed amount to any person—

including employers, insurance 

companies, other creditors, and credit 

bureaus. 

3. Creditor’s agent. Whether an 

agency relationship exists between a 

creditor and an issuer of an adverse 

credit report is determined by State or 

other applicable law. 

13(e) Procedures if billing error 

occurred as asserted. 

1. Correction of error. The phrase as 

applicable means that the necessary 

corrections vary with the type of billing 

error that occurred. For example, a 

misidentified transaction (or a 

transaction that is identified by one of 

the alternative methods in § 226.8) is 

cured by properly identifying the 

transaction and crediting related finance 

and any other charges imposed. The 

creditor is not required to cancel the 

amount of the underlying obligation 

incurred by the consumer. 

2. Form of correction notice. The 

written correction notice may take a 

variety of forms. It may be sent 

separately, or it may be included on or 

with a periodic statement that is mailed 

within the time for resolution. If the 

periodic statement is used, the amount 

of the billing error must be specifically 

identified. If a separate billing error 

correction notice is provided, the 

accompanying or subsequent periodic 

statement reflecting the corrected 

amount may simply identify it as credit. 

fl3. Discovery of information after 

investigation period. See comment 

13(c)(2)–2.fi 

13(f) Procedures if different billing 

error or no billing error occurred. 

1. Different billing error. Examples of 

a different billing error include: 

i. Differences in the amount of an 

error (for example, the customer asserts 

a $55.00 error but the error was only 

$53.00). 

ii. Differences in other particulars 

asserted by the consumer (such as when 

a consumer asserts that a particular 

transaction never occurred, but the 

creditor determines that only the seller’s 

name was disclosed incorrectly). 

2. Form of creditor’s explanation. The 

written explanation (which also may 

notify the consumer of corrections to the 

account) may take a variety of forms. It 

may be sent separately, or it may be 

included on or with a periodic 

statement that is mailed within the time 

for resolution. If the creditor uses the 

periodic statement for the explanation 

and correction(s), the corrections must 

be specifically identified. If a separate 

explanation, including the correction 


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33138 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

notice, is provided, the enclosed or 

subsequent periodic statement reflecting 

the corrected amount may simply 

identify it as a credit. The explanation 

may be combined with the creditor’s 

notice to the consumer of amounts still 

owing, which is required under 

§ 226.13(g)(1), provided it is sent within 

the time limit for resolution. (See 

Commentary to § 226.13(e).) 

13(g) Creditor’s rights and duties after 

resolution. 

Paragraph 13(g)(1). 

1. Amounts owed by consumer. 

Amounts the consumer still owes may 

include both minimum periodic 

payments and related finance and other 

charges that accrued during the 

resolution period. As explained in the 

commentary to § 226.13(d)(1), even if 

the creditor later determines that no 

billing error occurred, the creditor may 

not include finance or other charges that 

are imposed on undisputed balances 

solely as a result of a consumer’s 

withholding payment of a disputed 

amount. 

2. Time of notice. The creditor need 

not send the notice of amount owed 

within the time period for resolution, 

although it is under a duty to send the 

notice promptly after resolution of the 

alleged error. If the creditor combines 

the notice of the amount owed with the 

explanation required under 

§ 226.13(f)(1), the combined notice must 

be provided within the time limit for 

resolution. 

Paragraph 13(g)(2). 

1. flGrace period if no error occurred. 

If the creditor determines, after a 

reasonable investigation, that a billing 

error did not occur as asserted, and the 

consumer was entitled to a grace period 

at the time the consumer provided the 

billing error notice, the consumer must 

be given a period of time equal to the 

grace period disclosed under 

§§ 226.6(a)(1) and 226.7(j) to pay any 

disputed amounts due without 

incurring additional finance or other 

charges. However, thefi [The] creditor 

need not allow a flgracefi [free-ride] 

period disclosed under §§ 226.6(a)(1) 

and 226.7(j) to pay the amount due 

under § 226.13(g)(1) if no error occurred 

and the consumer was not entitled to a 

flgracefi [free-ride] period at the time 

the consumer asserted the error. flFor 

example, assume that a creditor 

provides a consumer a grace period of 

20 days to pay a new balance to avoid 

finance charges, and that the consumer 

did not carry an outstanding balance 

from the prior month. If the consumer 

subsequently asserts a billing error for 

the current statement period within the 

20-day grace period, and the creditor 

determines that no billing error in fact 

occurred, the consumer must be given at 

least 20 days (i.e., the full disclosed 

grace period) to pay the amount due 

without incurring additional finance 

charges. Conversely, if the consumer 

was not entitled to a grace period at the 

time the consumer asserted the billing 

error, for example, if the consumer did 

not pay the previous monthly balance of 

undisputed charges in full, the creditor 

may assess finance charges on the 

disputed balance.fi 

Paragraph 13(g)(3). 

1. Time for payment. The consumer 

has a minimum of 10 days to pay 

(measured from the time the consumer 

could reasonably be expected to have 

received notice of the amount owed) 

before the creditor may issue an adverse 

credit report; if an initially disclosed 

flgracefi [free-ride] period allows the 

consumer a longer time in which to pay, 

the consumer has the benefit of that 

longer period. 

Paragraph 13(g)(4). 

1. Credit reporting. Under 

§ 226.13(g)(4)(i) and (iii) the creditor’s 

additional credit reporting 

responsibilities must be accomplished 

promptly. The creditor need not 

establish costly procedures to fulfill this 

requirement. For example, a creditor 

that reports to a credit bureau on 

scheduled updates need not transmit 

corrective information by an 

unscheduled computer or magnetic 

tape; it may provide the credit bureau 

with the correct information by letter or 

other commercially reasonable means 

when using the scheduled update 

would not be ‘‘prompt.’’ The creditor is 

not responsible for ensuring that the 

credit bureau corrects its information 

immediately. 

2. Adverse report to credit bureau. If 

a creditor made an adverse report to a 

credit bureau that disseminated the 

information to other creditors, the 

creditor fulfills its § 226.13(g)(4)(ii) 

obligations by providing the consumer 

with the name and address of the credit 

bureau. 

13(i) Relation to Electronic Fund 

Transfer Act and Regulation E. 

1. Coverage. Credit extended directly 

from a non-overdraft credit line is 

governed solely by Regulation Z, even 

though a combined credit card/access 

device is used to obtain the extension. 

2. Incidental credit under agreement. 

Credit extended incident to an 

electronic fund transfer under an 

agreement between the consumer and 

the financial institution is governed by 

§ 226.13(i), which provides that certain 

error resolution procedures in both this 

regulation and Regulation E apply. 

Incidental credit that is not extended 

under an agreement between the 

consumer and the financial institution 

is governed solely by the error 

resolution procedures in Regulation E. 

For examplefl ,fi [: 

•C]flcfi redit inadvertently extended 

incident to an electronic fund 

transferfl, such as under an overdraft 

protection plan not subject to 

Regulation Z,fi is governed solely by 

the Regulation E error resolution 

procedures, if the bank and the 

consumer do not have an agreement to 

extend credit when the consumer’s 

account is overdrawn. 

3. Application to debit/credit 

transactions-examples. If a consumer 

withdraws money at an automated teller 

machine and activates an overdraft 

credit feature on the checking account: 

i. An error asserted with respect to the 

transaction is subject, for error 

resolution purposes, to the applicable 

Regulation E provisions (such as timing 

and notice) for the entire transaction. 

ii. The creditor need not provisionally 

credit the consumer’s account, under 

§ 205.11(c)(2)(i) of Regulation E, for any 

portion of the unpaid extension of 

credit. 

iii. The creditor must credit the 

consumer’s account under § 205.11(c) 

with any finance or other charges 

incurred as a result of the alleged error. 

iv. The provisions of §§ 226.13(d) and 

(g) apply only to the credit portion of 

the transaction. 

Section 226.14—Determination of 

Annual Percentage Rate 

14(a) General rule. 

1. Tolerance. The tolerance of 1⁄8 of 1 

percentage point above or below the 

annual percentage rate applies to any 

required disclosure of the annual 

percentage rate. The disclosure of the 

annual percentage rate is required in 

§§fl226.5a, 226.5b, fi 226.6, 226.7, 

226.9, 226.15, 226.16, and 226.26. 

2. Rounding. The regulation does not 

require that the annual percentage rate 

be calculated to any particular number 

of decimal places; rounding is 

permissible within 1⁄8 of the of 1 percent 

tolerance. For example, an exact annual 

percentage rate of 14.33333% may be 

stated as 14.33% or as 14.3%, or even 

as 141⁄4%; but it could not be stated as 

14.2% or 14%, since each varies by 

more than the permitted tolerance. 

3. Periodic rates. No explicit tolerance 

exists for any periodic rate as such; a 

disclosed periodic rate may vary from 

precise accuracy (for example, due to 

rounding) only to the extent that its 

annualized equivalent is within the 

tolerance permitted by § 226.14(a). 

Further, a periodic rate need not be 

calculated to any particular number of 

decimal places. 


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4. Finance charges. The regulation 

does not prohibit creditors from 

assessing finance charges on balances 

that include prior, unpaid finance 

charges; state or other applicable law 

may do so, however. 

5. Good faith reliance on faulty 

calculation tools. flThe regulationfi 

[Footnote 31a] relieves a creditor of 

liability for an error in the annual 

percentage rate or finance charge that 

resulted from a corresponding error in a 

calculation tool used in good faith by 

the creditor. Whether or not the 

creditor’s use of the tool was in good 

faith must be determined on a case-bycase basis, but the creditor must in any 

case have taken reasonable steps to 

verify the accuracy of the tool, including 

any instructions, before using it. 

Generally, the safe harbor from liability 

is available only for errors directly 

attributable to the calculation tool self, 

including software programs; it is not 

intended to absolve a creditor of 

liability for its own errors, or for errors 

arising from improper use of the tool, 

from incorrect data entry, or from 

misapplication of the law. 

14(b) Annual percentage rate fl—in 

generalfi [for §§ 226.5a and 226.5b 

disclosures, for initial disclosures and 

for advertising purposes]. 

1. Corresponding annual percentage 

rate computation. For purposes of 

§§ 226.5a, 226.5b, 226.6fl, 226.7(d), 

226.9, 226.15,fi [and] 226.16, and 

fl226.26,fi the annual percentage rate 

is determined by multiplying the 

periodic rate by the number of periods 

in the year. This computation reflects 

the fact that, in such disclosures, the 

rate (known as the corresponding 

annual percentage rate) is prospective 

and does not involve any particular 

finance charge or periodic balance. 

[This computation also is used to 

determine any annual percentage rate 

for oral disclosures under § 226.26(a).] 

14(c) flEffectivefi annual percentage 

rate flfor home equity plansfi [for 

periodic statements]. 

1. General rule. [Section 226.14(c) 

requires disclosure of the corresponding 

annual percentage rate for each periodic 

rate (under § 226.7(d)). It is figured by 

multiplying each periodic rate by the 

number of periods per year. This 

disclosure is like that provided on the 

initial account-opening disclosure 

statement.] The periodic statement 

[also] must reflect (under § 226.7(g)) the 

annualized equivalent of the rate 

actually applied during a particular 

cycle [(the historical rate)]; this rate may 

differ from the corresponding annual 

percentage rate because of the inclusion 

offl, for example,fi fixed, minimum, or 

transaction charges. Sections 

226.14(c)(1) through (c)[(4)] fl(5)fi 

state the computation rules for the 

fleffectivefi [historical] rate. 

fl2.fi [7.] Charges related to 

opening, renewing, or continuing an 

account. [Footnote 33 is applicable to 

§ 226.14(c)(2) and (c)(3).] flSection 

226.14(c)(2) and 226.14(c)(3) excludes 

from the calculation of the effective 

annual percentage rate finance charges 

that are imposed during the billing cycle 

such as a loan fee, points, or similar 

charge that relates to opening, renewing, 

or continuing an account.fi The charges 

involved here do not relate to a specific 

transaction or to specific activity on the 

account, but relate solely to the opening, 

renewing, or continuing of the account. 

For example, an annual fee to renew an 

open-end credit account that is a 

percentage of the credit limit on the 

account, or that is charged only to 

consumers that have not used their 

credit card for a certain dollar amount 

in transactions during the preceding 

year, would not be included in the 

calculation of the annual percentage 

rate, even though the fee may not be 

excluded from the finance charge under 

§ 226.4(c)(4). (See comment 4(c)(4)–2.) 

[Inclusion of these charges in the annual 

percentage rate calculation results in 

significant distortions of the annual 

percentage rate and delivery of a 

possibly misleading disclosure to 

consumers. The] flThisfi rule [in 

footnote 33] applies even if the loan fee, 

points, or similar charges are billed on 

a subsequent periodic statement or 

withheld from the proceeds of the first 

advance on the account. 

fl3.fi [8.] Classification of charges. If 

the finance charge includes a charge not 

due to the application of a periodic rate, 

the creditor must use the annual 

percentage rate computation method 

that corresponds to the type of charge 

imposed. If the charge is tied to a 

specific transaction (for example, 3% of 

the amount of each transaction), then 

the method in § 226.14(c)(3) must be 

used. If a fixed or minimum charge is 

applied, that is, one not tied to any 

specific transaction, then the formula in 

§ 226.14(c)(2) is appropriate. 

fl4.fi [9.] Small finance charges. 

Section 226.14(c)(4) gives the creditor 

an alternative to § 226.14(c)(2) and (c)(3) 

if small finance charges (50 cents or 

less) are involved; that is, if the finance 

charge includes minimum or fixed fees 

not due to the application of a periodic 

rate and the total finance charge for the 

cycle does not exceed 50 cents. For 

example, while a monthly activity fee of 

50 cents on a balance of $20 would 

produce an annual percentage rate of 30 

percent under the rule in § 226.14(c)(2), 

the creditor may disclose an annual 

percentage rate of 18 percent if the 

periodic rate generally applicable to all 

balances is 11⁄2 percent per month. [This 

option is consistent with the provision 

in footnote 11 to §§ 226.6 and 226.7 

permitting the creditor to disregard the 

effect of minimum charges in disclosing 

the ranges of balances to which periodic 

rates apply.] 

fl5.fi [10.] Prior-cycle adjustments. 

i. The annual percentage rate reflects the 

finance charges imposed during the 

billing cycle. However, finance charges 

imposed during the billing cycle may 

relate to activity in a prior cycle. 

Examples of circumstances when this 

may occur are: 

A. A cash advance occurs on the last 

day of a billing cycle on an account that 

uses the transaction date to figure 

finance charges, and it is impracticable 

to post the transaction until the 

following cycle. 

B. An adjustment to the finance 

charge is made following the resolution 

of a billing error dispute. 

C. A consumer fails to pay the 

purchase balance under a deferred 

payment feature by the payment due 

date, and finance charges are imposed 

from the date of purchase. 

ii. Finance charges relating to activity 

in prior cycles should be reflected on 

the periodic statement as follows: 

A. If a finance charge imposed in the 

current billing cycle is attributable to 

periodic rates applicable to prior billing 

cycles (such as when a deferred 

payment balance was not paid in full by 

the payment due date and finance 

charges from the date of purchase are 

now being debited to the account, or 

when a cash advance occurs on the last 

day of a billing cycle on an account that 

uses the transaction date to figure 

finance charges and it is impracticable 

to post the transaction until the 

following cycle), and the creditor uses 

the quotient method to calculate the 

annual percentage rate, the numerator 

would include the amount of any 

transaction charges plus any other 

finance charges posted during the 

billing cycle. At the creditor’s option, 

balances relating to the finance charge 

adjustment may be included in the 

denominator if permitted by the legal 

obligation, if it was impracticable to 

post the transaction in the previous 

cycle because of timing, or if the 

adjustment is covered by comment 

14(c)–10.ii.B. 

B. If a finance charge that is posted to 

the account relates to activity for which 

a finance charge was debited or credited 

to the account in a previous billing 

cycle (for example, if the finance charge 

relates to an adjustment such as the 

resolution of a billing error dispute, or 


rwilkins on PROD1PC63 with PROPOSALS2
33140 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

an unintentional posting error, or a 

payment by check that was later 

returned unpaid for insufficient funds 

or other reasons), the creditor shall at its 

option: 

1. Calculate the annual percentage 

rate in accord with ii.A. of this 

paragraph, or 

2. Disclose the finance charge 

adjustment on the periodic statement 

and calculate the annual percentage rate 

for the current billing cycle without 

including the finance charge adjustment 

in the numerator and balances 

associated with the finance charge 

adjustment in the denominator. 

fl6. Calculations where daily 

periodic rate applied. Section 

226.14(c)(5) addresses use of a daily 

periodic rate(s) to determine some or all 

of the finance charge and use of the 

quotient method to determine the 

annual percentage rate. Since the 

quotient formula in §§ 226.14(c)(1)(ii) 

and (c)(2) cannot be used when a daily 

rate is being applied to a series of daily 

balances, § 226.14(c)(5) provides two 

alternative ways to calculate the annual 

percentage rate—either of which 

satisfies the requirement in § 226.7(b)(i). 

If the finance charge results from a 

charge relating to a specific transaction 

and the application of a daily periodic 

rate, see comment 14(c)(3)–2 for 

guidance on an appropriate calculation 

method.fi 

fl14(c)(1) Solely periodic rates 

imposed.fi 

fl1.fi [2.] Periodic rates. Section 

226.14(c)(1) applies if the only finance 

charge imposed is due to the application 

of a periodic rate to a balance. The 

creditor may compute the annual 

percentage rate either: 

i. By multiplying each periodic rate 

by the number of periods in the year; or 

ii. By the ‘‘quotient’’ method. This 

method refers to a composite annual 

percentage rate when different periodic 

rates apply to different balances. For 

example, a particular plan may involve 

a periodic rate of 11⁄2% on balances up 

to $500, and 1% on balances over $500. 

If, in a given cycle, the consumer has a 

balance of $800, the finance charge 

would consist of $7.50 (500 × .015) plus 

$3.00 (300 × .01), for a total finance 

charge of $10.50. The annual percentage 

rate for this period may be disclosed 

either as 18% on $500 and 12% on 

$300, or as 15.75% on a balance of $800 

(the quotient of $10.50 divided by $800, 

multiplied by 12). 

fl14(c)(2) Minimum or fixed charge, 

but not transaction charge, imposed.fi 

fl1.fi [3.] flCertain chargesfi 

[Charges] not based on periodic rates. 

Section 226.14(c)(2) [applies] flrequires 

use of the quotient method to determine 

the annual percentage ratefi if the 

finance charge imposed includes a 

certain charge not due to the application 

of a periodic rate (other than a charge 

relating to a specific transaction). For 

example, if the creditor imposes a 

minimum $1 finance charge on all 

balances below $50, and the consumer’s 

balance was $40 in a particular cycle, 

the creditor would disclose an annual 

percentage rate of 30% (1/40 × 12). 

fl2.fi [4.] No balance. [Footnote 32 

to § 226.14(c)(2) would apply not only] 

flIf there is no balance to which the 

finance charge is applicable, an annual 

percentage rate cannot be determined 

under § 226.14(c)(2). This could occur 

not onlyfi when minimum charges are 

imposed on an account with no balance, 

but also when a periodic rate is applied 

to advances from the date of the 

transaction. For example, if on May 19 

the consumer pays the new balance in 

full from a statement dated May 1, and 

has no further transactions reflected on 

the June 1 statement, that statement 

would reflect a finance charge with no 

account balance. 

fl14(c)(3) Transaction charge 

imposed.fi 

fl1.fi [5.] Transaction charges. i. 

Section 226.14(c)(3) transaction charges 

include, for example: 

A. A loan fee of $10 imposed on a 

particular advance. 

B. A charge of 3% of the amount of 

each transaction. 

ii. The reference to avoiding 

duplication in the computation requires 

that the amounts of transactions on 

which transaction charges were 

imposed not be included both in the 

amount of total balances and in the 

‘‘other amounts on which a finance 

charge was imposed’’ figure. In a 

multifeatured plan, creditors may 

consider each bona fide feature 

separately in the calculation of the 

denominator. A creditor has 

considerable flexibility in defining 

features for open-end plans, as long as 

the creditor has a reasonable basis for 

the distinctions. For further explanation 

and examples of how to determine the 

components of this formula, see 

Appendix F. 

fl2.fi [6.] Daily rate with specific 

transaction charge. Section 226.14(c)(3) 

sets forth an acceptable method for 

calculating the annual percentage rate if 

the finance charge results from a charge 

relating to a specific transaction and the 

application of a daily periodic rate. This 

section includes the requirement that 

the creditor follow the rules in 

Appendix F in calculating the annual 

percentage rate, especially flthe 

provision in the introductory section of 

fi[footnote 1 to] Appendix F which 

addresses the daily rate/transaction 

charge situation by providing that the 

‘‘average of daily balances’’ shall be 

used instead of the ‘‘sum of the 

balances.’’

ALTERNATIVE 1—PARAGRAPH 

14(d). 

14(d) flEffective annual percentage 

rate for open-end (not home-secured) 

plans fi[Calculations where daily 

periodic rate applied]. 

fl1. General rule. The periodic 

statement must reflect under 

§ 226.7(b)(7) the annualized equivalent 

of the rate actually applied during a 

particular cycle (the effective rate); this 

rate may differ from the corresponding 

annual percentage rate because of the 

inclusion of minimum, fixed, or 

transaction charges. Sections 226.14 

(d)(1) through (d)(5) state the 

computation rules for the effective rate. 

2. Classification of charges. If the 

finance charge includes a charge not 

attributable to a periodic rate used to 

calculate interest, the creditor must use 

the annual percentage rate computation 

method that corresponds to the type of 

charge imposed. If the charge is tied to 

a specific transaction (for example, 3% 

of the amount of each transaction), then 

the method in § 226.14(d)(3) must be 

used. If a fixed or minimum charge is 

applied, that is, one not related to any 

specific transaction, then the formula in 

§ 226.14(d)(2) is appropriate. 

3. Calculated by feature. For 

multifeatured plans, the effective annual 

percentage rate(s) calculated pursuant to 

§ 226.14(d) must be separately 

calculated by feature. 

4. Prior-cycle adjustments. i. The 

annual percentage rate reflects the 

finance charges identified in § 226.14(e) 

imposed during the billing cycle. 

However, such finance charges imposed 

during the billing cycle may relate to 

activity in a prior cycle. Examples of 

circumstances when this may occur are: 

A. A cash advance occurs on the last 

day of a billing cycle on an account that 

uses the transaction date to figure 

finance charges, and it is impracticable 

to post the transaction until the 

following cycle. 

B. An adjustment to the finance 

charge is made following the resolution 

of a billing error dispute. 

C. A consumer fails to pay the 

purchase balance under a deferred 

payment feature by the payment due 

date, and finance charges are imposed 

from the date of purchase. 

ii. Finance charges relating to activity 

in prior cycles should be reflected on 

the periodic statement as follows: 

A. If a finance charge imposed in the 

current billing cycle is attributable to 

periodic rates applicable to prior billing 


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Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33141 

cycles (such as when a deferred 

payment balance was not paid in full by 

the payment due date and finance 

charges from the date of purchase are 

debited to the account, or when a cash 

advance occurs on the last day of a 

billing cycle on an account that uses the 

transaction date to figure finance 

charges and it is impracticable to post 

the transaction until the following 

cycle), and the creditor uses the 

quotient method to calculate the annual 

percentage rate, the numerator would 

include the amount of any transaction 

charges plus any other finance charges 

posted during the billing cycle. At the 

creditor’s option, balances relating to 

the finance charge adjustment may be 

included in the denominator if 

permitted by the legal obligation, if it 

was impracticable to post the 

transaction in the previous cycle 

because of timing, or if the adjustment 

is covered by comment 14(d)–3.ii.B. 

B. If a finance charge that is posted to 

the account relates to activity for which 

a finance charge was debited or credited 

to the account in a previous billing 

cycle (for example, if the finance charge 

relates to an adjustment such as the 

resolution of a billing error dispute, or 

an unintentional posting error, or a 

payment by check that was later 

returned unpaid for insufficient funds 

or other reasons), the creditor shall at its 

option: 

1. Calculate the annual percentage 

rate in accordance with ii.A. of this 

paragraph, or 

2. Disclose the finance charge 

adjustment on the periodic statement 

and calculate the annual percentage rate 

for the current billing cycle without 

including the finance charge adjustment 

in the numerator and balances 

associated with the finance charge 

adjustment in the denominator.fi 

[1. Quotient Method. Section 

226.14(d) addresses use of a daily 

periodic rate(s) to determine some or all 

of the finance charge and use of the 

quotient method to determine the 

annual percentage rate. Since the 

quotient formula in § 226.14(c)(1)(ii) 

does not work when a daily rate is being 

applied to a series of daily balances, 

§ 226.14(d) gives the creditor 2 

alternative ways to figure the annual 

percentage rate—either of which 

satisfies the requirement in § 226.7(g). 

2. Daily rate with specific transaction 

charge. If the finance charge results 

from a charge relating to a specific 

transaction and the application of a 

daily periodic rate, see comment 14(c)–

6 for guidance on an appropriate 

calculation method.] 

fl14(d)(1) Solely periodic rates 

imposed. 

1. Periodic rates. Section 226.14(d)(1) 

applies if the only finance charge 

identified in § 226.14(e) imposed in a 

billing cycle is attributable solely to one 

or more periodic rates used to calculate 

interest. The creditor must compute the 

effective annual percentage rate(s) by 

multiplying each periodic rate by the 

number of periods in the year.fi 

fl14(d)(2) Minimum or fixed charge, 

but not transaction charge, imposed. 

1. Purchase features. If there are 

several features relating to purchase 

transactions (such as a standard 

purchase feature and a promotional 

purchase feature), the minimum charges 

or other charges identified in § 226.14(e) 

that are not attributable to periodic rates 

used to calculate interest and not related 

to a specific transaction must be 

included in the calculation of the 

effective annual percentage rate for the 

standard purchase feature. The effective 

annual percentage rate for the 

promotional purchase feature, for 

example, must be calculated under 

§ 226.14(d)(2)(i)(B). 

2. No balance. If there is no purchase 

balance to which the finance charge is 

applicable, an annual percentage rate 

cannot be determined under 

§ 226.14(d)(2)(i) or (ii). This could occur 

not only when minimum charges are 

imposed on an account with no balance, 

but also to a plan in which a periodic 

rate is applied to balances from the date 

of the transaction. For example, if on 

May 19 the consumer pays the new 

balance in full from a statement dated 

May 1, and has no further transactions 

reflected on the June 1 statement, that 

statement would reflect a finance charge 

with no account balance. 

3. Calculations where daily periodic 

rate applied. Section 226.14(d)(2)(i) and 

§ 226.14(d)(2)(ii) address use of a daily 

periodic rate(s) to determine some or all 

of the finance charge identified in 

§ 226.14(e) and use of the quotient 

method to determine the annual 

percentage rate. Since the quotient 

formula does not work when a daily rate 

is being applied to a series of daily 

balances, § 226.14(d)(2)(i) and 

§ 226.14(d)(2)(ii) give the creditor two 

alternative ways to compute the annual 

percentage rate—either of which 

satisfies the requirement in 

§ 226.7(b)(7). If the finance charge 

results from a charge relating to a 

specific transaction and the application 

of a daily periodic rate, see comment 

14(d)(3)–3 for guidance on an 

appropriate calculation method.fi 

fl14(d)(3) Transaction charge 

imposed. 

1. Purchase features. If there are 

several features relating to purchase 

transactions (such as a standard 

purchase feature and a promotional 

purchase feature), any minimum 

charges or other charges identified in 

§ 226.14(e) that are not attributable to 

periodic rates used to calculate interest 

and not related to a specific transaction 

must be included in the calculation of 

the effective annual percentage rate for 

the standard purchase feature. Charges 

that relate to a specific transaction must 

be included in the calculation of the 

effective annual percentage rate for that 

type of transaction. For example, if a 

charge is applicable to a specific 

promotional purchase transaction, that 

charge must be included in calculating 

the effective annual percentage rate for 

the promotional purchase feature. 

2. Duplication. The reference to 

avoiding duplication in the computation 

requires that the amounts of 

transactions on which transaction 

charges were imposed not be included 

both in the amount of total balances and 

in the ‘‘other amounts on which a 

finance charge was imposed’’ figure. For 

further explanation and examples of 

how to determine the components of 

this formula, see appendix F. 

3. Daily rate with specific transaction 

charge. Section 226.14(d)(3) sets forth 

an acceptable method for calculating the 

annual percentage rate if the finance 

charge results from a charge relating to 

a specific transaction and the 

application of a daily periodic rate. This 

section includes the requirement that 

the creditor follow the rules in appendix 

F in calculating the annual percentage 

rate, especially the provision in the 

introductory section of appendix F 

which addresses the daily rate/ 

transaction charge situation by 

providing that the ‘‘average of daily 

balances’’ shall be used instead of the 

‘‘sum of the balances.’’fi 

flParagraph 14(d)(4) 

1. Small finance charges. Section 

226.14(d)(4) gives the creditor an 

alternative to § 226.14(d)(2) and (d)(3) if 

the sum of charges identified in 

paragraph (d)(2) or (d)(3) does not 

exceed $1.00 for a monthly or longer 

billing cycle, or the pro rata part of 

$1.00 for a billing cycle shorter than 

monthly. In that case, the creditor may 

determine the annual percentage rate by 

multiplying each applicable periodic 

rate by the number of periods in a 

year.fi 

flFinance charges to be included in 

the calculation of the effective annual 

percentage rate under § 226.14(d). 

Paragraph 14(e)(1) 

1. Transaction charges. i. For 

purposes of § 226.14, transaction 

charges include, for example: 

i. A loan fee of $10 imposed on a 

particular advance. 


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33142 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

ii. A charge of 3% of the amount of 

each transaction. 

Paragraph 14(e)(2). 

1. Charges imposed as a condition to 

opening an account. Section 

226.14(e)(2) provides that the finance 

charges that trigger the requirement to 

calculate an effective annual percentage 

rate under § 226.14(d)(2) or (3) do not 

include a charge related to opening the 

account. This rule applies even if loan 

fees, points, or similar charges are billed 

on a subsequent periodic statement or 

withheld from the proceeds of the first 

advance on the account. 

2. Annual charges. Section 

226.14(e)(2) provides that the finance 

charges that trigger the requirement to 

calculate an effective annual percentage 

rate under § 226.14(d)(2) or (3) do not 

include a charge related to continuing or 

renewing the account, unless the charge 

is imposed more often than annually. 

For example, a fee imposed annually to 

renew an open-end credit account that 

is a percentage of the credit limit on the 

account, or that is charged only to 

consumers that have not used their 

credit card for a certain dollar amount 

in transactions during the preceding 

year, would not be included in the 

calculation of the annual percentage 

rate, even though the fee may not be 

excluded from the finance charge under 

§ 226.4(c)(4). (See comment 4(c)(4)–

2.)fi 

* * * * * 

Section 226.16—Advertising 

1. Clear and conspicuous standard 

fl—generalfi. Section 226.16 is subject 

to the general ‘‘clear and conspicuous’’

standard for subpart B (see § 226.5(a)(1)) 

but prescribes no specific rules for the 

format of the necessary disclosuresfl, 

other than the format requirements 

related to the disclosure of an 

introductory rate under § 226.16(e)fi. 

flOther than the terms described in 

§ 226.16(e),fi the credit terms need not 

be printed in a certain type size nor 

need they appear in any particular place 

in the advertisement. 

fl2. Clear and conspicuous 

standard—introductory rates. For 

purposes of § 226.16(e), a clear and 

conspicuous disclosure means the 

required information in 

§§ 226.16(e)(4)(i) and (ii) must be 

equally prominent to the introductory 

rate to which it applies. If the 

information in §§ 226.16(e)(4)(i) and (ii) 

is the same type size as the introductory 

rate to which it applies, the disclosures 

would be deemed to be equally 

prominent.fi 

fl3.fi [2]. Expressing the annual 

percentage rate in abbreviated form. 

Whenever the annual percentage rate is 

used in an advertisement for open-end 

credit, it may be expressed using a 

readily understandable abbreviation 

such as APR. 

16(a) Actually available terms. 

1. General rule. To the extent that an 

advertisement mentions specific credit 

terms, it may state only those terms that 

the creditor is actually prepared to offer. 

For example, a creditor may not 

advertise a very low annual percentage 

rate that will not in fact be available at 

any time. Section 226.16(a) is not 

intended to inhibit the promotion of 

new credit programs, but to bar the 

advertising of terms that are not and 

will not be available. For example, a 

creditor may advertise terms that will be 

offered for only a limited period, or 

terms that will become available at a 

future date. 

2. Specific credit terms. Specific 

credit terms is not limited to the 

disclosures required by the regulation 

but would include any specific 

components of a credit plan, such as the 

minimum periodic payment amount or 

seller’s points in a plan secured by real 

estate. 

16(b) Advertisement of terms that 

require additional disclosures. 

1. flTriggering terms. Negative as 

well as affirmative references trigger the 

requirement for additional information. 

For example, if a creditor states no 

interest or no annual membership fee in 

an advertisement, additional 

information must be provided. Other 

examples of terms that trigger additional 

disclosures are: 

i. Small monthly service charge on the 

remaining balance, which describes 

how the amount of a finance charge will 

be determined. 

ii. 12 percent Annual Percentage Rate 

or A $15 annual membership fee buys 

you $2,000 in credit,’’ which describe 

required disclosures under § 226.6.fi 

[Terms requiring additional 

disclosures. In § 226.16(b) the phrase 

‘‘the terms required to be disclosed 

under § 226.6’’ refers to the terms in 

§ 226.6(a) and § 226.6(b).] 

[2. Use of positive terms. An 

advertisement must state a credit term 

as a positive number in order to trigger 

additional disclosures. For example, 

‘‘no annual membership fee’’ would not 

trigger the additional disclosures 

required by § 226.16(b). (See, however, 

the rules in § 226.16(d) relating to 

advertisements for home equity plans.)] 

fl2.fi [3.] Implicit terms. Section 

226.16(b) applies even if the triggering 

term is not stated explicitly, but may be 

readily determined from the 

advertisement. 

fl3.fi [4.] Membership fees. A 

membership fee is not a triggering term 

nor need it be disclosed under 

§ 226.16(b)(3) if it is required for 

participation in the plan whether or not 

an open-end credit feature is attached. 

(See comment fl6(a)(2)–2 and 

§ 226.6(b)(1)(ii)(B)fi [6(b)–1]). 

fl4. Deferred-billing and deferredpayment programs. Statements such as 

‘‘Charge it—you won’t be billed until 

May’’ or ‘‘You may skip your January 

payment’’ are not in themselves 

triggering terms, since the timing for 

initial billing or for monthly payments 

are not terms required to be disclosed 

under § 226.6. However, a statement 

such as ‘‘No interest charges until May’’

or any other statement regarding when 

interest or finance charges begin to 

accrue is a triggering term, whether 

appearing alone or in conjunction with 

a description of a deferred billing or 

deferred payment program such as the 

examples above.fi 

5. Variable-rate plans. In disclosing 

the annual percentage rate in an 

advertisement for a variable-rate plan, as 

required by § 226.16(b)(2), the creditor 

may use an insert showing the current 

rate; florfi may give the rate as of a 

specified recent date[; or may disclose 

an estimated rate under § 226.5(c)]. The 

additional requirement in § 226.16(b) 

fl(1)(ii)fi [(2)] to disclose the variablerate feature may be satisfied by 

disclosing that the annual percentage 

rate may vary or a similar statement, but 

the advertisement need not include the 

information required by [footnote 12 to 

§ 226.6(a)(2)]fl§ 226.6(a)(1)(ii) or 

§ 226.6(b)(2) fi. 

[6. Discounted variable-rate plans—

disclosure of the annual percentage 

rates. The advertised annual percentage 

rates for discounted variable-rate plans 

must, in accordance with comment 

6(a)(2)–10, include 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 options 

listed in comment 16(b)–5 may be used 

in disclosing the current indexed rate.] 

[7. Triggering terms. The following are 

examples of terms that trigger additional 

disclosures: 

• ‘‘Small monthly service charge on 

the remaining balance,’’ which 

describes how the amount of a finance 

charge will be determined. 

• ‘‘12 percent Annual Percentage 

Rate’’ or ‘‘A $15 annual membership fee 

buys you $2,000 in credit,’’ which 

describe required disclosures using 

positive numbers.] 

[8. Minimum, fixed, transaction, 

activity, or similar charge. The charges 

to be disclosed under § 226.16(b)(1) are 

those that are considered finance 

charges under § 226.4.] 


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[9. Deferred-billing and deferredpayment programs. Statements such as 

‘‘Charge it—you won’t be billed until 

May’’ or ‘‘You may skip your January 

payment’’ are not in themselves 

triggering terms, since the timing for 

initial billing or for monthly payments 

are not terms required to be disclosed 

under § 226.6. However, a statement 

such as ‘‘No finance charge until May’’

or any other statement regarding when 

finance charges begin to accrue is a 

triggering term, whether appearing 

alone or in conjunction with a 

description of a deferred billing or 

deferred payment program such as the 

examples above.] 

16(c) Catalogs or other multiple-page 

advertisements; electronic 

advertisements. 

1. Definition. The multiple-page 

advertisements to which § 226.16(c) 

refers are advertisements consisting of a 

series of sequentially numbered pages—

for example, a supplement to a 

newspaper. A mailing consisting of 

several separate flyers or pieces of 

promotional material in a single 

envelope does not constitute a single 

multiple-page advertisement for 

purposes of § 226.16(c). 

Paragraph 16(c)(1). 

1. General. Section 226.16(c)(1) 

permits creditors to put credit 

information together in one place in a 

catalog or other multiple-page 

advertisement or an electronic 

advertisement fl(such as an 

advertisement appearing on an Internet 

Web site)fi. The rule applies only if the 

advertisement contains one or more of 

the triggering terms from § 226.16(b). 

2. Electronic fladvertisementfi 

[communication]. If an flelectronic 

advertisement (such as an advertisement 

appearing on an Internet Web site)fi 

[advertisement using electronic 

communication] contains the table or 

schedule permitted under § 226.16(c)(1), 

any statement of terms set forth in 

§ 226.6 appearing anywhere else in the 

advertisement must clearly direct the 

consumer to the location where the 

table or schedule begins. For example, 

a term triggering additional disclosures 

may be accompanied by a link that 

directly takes the consumer to the 

additional information. 

Paragraph 16(c)(2). 

1. Table or schedule if credit terms 

depend on outstanding balance. If the 

credit terms of a plan vary depending on 

the amount of the balance outstanding, 

rather than the amount of any property 

purchased, a table or schedule complies 

with § 226.16(c)(2) if it includes the 

required disclosures for representative 

balances. For example, a creditor would 

disclose that a periodic rate of 1.5% is 

applied to balances of $500 or less, and 

a 1% rate is applied to balances greater 

than $500. 

flParagraph 16(c)(3). 

1. Form of disclosures. If a consumer 

accesses an advertisement in electronic 

form, the required disclosures must be 

provided to the consumer in electronic 

form on or with the advertisement; 

providing the disclosures at a different 

time or place, or in paper form, would 

not comply. Conversely, if a consumer 

views a paper advertisement, the 

required disclosures must be provided 

in paper form on or with the 

advertisement. For example, if a 

consumer receives an advertisement in 

the mail, the creditor would not satisfy 

its obligation to provide § 226.16 

disclosures at that time by including a 

reference in the advertisement to the 

Web site where the disclosures are 

located.fi 

16(d) Additional requirements for 

home equity plans. 

1. Trigger terms. Negative as well as 

affirmative references trigger the 

requirement for additional information. 

For example, if a creditor states no 

annual fee, no points, or we waive 

closing costs in an advertisement, 

additional information must be 

provided. (See comment 16(d)–4 

regarding the use of a phrase such as no 

closing costs.) Inclusion of a statement 

such as low fees, however, would not 

trigger the need to state additional 

information. References to payment 

terms include references to the draw 

period or any repayment period, to the 

length of the plan, to how the minimum 

payments are determined and to the 

timing of such payments. 

2. Fees to open the plan. Section 

226.16(d)(1)(i) requires a disclosure of 

any fees imposed by the creditor or a 

third party to open the plan. In 

providing the fee information required 

under this paragraph, the corresponding 

rules for disclosure of this information 

apply. For example, fees to open the 

plan may be stated as a range. Similarly, 

if property insurance is required to open 

the plan, a creditor either may estimate 

the cost of the insurance or provide a 

statement that such insurance is 

required. (See the commentary to 

§ 226.5b(d)(7) and (8).) 

3. Statements of tax deductibility. An 

advertisement referring to deductiblity 

for tax purposes is not misleading if it 

includes a statement such as ‘‘consult a 

tax advisor regarding the deductibility 

of interest.’’

4. Misleading terms prohibited. Under 

§ 226.16(d)(5), advertisements may not 

refer to home equity plans as free money 

or use other misleading terms. For 

example, an advertisement could not 

state ‘‘no closing costs’’ or ‘‘we waive 

closing costs’’ if consumers may be 

required to pay any closing costs, such 

as recordation fees. In the case of 

property insurance, however, a creditor 

may state, for example, ‘‘no closing 

costs’’ even if property insurance may 

be required, as long as the creditor also 

provides a statement that such 

insurance may be required. (See the 

commentary to this section regarding 

fees to open a plan.) 

5. Relation to other sections. 

Advertisements for home equity plans 

must comply with all provisions in 

§ 226.16, not solely the rules in 

§ 226.16(d). If an advertisement contains 

information (such as the payment terms) 

that triggers the duty under § 226.16(d) 

to state the annual percentage rate, the 

additional disclosures in § 226.16(b) 

must be provided in the advertisement. 

While § 226.16(d) does not require a 

statement of fees to use or maintain the 

plan (such as membership fees and 

transaction charges), such fees must be 

disclosed under § 226.16(b)(1) and (3). 

6. Inapplicability of closed-end rules. 

Advertisements for home equity plans 

are governed solely by the requirements 

in § 226.16, and not by the closed-end 

advertising rules in § 226.24. Thus, if a 

creditor states payment information 

about the repayment phase, this will 

trigger the duty to provide additional 

information under § 226.16, but not 

under § 226.24. 

7. Balloon payment. In some 

programs, a balloon payment will occur 

if only the minimum payments under 

the plan are made. If an advertisement 

for such a program contains any 

statement about a minimum periodic 

payment, the advertisement must also 

state that a balloon payment will result 

(not merely that a balloon payment 

‘‘may’’ result). (See comment 

5b(d)(5)(ii)–3 for guidance on items not 

required to be stated in the 

advertisement, and on situations in 

which the balloon payment requirement 

does not apply.) 

fl16(e) Introductory rates. 

1. Use of term ‘‘introductory’’. 

Advertisers may use the term ‘‘intro’’ in 

place of the term ‘‘introductory.’’

2. Immediate proximity. Including the 

term ‘‘introductory’’ or ‘‘intro’’ in the 

same phrase as the listing of the 

introductory rate is deemed to be in 

immediate proximity of the listing. 

3. Prominent location closely 

proximate. Information required to be 

disclosed in §§ 226.16(e)(4)(i) and (ii) 

that is in the same paragraph as the first 

listing of the introductory rate is 

deemed to be in a prominent location 

closely proximate to the listing. 

Information disclosed in a footnote will 


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33144 Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 

not be considered in a prominent 

location closely proximate to the listing. 

4. First listing. For purposes of 

§ 226.16(e)(4), the first listing of the 

introductory rate is the most prominent 

listing of the rate on the front side of the 

first page of the principal promotional 

document. The principal promotional 

document is the document designed to 

be seen first by the consumer in a 

mailing, such as a cover letter or 

solicitation letter. If the introductory 

rate is not listed on the principal 

promotional document or there is no 

principal promotional document, the 

first listing is the most prominent listing 

of the rate on the front side of the first 

page of each document listing the 

introductory rate. If the listing of the 

introductory rate with the largest type 

size on the front side of the first page 

of the principal promotional document 

(or each document listing the 

introductory rate if the introductory rate 

is not listed on the principal 

promotional document or there is no 

principal promotional document) is 

used as the most prominent listing, it 

will be deemed to be the first listing. 

5. Post-introductory rate depends on 

consumer’s creditworthiness. For 

purposes of disclosing the rate that may 

apply after the end of the temporary rate 

period, at the advertiser’s option, the 

advertisement may disclose the rates 

that may apply as either specific rates, 

or a range of rates. For example, if there 

are three rates that may apply (9.99%, 

12.99% or 17.99%), an issuer may 

disclose these three rates as specific 

rates (9.99%, 12.99% or 17.99%) or as 

a range of rates (9.99%–17.99%).fi 

fl16(f) Alternative disclosures 

television or radio advertisements. 

1. Toll-free number, local or collect 

calls. In complying with the disclosure 

requirements of § 226.16(f)(1), an 

advertisement must provide a toll-free 

telephone number. Alternatively, an 

advertiser may provide any telephone 

number that allows a consumer to 

reverse the phone charges when calling 

for information. 

2. Multi-purpose number. When an 

advertised toll-free telephone number 

provides a recording, disclosures must 

be provided early in the sequence to 

ensure that the consumer receives the 

required disclosures. For example, in 

providing several dialing options—such 

as providing directions to the 

advertiser’s place of business—the 

option allowing the consumer to request 

disclosures should be provided early in 

the telephone message to ensure that the 

option to request disclosures is not 

obscured by other information. 

3. Statement accompanying toll free 

number. Language must accompany a 

telephone and television number 

indicating that disclosures are available 

by calling the toll-free number, such as 

‘‘call 1–800–000–0000 for details about 

credit costs and terms.’’fi 

* * * * * 

Appendix F—Annual Percentage Rate 

Computations for Certain Open-End Credit 

Plans 

1. Daily rate with specific transaction 

charge. If the finance charge results from a 

charge relating to a specific transaction and 

the application of a daily periodic rate, see 

fl comments 14(c)–6 and 14(d)(3)–3 

fi[comment 14(c)–6] for guidance on an 

appropriate calculation method. 

flAppendicesfi [Appendixes] G and H—

Open-End and Closed-End Model Forms and 

Clauses 

1. Permissible changes. Although use of the 

model forms and clauses is not required, 

creditors using them properly will be deemed 

to be in compliance with the regulation with 

regard to those disclosures. Creditors may 

make certain changes in the format or content 

of the forms and clauses and may delete any 

disclosures that are inapplicable to a 

transaction or a plan without losing the act’s 

protection from liabilityfl, except formatting 

changes may not be made to model forms and 

samples in G–2(A), G–3(A), G–4(A), G–

10(A)–(E), G–17(A)–(C), G–18(A)–(F), G–19, 

G–20, and G–21.fi [(But see appendix G 

comment 5 for special rules concerning 

certain disclosures required under § 226.5a 

for credit and charge card applications and 

solicitations.)] The rearrangement of the 

model forms and clauses may not be so 

extensive as to affect the substance, clarity, 

or meaningful sequence of the forms and 

clauses. Creditors making revisions with that 

effect will lose their protection from civil 

liability. Acceptable changes include, for 

example: 

i. Using the first person, instead of the 

second person, in referring to the borrower. 

ii. Using ‘‘borrower’’ and ‘‘creditor’’

instead of pronouns. 

iii. Rearranging the sequences of the 

disclosures. 

iv. Not using bold type for headings. 

v. Incorporating certain state ‘‘plain 

English’’ requirements. 

vi. Deleting inapplicable disclosures by 

whiting out, blocking out, filling in ‘‘N/A’’

(not applicable) or ‘‘0,’’ crossing out, leaving 

blanks, checking a box for applicable items, 

or circling applicable items. (This should 

permit use of multipurpose standard forms.) 

[vii. Substituting appropriate references, 

such as ‘‘bank,’’ ‘‘we,’’ or a specific name, for 

‘‘creditor’’ in the initial open-end 

disclosures.] 

flviifi [viii.] Using a vertical, rather than 

a horizontal, format for the boxes in the 

closed-end disclosures. 

2. Debt-cancellation coverage. This 

regulation does not authorize creditors to 

characterize debt-cancellation fees as 

insurance premiums for purposes of this 

regulation. Creditors may provide a 

disclosure that refers to debt cancellationfl 

or debt suspensionfi coverage whether or 

not the coverage is considered insurance. 

Creditors may use the model credit insurance 

disclosures only if the debt cancellation 

coverage constitutes insurance under state 

law. 

Appendix G—Open-End Model Forms and 

Clauses 

1. Model G–1. The model disclosures in G–

1 (different balance computation methods) 

may be used in both the flaccount-opening 

fi[initial] disclosures under § 226.6 and the 

periodic disclosures under § 226.7. As is 

clear from the models given, ‘‘shorthand’’

descriptions of the balance computation 

methods are not sufficientfl, except where 

§ 226.7(b)(5) appliesfi. The phrase ‘‘a 

portion of’’ the finance charge should be 

included if the total finance charge includes 

other amounts, such as transaction charges, 

that are not due to the application of a 

periodic rate. In addition, if unpaid finance 

charges are subtracted in calculating the 

balance, that fact must be stated so that the 

disclosure of the computation method is 

accurate. Only model G–1(b) contains a final 

sentence appearing in brackets which reflects 

the total dollar amount of payments and 

credits received during the billing cycle. The 

other models do not contain this language 

because they reflect plans in which payments 

and credits received during the billing cycle 

are subtracted. If this is not the case, 

however, the language relating to payments 

and credits should be changed, and the 

creditor should add either the disclosure of 

the dollar amount as in model G–1(b) or an 

indication of which credits (disclosed 

elsewhere on the periodic statement) will not 

be deducted in determining the balance. 

(Such an indication may also substitute for 

the bracketed sentence in model G–1(b).) (See 

the commentary to section 226.7fl (a)(5) and 

226.7(b)(5) fi[(e)].) 

2. Models G–2fl and G–2(A)fi. flThese 

models containfi [This model contains] the 

notice of liability for unauthorized use of a 

credit card. flFor home equity plans subject 

to the requirements of § 226.5b, at the 

creditor’s option, a creditor either may use 

G–2 or G–2(A). For open-end plans not 

subject to the requirements of § 226.5b, 

creditors may use G–2(A).fi 

3. Models G–3, flG–3(A),fi [and] G–4 

fland G–4(A)fi. i. These set out models for 

the long-form billing-error rights statement 

(for use with the flaccount-openingfi 

[initial] 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. flFor 

home equity plans subject to the 

requirements of § 226.5b, at the creditor’s 

option,] a creditor either may use G–3 or G–

3(A), and for creditors that use the short 

form, G–4 or G–4(A). For open-end plans not 

subject to the requirements of § 226.5b, 

creditors may use G–3(A) and G–4(A).fi 

Creditors must provide the billing-error 

rights statements in a form substantially 

similar to the models in order to comply with 

the regulation. The model billing-rights 

statements may be modified in any of the 

ways set forth in the first paragraph to the 

commentary on appendices G and H. The 

models may, furthermore, be modified by 

deleting inapplicable information, such as: 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 114 / Thursday, June 14, 2007 / Proposed Rules 33145 

A. The paragraph concerning stopping a 

debit in relation to a disputed amount, if the 

creditor does not have the ability to debit 

automatically the consumer’s savings or 

checking account for payment. 

B. The rights stated in the special rule for 

credit card purchases and any limitations on 

those rights. 

ii. The model billing rights statements also 

contain optional language that creditors may 

use. For example, the creditor may: 

A. Include a statement to the effect that 

notice of a billing error must be submitted on 

something other than the payment ticket or 

other material accompanying the periodic 

disclosures. 

B. Insert its address or refer to the address 

that appears elsewhere on the bill. 

iii. Additional information may be 

included on the statements as long as it does 

not detract from the required disclosures. For 

instance, information concerning the 

reporting of errors in connection with a 

checking account may be included on a 

combined statement as long as the 

disclosures required by the regulation remain 

clear and conspicuous. 

* * * * * 

5. Model G–10(A), sampleflsfi G–10(B) 

and [model] G–10(C) fl, model G–10(D), 

sample G–10(E), model G–17(A), and 

samples G–17(B) and 17(C)fi . i. Model G–

10(A) and sampleflsfi G–10(B) fland G–

10(C)fi illustrate, in the tabular format, [all 

of] the disclosures required under § 226.5a 

for applications and solicitations for credit 

cards other than charge cards. [Model G–

10(B) is a sample disclosure illustrating an 

account with a lower introductory rate and 

penalty rate.] Model G–10 fl(D)fi [(C)] 

fland sample G–10(E)fi illustrate[s] the 

tabular format disclosure for charge card 

applications and solicitations and reflects [all 

of] the disclosures in the table. flModel G–

17(A) and samples G–17(B) and G–17(C) 

illustrate, in the tabular format, the 

disclosures required under § 226.6(b)(4) for 

account-opening disclosures.fi 

ii. Except as otherwise permitted, 

disclosures must be substantially similar in 

sequence and format to model forms G 

10(A)fl, G–10(D) fiand flG–17(A)fi. [The 

disclosures may, however, be arranged 

vertically or horizontally and need not be 

highlighted aside from being included in the 

table.] While proper use of the model forms 

will be deemed in compliance with the 

regulation, card issuers are permitted to use 

headings [and disclosures] other than those 

in the forms (with an exception relating to 

the use of ‘‘grace period’’ fl‘‘penalty APR’’, 

and in relation to required insurance, or debt 

cancellation or suspension coverage, the term 

‘‘required’’ and the name of the productfi) 

if they are clear and concise and are 

substantially similar to the headings [and 

disclosures] contained in model forms. 

fliii. Models G–10(A) and G–17(A) 

contain two alternative headings (‘‘Minimum 

Interest Charge’’ and ‘‘Minimum Charge’’) for 

disclosing a minimum finance charge under 

§ 226.5a(b)(3) and § 226.6(b)(4)(iii)(D). 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.’’

iv. Models G–10(A), G–10(D) and G–17(A) 

contain two alternative headings (‘‘Annual 

Fees’’ and ‘‘Set-up and Maintenance Fees’’) 

for disclosing fees for issuance or availability 

of credit under § 226.5a(b)(2) or 

§ 226.6(b)(4)(iii)(A). 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. 

v. Although creditors are not required to 

use a certain paper size in disclosing the 

§§ 226.5a or 226.6(b)(4) disclosures, samples 

G–10(B), G–10(C), G–17(B) and G–17(C) are 

designed to be printed on an 8 x 14 sheet of 

paper. In addition, the following formatting 

techniques were used in presenting the 

information in the sample tables to ensure 

that the information is readable: 

A. A readable font style and font size (10- 

point Ariel font style, except for the purchase 

annual percentage rate which is shown in 16- 

point type); 

B. Sufficient spacing between lines of the 

text; 

C. Adequate spacing between paragraphs 

when several pieces of information were 

included in the same row of the table, as 

appropriate. For example, in the samples in 

the row of the tables with the heading ‘‘APR 

for Balance Transfers,’’ the forms disclose 

three components: The applicable balance 

transfer rate, a cross reference to the balance 

transfer fee, and 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 forms disclose two 

components: the late-payment fee, and the 

cross reference to the penalty rate. Because 

the disclosure of both these components is 

short, these components are disclosed on the 

same line in the tables; 

D. Standard spacing between words and 

characters. In other words, the text was not 

compressed to appear smaller than 10-point 

type; 

E. Sufficient white space around the text of 

the information in each row, by providing 

sufficient margins above, below and to the 

sides of the text; and 

F. Sufficient contrast between the text and 

the background. Generally, black text was 

used on white paper. 

vi. While the Board is not requiring issuers 

to use the above formatting techniques in 

presenting information in the table (except 

for the 10-point and 16-point font 

requirement), the Board encourages issuers to 

consider these techniques when deciding 

how to disclose information in the table, to 

ensure that the information is presented in a 

readable format.fi 

6. Model[s] G–11 [and G–12]. Model G–11 

contains clauses that illustrate the general 

disclosures required under § 226.5a(e) in 

applications and solicitations made available 

to the general public. [Model G–12 is a model 

clause for the disclosure required under 

§ 226.5a(f) when a charge card accesses an 

open-end plan offered by another creditor.] 

7. Models G–13(A) and G–13(B). These 

model forms illustrate the disclosures 

required under § 226.9(f) when the card 

issuer changes the entity providing insurance 

on a credit card account. Model G–13(A) 

contains the items set forth in § 226.9(f)(3) as 

examples of significant terms of coverage that 

may be affected by the change in insurance 

provider. The card issuer may either list all 

of these potential changes in coverage and 

place a check mark by the applicable 

changes, or list only the actual changes in 

coverage. Under either approach, the card 

issuer must either explain the changes or 

refer to an accompanying copy of the policy 

or group certificate for details of the new 

terms of coverage. Model G–13(A) also 

illustrates the permissible combination of the 

two notices required by § 226.9(f)—the notice 

required for a planned change in provider 

and the notice required once a change has 

occurred. This form may be modified for use 

in providing only the disclosures required 

before the change if the card issuer chooses 

to send two separate notices. Thus, for 

example, the references to the attached 

policy or certificate would not be required in 

a separate notice prior to a change in the 

insurance provider since the policy or 

certificate need not be provided at that time. 

Model G–13(B) illustrates the disclosures 

required under § 226.9(f)(2) when the 

insurance provider is changed. 

fl8. Samples G–18(A)–(F). For home 

equity plans subject to the requirements of 

§ 226.5b, if a creditor chooses to comply with 

the requirements in § 226.7(b), the creditor 

may use Samples G–18(A)–(F) to comply 

with these requirements, as applicable.fi 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System. 

Dated: May 23, 2007. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. 07–2656 Filed 6–13–07; 8:45 am] 

BILLING CODE 6210–01–P 


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