This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

60235 

Vol. 70, No. 199 

Monday, October 17, 2005 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Regulation Z; Docket No. R–1217] 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Request for comments; 

extension of comment period. 

SUMMARY: The Board is publishing for 

public comment a second advance 

notice of proposed rulemaking (ANPR) 

regarding the open-end (revolving) 

credit rules of the Board’s Regulation Z, 

which implements the Truth in Lending 

Act (TILA). The Board periodically 

reviews each of its regulations to update 

them, if necessary. In December 2004, 

the Board published an initial ANPR to 

commence a comprehensive review of 

the open-end credit rules. The ANPR 

sought public comment on a variety of 

issues relating to the format of open-end 

credit disclosures, the content of 

disclosures, and the substantive 

protections provided under the 

regulation. The comment period closed 

on March 28, 2005. On April 20, 2005, 

President Bush signed into law the 

Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2005 

(Bankruptcy Act), which contains 

several amendments to TILA, including 

provisions concerning open-end credit 

disclosures. The Board plans to 

implement the amendments to TILA as 

part of its review of Regulation Z, and 

is publishing this second ANPR to 

reopen and extend the public comment 

period to obtain comments on 

implementing the Bankruptcy Act’s 

amendments to TILA. 

DATES: Comments must be received on 

or before December 16, 2005. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1217, by any 

of the following methods: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include the docket number in the 

subject line of the message. 

• 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. 

See Supplementary Information, 

Section I., for further instructions on 

submitting comments. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

except as necessary 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: 

Krista P. DeLargy, Senior Attorney, Jane 

E. Ahrens, Senior Counsel, or Elizabeth 

A. Eurgubian, Attorney, 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. Form of Comment Letters 

In December 2004, the Board initiated 

a comprehensive review of the open-end 

credit rules in Regulation Z by issuing 

an advance notice of proposed 

rulemaking (ANPR) that contained 58 

specific questions. This document 

supplements that ANPR by requesting 

data or comment on specific issues 

relating to the Truth in Lending Act 

provisions in the new Bankruptcy 

Abuse Prevention and Consumer 

Protection Act of 2005. Consequently, 

the requests in this document are 

numbered consecutively, starting at 

number 59. Commenters are requested 

to refer to these numbers in their 

submitted comments, which will assist 

the Board and members of the public 

that review comments online. Questions 

are presented by subject matter, 

reflecting the TILA provisions in the 

Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2005 as 

follows: 

Minimum Payment Disclosures 

Should certain types of accounts and 

transactions be exempt from the 

disclosures? Q59–61 

Hypothetical examples for periodic 

statements. Q62–64 

What assumptions should be used in 

calculating the estimated repayment 

period? Q65 

How should the minimum payment 

requirement and APR information be 

used in estimating the repayment 

period? Q66–75 

What disclosures do consumers need 

about the assumptions made in 

estimating their repayment period? Q76 

Option to provide the actual number 

of months to repay the outstanding 

balance. Q77–79 

Are there alternative approaches the 

Board should consider? Q80–82 

What guidance should the Board 

provide on making the minimum 

payment disclosures ‘‘clear and 

conspicuous?’’ Q83–84 

Introductory Rate Disclosures. Q85– 

92 

Internet Based Credit Card 

Solicitations. Q93–96 

Disclosures Related to Payment 

Deadlines and Late Payment Penalties. 

Q97–101 

Disclosures for Home-Secured Loans 

that May Exceed the Dwelling’s FairMarket Value. Q102–105 

Prohibition on Terminating Accounts 

for Failure to Incur Finance Charges. 

Q106–108 

II. Background 

The Congress based the Truth in 

Lending Act (TILA) on findings that 

economic stability would be enhanced 

and competition among consumer credit 

providers would be strengthened by the 

informed use of credit, which results 

from consumers’ awareness of the 

credit’s cost. Accordingly, the stated 

purposes of the TILA are: (1) To provide 

a meaningful disclosure of credit terms 

to enable consumers to compare the 

various credit terms available in the 

marketplace more readily and avoid the 

uninformed use of credit; and (2) to 

protect consumers against inaccurate 

60236 Federal Register / Vol. 70, No. 199 / Monday, October 17, 2005 / Proposed Rules 

and unfair credit billing and credit card 

practices. 15 U.S.C. 1601(a). TILA is 

implemented by the Board’s Regulation 

Z. 12 CFR part 226. An Official Staff 

Commentary interprets the requirements 

of Regulation Z. 12 CFR part 226 (Supp. 

I). 

TILA mandates that the Board 

prescribe regulations to carry out the 

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

In promulgating rules to implement 

TILA, the Board is also authorized, 

among other things, to do the following: 

• Issue regulations that contain such 

classifications, differentiations, or other 

provisions, or 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), and; 

• 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 

a proposed exemption is published for 

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

The Board periodically reviews its 

regulations to update them, if necessary. 

In December 2004, the Board initiated a 

review of Regulation Z by issuing an 

advanced notice of proposed 

rulemaking (ANPR). 69 FR 70925, Dec. 

8, 2004. The 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 disclosures, and the 

substantive protections provided under 

the regulation. The 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 

ANPR contained a series of questions 

designed to elicit commenters’ views on 

the types of changes the Board should 

consider. 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. Staff is continuing to analyze 

the comment letters. 

On April 20, 2005, President Bush 

signed into law S. 256, the Bankruptcy 

Abuse Prevention and Consumer 

Protection Act of 2005 (the ‘‘Bankruptcy 

Act’’). Public Law 109–8, 119 Stat. 23. 

Although the new law primarily amends 

the bankruptcy code, it also contains 

several provisions amending TILA. The 

TILA amendments principally deal with 

open-end (revolving) credit accounts 

and require new disclosures on periodic 

statements and on credit card 

applications and solicitations. The new 

TILA provisions are as follows: 

Minimum payment warnings. For 

open-end accounts, creditors must 

provide on each periodic statement a 

standardized warning about the effect of 

making only minimum payments, 

including: 

• An example of how long it would 

take to pay off a specified balance, and 

• 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. 

The Board and the Federal Trade 

Commission (FTC) must also establish 

their own toll-free telephone numbers 

for use by customers of small banks and 

non-depository institution creditors, 

respectively. 

Introductory rate offers. A card issuer 

offering discounted introductory rates 

must disclose clearly and conspicuously 

on the application or solicitation the 

expiration date of the offer, the rate that 

will apply after that date, and an 

explanation of how the introductory rate 

could be lost (e.g., by making a late 

payment). 

Internet solicitations. Credit card 

offers on the Internet must include the 

same disclosure table (commonly 

known as the ‘‘Schumer box’’) that is 

currently required for applications or 

solicitations sent by direct mail. 

Late fees. For open-end accounts, 

creditors 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. 

High loan-to-value mortgage credit. 

For home-secured credit that may 

exceed the dwelling’s fair-market value, 

creditors must 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. 

Account termination. Creditors are 

prohibited from terminating an openend account before its expiration date 

solely because the consumer has not 

incurred finance charges on the account. 

III. Implementing the New TILA 

Provisions as Part of the Regulation Z 

Review 

The Bankruptcy Act requires the 

Board to issue regulations implementing 

the amendments to TILA. The Board 

plans to implement these provisions as 

part of the Board’s ongoing review of 

Regulation Z’s open-end credit rules. 

Accordingly, the Board is publishing 

this second ANPR to reopen and extend 

the public comment period to obtain 

comments on implementing the 

Bankruptcy Act’s amendments to TILA. 

The Bankruptcy Act does not mandate 

when the new disclosures (including 

the Board’s minimum payment table 

and toll-free number) must be 

implemented. The new TILA disclosure 

requirements will not take effect until at 

least 12 months after the Board issues 

final regulations adopting the changes. 

Even though there is no statutory 

deadline for issuing final rules to 

implement the new open-end 

disclosures, for disclosures concerning 

minimum payments and introductory 

rates, a separate provision of the 

Bankruptcy Act states that the Board 

should issue model forms and providing 

guidance on the ‘‘clear and 

conspicuous’’ standard within six 

months of the enactment of the Act 

(October 20, 2005). The issuance of 

model forms and clear and conspicuous 

standards within six months would 

have no effect, however, until final rules 

implementing the minimum payment 

and introductory rate disclosures are 

issued and become effective. 

As a practical matter, issuing model 

forms and clear and conspicuous 

guidance for disclosures concerning 

minimum payments and introductory 

rates would require development of the 

substantive rules for the underlying 

disclosures at the same time. But the 

six-month period provides little time to 

develop and seek public comment on 

the underlying substantive disclosures 

that are subject to the guidance, and 

precludes effective consumer testing of 

the proposed new disclosures. 

Implementing the Bankruptcy Act 

amendments as part of the broader 

Regulation Z review permits the new 

disclosures for minimum payments and 

introductory rates to be developed in 

the context of other changes that might 

be made both to the content and the 

format of the current open-end 

disclosures. A primary goal of the 

Regulation Z review is to improve the 

Federal Register / Vol. 70, No. 199 / Monday, October 17, 2005 / Proposed Rules 60237 

effectiveness and usefulness of TILA’s 

open-end credit disclosures. One factor 

to be considered in the review is how 

the content of disclosures might be 

simplified to address concerns about socalled ‘‘information overload.’’ The 

review also will study alternatives for 

improving the format of disclosures, 

including revising the model forms and 

clauses published by the Board. The 

Board has stated its intention to use 

consumer testing and focus groups to 

test the effectiveness of any proposed 

revisions. 

By incorporating the Bankruptcy Act 

amendments into the Regulation Z 

review, the Board can coordinate the 

changes and make all changes to the 

periodic statement disclosures at one 

time. The same would be true for the 

credit card solicitation disclosures. If 

the Board separately implemented the 

Bankruptcy Act amendments before 

completing the Regulation Z review, 

subsequent changes to the TILA 

disclosures made during the broader 

review might necessitate reexamination 

of the rules implementing the 

Bankruptcy Act. Combining the two 

rulemakings mitigates that risk. 

Moreover, a substantial burden would 

be imposed on creditors if they were 

required to implement changes twice—

once to implement the Bankruptcy Act 

amendments for minimum payments 

and introductory rates, and a second 

time to implement changes made as part 

of Regulation Z review. Implementing 

the Bankruptcy Act amendments as part 

of the overall review of Regulation Z 

should involve less regulatory burden 

by allowing creditors to adopt all the 

necessary changes to their systems at 

one time. The views of members of the 

Board’s Consumer Advisory Council 

were solicited at their June 2005 

meeting, and there was general 

consensus among the Council members 

supporting this approach. 

Accordingly, the Board has decided to 

use an integrated approach that will 

develop both the underlying disclosures 

and the clear and conspicuous guidance 

at the same time, with the assistance of 

consumer testing, as part of the ongoing 

Regulation Z review. A clear and 

conspicuous standard currently exists in 

Regulation Z, and this is the standard 

that will apply to all TILA disclosures, 

including the Bankruptcy Act 

amendments, until a new standard is 

adopted after notice and comment is 

sought in connection with the 

Regulation Z review. See 12 CFR 

226.5(a)(1); comment 5(a)(1)–1. 

IV. Request for Comment on 

Implementing the TILA Amendments 

The Board is requesting public 

comment on implementation of the 

Bankruptcy Act’s amendments to TILA, 

as discussed below. 

A. Minimum Payment Disclosures 

The Bankruptcy Act amends Section 

127(b) of TILA 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. This disclosure includes: (1) 

A ‘‘warning’’ statement indicating that 

making only the minimum payment will 

increase the interest the consumer pays 

and the time it takes to repay the 

consumer’s balance; (2) a hypothetical 

example of how long it would take to 

pay off a specified balance if only 

minimum payments are made; and (3) a 

toll-free telephone number that the 

consumer may call to obtain an estimate 

of the time it would take to repay their 

actual account balance. 

Under the Bankruptcy Act, depository 

institutions may establish and maintain 

their own toll-free telephone numbers or 

use a third party. In order to standardize 

the information provided to consumers 

through the toll-free telephone numbers, 

the Bankruptcy Act directs the Board to 

prepare a ‘‘table’’ illustrating the 

approximate number of months it would 

take to repay an outstanding balance if 

the consumer pays 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 annual 

percentage rates, 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 number for use by 

customers of depository institutions 

having assets of $250 million or less. 

The FTC must maintain a toll-free 

telephone number for creditors other 

than depository institutions. 

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 

may not use the toll-free telephone 

number to provide consumers with 

information other than the repayment 

information set forth in the ‘‘table’’

issued by the Board. 

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, need not include a hypothetical 

example on their periodic statements; 

their toll-free number must be disclosed 

on the periodic statement but it need 

not be located on the front. 

Should Certain Types of Accounts or 

Transactions Be Exempt From the 

Disclosures? 

Under the Bankruptcy Act, minimum 

payment disclosures are required for all 

open-end accounts (such as credit card 

accounts, home-equity lines of credit, 

and general-purpose credit lines). The 

Act expressly states that these 

disclosure requirements do not apply, 

however, to any ‘‘charge card’’ account, 

the primary purpose of which is to 

require payment of charges in full each 

month. As discussed above, the Board 

has broad authority to provide 

exceptions from TILA’s requirements. 

See 15 U.S.C. 1604(a), (f). Accordingly, 

the Board requests comment on whether 

certain open-end accounts should be 

exempt from some or all of the 

minimum payment disclosure 

requirements, as discussed below. 

Much of 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 

was that consumers may not be fully 

aware of how long it takes to pay off 

their credit card accounts if only 

minimum monthly payments are made. 

60238 Federal Register / Vol. 70, No. 199 / Monday, October 17, 2005 / Proposed Rules 

This differs from an installment loan 

where borrowers are required by the 

contract to repay the entire outstanding 

balance in a specified period. This 

concern may not exist for certain types 

of open-end credit accounts. For some 

open-end accounts, the length of time to 

repay the outstanding balance is fixed 

and expressed in the credit agreement. 

For example, some home-equity lines of 

credit (HELOCs) have a defined draw 

period and defined repayment period 

for amortizing the outstanding balance; 

the date of the final payment would be 

disclosed at account opening. 

Reverse mortgages are another form of 

open-end credit where minimum 

payment disclosures may not be 

appropriate. Reverse mortgages are 

designed to allow consumers to convert 

the equity in their homes into cash; 

during an extended ‘‘draw’’ period 

consumers continue living in their 

homes, sometimes for an indefinite 

period, without making payments. The 

principal and interest become due upon 

certain events, such as when the 

homeowner moves, sells the home, or 

dies, or at the end of a selected loan 

term. Where payment dates are 

unknown, it does not appear that an 

estimate of the time to pay off the 

account could be provided. 

Q59: Are there certain types of 

transactions or accounts for which the 

minimum payment disclosures are not 

appropriate? For example, should the 

Board consider a complete exemption 

from the minimum payment disclosures 

for open-end accounts or extensions of 

credit under an open-end plan if there 

is a fixed repayment period, such as 

with certain types of HELOCs? 

Alternatively, for these products, should 

the Board provide an exemption from 

disclosing the hypothetical example and 

the toll-free telephone number on 

periodic statements, but still require a 

standardized warning indicating that 

making only the minimum payment will 

increase the interest the consumer pays? 

Q60: Should the Board consider an 

exemption that would permit creditors 

to omit the minimum payment 

disclosures from periodic statements for 

certain accountholders, regardless of the 

type of account; for example, an 

exemption for consumers who typically 

(1) do not revolve balances; or (2) make 

monthly payments that regularly exceed 

the minimum? 

Q61: Some credit unions and retailers 

offer open-end credit plans that also 

allow extensions of credit that are 

structured like closed-end loans with 

fixed repayment periods and payments 

amounts, such as loans to finance the 

purchase of motor vehicles or other 

‘‘big-ticket items.’’ How should the 

minimum payment disclosures be 

implemented for such credit plans? 

Hypothetical Examples for Periodic 

Statements 

Under the Bankruptcy Act, the 

hypothetical example that creditors 

must disclose on periodic statements 

varies depending on the creditor’s 

minimum payment requirement. 

Generally, creditors that require 

minimum payments equal to 4 percent 

or less of the account balance must 

disclose on each statement that it takes 

88 months to pay off a $1000 balance at 

an interest rate of 17 percent if the 

consumer makes a ‘‘typical’’ 2 percent 

minimum monthly payment. Creditors 

that require minimum payments 

exceeding 4 percent of the account 

balance must disclose that it takes 24 

months to pay off a balance of $300 at 

an interest rate of 17 percent if the 

consumer makes a ‘‘typical’’ 5 percent 

minimum monthly payment (but the 

creditor may opt instead to disclose the 

statutory example for making 2 percent 

minimum payments). The example of a 

5 percent minimum payment must be 

disclosed by creditors that are subject to 

FTC enforcement with respect to TILA, 

regardless of the creditor’s actual 

minimum payment requirement. 

Creditors also have the option to 

substitute an example based on an APR 

that is greater than 17 percent. 

Q62: The Bankruptcy Act authorizes 

the Board to periodically adjust the APR 

used in the hypothetical example and to 

recalculate the repayment period 

accordingly. Currently, the repayment 

periods for the statutory examples are 

based on a 17 percent APR. 

Nonetheless, according to data collected 

by the Board, the average APR charged 

by commercial banks on credit card 

plans in May 2005 was 12.76 percent. If 

only accounts that were assessed 

interest are considered, the average APR 

rises to 14.81 percent. See Board of 

Governors of the Federal Reserve Board, 

Statistical Release G. 19, (July 2005). 

Should the Board adjust the 17 percent 

APR used in the statutory example? If 

so, what criteria should the Board use 

in making the adjustment? 

Q63: The hypothetical examples in 

the Bankruptcy Act may be more 

appropriate for credit card accounts 

than other types of open-end credit 

accounts. Should the Board consider 

revising the account balance, APR, or 

‘‘typical’’ minimum payment percentage 

used in examples for open-end accounts 

other than credit cards accounts, such as 

HELOCs and other types of credit lines? 

If revisions were made, what account 

balance, APR, and ‘‘typical’’ minimum 

payment percentage should be used? 

Q64: The statutory examples refer to 

the stated minimum payment 

percentages of 2 percent or 5 percent, as 

being ‘‘typical.’’ The term ‘‘typical’’

could convey to some consumers that 

the percentage used is merely an 

example, and is not based on the 

consumer’s actual account terms. But 

the term ‘‘typical’’ might be perceived 

by other consumers as indicting that the 

stated percentage is an industry norm 

that they should use to compare the 

terms of their account to other accounts. 

Should the hypothetical example refer 

to the minimum payment percentage as 

‘‘typical,’’ and if not, how should the 

disclosure convey to consumers that the 

example does not represent their actual 

account terms? 

What Assumptions Should Be Used in 

Calculating the Estimated Repayment 

Period? 

The Bankruptcy Act requires openend creditors to provide a toll-free 

telephone number on periodic 

statements that consumers can use to 

obtain 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 line. The Act requires 

creditors to provide estimates that are 

based on tables created by the Board 

that estimate repayment periods for 

different outstanding balances, payment 

amounts, and interest rates. The Board 

plans to develop formulas that can be 

used to generate the required tables. The 

formulas also can be used by creditors, 

the FTC, and the Board to calculate the 

repayment period for a particular 

account; the use of a formula instead of 

a table facilitates the use of automated 

systems to provide the required 

disclosures. Copies of the tables that can 

be generated using the repayment 

calculation formulas would also be 

made available by the Board upon 

request. 

In establishing formulas and tables 

that estimate repayment periods, the Act 

directs the Board to assume a significant 

number of different APRs, account 

balances, and minimum payment 

amounts. 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 listed above: 

1. Balance Calculation Method. The 

previous-balance method is used; 

finance charges are based on the 

beginning balance for the cycle. 

Federal Register / Vol. 70, No. 199 / Monday, October 17, 2005 / Proposed Rules 60239 

2. Grace Period. No grace period 

applies to any portion of the balance. 

3. Residual Finance Charge. 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. 

4. Interest Rate and Outstanding 

Balance. There is a single periodic rate 

(17%) applied to a single balance. 

5. Minimum Payment Amount. The 

minimum payment requirement in the 

$1,000 balance example is assumed to 

be 2 percent of the outstanding balance 

or $20, whichever is greater. For the 

$300 balance example, the minimum 

payment requirement is assumed to be 

5 percent of the outstanding balance or 

$15, whichever is greater. 

In developing a formula for 

calculating a consumer’s estimated 

repayment period, the Board could use 

some of the same assumptions that were 

used in creating the statute’s 

hypothetical examples. 

Balance Calculation Method. The 

statutory examples use a previousbalance method which calculates the 

finance charge based on the entire 

account balance as of the first day in the 

billing cycle. The average daily balance 

method is more commonly used by 

creditors; however, that method requires 

additional assumptions. For example, 

an assumption would need to be made 

about the length of each billing cycle, 

and the date during each cycle that a 

consumer’s payment is made. The Board 

does not have data on when consumers 

typically make their payments each 

month. In using the previous-balance 

method, the estimated repayment 

periods are similar to those that would 

result from using the average daily 

balance method, assuming that all 

months are of equal length and that 

payments are credited on the last day of 

the billing cycle. 

Grace Period. 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. 

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. This 

assumption is necessary to have a finite 

solution to the repayment period 

calculation. Without this assumption, 

the repayment period could be infinite. 

Q65. In developing the formulas used 

to estimate repayment periods, should 

the Board use the three assumptions 

stated above concerning the balance 

calculation method, grace period, and 

residual interest? If not, what 

assumptions should be used, and why? 

How Should the Minimum Payment 

Requirement and APR Information Be 

Used in Estimating the Repayment 

Period? 

The Bankruptcy Act directs the Board 

in estimating repayment periods to 

allow for a significant number of 

different outstanding balances, 

minimum payment amounts, and 

interest rates. These variables could 

have a significant impact on the 

repayment period. With respect to the 

toll-free 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 easy 

access to this information to request an 

estimated repayment period. Because 

consumers’ outstanding account 

balances appear on their monthly 

statements, consumers can 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 

declines. 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 repayment period. 

Below, the Board seeks 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 discussed are: 

(1) Prompting consumers to provide 

an account balance, a minimum 

payment amount, and 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 a formula 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 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. 

Minimum Payment Amount. The 

Board solicits comment on how the 

creditor’s minimum payment 

requirement should be factored into the 

formula used to calculate repayment 

periods. Most creditors calculate the 

minimum payment each month based 

on a formula. Although minimum 

payment formulas typically calculate 

the payment as a percentage of the 

outstanding balance, the exact formulas 

that creditors use can vary among 

creditors and accounts. Some credit 

card issuers may calculate the minimum 

payment amount as a percentage of the 

outstanding balance; others may 

calculate the minimum payment as a 

percentage of the outstanding balance 

plus any finance charges, late fees, or 

other fees. Some creditors may use 

minimum payment formulas that vary 

based on the APR; for example, higher 

minimum payment percentages might 

apply to accounts with higher APRs. 

Open-end credit plans with multiple 

credit features may apply different 

minimum payment formulas to different 

account features. For HELOCs, the 

minimum payment formula used during 

the draw period may differ from the 

formula used during the repayment 

period. 

Although the dollar amount of the 

minimum payment due for the month is 

disclosed on periodic statements, the 

60240 Federal Register / Vol. 70, No. 199 / Monday, October 17, 2005 / Proposed Rules 

formula used by the creditor to calculate 

this amount currently is not included on 

the periodic statement. Even if the 

creditor’s minimum payment formula 

were disclosed on periodic statements, 

the formula might be sufficiently 

complex that it would not be reasonable 

to expect this information to be used by 

consumers in using the toll-free 

telephone system. 

The Board seeks comment on 

alternative approaches to address how 

minimum payment requirements should 

be factored into the formula used to 

estimate repayment periods. As 

discussed above, most minimum 

payment formulas, at least in part, 

calculate the minimum payment as a 

percentage of the outstanding balance. 

As the outstanding balance declines 

each month, the minimum payment 

amount declines until it reaches a 

certain floor amount (such as $20). 

Using the dollar amount of the 

minimum payment for a particular 

billing cycle would overstate the 

minimum payment amount in the 

succeeding months when the account 

balance declines and, therefore, would 

underestimate the consumer’s 

repayment period. The potential error 

produced by using the current month’s 

minimum payment amount would be 

compounded if that amount also 

includes fees assessed in the current 

cycle, such as late payment fees or overthe-credit-limit fees which, according to 

the statutory assumptions, will not be 

recurring each month. 

One alternative is for the Board to 

select a ‘‘typical’’ minimum payment 

formula for particular types of open-end 

accounts (e.g., general-purpose credit 

cards, retail credit cards, HELOCs, and 

other lines of credit), and use ‘‘typical’’

formulas for calculating the repayment 

estimates. For example, although there 

is no absolute industry standard for 

minimum payments for general-purpose 

credit cards, in recent months several 

major credit card issuers have moved 

toward using similar minimum payment 

formulas. These minimum payment 

formulas generally prevent prolonged 

negative amortization for customers 

who keep their payments current and 

are under the credit limit by requiring 

minimum payments never be less than 

all finance charges plus one percent of 

the outstanding balance. These creditors 

have different ways of treating late fees 

and over-the-credit limit fees, but 

generally the formulas are designed to 

prevent prolonged negative amortization 

either by including the fees in the 

minimum payment or capping the fees. 

The Board could use some variation of 

these minimum payment formulas, as 

an approximation of the minimum 

payment formulas that apply to generalpurpose credit cards. 

Unlike the Board and the FTC which 

must use consumer-input systems, a 

creditor that establishes its own toll-free 

telephone number could estimate 

repayment periods based on information 

in the creditor’s database, including the 

creditor’s minimum payment formula. A 

system based on the creditor’s 

information might be easier for 

consumers to use and give them more 

accurate estimates. Accordingly, the 

Board could grant creditors the 

flexibility to either (1) use the same 

assumptions about minimum payment 

formulas and interest rates as the Board 

and FTC, or (2) use the creditor’s actual 

minimum payment formula and interest 

rates to calculate the repayment 

estimate. One consequence of giving the 

creditor an option in this regard would 

be that consumers with identical 

account terms and balances could 

obtain different repayment estimates 

depending on whether the estimate was 

prepared using the Board’s assumptions 

or the actual account terms. 

Alternatively, the Board could require 

all creditors to use their actual 

minimum payment formulas and 

interest rates to calculate the repayment 

estimate. But the Board and FTC would 

still be providing estimates using the 

Board’s assumptions. 

Q66: Comment is specifically 

solicited on whether the Board should 

select ‘‘typical’’ minimum payment 

formulas for various types of accounts. 

If so, how should the Board determine 

the formula for each type of account? 

Are there other approaches the Board 

should consider? 

Q67: If the Board selects a ‘‘typical’’

minimum payment formula for generalpurpose credit cards, would it be 

appropriate to assume the minimum 

payment is based on one percent of the 

outstanding balance plus finance 

charges? What are typical minimum 

payment formulas for open-end 

products other than general-purpose 

credit cards (such as retail credit cards, 

HELOCs, and other lines of credit)? 

Q68: Should creditors have the option 

of programming their systems to 

calculate the estimated repayment 

period using the creditor’s actual 

payment formula in lieu of a ‘‘typical’’

minimum payment formula assumed by 

the Board? Should creditors be required 

to do so? What would be the additional 

cost of compliance for creditors if they 

must use their actual minimum 

payment formula? Would the cost be 

outweighed by the benefit in improving 

the accuracy of the repayment 

estimates? 

Q69: Negative amortization can occur 

if the required minimum payment is 

less than the total finance charges and 

other fees imposed during the billing 

cycle. As discussed above, several major 

credit card issuers have moved toward 

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% of the 

outstanding balance, regardless of the 

finance charges or fees incurred). 

Should the Board use a formula for 

calculating repayment periods that 

assumes a ‘‘typical’’ minimum payment 

that does not result in negative 

amortization? If so, should the Board 

permit or require creditors to use a 

different formula to estimate the 

repayment period if the creditor’s actual 

minimum payment requirement allows 

negative amortization? What guidance 

should the Board provide on how 

creditors disclose the repayment period 

in instances where negative 

amortization occurs? 

APR information. The statute’s 

hypothetical repayment examples 

assume that a single APR applies to a 

single account balance. But open-end 

credit accounts, particularly 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. 15 

U.S.C. 1637(b)(5); 12 CFR 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); 12 CFR 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 subject to the 12 

percent rate and the ending balance 

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 

Federal Register / Vol. 70, No. 199 / Monday, October 17, 2005 / Proposed Rules 60241 

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 consistently too short; using the 

highest APR would estimate repayment 

periods that are consistently too long. 

How much the repayment periods are 

underestimated or overestimated in 

each of these cases would depend on 

how the outstanding balance is 

distributed among the multiple rates. 

Using an average of the multiple rates 

may either overestimate or 

underestimate the repayment period 

depending on how the outstanding 

balance is distributed among the rates. 

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. 

Q70: What proportion of credit card 

accounts accrue finance charges at more 

than one periodic rate? Are account 

balances typically distributed in a 

particular manner, for example, with the 

greater proportion of the balance 

accruing finance charges at the higher 

rate or the lower rate? 

More precise repayment periods 

could be calculated if balances subject 

to different rates are treated separately. 

This raises practical issues if consumers 

must provide information about the 

multiple rates and the balances subject 

to each rate. Periodic statements would 

need to disclose the portion of the 

outstanding balance to which each APR 

applies. Although creditors commonly 

disclose an average daily balance for 

each periodic rate applied in a billing 

cycle, in many cases, the average daily 

balances applicable to the rates may not 

be good approximations of the portion 

of the ending balances applicable to the 

rates. The Board solicits comments on 

the best approach for applying APR 

information to estimate the repayment 

period. 

Q71: The statute’s hypothetical 

examples assume that a single APR 

applies to a single balance. For accounts 

that have multiple APRs, would it be 

appropriate to calculate an estimated 

repayment period using a single APR? If 

so, which APR for the account should 

be used in calculating the estimate? 

Q72. Instead of using a single APR, 

should the Board adopt a formula that 

uses multiple APRs but incorporates 

assumptions about how those APRs 

should be weighted? Should consumers 

receive an estimated repayment period 

using the assumption that the lowest 

APR applies to the entire balance and a 

second estimate based on application of 

the highest APR; this would provide 

consumers with a range for the 

estimated repayment period instead of a 

single answer. Are there other ways to 

account for multiple APRs in estimating 

the repayment period? 

Q73: One approach to considering 

multiple APRs could be to require 

creditors to disclose on periodic 

statements the portion of the ending 

balance that is subject to each APR for 

the account. Consumers could provide 

this information when using the toll-free 

telephone number to request an 

estimated repayment period that 

incorporates all the APRs that apply. 

What would be the additional 

compliance cost for creditors if, in 

connection with implementing the 

minimum payment disclosures, 

creditors were required to disclose on 

periodic statements the portion of the 

ending balance subject to each APR for 

the account? 

Q74: As an alternative to disclosing 

more complete APR information on 

periodic statements, creditors could 

program their systems to calculate a 

consumer’s repayment period based on 

the APRs applicable to the consumer’s 

account balance. Should this be an 

option or should creditors be required to 

do so? What would be the additional 

cost of compliance for creditors if this 

was required? Would the cost be 

outweighed by the benefit in improving 

the accuracy of the repayment 

estimates? 

Q75: If multiple APRs are used, 

assumptions must be made about how 

consumers’ payments are allocated to 

different balances. Should it be assumed 

for purposes of the toll-free telephone 

number that payments always are 

allocated first to the balance carrying 

the lowest APR? 

What Disclosures Do Consumers Need 

About the Assumptions Made in 

Estimating Their Repayment Period? 

Consumers may need to be aware of 

some of the assumptions underlying the 

estimate of their repayment period to 

properly comprehend the significance of 

the estimate. Accordingly, certain 

assumptions may need to be disclosed. 

For example, consumers might be 

informed that the estimated repayment 

period is based on the assumption that 

there will be no new transactions, no 

late payments, no changes in the APRs, 

and that only minimum payments are 

made. Consumers might also need to be 

aware of any assumptions about the 

creditor’s minimum payment 

requirement. 

Q76: What key assumptions, if any, 

should be disclosed to consumers in 

connection with the estimated 

repayment period? When and how 

should these key assumptions be 

disclosed? Should some or all of these 

assumptions be disclosed on the 

periodic statement or should they be 

provided orally when the consumer 

uses the toll-free telephone number? 

Should the Board issue model clauses 

for these disclosures? 

Option To Provide the Actual Number 

of Months To Repay the Outstanding 

Balance 

The Bankruptcy Act allows creditors 

to forego using the toll-free number to 

provide an estimated repayment period 

if the creditor instead provides through 

the toll-free number the ‘‘actual number 

of months’’ to repay the consumer’s 

account. 

Q77: What standards should be used 

in determining whether a creditor has 

accurately provided the ‘‘actual number 

of months’’ to repay the outstanding 

balance? Should the Board consider any 

safe harbors? For example, should the 

Board deem that a creditor has provided 

an ‘‘actual’’ repayment period if the 

creditor’s calculation is based on certain 

account terms identified by the Board 

(such as the actual balance calculation 

method, payment allocation method, all 

applicable APRs, and the creditor’s 

actual minimum payment formula)? 

With respect to other terms that affect 

the repayment calculation, should 

creditors be permitted to use the 

assumptions specified by the Board, 

even if those assumptions do not match 

the terms on the consumer’s account? 

Q78: Should the Board adopt a 

tolerance for error in disclosing the 

actual repayment periods? If so, what 

should the tolerance be? 

Q79: Is information about the ‘‘actual 

number of months’’ to repay readily 

available to creditors based on current 

accounting systems, or would new 

systems need to be developed? What 

would be the costs of developing new 

systems to provide the ‘‘actual number 

of months’’ to repay? 

Are There Alternative Approaches the 

Board Should Consider? 

Above, the Board solicits comments 

on three approaches for disclosing 

estimated repayment periods if only 

minimum payments are made. In 

developing a system, the Board will 

consider the complexity of each 

approach and the resulting compliance 

burden, as well as the accuracy and 

60242 Federal Register / Vol. 70, No. 199 / Monday, October 17, 2005 / Proposed Rules 

usefulness of the estimates that would 

be produced. 

Q80: Are there alternative frameworks 

to the three approaches discussed above 

that the Board should consider in 

developing the repayment calculation 

formula? If suggesting alternative 

frameworks, please be specific. Given 

the variety of account structures, what 

calculation formula should the Board 

use in implementing the toll-free 

telephone system? 

Q81: Are any creditors currently 

offering Web-based calculation tools 

that permit consumers to obtain 

estimates of repayment periods? If so, 

how are these calculation tools typically 

structured; what information is typically 

requested from consumers, and what 

assumptions are made in estimating the 

repayment period? 

Q82: Are there alternative ways the 

Board should consider for creditors to 

provide repayment periods other than 

through toll-free telephone numbers? 

For example, the Board could encourage 

creditors to disclose the repayment 

estimate or actual number of months to 

repay on the periodic statement; these 

creditors could be exempted from the 

requirement to maintain a toll-free 

telephone number. This would simplify 

the process for consumers and possibly 

for creditors as well. What difficulties 

would creditors have in disclosing the 

repayment estimate or actual repayment 

period on the periodic statement? 

What Guidance Should the Board 

Provide on Making the Minimum 

Payment Disclosures ‘‘Clear and 

Conspicuous?’’

The Bankruptcy Act provides that the 

minimum payment disclosures must be 

on the front of the periodic statement in 

a prominent location, and must be clear 

and conspicuous. The Board is directed 

to issue model disclosures and to 

promulgate rules to provide guidance on 

the clear and conspicuous requirement. 

The Act requires the Board to consult 

with the other Federal banking agencies, 

the National Credit Union 

Administration, and the FTC. In 

promulgating clear and conspicuous 

regulations, the Board is directed to 

ensure that the required standard ‘‘can 

be implemented in a manner that results 

in disclosures which are reasonably 

understandable and designed to call 

attention to the nature and significance 

of the information in the notice.’’

Q83: What guidance should the Board 

provide on the location or format of the 

minimum payment disclosures? Is a 

minimum type size requirement 

appropriate? 

Q84: What model forms or clauses 

should the Board consider? 

B. Introductory Rate Disclosures 

The Bankruptcy Act amends section 

127(c) of TILA to require additional 

disclosures for credit card applications 

and solicitations sent by direct mail or 

provided over the Internet that offer a 

‘‘temporary’’ APR. The Act defines a 

‘‘temporary’’ APR as any credit card 

interest rate that applies ‘‘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.’’

Currently, creditors offering a 

temporary APR may promote the 

introductory rate in their marketing 

materials, as long as the permanent rate 

is provided in the required disclosure 

table (commonly known as the 

‘‘Schumer box’’) that is included on or 

with the solicitation. The Schumer box 

must contain any APR that may be 

applied to an outstanding balance. 

Although creditors are not required to 

include temporary introductory rates in 

the Schumer box, when a temporary rate 

is included, the expiration date must 

also appear in the box. If the initial APR 

may increase upon the occurrence of 

one or more specific events, such as a 

late payment, the issuer must disclose 

in the Schumer box both the initial rate 

and the increased penalty rate. The 

specific event or events that may trigger 

the penalty rate must be disclosed 

outside of the Schumer box, with an 

asterisk or other means to direct the 

consumer to this additional information. 

15 U.S.C. 1637(c)(1)(A)(i); 12 CFR 

226.5a(b)(1); comments 5a(b)(1)–5, –7. 

The Bankruptcy Act requires credit 

card issuers to use the term 

‘‘introductory’’ clearly and 

conspicuously in immediate proximity 

to each mention of the temporary APR 

in applications, solicitations, and all 

accompanying promotional materials. 

Credit card issuers also must disclose, 

in a prominent location closely 

proximate to the first mention of the 

introductory APR, the time period when 

the introductory APR expires and the 

APR that will apply after the 

introductory rate expires (popularly 

known as the ‘‘go-to’’ APR). If the go-to 

APR is a variable rate, then the 

disclosure must be based on an APR 

that was in effect within 60 days before 

the application or solicitation was 

mailed. 

The Bankruptcy Act also requires 

credit card issuers to disclose clearly 

and conspicuously in offers with 

temporary APRs, a general description 

of the circumstances that may result in 

revocation of the introductory rate 

(other than expiration of the 

introductory period), and the APR that 

will apply if the introductory APR is 

revoked. For variable-rate programs, the 

disclosed APR must be one that was in 

effect within 60 days before the date of 

mailing the application or solicitation. 

These disclosures also must be located 

prominently on or with the application 

or solicitation. 

Q85: The Bankruptcy Act requires the 

Board to issue model disclosures and 

rules that provide guidance on 

satisfying the clear and conspicuous 

requirement for introductory rate 

disclosures. The Board is directed to 

adopt standards that can be 

implemented in a manner that results in 

disclosures that are ‘‘reasonably 

understandable and designed to call 

attention to the nature and significance 

of the information.’’ What guidance 

should the Board provide on satisfying 

the clear and conspicuous requirement? 

Should the Board impose format 

requirements, such as a minimum font 

size? Are there other requirements the 

Board should consider? What model 

disclosures should the Board issue? 

Q86: Credit card issuers must use the 

term ‘‘introductory’’ in immediate 

proximity to each mention of the 

introductory APR. What guidance, if 

any, should the Board provide in 

interpreting the ‘‘immediate proximity’’

requirement? Is it sufficient for the term 

‘‘introductory’’ to immediately precede 

or follow the APR (such as 

‘‘Introductory APR 3.9%’’ or ‘‘3.9% APR 

introductory rate’’)? 

Q87: The expiration date and go-to 

APR must be closely proximate to the 

‘‘first mention’’ of the temporary 

introductory APR. The introductory 

APR might, however, appear several 

times on the first page of a solicitation 

letter. What standards should the Board 

use to identify one APR in particular as 

the ‘‘first mention’’ (such as the APR 

using the largest font size, or the one 

located highest on the page)? 

Q88: Direct-mail offers often include 

several documents sent in a single 

envelope. Should the Board seek to 

identify one document as the ‘‘first 

mention’’ of the temporary APR? Or 

should each document be considered a 

separate solicitation, so that all 

documents mentioning the introductory 

APR contain the required disclosures? 

Q89: The expiration date for the 

temporary APR and the go-to APR also 

must be in a ‘‘prominent location’’ that 

is ‘‘closely proximate’’ to the temporary 

APR. What guidance, if any, should the 

Board provide on this requirement? 

Q90: Some credit card issuers’ offers 

list several possible permanent APRs, 

and consumer qualifications for any 

particular rate is subsequently 

Federal Register / Vol. 70, No. 199 / Monday, October 17, 2005 / Proposed Rules 60243 

determined by information gathered as 

part of the application process. What 

guidance should the Board provide on 

how to disclose the ‘‘go-to’’ APR in the 

solicitation when the permanent APR is 

set using risk-based pricing? Should all 

the possible rates be listed, or should a 

range of rates be permissible, indicating 

the rate will be determined based on 

creditworthiness? 

Q91: Regulation Z currently provides 

that if the initial APR may increase 

upon the occurrence of one or more 

specific events, such as a late payment, 

the issuer must disclose in the Schumer 

box both the initial rate and the 

increased penalty rate. The specific 

event or events that may trigger the 

penalty rate must be disclosed outside 

of the Schumer box, with an asterisk or 

other means used to direct the consumer 

to this additional information. The 

Bankruptcy Act requires that a general 

description of the circumstances that 

may result in revocation of the 

temporary rate must be disclosed ‘‘in a 

prominent manner’’ on the application 

or solicitation. What additional rules 

should be considered by the Board to 

ensure that creditors’ disclosures 

comply with the Bankruptcy Act 

amendments? Is additional guidance 

needed on what constitutes a ‘‘general 

description’’ of the circumstances that 

may result in revocation of the 

temporary APR? If so, what should that 

guidance say? 

Q92: The introductory rate 

disclosures required by the Bankruptcy 

Act apply to applications and 

solicitations whether sent by direct mail 

or provided electronically. To what 

extent should the guidance for 

applications and solicitations provided 

by direct mail differ from the guidance 

for those provided electronically? 

C. Internet Based Credit Card 

Solicitations 

The Bankruptcy Act further amends 

Section 127(c) of TILA to require that 

the same disclosures made for 

applications or solicitations sent by 

direct mail also be made for solicitations 

to open a credit card account using the 

Internet or other interactive computer 

service. A ‘‘solicitation’’ is an offer to 

open an account without requiring an 

application. 15 U.S.C. 1637(c); 12 CFR 

226.5a(a)(1). The Act specifies that 

disclosures provided using the Internet 

must be ‘‘readily accessible to 

consumers in close proximity to the 

solicitation,’’ and also must be ‘‘updated 

regularly to reflect the current policies, 

terms, and fee amounts.’’

In June 2000, the Electronic 

Signatures in Global and National 

Commerce Act (E-Sign Act) became law. 

The E-Sign Act seeks to encourage the 

continued expansion of electronic 

commerce, and establishes the legal 

validity and enforceability of electronic 

signatures, contracts, and other records 

(including disclosures) in interstate and 

foreign commerce transactions. The ESign Act does not affect any 

requirement imposed by law or 

regulation, other than a requirement that 

documents or signatures be ‘‘nonelectronic’’ or in paper form. The E-Sign 

Act also does not affect the content or 

timing of any consumer disclosure. The 

E-Sign Act became effective on October 

1, 2000. 

In March 2001, the Board issued 

interim final rules authorizing the use of 

electronic disclosures under Regulation 

Z, consistent with the requirements of 

the E-Sign Act. 66 FR 17329 (Mar. 30, 

2001). The interim rules, which are not 

mandatory, also contained standards for 

the electronic delivery of disclosures, 

including the need to update 

periodically the disclosures made 

available on a creditor’s Internet web 

site. For example, the interim rules 

stated that variable-rate disclosures 

made available at a credit card issuer’s 

Internet web site should be based on an 

APR that was in effect within the last 30 

days. 

Q93: Although the Bankruptcy Act 

provisions concerning Internet offers 

refer to credit card solicitations (where 

no application is required), this may be 

interpreted to also include applications. 

Is there any reason for treating Internet 

applications differently than Internet 

solicitations? 

Q94: What guidance should the Board 

provide on how solicitation (and 

application) disclosures may be made 

clearly and conspicuously using the 

Internet? What model disclosures, if 

any, should the Board provide? 

Q95: What guidance should the Board 

provide regarding when disclosures are 

‘‘readily accessible to consumers in 

close proximity’’ to a solicitation that is 

made on the Internet? The 2001 interim 

final rules stated that a consumer must 

be able to access the disclosures at the 

time the application or solicitation reply 

form is made available electronically. 

The interim rules provided flexibility in 

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 was not used, 

the electronic application or reply form 

could clearly and conspicuously refer to 

the fact that rate, fee, and other cost 

information either precedes or follows 

the electronic application or reply form. 

Or the disclosures could automatically 

appear on the screen when the 

application or reply form appears. Is 

additional or different guidance needed 

from the guidance in the 2001 interim 

final rules? 

Q96: What guidance should the Board 

provide regarding what it means for the 

disclosures to be ‘‘updated regularly to 

reflect the current policies, terms, and 

fee amounts?’’ Is the guidance in the 

2001 interim rules, suggesting a 30-day 

standard, appropriate? 

D. Disclosures Related to Payment 

Deadlines and Late Payment Penalties 

Under the Bankruptcy Act, Section 

127(b) of TILA is amended to require 

creditors offering open-end plans to 

provide additional disclosures on 

periodic statements if a late payment fee 

will be imposed for failure to make a 

payment on or before the required due 

date. The periodic statement must 

disclose clearly and conspicuously, the 

date on which the payment is due or, if 

different, the earliest date on which a 

late payment fee may be charged, as 

well as the amount of the late payment 

fee that may be imposed if payment is 

made after that date. 

Q97: Under what circumstances, if 

any, would the ‘‘date on which the 

payment is due’’ be different from the 

‘‘earliest date on which a late payment 

fee may be charged?’’

Q98: Is additional guidance needed 

on how these disclosures may be made 

in a clear and conspicuous manner on 

periodic statements? Should the Board 

consider particular format requirements, 

such as requiring the late payment fee 

to be disclosed in close proximity to the 

payment due date (or the earliest date 

on which a late payment fee may be 

charged, if different)? What model 

disclosures, if any, should the Board 

provide with respect to these 

disclosures? 

Q99: The December 2004 ANPR 

requested comment on whether the 

Board should issue a rule requiring 

creditors to credit payments as of the 

date they are received, regardless of 

what time during the day they are 

received. Currently, under Regulation Z, 

creditors may establish reasonable cutoff hours; if the creditor receives a 

payment after that time (such as 2 pm), 

then the creditor is not required to 

credit the payment as of that date. If the 

Board continues to allow creditors to 

establish reasonable cut-off hours, 

should the cut-off hour be disclosed on 

each periodic statement in close 

proximity to the payment due date? 

Q100: Failure to make a payment on 

or before the required due date 

60244 Federal Register / Vol. 70, No. 199 / Monday, October 17, 2005 / Proposed Rules 

commonly triggers an increased APR in 

addition to a late payment fee. As a part 

of the Regulation Z review, should the 

Board consider requiring that any 

increased rate that would apply to 

outstanding balances accompany the 

late payment fee disclosure? 

Q101: The late payment disclosure is 

required for all open-end credit 

products. Are there any special issues 

applicable to open-end accounts other 

than credit cards that the Board should 

consider? 

E. Disclosures for Home-Secured Loans 

That May Exceed the Dwelling’s FairMarket Value 

Under the Bankruptcy Act, creditors 

extending home-secured credit (both 

open-end and closed-end) must provide 

additional disclosures for home-secured 

loans that exceed or may exceed the 

fair-market value of the dwelling. 

Section 144 and 147(b) of TILA are 

amended to require that each 

advertisement relating to an extension 

of credit that may exceed the fair-market 

value of the dwelling must include a 

clear and conspicuous statement that: 

(1) The interest on the portion of the 

credit extension that is greater than the 

fair-market value of the dwelling is not 

tax deductible for Federal income tax 

purposes; and (2) the consumer should 

consult a tax adviser for further 

information about the deductibility of 

interest and charges. This requirement 

only applies to advertisements that are 

disseminated in paper form to the 

public or through the Internet, as 

opposed to radio or television. 

In addition, Sections 127(A) and 128 

of TILA are amended to require 

creditors extending home-secured credit 

to make the above disclosures at the 

time of application in cases where the 

extension of credit exceeds or may 

exceed the fair-market value of the 

dwelling. Currently, open-end creditors 

extending home-secured credit already 

are required to disclose at the time of 

application that the consumer should 

consult a tax adviser for further 

information about the deductibility of 

interest and charges. See 15 U.S.C. 

1637a(a)(13); 12 CFR 226.5b(d)(11). 

Q102: What guidance should the 

Board provide in interpreting when an 

‘‘extension of credit may exceed the fairmarket value of the dwelling?’’ For 

example, should the disclosures be 

required only when the new credit 

extension may exceed the dwelling’s 

fair-market value, or should disclosures 

also be required if the new extension of 

credit combined with existing mortgages 

may exceed the dwelling’s fair-market 

value? 

Q103: In determining whether the 

debt ‘‘may exceed’’ a dwelling’s fairmarket value, should only the initial 

amount of the loan or credit line and the 

current property value be considered? 

Or should other circumstances be 

considered, such as the potential for a 

future increase in the total amount of 

the indebtedness when negative 

amortization is possible? 

Q104: What guidance should the 

Board provide on how to make these 

disclosures clear and conspicuous? 

Should the Board provide model clauses 

or forms with respect to these 

disclosures? 

Q105: With the exception of certain 

variable-rate disclosures (12 CFR 

226.17(b) and 226.19(a)), disclosures for 

closed-end mortgage transactions 

generally are provided within three days 

of application for home-purchase loans 

and before consummation for all other 

home-secured loans. 15 U.S.C. 1638(b). 

Is additional compliance guidance 

needed for the Bankruptcy Act 

disclosures that must be provided at the 

time of application in connection with 

closed-end loans? 

F. Prohibition on Terminating Accounts 

for Failure To Incur Finance Charges 

The Bankruptcy Act amends Section 

127 of TILA to prohibit an open-end 

creditor from terminating an account 

under an open-end consumer credit 

plan before its expiration date solely 

because the consumer has not incurred 

finance charges on the account. Under 

the Bankruptcy Act, this prohibition 

would not prevent a creditor from 

terminating an account for inactivity in 

three or more consecutive months. 

Q106: What issues should the Board 

consider in providing guidance on when 

an account ‘‘expires?’’ For example, 

card issuers typically place an 

expiration date on the credit card. 

Should this date be considered the 

expiration date for the account? 

Q107: The prohibition on terminating 

accounts for failure to incur finance 

charges applies to all open-end credit 

products. Are there any issues 

applicable to open-end accounts other 

than credit card accounts that the Board 

should consider? 

Q108: The prohibition on terminating 

accounts does not prevent creditors 

from terminating an account for 

inactivity in three or more consecutive 

months (assuming the termination 

complies with other applicable laws and 

regulations, such as the rules in 

Regulation Z governing the termination 

of HELOCS, 12 CFR 226.5b(f)(2)). 

Should the Board provide guidance on 

this aspect of the statute, and what 

constitutes ‘‘inactivity?’’

By order of the Board of Governors of the 

Federal Reserve System, October 11, 2005. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. 05–20664 Filed 10–14–05; 8:45 am] 

BILLING CODE 6210–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2005–22696; Directorate 

Identifier 2004–SW–46–AD] 

RIN 2120–AA64 

Airworthiness Directives; Eurocopter 

France Model EC 155B and B1 

Helicopters 

AGENCY: Federal Aviation 

Administration, DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: This document proposes 

adopting a new airworthiness directive 

(AD) for Eurocopter France (ECF) Model 

EC 155B and B1 helicopters. This 

proposal would require inspecting an 

electrical cable bundle for wear. If wear 

is present, the AD would require 

installing an airworthy cable bundle and 

modifying the routing of the electrical 

cable bundles. This proposal is 

prompted by reports of a short circuit in 

the wiring, which led to failure of the 

normal and emergency landing gear 

operation modes. The actions specified 

by this proposed AD are intended to 

prevent interference of the wiring with 

the structure resulting in an electrical 

short circuit, failure of the landing gear 

to extend, and an emergency landing. 

DATES: Comments must be received on 

or before December 16, 2005. 

ADDRESSES: Use one of the following 

addresses to submit comments on this 

proposed AD: 

• DOT Docket Web Site: Go to 

http://dms.dot.gov and follow the 

instructions for sending your comments 

electronically; 

• Government-Wide Rulemaking Web 

Site: Go to http://www.regulations.gov 

and follow the instructions for sending 

your comments electronically; 

• Mail: Docket Management Facility; 

U.S. Department of Transportation, 400 

Seventh Street, SW., Nassif Building, 

Room PL–401, Washington, DC 20590; 

• Fax: 202–493–2251; or 

• Hand Delivery: Room PL–401 on 

the plaza level of the Nassif Building, 

400 Seventh Street, SW., Washington, 

DC, between 9 a.m. and 5 p.m., Monday 

through Friday, except Federal holidays.