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[Federal Register Volume 70, Number 199 (Monday, October 17, 2005)]
[Proposed Rules]
[Pages 60235-60244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-20664]

========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

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

========================================================================


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

[[Page 60235]]

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: [email protected]. 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 
Fair-Market 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

[[Page 60236]]

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 open-end 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 
open-end 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

[[Page 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 so-called ``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 
touch-tone telephone or similar device, but consumers who are unable to 
use the automated device must have the opportunity to be connected to 
an individual from whom the repayment information may be obtained. 
Creditors 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.

[[Page 60238]]

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 open-end 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.

[[Page 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 previous-
balance 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

[[Page 60240]]

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 over-the-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 general-purpose 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 
general-purpose 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

[[Page 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

[[Page 60242]]

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

[[Page 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 E-Sign Act does not affect any requirement 
imposed by law or regulation, other than a requirement that documents 
or signatures be ``non-electronic'' 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 cut-off 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

[[Page 60244]]

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 
Fair-Market 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 fair-market 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 
fair-market 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
```