This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

36077 

Vol. 74, No. 139 

Wednesday, July 22, 2009 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Regulation Z; Docket No. R–1364] 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Interim final rule; request for 

public comment. 

SUMMARY: The Board is amending 

Regulation Z, which implements the 

Truth in Lending Act, and the staff 

commentary to the regulation in order to 

implement provisions of the Credit Card 

Accountability Responsibility and 

Disclosure Act of 2009 that are effective 

on August 20, 2009. These amendments 

are being issued in the form of an 

interim final rule and primarily pertain 

to advance notices of rate increases and 

changes in terms and the time 

consumers are given to make their 

payments. 

DATES: This interim final rule is 

effective August 20, 2009. Comments 

must be received on or before 

September 21, 2009. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1364, 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. 

• Facsimile: (202) 452–3819 or (202) 

452–3102. 

• Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

unless modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. Public comments 

may also be viewed electronically or in 

paper form in Room MP–500 of the 

Board’s Martin Building (20th and C 

Streets, NW.) between 9 a.m. and 5 p.m. 

on weekdays. 

FOR FURTHER INFORMATION CONTACT: 

Amy Burke or Benjamin K. Olson, 

Senior Attorneys, Division of Consumer 

and Community Affairs, Board of 

Governors of the Federal Reserve 

System, at (202) 452–3667 or 452–2412; 

for users of Telecommunications Device 

for the Deaf (TDD) only, contact (202) 

263–4869. 

SUPPLEMENTARY INFORMATION: 

I. Background and Implementation of 

the Credit Card Act 

January 2009 Regulation Z and FTC Act 

Rules 

On December 18, 2008, the Board 

adopted two final rules pertaining to 

open-end (not home-secured) credit. 

These rules were published in the 

Federal Register on January 29, 2009. 

The first rule makes comprehensive 

changes to Regulation Z’s provisions 

applicable to open-end (not homesecured) credit, including amendments 

that affect all of the five major types of 

required disclosures: Applications and 

solicitations, account-opening 

disclosures, periodic statements, notices 

of changes in terms, and advertisements. 

See 74 FR 5244 (January 2009 

Regulation Z Rule). The second is a joint 

rule published with the Office of Thrift 

Supervision (OTS) and the National 

Credit Union Administration (NCUA) 

under the Federal Trade Commission 

Act (FTC Act) to protect consumers 

from unfair acts or practices with 

respect to consumer credit card 

accounts. See 74 FR 5498 (January 2009 

FTC Act Rule). The effective date for 

both rules is July 1, 2010. 

On May 5, 2009, the Board published 

proposed clarifications and technical 

amendments to the January 2009 

Regulation Z Rule in the Federal 

Register. See 74 FR 20784. The Board, 

the OTS, and the NCUA (collectively, 

the Agencies) concurrently published 

proposed clarifications and technical 

amendments to the January 2009 FTC 

Act Rule. See 74 FR 20804. In both 

cases, as stated in the Federal Register, 

these proposals were intended to clarify 

and facilitate compliance with the 

consumer protections contained in the 

January 2009 final rules and not to 

reconsider the need for—or the extent 

of—those protections. The comment 

period on both of these proposed sets of 

amendments ended on June 4, 2009. 

Where relevant, the Board has 

considered the comments submitted in 

preparing this interim final rule. The 

Board is still considering other 

comments received in response to the 

proposed amendments and intends to 

finalize those amendments, with 

revisions as appropriate, in connection 

with its next final rulemaking regarding 

credit cards. The fact that certain 

proposed amendments are not 

addressed in this Federal Register 

notice does not mean that they have 

been withdrawn. Rather, such 

amendments are still under 

consideration by the Board. 

The Credit Card Act 

On May 22, 2009, the Credit Card 

Accountability Responsibility and 

Disclosure Act of 2009 (Credit Card Act) 

was signed into law. Public Law 111– 

24, 123 Stat. 1734 (2009). The Credit 

Card Act primarily amends the Truth in 

Lending Act (TILA) and establishes a 

number of new substantive and 

disclosure requirements to establish fair 

and transparent practices pertaining to 

open-end consumer credit plans. 

Several of the provisions of the Credit 

Card Act are similar to provisions in the 

Board’s January 2009 Regulation Z and 

FTC Act Rules, while other portions of 

the Credit Card Act address practices or 

mandate disclosures that were not 

addressed in the Board’s rules. 

The requirements of the Credit Card 

Act that pertain to credit cards or other 

open-end credit for which the Board has 

rulemaking authority become effective 

in three stages. First, provisions 

generally requiring that consumers 

receive 45 days’ advance notice of 

interest rate increases and significant 

changes in terms (new TILA Section 

127(i)) and provisions regarding the 

amount of time that consumers have to 

make payments (revised TILA Section 

163) will become effective on August 


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1The Credit Card Act also requires the Board to 

conduct several studies and to make several reports 

to Congress, and sets forth differing time periods in 

which these studies and reports must be completed. 

2See also OTS Memorandum for Chief Executive 

Officers: Credit CARD Act: Interest Rate Increases 

and Rules on Unfair Practices (issued July 13, 2009) 

(available at http://files.ots.treas.gov/25312.pdf); 

NCUA Press Release: Working with Other 

Regulators on Credit CARD Act and UDAP Rule 

(issued July 1, 2009) (available at http:// 

www.ncua.gov/news/press_releases/2009/MR09- 

0701.htm). 

20, 2009 (90 days after enactment of the 

Credit Card Act). A majority of the 

requirements under the Credit Card Act 

for which the Board has rulemaking 

authority, including, among other 

things, provisions regarding interest rate 

increases (revised TILA Section 171), 

over-the-limit transactions (new TILA 

Section 127(k)), and student cards (new 

TILA Sections 127(c)(8), 127(p), and 

140(f)) become effective on February 22, 

2010 (9 months after enactment). 

Finally, two provisions of the Credit 

Card Act addressing the reasonableness 

and proportionality of penalty fees and 

charges (new TILA Section 149) and reevaluation by creditors of rate increases 

(new TILA Section 148) are effective on 

August 22, 2010 (15 months after 

enactment). For these provisions that 

become effective on August 22, 2010, 

the statute requires the Board to issue 

final rules not later than February 22, 

2010 (9 months after enactment). 

However, the Board notes that, while 

new TILA Section 148 is not effective 

until August 22, 2010, it applies to rate 

increases that have occurred since 

January 1, 2009. Specifically, new TILA 

Section 148 requires that, if a creditor 

has increased a rate on a credit card 

account since January 1, 2009 based on 

the credit risk of the consumer, market 

conditions, or other factors, the creditor 

must review the account at least once 

every six months and consider changes 

in such factors in subsequently 

determining whether to reduce that 

rate.1

Implementation Plan 

The Board intends to implement the 

provisions of the Credit Card Act in 

stages, consistent with the statutory 

timeline established by Congress. 

Accordingly, this interim final rule 

implements those provisions of the 

statute that are effective August 20, 

2009, primarily addressing change-interms notice requirements and the 

amount of time that consumers have to 

make their payments. As discussed in 

more detail in II. Statutory Authority, 

the Board is issuing these rules in 

interim final form based on its 

determination that, given the short 

implementation period established by 

the Credit Card Act and the fact that 

similar rules were already the subject of 

notice-and-comment rulemaking, it 

would be impracticable and 

unnecessary to issue a proposal for 

public comment followed by a final 

rule. The Board intends to consider 

comments on this interim final rule in 

connection with its next rulemaking 

required by the Credit Card Act. 

The Board intends to separately 

consider the remaining issues under the 

Credit Card Act and to finalize 

implementing regulations, in 

accordance with the timeline 

established by Congress, upon notice 

and after giving the public an 

opportunity to comment. 

To the extent appropriate, the Board 

intends to use its January 2009 rules and 

the underlying rationale as the basis for 

its rulemakings under the Credit Card 

Act. The Board also intends to retain 

those portions of its January 2009 

Regulation Z Rule that are unaffected by 

the Credit Card Act. The Board is not 

withdrawing any provisions of the 

January 2009 Regulation Z Rule or its 

January 2009 FTC Act Rule at this time. 

The Board anticipates that in 

connection with finalizing rules for 

those provisions of the Credit Card Act 

that are effective February 22, 2010, it 

will amend or withdraw those portions 

of the January 2009 rules that are 

inconsistent with the requirements of 

the Credit Card Act. In particular, the 

Board anticipates that all of the 

requirements in its January 2009 FTC 

Act Rule will be withdrawn from 

Regulation AA and moved into 

Regulation Z, consistent with Congress’s 

approach of amending the Truth in 

Lending Act.2 Finally, except as 

otherwise noted, the Board intends to 

consider comments received on the 

proposed clarifications and technical 

amendments that were published on 

May 5, 2009 and to incorporate final 

clarifications and amendments, to the 

extent appropriate, when it promulgates 

final rules in the second stage of its 

rulemaking. 

II. Statutory Authority 

General Rulemaking Authority 

Section 2 of the Credit Card Act states 

that the Board ‘‘may issue such rules 

and publish such model forms as it 

considers necessary to carry out this Act 

and the amendments made by this Act.’’ 

This interim final rule implements 

§§ 101(a) and 106(b) of the Credit Card 

Act, which amend TILA. TILA 

mandates that the Board prescribe 

regulations to carry out its purposes and 

specifically authorizes the Board, among 

other things, to issue regulations that 

contain such classifications, 

differentiations, or other provisions, or 

that provide for such adjustments and 

exceptions for any class of transactions, 

that in the Board’s judgment are 

necessary or proper to effectuate the 

purposes of TILA, facilitate compliance 

with TILA, or prevent circumvention or 

evasion of TILA. See 15 U.S.C. 1604(a). 

Authority To Issue Interim Final Rules 

Without Notice and Comment 

The Administrative Procedure Act (5 

U.S.C. 551 et seq.) (APA) generally 

requires public notice before 

promulgation of regulations. See 5 

U.S.C. 553(b). Unless notice or hearing 

is required by statute, however, the APA 

provides an exception ‘‘when the 

agency for good cause finds (and 

incorporates the finding and a brief 

statement of reasons therefor in the 

rules issued) that notice and public 

procedure thereon are impracticable, 

unnecessary, or contrary to the public 

interest.’’ 5 U.S.C. 553(b)(B). For the 

reasons discussed below, the Board 

finds that, with respect to this 

rulemaking, there is good cause to 

conclude that providing notice and an 

opportunity to comment is 

impracticable and unnecessary. 

As an initial matter, neither the Credit 

Card Act nor TILA requires the Board to 

provide notice or a hearing with respect 

to this rulemaking. See Credit Card Act 

§ 2; 15 U.S.C. 1604(a). TILA Section 

105(c) does require notice and an 

opportunity for public comment with 

respect to the adoption of model 

disclosure forms and clauses but the 

Board is not adopting model disclosure 

forms or clauses in this interim final 

rule. 15 U.S.C. 1604(c). Moreover, even 

if the Board were adopting such forms 

or clauses, TILA Section 105(c) only 

requires notice and an opportunity to 

comment ‘‘in accordance with [5 U.S.C. 

553].’’ Thus, the adoption of model 

disclosure forms and clauses is subject 

to the good cause exception in 

§ 553(b)(B). 

Furthermore, for purposes of 

implementing §§ 101(a) and 106(b) of 

the Credit Card Act, providing notice 

and an opportunity to comment within 

the timeframe mandated by Congress 

would be impracticable. Although most 

provisions of the Credit Card Act are 

effective 9 months after enactment, 

§§ 101(a) and 106(b) are effective in 90 

days (i.e., on August 20, 2009). This 

period does not provide sufficient time 

for the Board to: 

• Prepare proposed regulations and 

publish them in the Federal Register; 


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3For convenience, this supplementary 

information refers to provisions in the January 2009 

Regulation Z and FTC Act Rules by citing to the 

Code of Federal Regulations as well as the Federal 

Register. The Board notes that because these 

provisions are not yet effective, they have not been 

incorporated into the existing Code of Federal 

Regulations. 

4Although the Board, OTS, and NCUA adopted 

substantively identical rules under the FTC Act, 

each agency placed its rules in its respective part 

of title 12 of the Code of Federal Regulations. 

Specifically, the Board placed its rules in part 227, 

the OTS in part 535, and the NCUA in part 706. 

For simplicity, this supplementary information 

cites to the Board’s rules and official staff 

commentary. 

5The Board recognizes that there are two 

significant differences between the January 2009 

rules and this interim final rule. First, the interim 

final rule permits a consumer to reject a rate 

increase or other significant change to the account 

terms in accordance with new TILA Section 127(i). 

Second, the mailing or delivery requirement for 

periodic statements in the interim final rule applies 

to all open-end consumer credit plans, while the 

analogous provision in the January 2009 FTC Act 

Rule applies only to credit card accounts. 

6See Credit Card Act § 3. 

7The date on which the Board’s notice is 

published in the Federal Register depends on a 

number of variables that are outside the Board’s 

control, including the number and size of other 

notices submitted to the Federal Register prior to 

the Board’s notice. 

• Provide a reasonable period for 

interested parties to review the proposal 

and prepare comments; 

• Analyze the comments submitted; 

and 

• Prepare the final regulations and 

publish them in the Federal Register. 

Even if the Board were able to 

technically comply with § 553’s noticeand-comment process within the 

allotted time, such a process would not 

comply with the purpose of the APA 

because interested parties would not 

have sufficient time to prepare wellresearched comments and the Board 

would not have time to conduct a 

meaningful review and analysis of those 

comments. Furthermore, because the 

Board’s regulations will provide 

creditors with guidance on how to 

comply with §§ 101(a) and 106(b) of the 

Credit Card Act, a notice-and-comment 

process would leave little or no time 

between the issuance of final 

regulations and the statutory effective 

date for creditors to adjust their 

procedures in order to comply. In 

contrast, the adoption of an interim final 

rule enables the Board to provide this 

guidance further in advance of the 

effective date, which provides creditors 

with more time to comply with the 

statutory provisions. As discussed in I. 

Background and Implementation of the 

Credit Card Act, interested parties will 

still have an opportunity to submit 

comments following issuance of the 

interim final rule, which the Board will 

consider when promulgating a noninterim final rule as part of a subsequent 

rulemaking implementing other 

provisions of the Credit Card Act. 

Finally, notice and an opportunity to 

comment is unnecessary with respect to 

the implementation of §§ 101(a) and 

106(b) of the Credit Card Act because 

these provisions are similar in most 

respects to rules recently adopted by the 

Board and other Agencies after notice 

and public comment. For example, as 

discussed in detail in III. Section-bySection Analysis, § 101(a) of the Credit 

Card Act generally requires creditors to 

provide 45 days’ advance notice of an 

increase in an annual percentage rate or 

other significant change in the terms of 

the cardholder agreement, a requirement 

that largely mirrors provisions in the 

January 2009 Regulation Z Rule recently 

adopted by the Board. See 12 CFR 

226.9(c)(2) and (g),3 74 FR 5244, 5413– 

5415. Similarly, § 106(b) of the Credit 

Card Act requires creditors to mail or 

deliver periodic statements 21 days 

before payment is due, which is similar 

to a provision recently adopted by the 

Board and the other Agencies in the 

January 2009 FTC Act Rule. See 12 CFR 

227.22, 74 FR 5498, 5560.4 Prior to 

adopting these rules, the Board and the 

other Agencies received and considered 

more than 60,000 comments. Although 

the statutory provisions are not identical 

to the regulations in all respects, 

interested parties have already had an 

opportunity to comment on the core 

issues.5 To the extent that the Board’s 

interim final rule fails to anticipate new, 

material issues, interested parties will 

have the opportunity to raise those 

issues in their comments so that the 

Board can consider them in a 

subsequent rulemaking under the Credit 

Card Act. 

Authority To Issue an Interim Final Rule 

With an Effective Date of August 20, 

2009 

Because §§ 101(a) and 106(b) of the 

Credit Card Act are effective on August 

20, 2009,6 the Board’s interim final rule 

implementing those provisions is also 

effective on that date. The APA 

generally requires that rules be 

published not less than 30 days before 

their effective date. See 5 U.S.C. 553(d). 

As with the notice requirement, 

however, the APA provides an 

exception when ‘‘otherwise provided by 

the agency for good cause found and 

published with the rule.’’ Id. § 553(d)(3). 

Notwithstanding the time saved by 

issuing an interim final rule without 

advance notice and the similarity of the 

new statutory provisions to regulations 

previously issued by the Board, 60 days 

may not be sufficient time for the Board 

to review the legislation carefully, revise 

its regulations for consistency with the 

Credit Card Act, and ensure that the 

revised regulations are published in the 

Federal Register 30 days before the 

August 20, 2009 effective date.7

Accordingly, the Board finds that good 

cause exists to publish the interim final 

rule less than 30 days before the 

effective date. 

Similarly, although 12 U.S.C. 

4802(b)(1) generally requires that new 

regulations and amendments to existing 

regulations take effect on the first day of 

the calendar quarter which begins on or 

after the date on which the regulations 

are published in final form (in this case, 

October 1, 2009), the Board has 

determined that—for the reasons 

discussed above—there is good cause 

for making the interim final rule 

effective on August 20. See 12 U.S.C. 

4802(b)(1)(A) (providing an exception to 

the general requirement when ‘‘the 

agency determines, for good cause 

published with the regulation, that the 

regulations should become effective 

before such time’’). Although the Credit 

Card Act does not expressly require the 

Board to issue regulations implementing 

§§ 101(a) and 106(b) before October 1, 

Congress clearly intended creditors to 

be in compliance with those provisions 

on August 20. Accordingly, the Board 

believes that providing creditors with 

guidance regarding compliance with 

§§ 101(a) and 106(b) before October 1 is 

consistent with 12 U.S.C. 4802(b)(1)(C), 

which provides an exception to the 

general requirement when ‘‘the 

regulation is required to take effect on 

a date other than the date determined 

under [12 U.S.C. 4802(b)(1)] pursuant to 

any other Act of Congress.’’ 

Finally, TILA Section 105(d) provides 

that any regulation of the Board (or any 

amendment or interpretation thereof) 

requiring any disclosure which differs 

from the disclosures previously required 

by Chapters 1, 4, or 5 of TILA (or by any 

regulation of the Board promulgated 

thereunder) shall have an effective date 

no earlier than ‘‘that October 1 which 

follows by at least six months the date 

of promulgation.’’ However, even 

assuming that TILA Section 105(d) 

applies to the interim final rule, the 

Board believes that the specific 

provisions governing the effective dates 

for §§ 101(a) and 106(b) of the Credit 

Card Act override the general provision 

in TILA Section 105(d). 


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8Specifically, while most provisions in the Credit 

Card Act apply to ‘‘credit card account[s] under an 

open end consumer credit plan’’ (e.g., § 101(a)), 

amended TILA Section 163—like current TILA 

Section 163—applies to ‘‘open end consumer credit 

plan[s].’’ 

9The January 2009 Regulation Z Rule revised 

aspects of § 226.5(b)(2)(ii). However, because those 

revisions are not effective until July 1, 2010, this 

interim final rule amends the version of 

§ 226.5(b)(2)(ii) that is currently in effect. 

Accordingly, when this supplementary information 

refers to ‘‘current’’ or ‘‘existing’’ paragraphs of 

§§ 226.5 or 226.9, it refers to the version that is 

currently in effect, not the version adopted in the 

Board’s January 2009 Regulation Z Rule, which is 

effective July 1, 2010. 

10Both current and amended TILA Section 163 

require that the periodic statement include the date 

on which the grace period will expire and the 

amount on which the finance charge will be based 

if the consumer does not pay the balance in full 

prior to expiration of the grace period. The Board 

notes that current § 226.7(e) and (j) require 

disclosure of this information. In addition, the 21- 

III. Section-by-Section Analysis 

Section 226.5 General Disclosure 

Requirements 

5(b) Time of Disclosures 

As amended by the Credit Card Act, 

TILA Section 163 generally prohibits a 

creditor from treating a payment as late 

or imposing additional finance charges 

unless the creditor mailed or delivered 

the periodic statement at least 21 days 

before the payment due date and the 

expiration of any period within which 

any credit extended may be repaid 

without incurring a finance charge (i.e., 

a ‘‘grace period’’). See Credit Card Act 

§ 106(b). Unlike most of the Credit Card 

Act’s provisions, the amendments to 

TILA Section 163 apply to all open-end 

consumer credit plans rather than just 

credit card accounts.8 As discussed 

below, the Board has implemented 

amended TILA Section 163 by revising 

§ 226.5(b)(2)(ii) and the accompanying 

official staff commentary.9

Currently, TILA Section 163 requires 

creditors to send periodic statements at 

least 14 days before the expiration of the 

grace period (if any), unless prevented 

from doing so by an act of God, war, 

natural disaster, strike, or other 

excusable or justifiable cause (as 

determined under regulations of the 

Board). 15 U.S.C. 1666b. The current 

version of Regulation Z, however, 

applies the 14-day requirement even 

when the consumer does not receive a 

grace period. Specifically, current 

§ 226.5(b)(2)(ii) requires that creditors 

mail or deliver periodic statements 14 

days before the date by which payment 

is due for purposes of avoiding not only 

finance charges as a result of the loss of 

a grace period but also any charges other 

than finance charges (such as late fees). 

See also comment 5(b)(2)(ii)–1. 

In the January 2009 FTC Act Rule, the 

Board and the other Agencies prohibited 

institutions from treating payments on 

consumer credit card accounts as late 

for any purpose unless the institution 

provided a reasonable amount of time 

for consumers to make payment. See 12 

CFR 227.22(a), 74 FR 5560; see also 74 

FR 5508–5512. This rule included a safe 

harbor for institutions that adopt 

reasonable procedures designed to 

ensure that periodic statements 

specifying the payment due date are 

mailed or delivered to consumers at 

least 21 days before the payment due 

date. See 12 CFR 227.22(b)(2), 74 FR 

5560. The 21-day safe harbor was 

intended to allow seven days for the 

periodic statement to reach the 

consumer by mail, seven days for the 

consumer to review their statement and 

make payment, and seven days for that 

payment to reach the institution by 

mail. However, to avoid any potential 

conflict with the 14-day requirement in 

TILA Section 163(a), the rule expressly 

stated that it would not apply to any 

grace period provided by an institution. 

See 12 CFR 227.22(c), 74 FR 5560. 

5(b)(2) Periodic Statements 

5(b)(2)(ii) Mailing or Delivery 

The Credit Card Act’s amendments to 

TILA Section 163 codify aspects of 

current § 226.5(b)(2)(ii) as well as the 

provision in the January 2009 FTC Act 

Rule regarding the mailing or delivery of 

periodic statements. Specifically, like 

current § 226.5(b)(2)(ii), amended TILA 

Section 163 applies the mailing or 

delivery requirement to both the 

expiration of the grace period and the 

payment due date. In addition, similar 

to the January 2009 FTC Act Rule, 

amended TILA Section 163 adopts 21 

days as the appropriate time period 

between the date on which the 

statement is mailed or delivered to the 

consumer and the date on which the 

consumer’s payment must be received 

by the creditor to avoid adverse 

consequences. 

Rather than establishing an absolute 

requirement that periodic statements be 

mailed 21 days in advance of the 

payment due date, amended TILA 

Section 163(a) codifies the same 

standard adopted by the Board and the 

other Agencies in the January 2009 FTC 

Act Rule, which requires creditors to 

adopt ‘‘reasonable procedures designed 

to ensure’’ that statements are mailed or 

delivered at least 21 days before the 

payment due date. Notably, however, 

the 21-day requirement for grace periods 

in amended TILA Section 163(b) does 

not include similar language regarding 

‘‘reasonable procedures.’’ Because the 

payment due date generally coincides 

with the expiration of the grace period, 

the Board believes that it will facilitate 

compliance to apply a single standard to 

both circumstances. The ‘‘reasonable 

procedures’’ standard recognizes that, 

for issuers mailing hundreds of 

thousands of periodic statements each 

month, it would be difficult if not 

impossible to know whether a specific 

statement is mailed or delivered on a 

specific date. Furthermore, applying 

different standards could encourage 

creditors to establish a payment due 

date that is different from the date on 

which the grace period expires, which 

could lead to consumer confusion. 

Accordingly, the Board is amending 

§ 226.5(b)(2)(ii) to require that creditors 

adopt reasonable procedures designed 

to ensure that periodic statements are 

mailed or delivered at least 21 days 

before the payment due date and the 

expiration of the grace period. In doing 

so, the Board relies on its authority 

under TILA Section 105(a) to make 

adjustments that are necessary or proper 

to effectuate the purposes of TILA and 

to facilitate compliance therewith. See 

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

For clarity, the Board also amends 

§ 226.5(b)(2)(ii) to define ‘‘grace period’’ 

as ‘‘a period within which any credit 

extended may be repaid without 

incurring a finance charge due to a 

periodic interest rate.’’ This definition is 

consistent with the definition of grace 

period adopted by the Board in its 

January 2009 Regulation Z Rule. See 

§§ 226.5a(b)(5), 226.6(b)(2)(v), 74 FR 

5404, 5407; see also 74 FR 5291–5294, 

5310. 

Finally, amended TILA Section 163 

deletes current Section 163(b), which 

states that the 14-day mailing 

requirement does not apply ‘‘in any case 

where a creditor has been prevented, 

delayed, or hindered in making timely 

mailing or delivery of [the] periodic 

statement within the time period 

specified * * * because of an act of 

God, war, natural disaster, strike, or 

other excusable or justifiable cause, as 

determined under regulations of the 

Board.’’ 15 U.S.C. 1666b(b). The Board 

believes that the Credit Card Act’s 

removal of this language is consistent 

with the adoption of a ‘‘reasonable 

procedures’’ standard insofar as a 

creditor’s procedures for responding to 

any of the situations listed in current 

TILA Section 163(b) will now be 

evaluated for reasonableness in 

addressing those situations. 

Accordingly, the Board has removed the 

language implementing current TILA 

Section 163(b) from footnote 10 to 

§ 226.5(b)(2)(ii).10


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day mailing requirement in amended TILA Section 

163(a) is tied to the provision of a periodic 

statement that includes ‘‘the information required 

by section 127(b).’’ Although §§ 201 and 202 of the 

Credit Card Act amend TILA Section 127(b), those 

provisions are not effective until February 22, 2010. 

Accordingly, until such time as the amendments to 

TILA Section 127(b) are effective, the Board 

interprets amended TILA Section 163(a) to refer to 

the current version of TILA Section 127(b). 

11The Board notes, however, that § 102(a) of the 

Credit Card Act creates a new TILA Section 127(j), 

which addresses the ability of creditors to charge 

interest from the date of the transaction in certain 

circumstances. However, unlike the amendments to 

Section 163, this provision is effective 9 months 

after enactment and will be implemented by the 

Board in a separate rulemaking. See Credit Card Act 

§ 3. 

12 In the January 2009 FTC Act Rule, the Board 

and the other Agencies adopted comment 22(b)–3, 

which clarified that an institution that only 

provided periodic statements electronically and 

only accepted payments electronically could 

comply with the general requirement in 12 CFR 

227.22(a) to provide a reasonable amount of time to 

make payment without providing periodic 

statements 21 days before the payment due date. 

See 74 FR 5561. Under amended TILA Section 163, 

however, the 21-day requirement applies regardless 

of how periodic statements are provided and 

payments are made. 

The Board is adopting a new 

comment 5(b)(2)(ii)–1, which clarifies 

that, under the ‘‘reasonable procedures’’ 

standard, a creditor is not required to 

determine the specific date on which 

periodic statements are mailed or 

delivered to each individual consumer. 

Instead, a creditor complies with 

§ 226.5(b)(2)(ii) if it has adopted 

reasonable procedures designed to 

ensure that periodic statements are 

mailed or delivered to consumers no 

later than a certain number of days after 

the closing date of the billing cycle and 

adds that number of days to the 21-day 

period required by § 226.5(b)(2)(ii) when 

determining the payment due date and 

the date on which any grace period 

expires. For example, if a creditor has 

adopted reasonable procedures designed 

to ensure that periodic statements are 

mailed or delivered to consumers no 

later than three days after the closing 

date of the billing cycle, the payment 

due date and the date on which any 

grace period expires must be no less 

than 24 days after the closing date of the 

billing cycle. The Board and the other 

Agencies adopted a similar comment in 

the January 2009 FTC Act Rule. See 12 

CFR 227.22 comment 22(b)–1, 74 FR 

5511, 5561. 

The Board is deleting current 

comment 5(b)(2)(ii)–1 because it refers 

to the 14-day rule for grace periods and 

is therefore no longer consistent with 

§ 226.5(b)(2)(ii). To the extent that 

current comment 5(b)(2)(ii)–1 clarifies 

that § 226.5(b)(2)(ii) applies in 

circumstances where the consumer is 

not eligible or ceases to be eligible for 

a grace period, it is no longer necessary 

because that requirement is reflected in 

amended § 226.5(b)(2)(ii) and elsewhere 

in the amended commentary. 

The Board is also adopting a new 

comment 5(b)(2)(ii)–2, which clarifies 

that treating a payment as late for any 

purpose includes increasing the annual 

percentage rate as a penalty, reporting 

the consumer as delinquent to a credit 

reporting agency, or assessing a late fee 

or any other fee based on the 

consumer’s failure to make a payment 

within a specified amount of time or by 

a specified date. However, because 

amended TILA Section 163 (like current 

TILA Section 163) does not require 

creditors to provide a grace period, the 

comment also clarifies that, when an 

account is not eligible or ceases to be 

eligible for a grace period, imposing a 

finance charge due to a periodic interest 

rate does not constitute treating a 

payment as late for purposes of 

§ 226.5(b)(2)(ii).11 The Board and the 

other Agencies adopted a similar 

comment in the January 2009 FTC Act 

Rule. See 12 CFR 227.22 comment 

22(a)–1, 74 FR 5510, 5561. 

The Board is deleting current 

comment 5(b)(2)(ii)–2, which clarifies 

that the emergency circumstances 

exception in footnote 10 does not 

extend to the failure to provide a 

periodic statement because of computer 

malfunction. As discussed above, 

footnote 10 is based on current TILA 

Section 163(b), which has been 

repealed. 

The Board is adopting a new 

comment 5(b)(2)(ii)–3, which clarifies 

that, for purposes of § 226.5(b)(2)(ii), 

‘‘payment due date’’ generally means 

the date by which the creditor requires 

the consumer to make the required 

minimum periodic payment in order to 

avoid that payment being treated as late 

for any purpose. However, the comment 

also addresses the meaning of payment 

due date in two circumstances where a 

late payment or other fee may not be 

assessed until a date that is later than 

the date on which payment is due. 

First, the comment notes that some 

creditors provide an additional period 

of time after the contractual due date 

during which a late payment fee will 

not be assessed. This period—which is 

sometimes referred to as a ‘‘courtesy 

period’’— may be set forth in the 

account agreement (as with some home 

equity plans subject to the requirements 

of § 226.5b) or may be provided as an 

informal policy or practice (as with 

some credit card accounts). Regardless 

of whether the courtesy period is 

mandated by state law, new comment 

5(b)(2)(ii)–3 clarifies that, for purposes 

of § 226.5(b)(2)(ii), the payment due date 

is the due date according to the legal 

obligation between the parties, not the 

end of the additional ‘‘courtesy’’ period. 

Second, the comment notes that some 

state or other laws require that a certain 

number of days must elapse following a 

due date before a late payment or other 

fee may be imposed. As with courtesy 

periods, the comment clarifies that in 

these circumstances the payment due 

date for purposes of § 226.5(b)(2)(ii) is 

the due date according to the legal 

obligation between the parties, not the 

date before which state law prohibits 

imposition of a late payment or other 

fee. 

The Board is adopting comment 

5(b)(2)(ii)–4, which clarifies the 

definition of ‘‘grace period’’ in 

§ 226.5(b)(2)(ii). Specifically, this 

comment clarifies that a deferred 

interest or similar promotional program 

under which the consumer is not 

obligated to pay interest that accrues on 

a balance if that balance is paid in full 

prior to the expiration of a specified 

period of time is not a grace period for 

purposes of § 226.5(b)(2)(ii). This 

comment also clarifies that a courtesy 

period is not a grace period for purposes 

of § 226.5(b)(2)(ii). 

Current comment 5(b)(2)(ii)–3 

provides that, when a consumer asks to 

pick up his or her periodic statements, 

the creditor may permit—but not 

require—the consumer to do so, 

provided that statements are made 

available 14 days before expiration of 

the grace period. For organizational 

purposes, the Board has redesignated 

this comment as comment 5(b)(2)(ii)–4. 

In addition, the Board has revised the 

comment for clarity and for consistency 

with the new 21-day requirement. 

Finally, current comment 5(b)(2)(ii)–4 

contains a cross-reference to comment 

7–3.iv., which provides examples of 

grace periods in the context of a 

deferred interest transaction. For 

organizational purposes, the Board has 

redesignated this comment as comment 

5(b)(2)(ii)–6. In addition, the Board has 

made a technical amendment to this 

comment without intended substantive 

change and revised comment 7–3.iv. for 

consistency with the new 21-day 

requirement.12

Implementation 

As discussed in I. Background and 

Implementation of the Credit Card Act, 

the effective date for revised TILA 

Section 163 (as amended by the Credit 

Card Act) is August 20, 2009. In order 

to comply with revised § 226.5(b)(2)(ii) 

(which implements revised TILA 

Section 163), creditors must have in 


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36082 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

13For convenience, this section summarizes all of 

the provisions of the Credit Card Act related to 

advance notices of changes in terms and rate 

increases. Consistent with the approach it took in 

the January 2009 Regulation Z Rule, the Board is 

implementing the advance notice requirements 

applicable to contingent rate increases set forth in 

the cardholder agreement in a separate section 

(§ 226.9(g)) from those advance notice requirements 

applicable to changes in the cardholder agreement 

(§ 226.9(c)). The distinction between these types of 

changes is that § 226.9(g) addresses changes in a 

rate being applied to a consumer’s account 

place on August 20 reasonable 

procedures designed to ensure that 

periodic statements are mailed or 

delivered at least 21 days before the 

payment due date and the date on 

which any grace period expires. That is, 

the relevant date for purposes of 

determining when a creditor must 

comply with revised § 226.5(b)(2)(ii) is 

the date on which the periodic 

statement is mailed or delivered, not the 

due date or grace period expiration date 

reflected on the statement. Thus, if a 

periodic statement is mailed or 

delivered on August 20, the creditor 

must have reasonable procedures 

designed to ensure that the payment due 

date and the grace period expiration 

date are not earlier than September 10. 

However, if a periodic statement is 

mailed or delivered on August 19, this 

new requirement does not apply to that 

statement. 

The Board believes that this is the 

appropriate reading of the 90-day 

implementation period in the Credit 

Card Act. Although the Credit Card Act 

could be construed to require creditors 

to have reasonable procedures designed 

to ensure that periodic statements are 

mailed or delivered at least 21 days 

before any payment due date or grace 

period expiration date that falls on or 

after August 20, this reading would 

create uncertainty regarding compliance 

with the amendments to TILA Section 

163 by requiring creditors to mail or 

deliver periodic statements in 

accordance with revised TILA Section 

163 and § 226.5(b)(2)(ii) prior to the 

effective date for those provisions. 

Accordingly, for clarity and consistency, 

the Board believes the better reading of 

the Credit Card Act is that creditors 

must begin to comply with amended 

TILA Section 163 (as implemented in 

amended § 226.5(b)(2)(ii)) with respect 

to periodic statements mailed or 

delivered on or after August 20, 2009. 

Revised § 226.5(b)(2)(ii) applies to 

credit card accounts as well as all other 

open-end consumer credit plans. The 

Board understands that, with respect to 

open-end consumer credit plans other 

than credit cards, it may be difficult for 

some creditors to update their systems 

to produce periodic statements by 

August 20, 2009 that disclose payment 

due dates and grace period expiration 

dates (if applicable) that are consistent 

with the 21-day requirement in revised 

§ 226.5(b)(2)(ii). As a result, it is 

possible that, for a short period of time 

after August 20, some periodic 

statements for open-end consumer 

credit plans other than credit cards may 

disclose payment due dates and grace 

period expiration dates (if applicable) 

that are technically inconsistent with 

the interim final rule. In these 

circumstances, the creditor may remedy 

this technical issue by prominently 

disclosing elsewhere on or with the 

periodic statement that the consumer’s 

payment will not be treated as late for 

any purpose if received within 21 days 

after the statement was mailed or 

delivered. Under no circumstances does 

revised § 226.5(b)(2)(ii) permit a creditor 

to treat a payment as late for any 

purpose if that payment is received 

within 21 days after mailing or delivery 

of the periodic statement. 

Section 226.7 Periodic Statement 

As discussed above, the Board has 

revised comment 7–3.iv. for consistency 

with the amendments to 

§ 226.5(b)(2)(ii), which require that 

periodic statements be mailed or 

delivered 21 days before the payment 

due date and the expiration of any grace 

period. The revisions to this comment 

in the January 2009 Regulation Z Rule 

and the revisions proposed in May 2009 

will be addressed in a subsequent 

rulemaking. See 74 FR 5320, 5476; 74 

FR 20786, 20798 

Section 226.9 Subsequent Disclosure 

Requirements 

The Board is adopting revisions to 

§ 226.9(c) and is adopting new § 226.9(g) 

and (h) to implement new TILA Section 

127(i), enacted as part of the Credit Card 

Act. New TILA Section 127(i) generally 

requires that creditors provide 

consumers with 45 days’ advance notice 

of rate increases and other significant 

changes to the terms of their credit card 

account agreements. Credit Card Act 

§ 101(a)(1). Section 127(i) also requires 

change-in-terms notices to contain a 

disclosure of a consumer’s right to 

cancel the account, pursuant to the 

Board’s rules, prior to the effective date 

of the rate increase or change. Section 

127(i) is effective on August 20, 2009, 

90 days after enactment of the Credit 

Card Act. As discussed below, the 

amendments to § 226.9(c) and (g) 

adopted in this interim final rule in 

large part parallel the requirements 

adopted in the Board’s January 2009 

Regulation Z Rule, with changes to 

conform to new TILA Section 127(i). 

However, consistent with the staged 

approach to implementations outlined 

above in I. Background and 

Implementation of the Credit Card Act, 

several requirements that were included 

in § 226.9(c) and (g) of the Board’s 

January 2009 Regulation Z Rule are not 

included in this interim final rule. 

Compliance with these requirements is 

not mandated by the Credit Card Act, 

and therefore this interim final rule does 

not require compliance with these 

requirements on August 20, 2009. For 

example, this interim final rule does not 

require that advance notices of changes 

in terms or the imposition of penalty 

rates pursuant to § 226.9(c) and (g) 

comply with certain tabular formatting 

requirements contained in the January 

2009 Regulation Z Rule. However, the 

Board is not withdrawing these or any 

other requirements of the January 2009 

Regulation Z Rule at this time. The 

implementation of, and any changes to, 

the January 2009 Regulation Z Rule and 

January 2009 FTC Act Rule necessary to 

conform with the Credit Card Act will 

be addressed in connection with the 

next stage of the Board’s implementing 

regulations. 

Accordingly, because the January 

2009 Regulation Z Rule is not effective 

until July 1, 2010, the Board has based 

the amendments to § 226.9(c) in this 

interim final rule on the text of existing 

§ 226.9(c) rather than on the version of 

§ 226.9(c) included in the January 2009 

Regulation Z Rule. Similarly, new 

§ 226.9(g) is based on the January 2009 

Regulation Z Rule but does not 

implement all of the formatting and 

content requirements included in the 

January 2009 rulemaking. 

In addition, the Board is not including 

model forms or model clauses for 

advance notices of rate increases or 

changes in terms in this interim final 

rule, for several reasons. First, the 

formatting and content requirements of 

the January 2009 Regulation Z Rule are 

not yet effective, and therefore any 

model clause or form included with this 

interim final rule would be subject to 

further revision for conformity with that 

rule. Second, as discussed below, the 

Credit Card Act also imposes additional 

content requirements for change-interms notices, several of which are not 

effective until February 22, 2010. The 

Board intends to finalize new model 

forms in the next stage of its rulemaking 

under the Credit Card Act that comply 

with all of these new requirements 

simultaneously. 

226.9(c) Change in Terms 

Credit Card Act 13

New TILA Section 127(i)(1) generally 

requires creditors to provide consumers 


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Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 36083 

consistent with the existing terms of the cardholder 

agreement, while § 226.9(c) addresses changes in 

the underlying terms of the agreement. 

with a written notice of an annual 

percentage rate increase at least 45 days 

prior to the effective date of the 

increase, for credit card accounts under 

an open-end consumer credit plan. 

Credit Card Act § 101(a)(1). The statute 

establishes several exceptions to this 

general requirement. Credit Card Act 

§ 101(a)(1) and (b)(2). The first 

exception applies when the change is an 

increase in an annual percentage rate 

upon expiration of a specified period of 

time, provided that prior to 

commencement of that period, the 

creditor clearly and conspicuously 

disclosed to the consumer the length of 

the period and the rate that would apply 

after expiration of the period. The 

second exception applies to increases in 

variable annual percentage rates that 

change according to operation of a 

publicly available index that is not 

under the control of the creditor. 

Finally, a third exception applies to rate 

increases due to the completion of, or 

failure of a consumer to comply with, 

the terms of a workout or temporary 

hardship arrangement, provided that 

prior to the commencement of such 

arrangement the creditor clearly and 

conspicuously disclosed to the 

consumer the terms of the arrangement, 

including any increases due to 

completion or failure. 

In addition to the rules in new TILA 

Section 127(i)(1) regarding rate 

increases, new TILA Section 127(i)(2) 

establishes an additional 45-day 

advance notice requirement for 

significant changes, as determined by 

rule of the Board, in the terms 

(including an increase in any fee or 

finance charge) of the cardholder 

agreement between the creditor and the 

consumer. Credit Card Act § 101(a)(1). 

New TILA Section 127(i)(3) also 

establishes an additional content 

requirement for notices of interest rate 

increases or significant changes in terms 

provided pursuant to new TILA Section 

127(i). Such notices are required to 

contain a brief statement of the 

consumer’s right to cancel the account, 

pursuant to rules established by the 

Board, before the effective date of the 

rate increase or other change disclosed 

in the notice. In addition, new TILA 

Section 127(i)(4) states that closure or 

cancellation of an account pursuant to 

the consumer’s right to cancel does not 

constitute a default under the existing 

cardholder agreement, and does not 

trigger an obligation to immediately 

repay the obligation in full or through 

a method less beneficial than those 

listed in revised TILA Section 171(c)(2). 

(The disclosure associated with the right 

to cancel is discussed in the section-bysection analysis to § 226.9(c) and (g), 

while the substantive rules regarding 

this new right are discussed in the 

section-by-section analysis to 

§ 226.9(h).) 

The Board notes that there are 

additional provisions of the Credit Card 

Act that may impact the content of 

change-in-terms notices, and the types 

of changes that are permitted pursuant 

to a change-in-terms notice, that are not 

effective until February 22, 2010. For 

example, revised TILA Section 171(a) 

generally prohibits, subject to several 

exceptions, increases in annual 

percentage rates and other finance 

charges applicable to outstanding 

balances. In addition, revised TILA 

Section 171(b) and new TILA Section 

148(b) will require, for certain types of 

rate increases, that the advance notice 

state the reason for a rate increase. 

Finally, for penalty rate increases 

applied to outstanding balances when 

the consumer fails to make a minimum 

payment within 60 days after the due 

date, as permitted by revised TILA 

Section 171(b)(4), a creditor will be 

required to terminate the penalty rate 

increase if the consumer makes the 

subsequent six minimum payments on 

time. Consistent with the Board’s 

approach to implementing the changes 

contained in the Credit Card Act 

discussed in I. Background and 

Implementation of the Credit Card Act, 

these changes will be addressed in the 

next stage of the Board’s rulemaking. 

Scope of 45-Day Advance Notice Rules 

The Board is using its authority under 

TILA Section 105(a) and § 2 of the 

Credit Card Act to interpret the term 

‘‘credit card account under an open-end 

consumer credit plan,’’ as that term is 

used in new TILA Section 127(i), not to 

include accounts that are home-equity 

lines of credit (HELOCs) subject to 

§ 226.5b, even if those accounts may be 

accessed by a credit card device. Thus, 

the provisions in new TILA Section 

127(i) would not apply to HELOC 

accounts. This is consistent with the 

Board’s historical treatment of HELOC 

accounts accessible by a credit card 

under TILA; for example, the credit and 

charge card application and solicitation 

disclosure requirements under § 226.5a 

expressly do not apply to home-equity 

plans accessible by a credit card that are 

subject to § 226.5b. The Board is 

currently engaged in reviewing the rules 

applicable to HELOCs as part of its 

staged review of all of Regulation Z and 

will consider any appropriate revisions 

to the change-in-terms requirements for 

HELOCs in connection with that review. 

January 2009 Regulation Z Rule 

The Board’s interim final rule to 

implement the advance notice 

requirements of new TILA Section 

127(i) draws upon information 

considered by the Board in adopting its 

January 2009 Regulation Z Rule. Section 

226.9(c) of the Board’s January 2009 

Regulation Z Rule, similar to new TILA 

Section 127(i), requires 45 days’ 

advance written notice of changes in 

key account terms. The terms for which 

45 days’ advance written notice of 

changes is required under the January 

2009 Regulation Z Rule are the same 

terms that the Board required to be 

disclosed in the new account-opening 

table required for open-end (not homesecured) credit pursuant to § 226.6(b)(1) 

and (b)(2) of the January 2009 

Regulation Z Rule. The terms for which 

advance notice of changes is required 

under the January 2009 Regulation Z 

Rule are those that the Board 

determined, in part based on its 

consumer testing, to be of the greatest 

importance to consumers, including 

annual percentage rates and other key 

charges, such as transaction fees and 

penalty fees. 

As discussed in the supplementary 

information to § 226.9(g) in the January 

2009 Regulation Z Rule, the Board also 

adopted a new § 226.9(g) to require 45 

days’ advance notice of increases in the 

rates applicable to a consumer’s 

delinquency or default, or as a penalty 

for one or more events specified in the 

account agreement, such as making a 

late payment or obtaining an extension 

of credit that exceeds the credit limit. 

New § 226.9(g) of the January 2009 

Regulation Z Rule was intended to 

complement § 226.9(c) by requiring 

advance notice of rate increases that, 

while not technically changes in the 

terms of the consumer’s account 

agreement, may still come as a costly 

surprise to the consumer. 

9(c)(1) Rules Affecting Home-Equity 

Plans and Open-End Plans That Are Not 

Credit Card Accounts 

The interim final rule preserves, in 

§ 226.9(c)(1) and associated staff 

commentary, the existing change-interms notice requirements for homeequity plans and other open-end plans 

that are not credit card accounts. These 

rules are substantively identical to the 

current rules under § 226.9(c), except for 

several technical and renumbering 

changes. 

The Board notes that open-end (not 

home-secured) lines of credit that are 

not credit card accounts will be subject 


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36084 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

to the revised change-in-terms notice 

requirements contained in the January 

2009 Regulation Z Rule when that rule 

becomes effective. In particular, changes 

made in January 2009 to § 226.9(c) and 

(g) have not been withdrawn. However, 

the January 2009 Regulation Z Rule is 

not yet effective, and unsecured lines of 

credit that are not credit card accounts 

are not subject to the advance notice 

requirements in the Credit Card Act. 

Therefore the existing rules have been 

preserved for such lines of credit for the 

period between the effective date of this 

interim final rule and the date the 

January 2009 Regulation Z Rule 

becomes effective. Thus, creditors 

offering open-end (not home-secured) 

lines of credit that are not credit card 

accounts may continue to comply with 

the existing change-in-terms notice 

requirements, which have been adopted 

in this interim final rule as renumbered 

§ 226.9(c)(1). 

The Board notes that it also is 

currently reviewing those portions of 

Regulation Z that pertain to homeequity lines of credit, and the applicable 

notice requirements for such products 

may be amended in the course of that 

rulemaking. 

9(c)(2) Rules Affecting Open-End (Not 

Home-Secured) Plans 

9(c)(2)(i) Changes Where Written 

Advance Notice Is Required 

Section § 226.9(c)(2) sets forth the 

change-in-terms notice requirements for 

credit card accounts that are not homesecured. Paragraph (c)(2)(i) sets forth the 

general rule for when change-in-terms 

notices must be provided, and states 

that a creditor must provide a written 

notice of a significant change to an 

account term as described in paragraph 

(c)(2)(ii) or an increase in the required 

minimum periodic payment, in each 

case at least 45 days’ prior to the 

effective date of the change, unless an 

exception in paragraph (c)(2)(v) applies. 

Consistent with current § 226.9(c), 

however, the 45-day advance notice 

requirement does not apply if the 

consumer has agreed to the particular 

change; in that case, the notice need 

only be given before the effective date 

of the change. 

9(c)(2)(ii) Significant Changes in 

Account Terms 

Paragraph (c)(2)(ii) identifies 

significant changes in account terms for 

which 45 days’ advance notice is 

required. This paragraph implements 

both new TILA Sections 127(i)(1) and 

(i)(2). Consistent with new TILA Section 

127(i)(1), § 226.9(c)(2)(ii)(A) defines 

changes in annual percentage rates as 

significant changes. Furthermore, 

§ 226.9(c)(2)(ii)(A) is broad and includes 

the rates applicable to purchases, cash 

advances, and balance transfers, as well 

as any discounted initial rate, premium 

initial rate, or penalty rate that may 

apply to the account. Accordingly, 

§ 226.9(c)(2)(ii)(A) is intended to cover 

changes in contract terms that result in 

increases in all types of annual 

percentage rates; notices of increases in 

applicable annual percentage rates due 

to the application of existing provisions 

in the cardholder agreement are covered 

by § 226.9(g), which is discussed 

elsewhere in this section-by-section 

analysis. 

Paragraphs (c)(2)(ii)(B) through 

(c)(2)(ii)(L) set forth the remaining terms 

for which a change requires 45 days’ 

advance notice, pursuant to the Board’s 

authority under new TILA Section 

127(i)(2) to determine by rule what 

constitutes a ‘‘significant change’’ in 

terms. The list in paragraphs (c)(2)(ii)(B) 

through (c)(2)(ii)(L) mirrors the list of 

terms required to be disclosed in the 

account-opening table required 

pursuant to § 226.6(b)(1) and (b)(2) of 

the January 2009 Regulation Z Rule. 

This list comprises those terms that, 

based on the Board’s consumer testing, 

are those that are the most important to 

consumers. This list includes the types 

of fees that a consumer should be aware 

of prior to use of the account, such as 

key penalty fees, transaction fees, and 

fees imposed for the issuance or 

availability of an open-end credit plan, 

and of which the Board believes a 

consumer would most benefit from 

receiving 45 days’ advance notice of a 

change. This list also includes 

additional terms, such as the grace 

period applicable to the account and the 

balance computation method, that are 

not fees but that can have a significant 

impact on the cost of credit to a 

consumer. 

The Board notes that a broader 

interpretation of what constitutes a 

significant change in terms could result 

in anomalous results that would not 

necessarily benefit consumers. There are 

some fees, such as fees for expedited 

delivery of a replacement card, that it 

may not be useful to disclose long in 

advance of when they become relevant 

to the consumer. For such fees, the 

Board believes that a more flexible 

approach, consistent with that adopted 

in the January 2009 Regulation Z Rule 

is appropriate. Thus, if a consumer calls 

to request an expedited replacement 

card, the consumer could be informed of 

the amount of the fee in the telephone 

call in which the consumer requests the 

card. Otherwise, the consumer would 

have to wait 45 days from receipt of a 

change-in-terms notice to be able to 

order an expedited replacement card, 

which would likely negate the benefit to 

the consumer of receiving the expedited 

delivery service. 

9(c)(2)(iii) Changes Not Covered by 

§ 226.9(c)(2)(i) 

Accordingly, the Board is adopting 

§ 226.9(c)(2)(iii) to clarify how issuers 

generally must disclose changes in 

terms that are not subject to the 

disclosure requirements in 

§ 226.9(c)(2)(i), i.e., that are not 

significant changes as described in 

§ 226.9(c)(2)(ii) or an increase in the 

required minimum payment. New 

§ 226.9(c)(2)(iii) generally mirrors the 

substance of § 226.9(c)(2)(ii) of the 

January 2009 Regulation Z Rule, and 

provides that creditors may disclose 

changes in those terms either by giving 

45 days’ advance written notice, or by 

providing notice of the amount of the 

charge before the consumer agrees to or 

becomes obligated to pay the charge, at 

a time and in a manner that the 

consumer would be likely to notice the 

disclosure of the charge. 

9(c)(2)(iv) Disclosure Requirements— 

Changes to Terms Described in 

Paragraph (c)(2)(i) 

New § 226.9(c)(2)(iv) sets forth the 

disclosure requirements for change-interms notices required to be given 

pursuant to § 226.9(c)(2)(i). Paragraphs 

(c)(2)(iv)(A)–(c)(2)(iv)(C) require the 

notice to provide a description of the 

changes, state that changes are being 

made to the account, and state the date 

the changes will become effective. 

Except when the change is an increase 

in the required minimum payment, 

paragraph (c)(2)(iv)(D) generally 

requires the notice to inform the 

consumer of his or her right to reject a 

change in terms disclosed pursuant to 

§ 226.9(c)(2) prior to the effective date of 

the change unless the consumer fails to 

make a required minimum periodic 

payment within 60 days after the due 

date for that payment. The notice also 

is required to disclose instructions for 

rejecting the change or changes, and a 

toll-free telephone number that the 

consumer may use to notify the creditor 

of the rejection. If applicable, issuers 

also are required to disclose that if the 

consumer rejects the change or changes, 

the consumer’s ability to use the 

account for further advances will be 

terminated or suspended. 

The Board is not requiring that 

consumers receive a notice of their right 

to reject the impending changes to the 

account when they are notified, 

pursuant to § 226.9(c)(2)(i), of an 

increase in the required minimum 


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Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 36085 

payment. The right to reject minimum 

payment increases appears to be 

inconsistent with the intent of other 

portions of the Credit Card Act. In the 

Credit Card Act, Congress amended 

TILA Section 127(b)(11) to require 

enhanced disclosures regarding the 

impact of making only minimum 

payments, specifically to warn 

consumers that making only minimum 

payments can increase the amount of 

interest they pay and the time it takes 

to repay balances. Permitting a 

consumer to reject an increase in the 

minimum payment could potentially 

subject that consumer to increased 

interest charges and a longer 

amortization period, if the consumer 

continues to make only the minimum 

payment. 

As discussed elsewhere in the 

section-by-section analysis to § 226.9(c), 

the Board notes that the January 2009 

Regulation Z Rule imposes additional 

formatting and content requirements on 

change-in-terms notices. While those 

requirements are not included in this 

interim final rule, the Board will 

address them in a later stage of 

rulemaking required by the Credit Card 

Act, and intends to amend those 

requirements prior to their effective date 

to the extent necessary to conform with 

the requirements of the Credit Card Act. 

9(c)(2)(v) Notice Not Required 

The Board is adopting § 226.9(c)(2)(v) 

to set forth the exceptions to the general 

change-in-terms notice requirements for 

credit card accounts that are not homesecured. Paragraph (c)(2)(v)(A) retains 

several exceptions that are in current 

§ 226.9(c), including charges for 

documentary evidence, reductions of 

finance charges, suspension of future 

credit privileges (except as provided in 

§ 226.9(c)(vi), discussed below), 

termination of an account or plan, or 

when the change results from an 

agreement involving a court proceeding. 

The Board is not including these 

changes in the set of ‘‘significant 

changes’’ giving rise to notice 

requirements pursuant to new TILA 

Section 127(i)(2). The Board believes 

that 45 days’ advance notice is not 

necessary for these changes, which are 

not of the type that generally result in 

the imposition of a fee or other charge 

on a consumer’s account that could 

come as a costly surprise. In addition, 

the Board believes that for safety and 

soundness reasons, issuers generally 

have a legitimate interest in suspending 

credit privileges or terminating an 

account or plan when a consumer’s 

creditworthiness deteriorates, and that 

45 days’ advance notice of these types 

of changes therefore would not be 

appropriate. 

New § 226.9(c)(2)(v)(B) sets forth an 

exception contained in the Credit Card 

Act for increases in annual percentage 

rates upon the expiration of a specified 

period of time, provided that prior to 

the commencement of that period, the 

creditor disclosed to the consumer 

clearly and conspicuously in writing the 

length of the period and the annual 

percentage rate that would apply after 

that period. In addition, in order to fall 

within this exception, the annual 

percentage rate that applies after the 

period ends may not exceed the rate 

previously disclosed. The exception 

generally mirrors the statutory language, 

except that the Board has expressly 

provided, consistent with the general 

standard for Regulation Z disclosures 

under Subpart B that the disclosure of 

the period and annual percentage rate 

that will apply after the period is 

required to be in writing. See 

§ 226.5(a)(1). 

The Board is adopting a new 

comment 9(c)(2)(v)–6 to clarify that an 

issuer offering a deferred interest or 

similar program may utilize the 

exception in § 226.9(c)(2)(v)(B). The 

comment also provides examples of 

how the required disclosures can be 

made for deferred interest or similar 

programs. The Board believes that the 

application of § 226.9(c)(2)(v)(B) to 

deferred interest arrangements is 

consistent with the Credit Card Act and 

that this clarification is necessary in 

order to ensure that this interim final 

rule does not have unintended adverse 

consequences for deferred interest 

promotions. 

As discussed in the supplementary 

information to § 226.9(h), the Board is 

interpreting the consumer’s right to 

cancel referenced in new TILA Section 

127(i)(3) as a right to reject the changes 

disclosed in the notice. If issuers that 

offer deferred interest plans were unable 

to use the exception in 

§ 226.9(c)(2)(v)(B), they would be 

required to give consumers 45 days’ 

advance notice before the end of the 

deferred interest period, as well as the 

right to reject the imposition of interest 

charges on the deferred interest balance. 

For those consumers who rejected the 

change, the issuer would in effect be 

required to extend credit at a zero 

percent interest rate for the life of the 

balance. This would create a strong 

disincentive to offering deferred interest 

programs. The Board does not believe 

that this was the intent of the Credit 

Card Act, and specifically notes that 

amended TILA Section 164 (effective 

February 22, 2010) creates a special 

payment allocation rule to facilitate 

deferred interest arrangements. The 

Board believes therefore, that the 

appropriate reading of the exception 

implemented in § 226.9(c)(2)(v)(B) is 

that it also applies to deferred interest 

or similar programs. 

Similarly, § 226.9(c)(2)(v)(C) also sets 

forth an exception contained in the 

Credit Card Act, for increases in variable 

annual percentage rates in accordance 

with a credit card agreement that 

provides for a change in the rate 

according to operation of an index that 

is not under the control of the creditor 

and is available to the general public. 

The Board believes that even absent this 

express exception, such a rate increase 

would not generally be a change in the 

terms of the cardholder agreement that 

gives rise to the requirement to provide 

45 days’ advance notice, because the 

index, margin, and frequency with 

which the annual percentage rate will 

vary will all be specified in the 

cardholder agreement in advance. 

However, in order to clarify that 45 

days’ advance notice is not required for 

a rate increase that occurs due to 

adjustments in a variable rate tied to an 

index beyond the issuer’s control, the 

Board has expressly included 

§ 226.9(c)(2)(v)(C) in this interim final 

rule. 

Finally, § 226.9(c)(2)(v)(D) 

implements a statutory exception for 

increases in rates due to the completion 

of a workout or temporary hardship 

arrangement provided that the annual 

percentage rate applicable to a category 

of transactions following the increase 

does not exceed the rate that applied 

prior to the commencement of the 

workout or temporary hardship 

arrangement. The exception is also 

conditioned on the issuer’s having 

clearly and conspicuously disclosed, 

prior to the commencement of the 

arrangement, the terms of the 

arrangement (including any such 

increases due to such completion). The 

Board notes that the statutory exception 

applies in the event of either completion 

of, or failure to comply with, the terms 

of such a workout or temporary 

hardship arrangement. The exception 

that applies to completion of an 

arrangement is implemented in 

§ 226.9(c)(2)(v)(D), while the exception 

applicable to failure to comply with a 

workout or temporary hardship 

arrangement is implemented in 

§ 226.9(g) as discussed elsewhere in this 

Federal Register. This exception also 

generally mirrors the statutory language, 

except that the Board has expressly 

provided that the disclosures regarding 

the workout or temporary hardship 

arrangement are required to be in 

writing. 


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36086 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

New comment 9(c)(2)(v)–5, which is 

applicable to the exceptions in both 

§ 226.9(c)(2)(v)(B) and (c)(2)(v)(D), 

provides additional clarification 

regarding the disclosure of variable 

annual percentage rates. The comment 

provides that if the creditor is disclosing 

a variable rate, the notice must also state 

that the rate may vary and how the rate 

is determined. The comment sets forth 

an example of how a creditor may make 

this disclosure. The Board believes that 

the fact that a rate is variable is an 

important piece of information of which 

consumers should be aware prior to 

commencement of a deferred interest 

promotion, a promotional rate, or a 

stepped rate program. 

New comment 9(c)(2)(v)–7 provides 

clarification as to what terms must be 

disclosed in connection with a workout 

or temporary hardship arrangement. The 

comment states that in order for the 

exception to apply, the creditor must 

disclose to the consumer the rate that 

will apply to balances subject to the 

workout or temporary hardship 

arrangement, as well as the rate that will 

apply if the consumer completes or fails 

to comply with the terms of, the 

workout or temporary hardship 

arrangement. The notice also must state, 

if applicable, that the consumer must 

make timely minimum payments in 

order to remain eligible for the workout 

or temporary hardship arrangement. The 

Board believes that it is important for a 

consumer to be notified of his or her 

payment obligations pursuant to a 

workout or similar arrangement, and 

that the rate may be increased if he or 

she fails to make timely payments. 

9(c)(2)(vi) Reduction of the Credit 

Limit 

Consistent with the January 2009 

Regulation Z Rule, the Board is adopting 

§ 226.9(c)(2)(vi) to address notices of 

changes in a consumer’s credit limit. 

Section 226.9(c)(2)(vi) requires an issuer 

to provide a consumer with 45 days’ 

advance notice that a credit limit is 

being decreased or will be decreased 

prior to the imposition of any over-thelimit fee or penalty rate imposed solely 

as the result of the balance exceeding 

the newly decreased credit limit. The 

Board is not including a decrease in a 

consumer’s credit limit itself as a 

significant change in a term that 

requires 45 days’ advance notice, for 

several reasons. First, the Board 

recognizes that creditors have a 

legitimate interest in mitigating the risk 

of a loss when a consumer’s 

creditworthiness deteriorates, and 

believes there would be safety and 

soundness concerns with requiring 

creditors to wait 45 days to reduce a 

credit limit. Second, the consumer’s 

credit limit is not a term generally 

required to be disclosed under 

Regulation Z or TILA. Finally, the Board 

believes that § 226.9(c)(2)(vi), as 

adopted, adequately protects consumers 

against the two most costly surprises 

potentially associated with a reduction 

in the credit limit, namely, fees and rate 

increases, while giving a consumer 

adequate time to mitigate the effect of 

the credit line reduction. 

The commentary to § 226.9(c)(2) 

generally is consistent with the 

commentary to § 226.9(c)(2) of the 

January 2009 Regulation Z Rule, except 

for changes necessary to reflect the fact 

that this interim final rule does not 

incorporate all of the requirements of 

§ 226.9(c)(2) of the January 2009 

Regulation Z Rule. In addition, as 

discussed above, the Board has adopted 

new comments 9(c)(2)(v)–5 through 

9(c)(2)(v)–7. 

226.9(g) Increase in Rates Due to 

Delinquency or Default or as a Penalty 

9(g)(1) Increases Subject to This 

Section 

The interim final rule adopts new 

§ 226.9(g), which in combination with 

amendments to § 226.9(c), implements 

the 45-day advance notice requirements 

for rate increases in new TILA Section 

127(i). This approach is consistent with 

the Board’s January 2009 Regulation Z 

Rule, which included change-in-terms 

notice requirements in § 226.9(c) and 

increases in rates due to the consumer’s 

default or delinquency or as a penalty 

for events specified in the account 

agreement in § 226.9(g). The general rule 

is set forth in § 226.9(g)(1) and provides 

that for credit cards under an open-end 

(not home-secured) consumer credit 

plan, a creditor must provide a written 

notice to each consumer who may be 

affected when a rate is increased due to 

a delinquency or default or as a penalty. 

9(g)(2) Timing of Written Notice 

Paragraph (g)(2) sets forth the timing 

requirements for the notice described in 

paragraph (g)(1), and states that the 

notice must be provided at least 45 

days’ prior to the effective date of the 

increase. The notice must, however, be 

provided after the occurrence of the 

event that gave rise to the rate increase. 

That is, a creditor must provide the 

notice after the occurrence of the event 

or events that trigger a specific 

impending rate increase and may not 

send a general notice reminding the 

consumer of the conditions that may 

give rise to penalty pricing. 

9(g)(3) Disclosure Requirements for 

Rate Increases 

Paragraph (g)(3) sets forth the required 

content for a notice provided pursuant 

to § 226.9(g). The notice must state that 

the delinquency, default, or penalty rate 

has been triggered, and the date on 

which the increased rate will apply. The 

notice also must state the circumstances 

under which the increased rate will 

cease to apply to the consumer’s 

account or, if applicable, that the 

increased rate will remain in effect for 

a potentially indefinite time period. In 

addition, the notice must inform the 

consumer of his or her right to reject the 

application of the penalty rate prior to 

the effective date of the change, unless 

the consumer makes a payment that is 

more than 60 days late. The notice also 

must disclose instructions for rejecting 

the change or changes, and a toll-free 

telephone number that the consumer 

may use to notify the creditor of the 

rejection. If applicable, issuers are 

required to disclose that if the consumer 

rejects the change or changes, the 

consumer’s ability to use the account for 

further advances will be terminated or 

suspended. These content requirements 

include a portion of the content 

required under § 226.9(g) of the January 

2009 Regulation Z Rule and the new 

disclosure regarding the right to reject 

the changes included in the Credit Card 

Act (as implemented in § 226.9(h)). 

However, the Board is not implementing 

certain content requirements at this time 

that pertain to whether the rate applies 

to outstanding balances or only new 

transactions. The Board anticipates 

reviewing and revising these additional 

content requirements, as appropriate, 

for conformity with the Credit Card Act 

in the next stage of rulemaking. 

9(g)(4) Exceptions 

Paragraph (g)(4) sets forth two 

exceptions to the advance notice 

requirements of § 226.9(g), both of 

which are consistent with exceptions 

contained in the January 2009 

Regulation Z Rule. First, consistent with 

the exception described in the 

supplementary information to 

§ 226.9(c), § 226.9(g)(4)(i) contains an 

exception for rate increases due to a 

consumer’s failure to comply with the 

terms of a workout or temporary 

hardship arrangement between the 

creditor and consumer. Second, 

§ 226.9(g)(4)(ii) includes an exception 

that clarifies the relationship between 

the notice requirements in § 226.9(c)(vi) 

and (g)(1) when the creditor decreases a 

consumer’s credit limit and under the 

terms of the credit agreement a penalty 

rate may be imposed for extensions of 


jlentini on DSKJ8SOYB1PROD with RULES
Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 36087 

14See, e.g., Ala. Code § 5–20–5; 5 Del. Code § 952; 

Off. Code of Ga. § 7–5–4; S.D. Codified Laws § 54– 

11–10. Notably, these state law rights to reject 

generally do not apply when a rate is increased due 

to default or delinquency or as a penalty. However, 

as with the 45-day advance notice requirement, the 

right to cancel in new TILA Section 127(i) does not 

distinguish between penalty rate increases and 

other rate increases. Similarly, although some of 

these state laws apply only to rate increases and not 

other changes to account terms, Section 127(i) 

clearly contemplates that the right to cancel will 

apply to significant changes in terms. 

15Section 226.9(h) distinguishes between an 

increase in an annual percentage rate pursuant to 

a change to an account term (for which a § 226.9(c) 

notice is required) and ‘‘other increase[s] in an 

annual percentage rate’’ (for which a § 226.9(g) 

notice is required). When a creditor increases a rate 

due to delinquency or default or as a penalty, it 

generally does so by invoking a penalty provision 

in the account agreement rather than by changing 

the terms of the agreement. Thus, this type of rate 

increase is not technically a change in terms. 

credit that exceed the newly decreased 

credit limit. This exception is 

substantively identical to 

§ 226.9(g)(4)(ii) of the January 2009 

Regulation Z Rule, except that the Board 

is not implementing certain content 

requirements at this time that pertain to 

whether the rate applies to outstanding 

balances or only to new transactions. 

The Board anticipates reviewing and 

revising these additional content 

requirements, as appropriate, for 

conformity with the Credit Card Act in 

the next stage of rulemaking. See 74 FR 

5355 for additional discussion of this 

exception. 

The commentary to § 226.9(g) 

generally is consistent with the 

commentary to § 226.9(g) of the January 

2009 Regulation Z Rule, except for 

changes necessary to reflect the fact that 

this interim final rule does not 

incorporate all of the requirements of 

§ 226.9(g) of the January 2009 

Regulation Z Rule. 

9(h) Consumer Rejection of Significant 

Change in Terms or Increase in Annual 

Percentage Rate 

Section 101(a)(1) of the Credit Card 

Act creates a new TILA Section 

127(i)(3), which provides that, when 

consumers are notified of a rate increase 

or other significant change in the 

account terms, they must also receive 

notice of their right to cancel the 

account before the effective date of the 

increase or change. The Credit Card Act 

also creates a new TILA Section 

127(i)(4), which states that a consumer’s 

closure or cancellation of an account 

shall not constitute a default under the 

cardholder agreement and shall not 

trigger imposition of a penalty or fee. 

This provision further states that such a 

closure or cancellation shall not trigger 

an obligation to immediately repay the 

balance in full or through a method that 

is less beneficial to the consumer than 

a method described in revised TILA 

Section 171(c)(2). Revised Section 

171(c)(2) lists two methods for repaying 

balances: First, an amortization period 

of not less than five years; and second, 

a required minimum periodic payment 

that includes a percentage of the balance 

that is not more than twice the prior 

percentage. 

While the requirement in new Section 

127(i)(3) that consumers be notified of 

the right to cancel is implemented in 

§ 226.9(c)(2)(iv) and (g)(3) (as discussed 

above), the Board has implemented the 

substantive right and the protections in 

Section 127(i)(4) in a new § 226.9(h). 

Specifically, § 226.9(h)(1) provides that, 

if § 226.9(c)(2)(iv) or (g)(3) requires 

disclosure of the consumer’s right to 

reject a significant change to an account 

term or other increase in an annual 

percentage rate, the consumer may 

reject that change or other increase by 

notifying the creditor before the 

effective date. Section 226.9(h)(2) 

further provides that, if the consumer 

rejects the change or other increase 

before the effective date, the creditor 

may not apply that change or other rate 

increase to the account, may not impose 

a fee or charge or treat the account as 

in default solely as a result of the 

rejection, and may not require 

repayment of the balance on the account 

using a method that is less beneficial to 

the consumer than one of the listed 

methods. Finally, § 226.9(h)(3) provides 

exceptions for accounts that are more 

than 60 days delinquent and for 

transactions that occur more than 14 

days after provision of the § 226.9(c) or 

(g) notice. 

9(h)(1) Right To Reject 

New TILA Section 127(i)(3) requires 

that a notice of an increase in rate or 

other significant change in terms also 

contain ‘‘a brief statement of the right of 

the [consumer] to cancel the account 

pursuant to rules established by the 

Board before the effective date of the 

subject rate increase or other change.’’ 

Credit Card Act § 101(a)(1). For the 

reasons discussed below, the Board 

interprets new TILA Section 127(i)(3) as 

generally establishing a substantive 

right for consumers who receive a notice 

of a rate increase or change in terms 

pursuant to § 226.9(c) or (g) to avoid the 

imposition of that increase or change by 

rejecting it before the effective date. 

The Board understands that, as a 

general matter, creditors currently 

permit consumers to cancel their credit 

card accounts at any time. New TILA 

Section 127(i)(3), however, requires that 

creditors inform consumers of their 

right to cancel the account. This 

disclosure would be misleading if 

creditors were not required to honor a 

consumer’s request to cancel. 

Furthermore, Section 127(i)(3) requires 

that the disclosure of the right to cancel 

be included in each notice informing a 

consumer of a forthcoming rate increase 

or change in terms. This information 

would be of little value to consumers at 

this point in time if exercising the right 

to cancel had no effect on the increase 

or change. Finally, Section 127(i)(3) 

specifically requires that consumers be 

informed that they have a right to cancel 

before the effective date of the rate 

increase or change in terms, which 

implies that—as is the case under 

certain state laws—canceling the 

account within this time period will 

preclude the creditor from applying the 

increased rate or changed term.14

For these reasons, the Board believes 

that it is consistent with the purposes of 

the Credit Card Act and TILA to 

interpret the right to cancel in Section 

127(i)(3) as a substantive right for a 

consumer to reject a rate increase or 

change in terms. Although the Credit 

Card Act contains other provisions that 

protect consumers from the application 

of increased rates, fees, and finance 

charges to outstanding balances, these 

provisions are not effective until 

February 22, 2010. See Credit Card Act 

§§ 3, 101(b). Furthermore, even when 

these provisions become effective, they 

may not cover every type of change in 

terms that could be costly to consumers. 

Accordingly, pursuant to Section 

127(i)(3)’s specific grant of authority to 

establish rules implementing the right to 

cancel and the Board’s general authority 

under TILA Section 105(a) (15 U.S.C. 

1604(a)) to prescribe regulations to carry 

out the purposes of TILA, the Board is 

adopting § 226.9(h)(1), which provides 

that, if § 226.9(c)(2)(iv) or (g)(3) requires 

disclosure of the consumer’s right to 

reject a significant change to an account 

term or other increase in an annual 

percentage rate, the consumer may 

generally reject that change or increase 

by notifying the creditor of the rejection 

before the effective date of the change or 

increase.15 As discussed below, 

however, this right is subject to limited 

exceptions, such as when the account is 

more than 60 days delinquent. 

Comment 9(h)(1)–1 provides 

clarification regarding the procedures 

creditors may use for the submission of 

rejections. It states that a creditor may 

place requirements on the submission of 

rejections of a change in term or a rate 

increase but that such requirements 

must be reasonable. As an example, the 

comment states it would be reasonable 


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36088 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

16See, e.g., 12 CFR 226.13(b) (requiring that 

billing error notices be submitted in writing). 

17The Board notes that these and other examples 

in the commentary to § 226.9(h) reflect the 

amendments to TILA that go into effect on August 

20, 2009. To the extent that these examples or any 

other aspect of the interim final rule and 

commentary are inconsistent with provisions of the 

Credit Card Act that take effect after August 20 

(particularly the limitations in revised TILA Section 

171 on the application of increased rates to existing 

balances), the Board will revise them in a 

subsequent rulemaking. 

for a creditor to require that rejections 

be made by the primary account holder 

and that the consumer identify the 

account number. Similarly, it states that 

a creditor may designate channels for 

submitting rejections other than the tollfree telephone number required to be 

disclosed pursuant to § 226.9(c) or (g) 

(such as a mailing address), so long as 

the creditor does not require that 

rejections be submitted through such 

additional channels. Although some 

provisions of Regulation Z require 

consumers to submit requests in 

writing,16 the Board believes that 

imposing such a requirement in these 

circumstances would inhibit consumers’ 

exercise of their right to reject 

impending rate increases and changes 

and is unnecessary because many 

issuers currently accept requests to 

close or cancel credit card accounts by 

telephone. 

Comment 9(h)(1)–1 states that it 

would be reasonable for a creditor to 

require that rejections be received before 

the effective date disclosed pursuant to 

§ 226.9(c) or (g) and to treat the account 

as not subject to § 226.9(h) if a rejection 

is received on or after that date. The 

comment states that it would not, 

however, be reasonable to require that 

rejections be received earlier than the 

day before the effective date. Instead, a 

creditor that is unable to process all 

rejections received before the effective 

date through the toll-free number and 

any other designated channel may delay 

implementation of the rate increase or 

change in terms until all rejections have 

been processed. In the alternative, the 

creditor could implement the increase 

or change on the effective date and then, 

on any account for which a timely 

rejection was received, return the 

account to the prior terms and ensure 

that the account is not assessed any 

additional interest or charges as a result 

of the increased rate or changed term or 

that the account is credited for such 

interest or charges. An example is 

provided in the commentary. 

The Board is also adopting comment 

9(h)(1)–2, which clarifies that a 

consumer does not waive or forfeit the 

right to reject a change in terms or a rate 

increase by using the account for 

transactions prior to the effective date of 

the change or increase. Similarly, the 

comment clarifies that a consumer does 

not revoke a rejection by using the 

account for transactions. Although 

under some state laws use of the 

account following notice of an increase 

or change constitutes acceptance of that 

increase or change, the Board has 

previously rejected this approach with 

respect to the advance notice 

requirements in § 226.9(c). See comment 

9(c)(1)–3.ii (redesignated as comment 

9(c)(2)(i)–3.ii). A consumer may use the 

account for transactions after the notice 

has been sent but before it has been 

received and therefore be unaware of 

the change or increase. Similarly, a 

consumer may inadvertently use the 

account after receiving the § 226.9(c) or 

(g) notice or exercising the right to reject 

without intending to accept the change 

or increase (such as by inadvertently 

failing to cancel an automated recurring 

charge). As discussed below, however, if 

the account is used for a transaction 

more than 14 days after provision of the 

§ 226.9(c) or (g) notice, § 226.9(h)(3)(ii) 

permits the creditor to apply the 

changed term or increased rate to that 

transaction even if the consumer rejects 

the change or increase before the 

effective date. 

9(h)(2) Effect of Rejection 

9(h)(2)(i) Prohibition on Applying 

Changed Term or Increased Rate 

As discussed above, based on its 

analysis of new TILA Section 127(i), the 

Board concludes that the right to cancel 

set forth in Section 127(i)(3) entitles a 

consumer to avoid application of a rate 

increase or change in terms by rejecting 

that increase or change prior to its 

effective date. Accordingly, 

§ 226.9(h)(2)(i) provides that, if a 

creditor is notified of such a rejection, 

the creditor must not apply the 

increased rate or changed term to the 

account. 

The Board is adopting comment 

9(h)(2)(i)–1, which clarifies the 

application of § 226.9(h)(2)(i) to 

accounts subject to a promotional rate or 

a deferred interest or similar program. 

Specifically, this comment clarifies that, 

although § 226.9(h)(2)(i) provides that 

the creditor must not apply the change 

or increase to the account if the 

consumer has rejected that change or 

increase, it does not prohibit a creditor 

from applying the terms of a preexisting promotional rate or deferred 

interest or similar program. The 

comment also provides examples 

illustrating the application of 

§ 226.9(h)(2)(i) in these circumstances.17

9(h)(2)(ii) Prohibition on Penalties 

New TILA Section 127(i)(4) provides, 

among other things, that closure or 

cancellation of an account by a 

consumer ‘‘shall not constitute a default 

under an existing cardholder 

agreement’’ and ‘‘shall not trigger * * * 

the imposition of any other penalty or 

fee.’’ Credit Card Act § 101(a)(1). 

Accordingly, the Board is adopting 

§ 226.9(h)(2)(ii), which provides that, if 

a consumer rejects a significant change 

in terms or an increased rate, the 

creditor must not impose a fee or charge 

or treat the account as in default solely 

as a result of the rejection. The Board 

and the other Agencies adopted a 

similar prohibition in the January 2009 

FTC Act Rule. See 12 CFR 227.24(c)(2), 

74 FR 5560. 

The Board is also adopting comment 

9(h)(2)(ii)–1, which provides as an 

example of the type of fee or charge 

prohibited by § 226.9(h)(2)(ii) a monthly 

maintenance fee that would be charged 

only if the consumer rejected the change 

or increase. The comment clarifies, 

however, that a creditor is not 

prohibited from continuing to charge a 

fee that was charged before the 

rejection. For example, a creditor that 

charged a periodic fee or a fee for late 

payment before a change or increase 

was rejected is not prohibited from 

charging those fees after rejection of the 

change or increase. This comment is 

based on a similar comment adopted by 

the Board and the other Agencies in the 

January 2009 FTC Act Rule as well as 

clarifications proposed by the Agencies 

in May 2009. See comment 24(c)(2)–1, 

74 FR 5566; see also 74 FR 20820. 

The Board is also adopting comment 

9(h)(2)(ii)–2, which clarifies that 

§ 226.9(h)(2)(ii) does not prohibit a 

creditor from terminating or suspending 

credit availability if the consumer 

rejects a rate increase or change in 

terms. Although the termination or 

suspension of credit availability could 

be construed as a penalty, the Board 

believes that permitting the creditor to 

terminate or suspend credit availability 

is consistent with the references in new 

TILA Section 127(i)(3) and (4) to the 

closure or cancellation of the account. 

This comment clarifies, however, that 

§ 226.9(h) does not require a creditor to 

terminate or suspend credit availability 

for consumers who reject a rate increase 

or change in terms. Indeed, there may be 

circumstances where an issuer elects to 

continue extending credit to a consumer 

notwithstanding the rejection. As 

discussed below, in these 

circumstances, § 226.9(h)(3)(ii) permits 

the creditor to apply the increased rate 

or changed term to transactions that 


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18The repayment methods in § 226.9(h)(2)(iii) 

focus on the date on which the creditor is notified 

of the rejection rather than the effective date for the 

increased rate or change in terms because, once the 

consumer exercises the right to reject, the effective 

date will generally become irrelevant. 

occur more than 14 days after provision 

of the § 226.9(c) or (g) notice. 

9(h)(2)(iii) Repayment of Outstanding 

Balance 

New TILA Section 127(i)(4) also 

provides that closure or cancellation of 

an account by a consumer ‘‘shall not 

trigger an obligation to repay the 

obligation in full or through a method 

that is less beneficial to the [consumer] 

than one of the methods described in 

section 171(c)(2). * * *’’ Credit Card 

Act § 101(a)(1). Amended TILA Section 

171(c)(2) lists two methods of repaying 

an outstanding balance: First, an 

amortization period of not less than five 

years (beginning on the effective date of 

the increase set forth in the Section 

127(i) notice); and, second, a required 

minimum periodic payment that 

includes a percentage of the outstanding 

balance that is equal to not more than 

twice the percentage required before the 

effective date of the increase set forth in 

the Section 127(i) notice. See id. 

Notably, however, these methods are 

prefaced by amended TILA Section 

171(c)(1), which states ‘‘[t]he creditor 

shall not change the terms governing the 

repayment of any outstanding balance, 

except that the creditor may provide the 

[consumer] with one of the methods 

described in [Section 171(c)(2)] * * * or 

a method that is no less beneficial to the 

[consumer] than one of those methods.’’ 

Id. In certain circumstances, however, 

the repayment method used by the 

creditor prior to rejection may result in 

a higher payment than under one of the 

methods listed in amended TILA 

Section 171(c)(2). For example, assume 

that the required minimum periodic 

payment on a credit card account is the 

greater of: (1) Fees and accrued interest 

plus two percent of the outstanding 

balance; or (2) a ‘‘floor’’ amount of $50. 

Assume also that, when the consumer 

rejects a rate increase or change in 

terms, the account has an outstanding 

balance of $1,000 and the creditor 

doubles the percentage of the balance 

included in the minimum payment to 

four percent. As the outstanding balance 

decreases with each payment, the 

minimum payment will eventually 

reach the $50 floor, which will be 

greater than four percent of the 

outstanding balance plus fees and 

accrued interest. 

Although new TILA Section 127(i)(4) 

could be read to prohibit a creditor from 

using the pre-existing ‘‘floor’’ minimum 

payment in these circumstances, the 

Board believes that it is consistent with 

the purposes of TILA (as expressed in 

amended TILA Section 171(c)(1)) to 

apply the existing ‘‘floor’’ minimum 

payment. If the purpose of Section 

127(i)(4) is to prevent the creditor from 

penalizing a consumer for closing or 

cancelling an account by requiring 

repayment of the outstanding balance 

on terms that are more onerous to the 

consumer, retention of an existing 

repayment method is consistent with 

that purpose. In addition, prohibiting 

application of the ‘‘floor’’ minimum 

payment would delay repayment of the 

balance in full and result in additional 

interest charges without providing any 

substantial benefit to the consumer. 

Accordingly, the Board is using its 

general authority under TILA Section 

105(a) to adopt § 226.9(h)(2)(iii), which 

provides that, if a consumer rejects a 

rate increase or change in terms, the 

creditor must not require repayment of 

the balance on the account using a 

method that is less beneficial to the 

consumer than one of three listed 

methods: First, the method of 

repayment for the account on the date 

on which the creditor was notified of 

the rejection; second, an amortization 

period of not less than five years, 

beginning no earlier than the date on 

which the creditor was notified of the 

rejection; or, third, a required minimum 

periodic payment that includes a 

percentage of the balance that is equal 

to no more than twice the percentage 

required on the date on which the 

creditor was notified of the rejection.18

The Board and the other Agencies 

adopted a similar provision in the 

January 2009 FTC Act Rule. See 12 CFR 

227.24(c)(1), 74 FR 5560; see also 

comment 24(c)–2, 74 FR 5565. 

The Board is also adopting comment 

9(h)(2)(iii)–1, which clarifies that a 

repayment method is no less beneficial 

to the consumer if the method results in 

a required minimum periodic payment 

that is equal to or less than a minimum 

payment calculated using the method 

for the account prior to the date on 

which the creditor received the 

rejection. The comment further clarifies 

that a method is no less beneficial to the 

consumer if the method amortizes the 

balance in five years or longer or if the 

method results in a required minimum 

periodic payment that is equal to or less 

than a minimum payment calculated 

consistent with § 226.9(h)(2)(iii)(C). 

In addition, the Board is adopting 

comment 9(h)(2)(iii)(B)–1, which 

clarifies that, although 

§ 226.9(h)(2)(iii)(B) provides for an 

amortization period of no less than five 

years beginning no earlier than the date 

on which the creditor was notified of 

the rejection, a creditor is not required 

to recalculate the required minimum 

periodic payment if, during the 

amortization period, the balance is 

reduced as a result of payments by the 

consumer in excess of that minimum 

payment. 

Furthermore, the Board is adopting 

comment 9(h)(2)(iii)(B)–2, which 

clarifies that, if the annual percentage 

rate that applies to the balance subject 

to § 226.9(h)(2)(iii) varies with an index, 

the creditor may adjust the interest 

charges included in the required 

minimum periodic payment for that 

balance accordingly in order to ensure 

that the balance is amortized in five 

years. Finally, the Board is adopting 

comment 9(h)(2)(iii)(C)–1, which 

provides an example of how a creditor 

could adjust the required minimum 

periodic payment on a balance by no 

more than doubling the percentage of 

the balance included in that payment. 

The commentary to § 226.9(h)(2)(iii) is 

similar to commentary adopted by the 

Board and the other Agencies in the 

January 2009 FTC Act Rule. See 

comment 24(c)(1)–1, 74 FR 5565; 

comment 24(c)(1)(i)–1, 74 FR 5574; 

comment 24(c)(1)(i)–2, 74 FR 5574; 

comment 24(c)(1)(ii)–2, 74 FR 5574. 

9(h)(3) Exceptions 

Pursuant to new TILA Section 

127(i)(3)’s express grant of authority to 

establish rules implementing the right to 

cancel and the Board’s general authority 

under TILA Section 105(a) (15 U.S.C. 

1604(a)) to make adjustments and 

exceptions to carry out the purposes of 

TILA and to facilitate compliance 

therewith, the Board is establishing two 

exceptions to § 226.9(h), which are 

discussed below. 

In addition, the Board is adopting 

comment 9(h)(3)–1, which clarifies that, 

in addition to the circumstances listed 

in § 226.9(h)(3), § 226.9(h) does not 

apply to home equity plans subject to 

the requirements of § 226.5b that are 

accessible by a credit or charge card 

because § 226.9(c)(2) and 226.9(g) do not 

apply to such plans. Similarly, the 

comment clarifies that § 226.9(h) does 

not apply when the required minimum 

periodic payment is increased because 

§ 226.9(c)(2)(iv) does not require 

disclosure of the right to reject in those 

circumstances. 

9(h)(3)(i) Delinquencies of More Than 

60 Days 

Section 226.9(h)(3)(i) provides that 

§ 226.9(h) does not apply when the 

creditor has not received the consumer’s 

required minimum periodic payment 

within 60 days after the due date for 


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36090 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

19See Credit Card Act § 3. 

20Comment 9(h)(3)(i)–1 provides illustrative 

examples of the application of this exception. 

21Furthermore, although a creditor may terminate 

credit availability and decline to honor additional 

transactions after the consumer rejects an increase 

or change, there may be circumstances where a 

creditor is obligated to honor a particular 

transaction (such as when the transaction was 

authorized by the creditor before credit availability 

was terminated). 

that payment. This exception is based 

on a similar exception to the Credit Card 

Act’s general prohibition on applying 

increased annual percentage rates, fees, 

or finance charges to outstanding 

balances. See Credit Card Act § 101(b) 

(revised TILA Section 171(b)(4)). 

Although that prohibition is not 

effective until February 22, 2010,19 the 

Board believes that a parallel exception 

for delinquencies of more than 60 days 

is appropriate here. Otherwise, after 

February 22, 2010, a consumer who is 

more than 60 days delinquent could use 

the right to reject a rate increase to 

override the exception specifically 

created by the Credit Card Act for such 

circumstances. The Board does not 

believe that this was Congress’s intent 

because the Credit Card Act’s exception 

for delinquencies of more than 60 days 

contains its own remedy for consumers. 

Specifically, the exception provides 

that, if an increased rate, fee, or finance 

charge is applied to an outstanding 

balance based on a delinquency of more 

than 60 days, the creditor must 

‘‘terminate such increase not later than 

6 months after the date on which it is 

imposed, if the creditor receives the 

required minimum payments on time 

during that period.’’ Credit Card Act 

§ 101(b) (revised TILA Section 

171(b)(4)(B)). Thus, based on its review 

of the Credit Card Act as a whole, the 

Board believes it would be inconsistent 

to extend the right to reject to 

circumstances where a consumer is 

more than 60 days delinquent.20

9(h)(3)(ii) Transactions That Occur 

More Than 14 Days After Provision of 

Notice 

Section 226.9(h)(3)(ii) provides that 

§ 226.9(h) does not apply to transactions 

that occur more than 14 days after 

provision of the notice required by 

§ 226.9(c) or (g). Like the exception for 

delinquencies of more than 60 days, this 

exception is based on the provisions of 

the Credit Card Act that generally 

prohibit creditors from applying 

increased rates, fees, and finance 

charges to outstanding balances. 

Specifically, those provisions address 

circumstances in which a consumer 

uses an account for transactions after 

receiving advance notice of an increase 

by defining the ‘‘outstanding balance’’ 

to which the increase may not be 

applied as ‘‘the amount owed * * * as 

of the end of the 14th day after the date 

on which the creditor provides [the] 

notice. * * *’’ Credit Card Act § 101(b) 

(revised TILA Section 171(d)). By 

establishing separate timing rules for the 

notice requirement and the substantive 

limitations, the Credit Card Act balances 

the interests of consumers and creditors. 

On the one hand, the 14-day period 

ensures that the increased rate, fee, or 

finance charge will not apply to 

transactions that occur before the 

consumer has received the notice and 

had a reasonable amount of time to 

review it and to decide whether to use 

the account for additional transactions. 

On the other hand, by allowing creditors 

to apply the increase to transactions that 

occur more than 14 days after provision 

of the notice, the Credit Card Act 

reduces the potential that a consumer— 

having been notified of an increase in 

the rate for new transactions—will use 

the 45-day notice period to engage in 

transactions to which the increased rate 

cannot be applied. 

In the FTC Act rulemaking, the Board 

and the other Agencies addressed this 

issue by proposing a similar 14-day 

period. See proposed 12 CFR 

227.24(a)(2), 73 FR 28920, 28942. Like 

the Agencies’ 21-day safe harbor for 

mailing periodic statements, 14 days 

was intended to allow seven days for 

the notice to reach the consumer and 

seven days for the consumer to review 

that notice and take appropriate action 

(e.g., begin using a different credit 

account). The Agencies noted that, 

although institutions could address the 

concern that the 45-day notice period 

could be abused by denying additional 

extensions of credit after sending the 

notice, that outcome might not be 

beneficial to consumers who have 

received the notice and wish to use the 

account for new transactions. Based on 

the comments and further analysis, the 

Board and the other Agencies concluded 

that consumers did not require seven 

days to review the notice and take 

appropriate action and reduced the 14- 

day period to seven days in the January 

2009 FTC Act Rule. See 12 CFR 

227.24(b)(3), 74 FR 5560. Ultimately, 

however, Congress elected to address 

this issue using the 14-day period 

originally proposed by the Agencies. 

Because the right to reject a rate 

increase or change in terms can raise 

concerns similar to those addressed by 

new TILA Section 171(d), the Board 

believes it is appropriate to apply the 

14-day period here as well. As 

discussed above with respect to 

comment 9(h)(1)–2, a consumer’s use of 

the account after receiving the § 226.9(c) 

or (g) notice should not result in a 

waiver or forfeiture of the right to reject 

(even if the consumer has already 

exercised that right). However, the 

Board believes it would be inconsistent 

with the purpose of the Credit Card Act 

(as stated in revised TILA Section 

171(d)) to permit a consumer to 

deliberately engage in transactions after 

receiving the notice and then exercise 

the right to reject shortly before the 

effective date in order to prevent the 

creditor from applying the increased 

rate or changed term to those 

transactions.21 Accordingly, based on its 

review of the Credit Card Act as a 

whole, the Board is using its authority 

under TILA Section 105(a) and new 

TILA Section 127(i)(3) to permit 

creditors to apply the increased rate or 

changed term to transactions that occur 

more than 14 days after provision of the 

§ 226.9(c) or (g) notice even in 

circumstances where the consumer has 

exercised the right to reject. 

The Board is adopting comment 

9(h)(3)(ii)–1, which clarifies that, 

although § 226.9(h)(3)(ii) permits a 

creditor to apply a changed term or 

increased rate to transactions that occur 

more than 14 days after provision of the 

notice required by § 226.9(c) or (g), it 

does not permit a creditor to reach back 

to days before the effective date of the 

change in terms or rate increase when 

calculating interest charges. The 

comment also clarifies that, because the 

exception in § 226.9(h)(3)(ii) is limited 

to changed terms and increased rates 

that can be applied to transactions, it 

does not permit a creditor to apply a 

changed term to the entire account 

simply because the account was used 

for a transaction more than 14 days after 

provision of a § 226.9(c) or (g) notice. 

For example, if a consumer rejects an 

increase in a periodic fee or late 

payment fee, the creditor is prohibited 

from applying the increased fee to the 

account even if the account is used for 

a transaction more than 14 days after 

provision of the § 226.9(c) notice. In 

contrast, § 226.9(h)(3)(ii) does permit a 

creditor to apply an increased rate or a 

transaction fee to a transaction that 

occurred more than 14 days after 

provision of the § 226.9(c) or (g) notice 

so long as that increased rate or 

transaction fee is not applied to other 

transactions. 

The Board is also adopting comment 

9(h)(3)(ii)–2, which clarifies that 

whether a transaction occurred prior to 

provision of a notice or within 14 days 

after provision of a notice is generally 

determined by the date of the 

transaction. The Board notes that 


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22For simplicity, the Board refers in this 

subsection to ‘‘promotional rates.’’ However, 

pursuant to new comment 9(c)(2)(v)–6, this 

transition guidance is intended to apply equally to 

deferred interest or similar programs. 

revised TILA Section 171(d) refers to 

‘‘the amount owed’’ at the end of the 

fourteenth day after provision of the 

§ 226.9(c) or (g) notice rather than to 

transactions that occur during that 14- 

day period. The Board is also aware 

that, for a variety of reasons (including 

a merchant’s delay in submitting a 

transaction to the creditor), a transaction 

may occur within the 14-day period but 

not be added to the consumer’s 

outstanding balance until after that 

period. Although such delays may 

present challenges for creditors when 

determining whether a transaction 

occurred within the 14-day period, 

these delays are generally unknown to 

consumers and outside of their control. 

A consumer who engages in a 

transaction on a particular date could 

reasonably expect the transaction to be 

added to their outstanding balance on 

that date. Accordingly, the Board 

believes that, as a general matter, it is 

consistent with the purposes of TILA to 

focus on the transaction date. 

However, to facilitate compliance 

with § 226.9(h)(3)(ii), comment 

9(h)(3)(ii)–2 states that, if a transaction 

that occurred within 14 days after 

provision of the notice is not charged to 

the account prior to the effective date of 

the change or increase, the creditor may 

treat the transaction as occurring more 

than 14 days after provision of the 

notice for purposes of § 226.9(h)(3)(ii). 

In addition, the comment states that, 

when a merchant places a ‘‘hold’’ on the 

available credit on an account for an 

estimated transaction amount when the 

actual transaction amount will not be 

known until a later date, the date of the 

transaction for purposes of 

§ 226.9(h)(3)(ii) is the date on which the 

actual transaction amount is charged to 

the account. 

This comment is based on a similar 

comment adopted by the Board and the 

other Agencies in the January 2009 FTC 

Act Rule as well as clarifications 

proposed by the agencies in May 2009 

and the comments received in response. 

See comment 24(b)(3)–2, 74 FR 5564; 

see also 74 FR 20810, 20818. Examples 

illustrating the application of 

§ 226.9(h)(3)(ii) and the guidance in 

comments 9(h)(3)(ii)–1 and –2 are 

provided in comment 9(h)(3)(ii)–3. 

Implementation of Interim Final Rule 

for Subsequent Disclosure Requirements 

Revised § 226.9(c) and new § 226.9(g) 

and (h) are effective, consistent with the 

Credit Card Act and the rest of this 

interim final rule, on August 20, 2009. 

Notices required under § 226.9(c). The 

relevant date for determining whether a 

change-in-terms notice must comply 

with the new advance notice 

requirements of revised § 226.9(c)(2) is 

generally the date on which the notice 

is provided, not the effective date of the 

change. The Board believes that this is 

the appropriate transition rule in order 

to provide clarity and certainty to 

issuers. Therefore, if a notice of a 

change in terms is provided pursuant to 

existing § 226.9(c) prior to August 20, 

2009, the notice only need be given 15 

days in advance of the effective date of 

the change, even if the change itself 

becomes effective after August 20. For 

example, a creditor may provide a 

notice in accordance with existing 

Regulation Z on August 10, 2009 

disclosing a change-in-terms effective 

August 26, 2009. Accordingly, any such 

notice would not be required to comply 

with the content requirements of this 

interim final rule, including the 

disclosure of the consumer’s right to 

reject the change. 

Any notice provided on or after 

August 20, 2009 would be subject to all 

of the content and other requirements of 

§ 226.9(c)(2), as applicable. For 

example, assume a creditor mails a 

change-in-terms notice to a consumer on 

August 20, 2009 disclosing a rate 

increase effective on October 4, 2009, to 

which none of the exceptions in 

§ 226.9(c)(2)(v) apply. That notice 

would be required to disclose all of the 

content set forth in § 226.9(c)(2)(iv), 

including required disclosures 

pertaining to the consumer’s right to 

reject the change. 

The Board believes that this is the 

appropriate way to implement the 

August 20, 2009 effective date in order 

to ensure that institutions are provided 

the full 90-day implementation period 

provided under the Credit Card Act. In 

the alternative, the Credit Card Act 

could be construed to require creditors 

to provide notices, pursuant to new 

§ 226.9(c)(2), 45 days in advance of 

changes occurring on or after August 20. 

However, this reading would create 

uncertainty regarding compliance with 

the rule by requiring creditors to begin 

providing change-in-terms notices in 

accordance with revised TILA Section 

127(i) in some cases as much as 45 days 

prior to the August 20, 2009 effective 

date, and prior to the publication of this 

interim final rule. Accordingly, for 

clarity and consistency, the Board 

believes the better interpretation is that 

creditors must begin to comply with 

amended TILA Section 127(i) (as 

implemented in amended § 226.9(c)(2)) 

for change-in-terms notices provided on 

or after August 20, 2009. 

Notices required under § 226.9(g). For 

rate increases due to the consumer’s 

default or delinquency or as a penalty, 

the 15-day timing requirement of 

§ 226.9(c) currently does not apply. 

Current § 226.9(c)(1) states only that 

notice of the increase must be given 

before the effective date of the change. 

Therefore, the relevant date for purposes 

of penalty rate increases generally is the 

date on which the increase becomes 

effective. For example, if a consumer 

makes a late payment on August 10, 

2009 that triggers penalty pricing, a 

creditor may increase the rate effective 

on or before August 19, 2009 in 

compliance with existing Regulation Z, 

and need not provide 45 days’ advance 

notice of the change. 

The Board is aware that there may be 

some circumstances in which a 

consumer’s behavior prior to August 20, 

2009 triggers a penalty rate, but a 

creditor may be unable to implement 

that rate increase prior to August 20, 

2009. For example, a consumer may 

make a late payment on August 15, 2009 

that triggers a penalty rate, but the 

creditor may not be able to implement 

that rate increase until August 25, 2009 

for operational reasons. In these 

circumstances, the Board believes that 

requiring 45 days’ advance notice prior 

to the imposition of the penalty rate 

would not be appropriate, because it 

would in effect require compliance with 

new § 226.9(g) prior to the August 20 

effective date. Therefore, for such 

penalty rate increases that are triggered, 

but cannot be implemented, prior to 

August 20, 2009, a creditor must either 

provide the consumer, prior to August 

20, 2009, with a written notice 

disclosing the impending rate increase 

and its effective date, or must comply 

with new § 226.9(g). In the example 

described above, therefore, a creditor 

could mail to the consumer a notice on 

August 19, 2009 disclosing that the 

consumer has triggered a penalty rate 

increase that will be effective on August 

25, 2009. If the creditor mailed such a 

notice, it would not be required to 

comply with new § 226.9(g). This 

transition guidance applies only to 

penalty rate increases triggered prior to 

August 20, 2009; if a consumer engages 

in behavior that triggers penalty pricing 

on August 20, 2009, the creditor must 

comply with new § 226.9(g) and, 

accordingly, must provide the consumer 

with a notice at least 45 days in advance 

of the effective date of the increase. 

Promotional rates.22 Some creditors 

may have outstanding promotional rate 

programs that were in place before the 

effective date of this interim final rule, 

but under which the promotional rate 


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36092 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

will not expire until after August 20, 

2009. For example, a creditor may have 

offered its consumers a 5% promotional 

rate on purchases beginning on 

September 1, 2008 that will be increased 

to 15% effective as of September 1, 

2009. Such creditors may have concerns 

about whether the disclosures that they 

have provided to consumers in 

accordance with these arrangements are 

sufficient to qualify for the exception in 

§ 226.9(c)(2)(v)(B). The Board notes that 

§ 226.9(c)(2)(v)(B) of this interim final 

rule requires only clear and 

conspicuous written disclosures of the 

term of the promotional rate and the rate 

that will apply when the promotional 

rate expires. The Board anticipates that 

many creditors offering such a 

promotional rate program already will 

have complied with these advance 

notice requirements in connection with 

offering the promotional program. 

The Board is nonetheless aware that 

some other creditors may be uncertain 

whether written disclosures provided at 

the time an existing promotional rate 

program was offered are sufficient to 

comply with the exception in 

§ 226.9(c)(2)(v)(B). For example, for 

promotional rate offers provided after 

August 20, 2009, the disclosure under 

§ 226.9(c)(2)(v)(B)(1) must include the 

rate that will apply after the expiration 

of the promotional period. For an 

existing promotional rate program, a 

creditor might instead have disclosed 

this rate narratively, for example by 

stating that the rate that will apply after 

expiration of the promotional rate is the 

standard annual percentage rate 

applicable to purchases. The Board does 

not believe that it is appropriate to 

require a creditor that generally 

provided disclosures consistent with 

§ 226.9(c)(2)(v)(B), but that are 

technically not compliant because they 

described the post-promotional rate 

narratively, to provide consumers with 

45 days’ advance notice and the right to 

reject the change, before expiration of 

the promotional period. This would 

have the impact of imposing the 

requirements of this interim final rule 

retroactively, to disclosures given prior 

to the August 20, 2009 effective date. 

Therefore, a creditor that generally 

made disclosures prior to August 20, 

2009 complying with § 226.9(c)(2)(v)(B) 

but that describe the type of postpromotional rate rather than disclosing 

the actual rate is not required to provide 

an additional notice pursuant to 

§ 226.9(c)(2) before expiration of the 

promotional rate in order to use the 

exception. 

Similarly, the Board acknowledges 

that there may be some creditors with 

outstanding promotional rate programs 

that did not make, or, without 

conducting extensive research, are not 

aware if they made, written disclosures 

of the length of the promotional period 

and the post-promotional rate. For 

example, some creditors may have made 

these disclosures orally. For the same 

reasons described in the foregoing 

paragraph, the Board believes that it 

would be inappropriate to preclude use 

of the § 226.9(c)(2)(v)(B) exception by 

creditors offering these promotional rate 

programs. That interpretation of the rule 

would in effect require creditors to have 

complied with the precise requirements 

of the exception before the August 20, 

2009 effective date. However, the Board 

believes at the same time that it would 

be inconsistent with the intent of the 

Credit Card Act for creditors that 

provided no advance notice of the term 

of the promotion and the postpromotional rate to receive an 

exemption from the general notice 

requirements of § 229.9(c)(2). 

Consequently, any creditor that 

provides a written disclosure to 

consumers subject to an existing 

promotional rate program, prior to 

August 20, 2009, stating the length of 

the promotional period and the rate or 

type of rate that will apply after that 

promotional rate expires is not required 

to provide an additional notice pursuant 

to § 226.9(c)(2) prior to applying the 

post-promotional rate. In addition, any 

creditor that can demonstrate that it 

provided, prior to August 20, 2009, oral 

disclosures of the length of the 

promotional period and the rate or type 

of rate that will apply after the 

promotional period also need not 

provide an additional notice under 

§ 226.9(c)(2). However, any creditor 

subject to § 226.9(c)(2) that has not 

provided advance notice of the term of 

a promotion and the rate that will apply 

upon expiration of that promotion in the 

manner described above prior to August 

20, 2009 will be required to provide 45 

days’ advance notice containing the 

content set forth in this interim final 

rule before raising the rate. 

Right to reject. New § 226.9(h) is 

predicated on the provision of a notice 

containing a disclosure of the 

consumer’s right to reject, which is 

required by new § 226.9(c) and (g) but 

is not required by current § 226.9. Thus, 

new § 226.9(h) applies to the same 

extent as revised § 226.9(c) and new 

§ 226.9(g). For example, because a 

creditor providing a change-in-terms 

notice on August 15, 2009 is required to 

comply with the requirements of current 

§ 226.9(c) rather than revised § 226.9(c), 

the creditor is not required to provide 

the consumer with the right to reject 

that change pursuant to new § 226.9(h). 

If, however, that notice were provided 

on August 20 and new § 226.9(c)(2)(iv) 

required disclosure of the right to reject, 

the requirements in new § 226.9(h) 

would apply. 

Similarly, because current § 226.9 

permits a creditor to increase a rate due 

to the consumer’s delinquency or 

default or as a penalty without 

providing 15 days’ advance notice, a 

creditor that increases a rate for these 

reasons effective on or before August 19, 

2009 or provides notice of such an 

increase on or before August 19, 2009 is 

not required to provide the consumer 

with the right to reject that increase 

pursuant to new § 226.9(h). If, however, 

new § 226.9(g)(3) applies to the increase, 

the requirements in new § 226.9(h) also 

would apply. 

Finally, the exception in 

§ 226.9(h)(3)(i) for accounts that are 

more than 60 days delinquent applies 

even if the delinquency began prior to 

the August 20, 2009 effective date. For 

example, if the required minimum 

periodic payment due on July 15, 2009 

has not been received by September 14, 

2009, the exception in § 226.9(h)(3)(i) 

applies. 

IV. Regulatory Flexibility Analysis 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) requires an initial 

and final regulatory flexibility analysis 

only when 15 U.S.C. 553 requires 

publication of a notice of proposed 

rulemaking. See 5 U.S.C. 603(a), 604(a). 

As discussed in II. Statutory Authority, 

however, the Board has found good 

cause under 5 U.S.C. 553(b)(B) to 

conclude that, with respect to this 

interim final rule, publication of a 

notice of proposed rulemaking is 

impracticable and unnecessary. 

Accordingly, the Board is not required 

to perform an initial or final regulatory 

flexibility analysis. Nonetheless, in 

order to solicit additional information 

from small entities subject to the interim 

final rule, the Board is publishing an 

initial regulatory flexibility analysis 

relying, in large part, on the regulatory 

flexibility analyses conducted for the 

Board’s January 2009 Regulation Z Rule 

and the January 2009 FTC Act Rule. 

As discussed in III. Section-bySection Analysis, the interim final rule 

is similar in most respects to rules 

adopted by the Board and the other 

Agencies in the January 2009 Regulation 

Z Rule and the January 2009 FTC Act 

Rule. Prior to adopting those rules, the 

Board conducted initial and final 

regulatory flexibility analyses and 

ultimately concluded that the rules 

would have a significant economic 

impact on a substantial number of small 

entities. See 72 FR 32948, 33033–33034 


jlentini on DSKJ8SOYB1PROD with RULES
Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 36093 

23The Board recognizes, however, that while the 

January 2009 FTC Act Rule applies only to 

consumer credit card accounts, the requirement in 

the Credit Card Act and the interim final rule that 

periodic statements be mailed or delivered at least 

21 days before the payment due date and grace 

period expiration date applies to all open-end 

consumer credit plans (including home equity lines 

of credit accessed by a credit card). Although the 

Board does not have sufficient information to 

quantify the effect of this specific aspect of the rule 

on small entities, this additional requirement 

supports the Board’s overall conclusion that the 

interim final rule will have a significant economic 

impact on a substantial number of small entities. 

24See, e.g., Ala. Code § 5–20–5; 5 Del. Code § 952; 

Off. Code of Ga. § 7–5–4; Nev. Rev. Stat. § 97A.140; 

S.D. Codified Laws § 54–11–10; Utah Code § 70C– 

4–102. 

25See, e.g., Ala. Code § 5–20–5; 5 Del. Code § 952; 

Off. Code of Ga. § 7–5–4; Nev. Rev. Stat. § 97A.140; 

S.D. Codified Laws § 54–11–10; Utah Code § 70C– 

4–102. 

(June 14, 2007); 73 FR 28866, 28887– 

28888 (May 19, 2008); 73 FR 28904, 

28933–28934 (May 19, 2008); 74 FR 

5390–5393; 74 FR 5548–5550. Because 

the interim final rule does not alter the 

substance of the analyses and 

determinations accompanying the 

January 2009 rules, the Board continues 

to rely on those analyses and 

determinations for purposes of this 

rulemaking.23

In particular, the Board notes that, 

although the January 2009 rules did not 

include a right to reject increases in 

annual percentage rates and other 

significant changes to the terms of the 

account agreement, the requirements in 

new § 226.9(h) do not create significant 

new burdens that would alter the 

Board’s prior regulatory flexibility 

analyses and determinations. To the 

extent that new § 226.9(h) prohibits 

creditors from applying an increased 

rate to a credit card account if the 

consumer rejects the increase, it is no 

more restrictive than 12 CFR 227.24 in 

the January 2009 FTC Act Rule, which 

generally prohibited such increases 

regardless of the consumer’s acceptance 

or rejection. See 74 FR 5560. 

Furthermore, insofar as new § 226.9(h) 

prohibits creditors from applying rate 

increases and other significant changes 

in terms if the consumer exercises the 

right to reject, many creditors are 

already subject to similar requirements 

under existing state laws.24

Reasons, statement of objectives and 

legal basis for the interim final rule. The 

interim final rule implements a number 

of new substantive and disclosure 

provisions required by the Credit Card 

Act, which establishes fair and 

transparent practices relating to the 

extension of open-end consumer credit 

plans. The supplementary information 

above describes in detail the reasons, 

objectives, and legal basis for each 

component of the proposed rules. 

Description of small entities affected 

by the interim final rule. All creditors 

that offer open-end credit plans are 

subject to the interim final rule. The 

Board is relying on its analysis in the 

January 2009 Regulation Z Rule, in 

which the Board provided data on the 

number of entities that may be affected 

because they offer open-end credit 

plans. The Board acknowledges, 

however, that the total number of small 

entities likely to be affected by the 

interim final rule is unknown, because 

the open-end credit provisions of the 

Credit Card Act and Regulation Z have 

broad applicability to individuals and 

businesses that extend even small 

amounts of consumer credit. (For a 

detailed description of the Board’s 

analysis of small entities subject to the 

January 2009 Regulation Z Rule, see 74 

FR 5391.) The Board invites comment 

on the effect of the interim final rule on 

small entities. 

Projected reporting, recordkeeping 

and compliance requirements of the 

interim final rule. The compliance 

requirements of this interim final rule 

are described above in III. Section-bySection Analysis. The Board notes that 

the precise costs to small entities to 

conform their open-end credit 

disclosures to the interim final rule and 

the costs of updating their systems to 

comply with the rule are difficult to 

predict. These costs will depend on a 

number of factors that are unknown to 

the Board, including, among other 

things, the specifications of the current 

systems used by such entities to prepare 

and provide disclosures and administer 

open-end accounts, the complexity of 

the terms of the open-end credit 

products that they offer, and the range 

of such product offerings. The Board 

seeks information and comment on any 

costs, compliance requirements, or 

changes in operating procedures arising 

from the application of the interim final 

rule to small entities. 

Other federal rules. As discussed in I. 

Background and Implementation of the 

Credit Card Act, although the Board 

previously issued similar rules in its 

January 2009 Regulation Z Rule and its 

January 2009 FTC Act Rule, the Board 

is not currently withdrawing any 

provisions of the January 2009 rules. 

Instead, the Board anticipates that in 

connection with finalizing rules for the 

provisions of the Credit Card Act that 

are effective February 22, 2010, it will 

amend or withdraw those portions of 

the January 2009 rules that are 

inconsistent with the requirements of 

the Credit Card Act. 

Significant alternatives to the interim 

final rule. As noted above, the core 

provisions of this interim final rule 

implement the statutory requirements of 

the Credit Card Act that are effective on 

August 20, 2009. The Board has 

implemented these requirements so as 

to minimize burden, while retaining 

benefits to consumers. In doing so, the 

Board was informed by consumer 

testing conducted and comments 

received in connection with the January 

2009 rules. The Board welcomes 

comment on any significant alternatives, 

consistent with the Credit Card Act, that 

would minimize the impact of the 

interim final rule on small entities. 

V. Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3506; 

5 CFR part 1320 Appendix A.1) (PRA), 

the Board has reviewed the interim final 

rule under the authority delegated to the 

Board by the Office of Management and 

Budget. The collections of information 

that are required by the interim final 

rule are found in § 226.9(c) and (g). The 

Federal Reserve may not conduct or 

sponsor, and an organization is not 

required to respond to, this information 

collection unless the information 

collection displays a currently valid 

OMB control number. The OMB control 

number is 7100–0199. 

This information collection is 

required to provide benefits for 

consumers and is mandatory (15 U.S.C. 

1601 et seq.). The respondents/ 

recordkeepers are creditors and other 

entities subject to Regulation Z, 

including for-profit financial 

institutions and small businesses. Since 

the Federal Reserve does not collect any 

information, no issue of confidentiality 

arises. The current total annual burden 

to comply with the provisions of 

Regulation Z is estimated to be 734,127 

hours for the 1,138 Federal Reserveregulated institutions that are deemed to 

be respondents for the purposes of the 

PRA. 

As discussed in III. Section-bySection Analysis, however, the 

amended § 226.9(c) and new § 226.9(g) 

in the interim final rule are substantially 

similar to the amended § 226.9(c) and 

new § 226.9(g) in the Board’s January 

2009 Regulation Z Rule. Although 

§ 226.9(g) in the interim final rule 

includes a requirement that creditors 

disclose the consumer’s right to reject 

an increased rate or changed term, the 

effect should be negligible since many 

creditors are already required to provide 

a similar disclosure under existing state 

laws.25 Moreover, those creditors not 

currently subject to such state laws must 

simply include a brief statement of the 

consumer’s right to reject in the existing 


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36094 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

10Reserved. 

notice for an increased rate or changed 

term. The rule does not require that a 

separate, detached disclosure of the 

right to reject be provided to the 

consumer. Accordingly, because the 

interim final rule does not alter the 

substance of the Board’s PRA analysis 

with respect to the January 2009 final 

rule (Docket No. R–1286), the Board 

continues to rely on that analysis, as 

reported in accordance with those 

estimates in documents filed with OMB, 

for purposes of this rulemaking. See 74 

FR 5392–5393. 

List of Subjects in 12 CFR Part 226 

Advertising, Consumer protection, 

Federal Reserve System, Reporting and 

recordkeeping requirements, Truth in 

Lending. 

Text of Interim Final Revisions 

■ For the reasons set forth in the 

preamble, the Board amends Regulation 

Z, 12 CFR part 226, as set forth below: 

PART 226—TRUTH IN LENDING 

(REGULATION Z) 

■ 1. The authority citation for part 226 

is amended to read as follows: 

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

1637(c)(5), and 1639(l); Pub. L. 111–24 § 2, 

123 Stat. 1734. 

■ 2. Section 226.5 is amended by 

revising paragraph (b)(2)(ii) to read as 

follows: 

§ 226.5 General disclosure requirements. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) Creditors must adopt reasonable 

procedures designed to ensure that 

periodic statements are mailed or 

delivered at least 21 days prior to the 

payment due date and the date on 

which any grace period expires.10 A 

creditor that fails to meet this 

requirement shall not treat a payment as 

late for any purpose or collect any 

finance or other charge imposed as a 

result of such failure. For purposes of 

this paragraph, ‘‘grace period’’ means a 

period within which any credit 

extended may be repaid without 

incurring a finance charge due to a 

periodic interest rate. 

■ 3. Section 226.9 is amended as 

follows: 

■ A. Paragraph (c) is revised. 

■ B. New paragraphs (g) and (h) are 

added. 

§ 226.9 Subsequent disclosure 

requirements. 

* * * * * 

(c) Change in terms—(1) Rules 

affecting home-equity plans and openend plans that are not credit card 

accounts. (i) Written notice required. 

For home-equity plans subject to the 

requirements of § 226.5b and other 

open-end plans that are not credit card 

accounts, whenever any term required 

to be disclosed under § 226.6 is changed 

or the required minimum periodic 

payment is increased, the creditor shall 

mail or deliver written notice of the 

change to each consumer who may be 

affected. The notice shall be mailed or 

delivered at least 15 days prior to the 

effective date of the change. The 15-day 

timing requirement does not apply if the 

change has been agreed to by the 

consumer, or if a periodic rate or other 

finance charge is increased because of 

the consumer’s delinquency or default; 

the notice shall be given, however, 

before the effective date of the change. 

(ii) Notice not required. For homeequity plans subject to the requirements 

of § 226.5b and other open-end plans 

that are not credit card accounts, no 

notice under this section is required 

when the change involves late payment 

charges, charges for documentary 

evidence, or over-the-limit charges; a 

reduction of any component of a finance 

or other charge; suspension of future 

credit privileges or termination of an 

account or plan; or when the change 

results from an agreement involving a 

court proceeding, or from the 

consumer’s default or delinquency 

(other than an increase in the periodic 

rate or other finance charge). 

(iii) Notice for home equity plans. If 

a creditor prohibits additional 

extensions of credit or reduces the 

credit limit applicable to a home equity 

plan pursuant to § 226.5b(f)(3)(i) or 

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

or deliver written notice of the action to 

each consumer who will be affected. 

The notice must be provided not later 

than three business days after the action 

is taken and shall contain specific 

reasons for the action. If the creditor 

requires the consumer to request 

reinstatement of credit privileges, the 

notice also shall state that fact. 

(2) Rules affecting credit card 

accounts that are not home-secured—(i) 

Changes where written advance notice 

is required. For credit card accounts 

under an open-end (not home-secured) 

consumer credit plan, except as 

provided in paragraph (c)(2)(v) of this 

section, whenever a significant change 

to an account term as described in 

paragraph (c)(2)(ii) is made or the 

required minimum periodic payment is 

increased, a creditor must provide a 

written notice of the change at least 45 

days prior to the effective date of the 

change to each consumer who may be 

affected. The 45-day timing requirement 

does not apply if the consumer has 

agreed to a particular change; the notice 

shall be given, however, before the 

effective date of the change. 

(ii) Significant changes in account 

terms. The notice requirements of 

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

to changes in the following terms: 

(A) Annual percentage rates. Each 

periodic rate that may be used to 

compute the finance charge on an 

outstanding balance for purchases, a 

cash advance, or a balance transfer. For 

purposes of this paragraph, such rates 

include any discounted initial rate, 

premium initial rate, or penalty rate that 

may be applied to the account. 

(B) Fees for issuance or availability. 

Any annual or other periodic fee that 

may be imposed for the issuance or 

availability of a credit card account 

under an open-end (not home-secured) 

consumer credit plan, including any fee 

based on account activity or inactivity. 

(C) Fixed finance charge; minimum 

interest charge. Any fixed finance 

charge and any minimum interest 

charge if it exceeds $1.00 that could be 

imposed during a billing cycle. The 

creditor may, at its option, provide 

notice in accordance with paragraph 

(c)(2)(i) of this section for changes in 

minimum interest charges below this 

threshold. 

(D) Transaction charges. Any 

transaction charge imposed by the 

creditor for use of the credit card 

account under an open-end (not homesecured) consumer credit plan for 

purchases. 

(E) Grace period. The date by which 

or the period within which any credit 

extended may be repaid without 

incurring a finance charge due to a 

periodic interest rate and any conditions 

on the availability of the grace period. 

(F) Balance computation method. The 

balance computation method that is 

used to determine the balance on which 

the finance charge is computed for each 

feature. 

(G) Cash advance fee. Any fee 

imposed for an extension of credit in the 

form of cash or its equivalent. 

(H) Late payment fee. Any fee 

imposed for a late payment. 

(I) Over-the-limit fee. Any fee imposed 

for exceeding a credit limit. 

(J) Balance transfer fee. Any fee 

imposed to transfer an outstanding 

balance. 

(K) Returned-payment fee. Any fee 

imposed by the creditor for a returned 

payment. 

(L) Required insurance, debt 

cancellation, or debt suspension 

coverage. A fee for insurance described 


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Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 36095 

in § 226.4(b)(7), debt cancellation 

coverage described in § 226.4(b)(10), or 

debt suspension coverage written in 

connection with a credit transaction, if 

the insurance, debt cancellation 

coverage, or debt suspension coverage is 

required as part of the plan. 

(iii) Charges not covered by 

§ 226.9(c)(2)(i). Except as provided in 

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

creditor increases any component of a 

charge on a credit card account under 

an open-end (not home-secured) 

consumer credit plan, or introduces a 

new charge, that is not subject to the 

disclosure requirements under 

§ 226.9(c)(2)(i), a creditor may either, at 

its option: 

(A) Comply with the requirements of 

paragraph (c)(2)(i) of this section; or 

(B) Provide notice of the amount of 

the charge before the consumer agrees to 

or becomes obligated to pay the charge, 

at a time and in a manner that a 

consumer would be likely to notice the 

disclosure of the charge. The notice may 

be provided orally or in writing. 

(iv) Disclosure requirements—changes 

to terms described in paragraph (c)(2)(i). 

If a creditor changes a term described in 

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

increases the required minimum 

periodic payment, the creditor must 

provide the following information on 

the notice provided pursuant to 

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

(A) A description of the changes made 

to terms described in paragraph (c)(2)(ii) 

of this section or of any increase in the 

required minimum periodic payment; 

(B) A statement that changes are being 

made to the account; 

(C) The date the changes will become 

effective; and 

(D) Except in the case of an increase 

in the required minimum periodic 

payment: 

(1) A statement that the consumer has 

the right to reject the change or changes 

prior to the effective date of the changes, 

unless the consumer fails to make a 

required minimum periodic payment 

within 60 days after the due date for 

that payment; 

(2) Instructions for rejecting the 

change or changes, and a toll-free 

telephone number that the consumer 

may use to notify the creditor of the 

rejection; and 

(3) If applicable, a statement that if 

the consumer rejects the change or 

changes, the consumer’s ability to use 

the account for further advances will be 

terminated or suspended. 

(v) Notice not required. For credit 

card accounts under an open-end (not 

home-secured) consumer credit plan, a 

creditor is not required to provide 

notice under this section: 

(A) When the change involves charges 

for documentary evidence; a reduction 

of any component of a finance or other 

charge; suspension of future credit 

privileges (except as provided in 

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

termination of an account or plan; or 

when the change results from an 

agreement involving a court proceeding; 

(B) When the change is an increase in 

an annual percentage rate upon the 

expiration of a specified period of time, 

provided that: 

(1) Prior to commencement of that 

period, the creditor disclosed in writing 

to the consumer, in a clear and 

conspicuous manner, the length of the 

period and the annual percentage rate 

that would apply after expiration of the 

period; and 

(2) The annual percentage rate that 

applies after that period does not exceed 

the rate disclosed pursuant to paragraph 

(c)(2)(v)(B)(1) of this paragraph. 

(C) When the change is an increase in 

a variable annual percentage rate in 

accordance with a credit card agreement 

that provides for changes in the rate 

according to operation of an index that 

is not under the control of the creditor 

and is available to the general public; or 

(D) When the change is an increase in 

an annual percentage rate due to the 

completion of a workout or temporary 

hardship arrangement by the consumer, 

provided that: 

(1) The annual percentage rate 

applicable to a category of transactions 

following any such increase does not 

exceed the rate that applied to that 

category of transactions prior to 

commencement of the arrangement or, if 

the rate that applied to a category of 

transactions prior to the commencement 

of the workout or temporary hardship 

arrangement was a variable rate, the rate 

following any such increase is a variable 

rate determined by the same formula 

(index and margin) that applied to the 

category of transactions prior to 

commencement of the workout or 

temporary hardship arrangement; and 

(2) The creditor has provided the 

consumer, prior to the commencement 

of such arrangement, with a clear and 

conspicuous written disclosure of the 

terms of the arrangement (including any 

increases due to such completion). 

(vi) Reduction of the credit limit. For 

credit card accounts under an open-end 

(not home-secured) consumer credit 

plan, if a creditor decreases the credit 

limit on an account, advance notice of 

the decrease must be provided before an 

over-the-limit fee or a penalty rate can 

be imposed solely as a result of the 

consumer exceeding the newly 

decreased credit limit. Notice shall be 

provided in writing or orally at least 45 

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

that the credit limit on the account has 

been or will be decreased. 

* * * * * 

(g) Increase in rates due to 

delinquency or default or as a penalty— 

(1) Increases subject to this section. For 

credit card accounts under an open-end 

(not home-secured) consumer credit 

plan, except as provided in paragraph 

(g)(4) of this section, a creditor must 

provide a written notice to each 

consumer who may be affected when: 

(i) A rate is increased due to the 

consumer’s delinquency or default; or 

(ii) A rate is increased as a penalty for 

one or more events specified in the 

account agreement, such as making a 

late payment or obtaining an extension 

of credit that exceeds the credit limit. 

(2) Timing of written notice. 

Whenever any notice is required to be 

given pursuant to paragraph (g)(1) of 

this section, the creditor shall provide 

written notice of the increase in rate at 

least 45 days prior to the effective date 

of the increase. The notice must be 

provided after the occurrence of the 

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

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

the imposition of the rate increase. 

(3) Disclosure requirements for rate 

increases. If a creditor is increasing the 

rate due to delinquency or default or as 

a penalty, the creditor must provide the 

following information on the notice sent 

pursuant to paragraph (g)(1) of this 

section: 

(i) A statement that the delinquency 

or default rate or penalty rate, as 

applicable, has been triggered; 

(ii) The date on which the 

delinquency or default rate or penalty 

rate will apply; 

(iii) The circumstances under which 

the delinquency or default rate or 

penalty rate, as applicable, will cease to 

apply to the consumer’s account, or that 

the delinquency or default rate or 

penalty rate will remain in effect for a 

potentially indefinite time period; 

(iv) A statement that the consumer 

has the right to reject the increase in the 

annual percentage rate prior to the 

effective date of that increase, unless the 

consumer fails to make a required 

minimum periodic payment within 60 

days after the due date for that payment; 

(v) Instructions for rejecting the 

change or changes, and a toll-free 

telephone number that the consumer 

may use to notify the creditor of the 

rejection; and 

(vi) If applicable, a statement that if 

the consumer rejects the change or 

changes, the consumer’s ability to use 

the account for further advances will be 

terminated or suspended. 


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36096 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

(4) Exceptions—(i) Workout or 

temporary hardship arrangements. A 

creditor is not required to provide a 

notice pursuant to paragraph (g)(1) of 

this section if a rate applicable to a 

category of transactions is increased as 

a result of the consumer’s default, 

delinquency or as a penalty, in each 

case for failure to comply with the terms 

of a workout or temporary hardship 

arrangement between the creditor and 

the consumer, provided that: 

(A) The rate following any such 

increase does not exceed the rate that 

applied to the category of transactions 

prior to commencement of the workout 

or temporary hardship arrangement or, 

if the rate that applied to a category of 

transactions prior to the commencement 

of the workout or temporary hardship 

arrangement was a variable rate, the rate 

following any such increase is a variable 

rate determined by the same formula 

(index and margin) that applied to the 

category of transactions prior to 

commencement of the workout or 

temporary hardship arrangement; and 

(B) The creditor has provided the 

consumer, prior to the commencement 

of such arrangement, with a clear and 

conspicuous written disclosure of the 

terms of the arrangement (including any 

increases due to such failure). 

(ii) Decrease in credit limit. A creditor 

is not required to provide, prior to 

increasing the rate for obtaining an 

extension of credit that exceeds the 

credit limit, a notice pursuant to 

paragraph (g)(1) of this section, 

provided that: 

(A) The creditor provides at least 45 

days in advance of imposing the penalty 

rate a notice, in writing, that includes: 

(1) A statement that the credit limit on 

the account has been or will be 

decreased; 

(2) A statement indicating the date on 

which the penalty rate will apply, if the 

outstanding balance exceeds the credit 

limit as of that date; 

(3) A statement that the penalty rate 

will not be imposed on the date 

specified in paragraph (g)(4)(ii)(A)(2) of 

this section, if the outstanding balance 

does not exceed the credit limit as of 

that date; 

(4) The circumstances under which 

the penalty rate, if applied, will cease to 

apply to the account, or that the penalty 

rate, if applied, will remain in effect for 

a potentially indefinite time period; and 

(B) The creditor does not increase the 

rate applicable to the consumer’s 

account to the penalty rate if the 

outstanding balance does not exceed the 

credit limit on the date set forth in the 

notice and described in paragraph 

(g)(4)(ii)(A)(2) of this section. 

(h) Consumer rejection of significant 

change in terms or increase in annual 

percentage rate—(1) Right to reject. If 

paragraph (c)(2)(iv) or (g)(3) of this 

section requires disclosure of the 

consumer’s right to reject a significant 

change to an account term or other 

increase in an annual percentage rate, 

the consumer may reject that change or 

increase by notifying the creditor of the 

rejection before the effective date of the 

change or increase. 

(2) Effect of rejection. If a creditor is 

notified of a rejection of a significant 

change to an account term or other 

increase in an annual percentage rate as 

provided in paragraph (h)(1) of this 

section, the creditor must not: 

(i) Apply the change or increase to the 

account; 

(ii) Impose a fee or charge or treat the 

account as in default solely as a result 

of the rejection; or 

(iii) Require repayment of the balance 

on the account using a method that is 

less beneficial to the consumer than one 

of the following methods: 

(A) The method of repayment for the 

account on the date on which the 

creditor was notified of the rejection; 

(B) An amortization period of not less 

than five years, beginning no earlier 

than the date on which the creditor was 

notified of the rejection; or 

(C) A required minimum periodic 

payment that includes a percentage of 

the balance that is equal to no more than 

twice the percentage required on the 

date on which the creditor was notified 

of the rejection. 

(3) Exceptions. This section does not 

apply: 

(i) When the creditor has not received 

the consumer’s required minimum 

periodic payment within 60 days after 

the due date for that payment; or 

(ii) To transactions that occur more 

than 14 days after provision of the 

notice required by paragraphs (c) or (g) 

of this section. 

■ 4. In Supplement I to Part 226 Subpart 

B: 

■ A. Under Section 226.5—General 

Disclosure Requirements, paragraph 

5(b)(2)(ii): 

■ i. Paragraphs 1., 2., and 3. are revised; 

■ ii. Paragraphs 4., 5., and 6. are added. 

■ B. Under Section 226.7—Periodic 

Statement, paragraphs 3.iv introductory 

text and 3.iv.D are revised. 

■ C. Under Section 226.9—Subsequent 

Disclosure Requirements: 

■ i. Paragraph 9(c) is revised; 

■ ii. Paragraph 9(g) is added; and 

■ iii. Paragraph 9(h) is added. 

Supplement I to Part 226—Official Staff 

Interpretations 

* * * * * 

Subpart B—Open-End Credit 

Section 226.5 General Disclosure 

Requirements. 

* * * * * 

5(b) Time of Disclosures. 

* * * * * 

5(b)(2) Periodic Statements. 

* * * * * 

Paragraph (b)(2)(ii). 

1. Reasonable procedures. A creditor is not 

required to determine the specific date on 

which periodic statements are mailed or 

delivered to each individual consumer. A 

creditor complies with § 226.5(b)(2)(ii) if it 

has adopted reasonable procedures designed 

to ensure that periodic statements are mailed 

or delivered to consumers no later than a 

certain number of days after the closing date 

of the billing cycle and adds that number of 

days to the 21-day period required by 

§ 226.5(b)(2)(ii) when determining the 

payment due date and the date on which any 

grace period expires. For example, if a 

creditor has adopted reasonable procedures 

designed to ensure that periodic statements 

are mailed or delivered to consumers no later 

than three days after the closing date of the 

billing cycle, the payment due date and the 

date on which any grace period expires must 

be no less than 24 days after the closing date 

of the billing cycle. 

2. Treating a payment as late for any 

purpose. Treating a payment as late for any 

purpose includes increasing the annual 

percentage rate as a penalty, reporting the 

consumer as delinquent to a credit reporting 

agency, or assessing a late fee or any other 

fee based on the consumer’s failure to make 

a payment within a specified amount of time 

or by a specified date. When an account is 

not eligible or ceases to be eligible for a grace 

period, imposing a finance charge due to a 

periodic interest rate does not constitute 

treating a payment as late for purposes of 

§ 226.5(b)(2)(ii). 

3. Payment due date. For purposes of 

§ 226.5(b)(2)(ii), ‘‘payment due date’’ means 

the date by which the creditor requires the 

consumer to make the required minimum 

periodic payment in order to avoid being 

treated as late for any purpose, except as set 

forth in paragraphs i. and ii. below. 

i. Courtesy period following payment due 

date. Although the terms of the account 

agreement may require that payment be made 

by a certain date, some creditors provide an 

additional period of time after that date 

during which a late payment fee will not be 

assessed. In some cases, this period is set 

forth in the account agreement while in 

others it is provided as an informal policy or 

practice. Regardless, for purposes of 

§ 226.5(b)(2)(ii), the payment due date is the 

due date according to the legal obligation 

between the parties, not the end of the 

additional period of time. For example, if an 

account agreement for a home equity plan 

subject to the requirements of § 226.5b 

provides that payment is due on the first day 

of the month but a late payment fee will not 

be assessed if the payment is received by the 

fifteenth day of the month, the payment due 

date for purposes of § 226.5(b)(2)(ii) is the 

first day of the month. Similarly, if a 


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cardholder agreement provides that payment 

is due on the fifteenth day of the month but, 

under the creditor’s informal ‘‘courtesy’’ 

period, a late payment fee will not be 

assessed if the payment is received by the 

eighteenth day of the month, the payment 

due date for purposes of § 226.5(b)(2)(ii) is 

the fifteenth day of the month. 

ii. Laws affecting assessment of late 

payment and other fees. Some state or other 

laws require that a certain number of days 

must elapse following a due date before a late 

payment or other fee may be imposed. For 

example, assume that the account agreement 

provides that payment is due on the fifteenth 

day of the month but, under state law, the 

creditor is prohibited from assessing a late 

payment fee until the twenty-sixth day of the 

month. For purposes of § 226.5(b)(2)(ii), the 

payment due date is the due date according 

to the legal obligation between the parties 

(the fifteenth day of the month), not the date 

before which state law prohibits the 

imposition of a late payment fee (the twentysixth day of the month). 

4. Definition of grace period. For purposes 

of § 226.5(b)(2)(ii), ‘‘grace period’’ means a 

period within which any credit extended 

may be repaid without incurring a finance 

charge due to a periodic interest rate. A 

deferred interest or similar promotional 

program under which the consumer is not 

obligated to pay interest that accrues on a 

balance if that balance is paid in full prior 

to the expiration of a specified period of time 

is not a grace period for purposes of 

§ 226.5(b)(2)(ii). Similarly, a courtesy period 

following the payment due date is not a grace 

period for purposes of § 226.5(b)(2)(ii). See 

comment 5(b)(2)(ii)–3.i. 

5. Consumer request to pick up periodic 

statements. When a consumer initiates a 

request, the creditor may permit, but may not 

require, the consumer to pick up periodic 

statements. If the consumer wishes to pick up 

a statement, the statement must be made 

available in accordance with § 226.5(b)(2)(ii). 

6. Deferred-payment transactions. See 

comment 7–3.iv. 

* * * * * 

Section 226.7 Periodic Statement 

* * * * * 

3. * * * 

iv. Free-ride or grace period. Assuming 

monthly billing cycles ending at month-end 

and a free-ride or grace period ending on the 

25th of the following month, here are four 

examples illustrating how a creditor may 

comply with the requirement to disclose the 

free-ride or grace period applicable to a 

deferred payment balance ($500 in this 

example) and with the 21-day rule for 

mailing or delivering periodic statements (see 

§ 226.5): 

* * * * * 

D. If the due date for the deferred payment 

balance is March 7 (instead of March 31), the 

creditor could include the $500 purchase and 

its due date on the periodic statement 

reflecting activity for January and sent on 

February 1, the most recent statement sent at 

least 21 days prior to the due date. 

* * * * * 

Section 226.9 Subsequent Disclosure 

Requirements 

* * * * * 

9(c) Change in terms. 

9(c)(1) Rules affecting home-equity plans 

and open-end plans that are not credit card 

accounts. 

1. Changes initially disclosed. No notice of 

a change in terms need be given if the 

specific change is set forth initially, such as: 

rate increases under a properly disclosed 

variable-rate plan, a rate increase that occurs 

when an employee has been under a 

preferential rate agreement and terminates 

employment, or an increase that occurs when 

the consumer has been under an agreement 

to maintain a certain balance in a savings 

account in order to keep a particular rate and 

the account balance falls below the specified 

minimum. In contrast, notice must be given 

if the contract allows the creditor to increase 

the rate at its discretion but does not include 

specific terms for an increase (for example, 

when an increase may occur under the 

creditor’s contract reservation right to 

increase the periodic rate). The rules in 

§ 226.5b(f) relating to home-equity plans, 

however, limit the ability of a creditor to 

change the terms of such plans. 

2. State law issues. Examples of issues not 

addressed by § 226.9(c)(1) because they are 

controlled by state or other applicable law 

include: 

i. The types of changes a creditor may 

make. (But see § 226.5b(f).) 

ii. How changed terms affect existing 

balances, such as when a periodic rate is 

changed and the consumer does not pay off 

the entire existing balance before the new 

rate takes effect. 

3. Change in billing cycle. Whenever the 

creditor changes the consumer’s billing cycle, 

it must give a change-in-terms notice if the 

change either affects any of the terms 

required to be disclosed under § 226.6 or 

increases the minimum payment, unless an 

exception under § 226.9(c)(1)(ii) applies; for 

example, the creditor must give advance 

notice if the creditor initially disclosed a 25- 

day free-ride period on purchases and the 

consumer will have fewer days during the 

billing cycle change. 

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

1. Affected consumers. Change-in-terms 

notices need only go to those consumers who 

may be affected by the change. For example, 

a change in the periodic rate for check 

overdraft credit need not be disclosed to 

consumers who do not have that feature on 

their accounts. 

2. Timing—effective date of change. The 

rule that the notice of the change in terms be 

provided at least 15 days before the change 

takes effect permits mid-cycle changes when 

there is clearly no retroactive effect, such as 

the imposition of a transaction fee. Any 

change in the balance computation method, 

in contrast, would need to be disclosed at 

least 15 days prior to the billing cycle in 

which the change is to be implemented. 

3. Timing—advance notice not required. 

Advance notice of 15 days is not necessary— 

that is, a notice of change in terms is 

required, but it may be mailed or delivered 

as late as the effective date of the change— 

in two circumstances: 

i. If there is an increased periodic rate or 

any other finance charge attributable to the 

consumer’s delinquency or default. 

ii. If the consumer agrees to the particular 

change. This provision is intended for use in 

the unusual instance when a consumer 

substitutes collateral or when the creditor 

can advance additional credit only if a 

change relatively unique to that consumer is 

made, such as the consumer’s providing 

additional security or paying an increased 

minimum payment amount. Therefore, the 

following are not ‘‘agreements’’ between the 

consumer and the creditor for purposes of 

§ 226.9(c)(1)(i): The consumer’s general 

acceptance of the creditor’s contract 

reservation of the right to change terms; the 

consumer’s use of the account (which might 

imply acceptance of its terms under state 

law); and the consumer’s acceptance of a 

unilateral term change that is not particular 

to that consumer, but rather is of general 

applicability to consumers with that type of 

account. 

4. Form of change-in-terms notice. A 

complete new set of the initial disclosures 

containing the changed term complies with 

§ 226.9(c)(1)(i) if the change is highlighted in 

some way on the disclosure statement, or if 

the disclosure statement is accompanied by 

a letter or some other insert that indicates or 

draws attention to the term change. 

5. Security interest change—form of notice. 

A copy of the security agreement that 

describes the collateral securing the 

consumer’s account may be used as the 

notice, when the term change is the addition 

of a security interest or the addition or 

substitution of collateral. 

6. Changes to home-equity plans entered 

into on or after November 7, 1989. Section 

226.9(c)(1) applies when, by written 

agreement under § 226.5b(f)(3)(iii), a creditor 

changes the terms of a home-equity plan— 

entered into on or after November 7, 1989— 

at or before its scheduled expiration, for 

example, by renewing a plan on terms 

different from those of the original plan. In 

disclosing the change: 

i. If the index is changed, the maximum 

annual percentage rate is increased (to the 

limited extent permitted by § 226.30), or a 

variable-rate feature is added to a fixed-rate 

plan, the creditor must include the 

disclosures required by § 226.5b(d)(12)(x) 

and (d)(12)(xi), unless these disclosures are 

unchanged from those given earlier. 

ii. If the minimum payment requirement is 

changed, the creditor must include the 

disclosures required by § 226.5b(d)(5)(iii) 

(and, in variable-rate plans, the disclosures 

required by § 226.5b(d)(12)(x) and (d)(12)(xi)) 

unless the disclosures given earlier contained 

representative examples covering the new 

minimum payment requirement. (See the 

commentary to § 226.5b(d)(5)(iii), (d)(12)(x) 

and (d)(12)(xi) for a discussion of 

representative examples.) 

iii. When the terms are changed pursuant 

to a written agreement as described in 

§ 226.5b(f)(3)(iii), the advance-notice 

requirement does not apply. 

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

1. Changes not requiring notice. The 

following are examples of changes that do 

not require a change-in-terms notice: 


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36098 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

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

ii. A change in the name of the credit card 

or credit card plan. 

iii. The substitution of one insurer for 

another. 

iv. A termination or suspension of credit 

privileges. (But see § 226.5b(f).) 

v. Changes arising merely by operation of 

law; for example, if the creditor’s security 

interest in a consumer’s car automatically 

extends to the proceeds when the consumer 

sells the car. 

2. Skip features. If a credit program allows 

consumers to skip or reduce one or more 

payments during the year, or involves 

temporary reductions in finance charges, no 

notice of the change in terms is required 

either prior to the reduction or upon 

resumption of the higher rates or payments 

if these features are explained on the initial 

disclosure statement (including an 

explanation of the terms upon resumption). 

For example, a merchant may allow 

consumers to skip the December payment to 

encourage holiday shopping, or a teachers’ 

credit union may not require payments 

during summer vacation. Otherwise, the 

creditor must give notice prior to resuming 

the original schedule or rate, even though no 

notice is required prior to the reduction. The 

change-in-terms notice may be combined 

with the notice offering the reduction. For 

example, the periodic statement reflecting 

the reduction or skip feature may also be 

used to notify the consumer of the 

resumption of the original schedule or rate, 

either by stating explicitly when the higher 

payment or charges resume, or by indicating 

the duration of the skip option. Language 

such as ‘‘You may skip your October 

payment,’’ or ‘‘We will waive your finance 

charges for January,’’ may serve as the 

change-in-terms notice. 

9(c)(1)(iii) Notice for home-equity plans. 

1. Written request for reinstatement. If a 

creditor requires the request for 

reinstatement of credit privileges to be in 

writing, the notice under § 226.9(c)(1)(iii) 

must state that fact. 

2. Notice not required. A creditor need not 

provide a notice under this paragraph if, 

pursuant to the commentary to § 226.5b(f)(2), 

a creditor freezes a line or reduces a credit 

line rather than terminating a plan and 

accelerating the balance. 

9(c)(2) Rules affecting credit card accounts 

that are not home-secured. 

1. Changes initially disclosed. Except as 

provided in § 226.9(g)(1), no notice of a 

change in terms need be given if the specific 

change is set forth initially, such as rate 

increases under a properly disclosed 

variable-rate plan. In contrast, notice must be 

given if the contract allows the creditor to 

increase the rate at its discretion. 

2. State law issues. Some issues are not 

addressed by § 226.9(c)(2) because they are 

controlled by state or other applicable law. 

These issues include: 

i. The types of changes a creditor may 

make. 

ii. How changed terms affect existing 

balances, such as when a periodic rate is 

changed and the consumer does not pay off 

the entire existing balance before the new 

rate takes effect. 

3. Change in billing cycle. Whenever the 

creditor changes the consumer’s billing cycle, 

it must give a change-in-terms notice if the 

change affects any of the terms described in 

§ 226.9(c)(2)(i) and (c)(2)(ii), unless an 

exception under § 226.9(c)(2)(v) applies; for 

example, the creditor must give advance 

notice if the creditor initially disclosed a 28- 

day grace period on purchases and the 

consumer will have fewer days during the 

billing cycle change. 

9(c)(2)(i) Changes where written advance 

notice is required. 

1. Affected consumers. Change-in-terms 

notices need only go to those consumers who 

may be affected by the change. For example, 

a change in the periodic rate for check 

overdraft credit need not be disclosed to 

consumers who do not have that feature on 

their accounts. If a single credit account 

involves multiple consumers that may be 

affected by the change, the creditor should 

refer to § 226.5(d) to determine the number 

of notices that must be given. 

2. Timing—effective date of change. The 

rule that the notice of the change in terms be 

provided at least 45 days before the change 

takes effect permits mid-cycle changes when 

there is clearly no retroactive effect, such as 

the imposition of a transaction fee. Any 

change in the balance computation method, 

in contrast, would need to be disclosed at 

least 45 days prior to the billing cycle in 

which the change is to be implemented. 

3. Timing—advance notice not required. 

Advance notice of 45 days is not necessary— 

that is, a notice of change in terms is 

required, but it may be mailed or delivered 

as late as the effective date of the change, if 

the consumer agrees to the particular change. 

This provision is intended for use in the 

unusual instance when a consumer 

substitutes collateral or when the creditor 

can advance additional credit only if a 

change relatively unique to that consumer is 

made, such as the consumer’s providing 

additional security or paying an increased 

minimum payment amount. Therefore, the 

following are not ‘‘agreements’’ between the 

consumer and the creditor for purposes of 

§ 226.9(c)(2)(i): The consumer’s general 

acceptance of the creditor’s contract 

reservation of the right to change terms; the 

consumer’s use of the account (which might 

imply acceptance of its terms under state 

law); and the consumer’s acceptance of a 

unilateral term change that is not particular 

to that consumer, but rather is of general 

applicability to consumers with that type of 

account. 

4. Security interest change—form of notice. 

A copy of the security agreement that 

describes the collateral securing the 

consumer’s account may be used as the 

notice, when the term change is the addition 

of a security interest or the addition or 

substitution of collateral. 

9(c)(2)(iii) Charges not covered by 

§ 226.9(c)(2)(i). 

1. Applicability. Generally, if a creditor 

increases any component of a charge, or 

introduces a new charge, for a credit card 

account under an open-end (not homesecured) consumer credit plan that is not 

subject to the disclosure requirements under 

§ 226.9(c)(2)(i), the creditor may either, at its 

option (i) provide at least 45 days’ written 

advance notice before the change becomes 

effective to comply with the requirements of 

§ 226.9(c)(2)(i), or (ii) provide notice orally or 

in writing, or electronically if the consumer 

requests the service electronically, of the 

amount of the charge to an affected consumer 

before the consumer agrees to or becomes 

obligated to pay the charge, at a time and in 

a manner that a consumer would be likely to 

notice the disclosure. For example, a fee for 

expedited delivery of a credit card is a charge 

on a credit card account under an open-end 

(not home-secured) consumer credit plan but 

is not described in § 226.9(c)(2)(i). If a 

creditor changes the amount of that 

expedited delivery fee, the creditor may 

provide written advance notice of the change 

to affected consumers at least 45 days before 

the change becomes effective. Alternatively, 

the creditor may provide oral or written 

notice, or electronic notice if the consumer 

requests the service electronically, of the 

amount of the charge to an affected consumer 

before the consumer agrees to or becomes 

obligated to pay the charge, at a time and in 

a manner that the consumer would be likely 

to notice the disclosure. 

9(c)(2)(iv) Disclosure requirements— 

changes to terms described in paragraph 

(c)(2)(i). 

1. Clear and conspicuous standard. See 

comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

disclosures required under § 226.9(c)(2)(i). 

2. Form of change-in-terms notice. A 

complete new set of the initial disclosures 

containing the changed term complies with 

§ 226.9(c)(2)(i) if the change is highlighted on 

the disclosure statement, or if the disclosure 

statement is accompanied by a letter or some 

other insert that indicates or draws attention 

to the term being changed. 

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

1. Changes not requiring notice. The 

following are examples of changes that do 

not require a change-in-terms notice: 

i. A change in the consumer’s credit limit 

except as otherwise required by 

§ 226.9(c)(2)(vi). 

ii. A change in the name of the credit card 

or credit card plan. 

iii. The substitution of one insurer for 

another. 

iv. A termination or suspension of credit 

privileges. 

v. Changes arising merely by operation of 

law; for example, if the creditor’s security 

interest in a consumer’s car automatically 

extends to the proceeds when the consumer 

sells the car. 

2. Skip features. If a credit program allows 

consumers to skip or reduce one or more 

payments during the year, or involves 

temporary reductions in finance charges, no 

notice of the change in terms is required 

either prior to the reduction or upon 

resumption of the higher rates or payments 

if these features are explained on the 

account-opening disclosure statement 

(including an explanation of the terms upon 

resumption). For example, a merchant may 

allow consumers to skip the December 

payment to encourage holiday shopping, or 

a teacher’s credit union may not require 

payments during summer vacation. 


jlentini on DSKJ8SOYB1PROD with RULES
Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 36099 

Otherwise, the creditor must give notice prior 

to resuming the original schedule or rate 

even though no notice is required prior to the 

reduction, unless the creditor has previously 

provided notice of an increase in the annual 

percentage rate upon the expiration of a 

specified period of time in accordance with 

§ 226.9(c)(v)(B). 

3. Changing from a variable rate to a nonvariable rate. If a creditor is changing a rate 

applicable to a consumer’s account from a 

variable rate to a non-variable rate, the 

creditor must provide a notice as otherwise 

required under § 226.9(c) even if the variable 

rate at the time of the change is higher than 

the non-variable rate. 

4. Changing from a non-variable rate to a 

variable rate. If a creditor is changing a rate 

applicable to a consumer’s account from a 

non-variable rate to a variable rate, the 

creditor must provide a notice as otherwise 

required under § 226.9(c) even if the nonvariable rate is higher than the variable rate 

at the time of the change. 

5. Disclosure of annual percentage rates. If 

a rate disclosed pursuant to 

§ 226.9(c)(2)(v)(B) or (c)(2)(v)(D) is a variable 

rate, the creditor must disclose the fact that 

the rate may vary and how the rate is 

determined. For example, a creditor could 

state ‘‘After October 1, 2009, your APR will 

be 14.99%. This APR will vary with the 

market based on the Prime Rate.’’ 

6. Deferred interest or similar programs. If 

the applicable conditions are met, the 

exception in § 226.9(c)(2)(v)(B) applies to 

deferred interest or similar promotional 

programs under which the consumer is not 

obligated to pay interest that accrues on a 

balance if that balance is paid in full prior 

to the expiration of a specified period of 

time. For such programs, a creditor must 

disclose pursuant to § 226.9(c)(2)(v)(B)(1) the 

length of the deferred interest period and the 

rate that will apply to the balance subject to 

the deferred interest program if that balance 

is not paid in full prior to expiration of the 

deferred interest period. Examples of 

language that a creditor may use to make the 

required disclosures under 

§ 226.9(c)(2)(v)(B)(1) include: 

i. ‘‘No interest if paid in full in 6 months. 

If the balance is not paid in full in 6 months, 

interest will be imposed from the date of 

purchase at a rate of 15.99%.’’ 

ii. ‘‘No interest if paid in full by December 

31, 2010. If the balance is not paid in full by 

that date, interest will be imposed from the 

transaction date at a rate of 15%.’’ 

7. Disclosure of the terms of a workout or 

temporary hardship arrangement. In order 

for the exception in § 226.9(c)(2)(v)(D) to 

apply, the disclosure provided to the 

consumer pursuant to § 226.9(c)(2)(v)(D)(2) 

must set forth: 

i. The annual percentage rate that will 

apply to balances subject to the workout or 

temporary hardship arrangement; 

ii. The annual percentage rate that will 

apply to such balances if the consumer 

completes or fails to comply with the terms 

of the workout or temporary hardship 

arrangement; and 

iii. If applicable, that the consumer must 

make timely minimum payments in order to 

remain eligible for the workout or temporary 

hardship arrangement. 

* * * * * 

9(g) Increase in rates due to delinquency or 

default or as a penalty. 

1. Affected consumers. If a single credit 

account involves multiple consumers that 

may be affected by the change, the creditor 

should refer to § 226.5(d) to determine the 

number of notices that must be given. 

2. Combining a notice described in 

§ 226.9(g)(1) with a notice described in 

§ 226.9(c)(2)(i). If a creditor is required to 

provide notices pursuant to both 

§ 226.9(c)(2)(i) and (g)(1) to a consumer, the 

creditor may combine the two notices. This 

would occur when penalty pricing has been 

triggered, and other terms are changing on 

the consumer’s account at the same time. 

3. Clear and conspicuous standard. See 

comment 5(a)(1)–1 for the clear and 

conspicuous standard applicable to 

disclosures required under § 226.9(g). 

9(g)(4) Exceptions. 

9(g)(4)(i) Workout or temporary hardship 

arrangements. See comment 9(c)(2)(v)–6. 

9(g)(4)(ii) Decrease in credit limit. 

1. The following illustrates the 

requirements of § 226.9(g)(4)(ii). Assume that 

a creditor decreased the credit limit 

applicable to a consumer’s account and sent 

a notice pursuant to § 226.9(g)(4)(ii) on 

January 1, stating among other things that the 

penalty rate would apply if the consumer’s 

balance exceeded the new credit limit as of 

February 16. If the consumer’s balance 

exceeded the credit limit on February 16, the 

creditor could impose the penalty rate on 

that date. However, a creditor could not 

apply the penalty rate if the consumer’s 

balance did not exceed the new credit limit 

on February 16, even if the consumer’s 

balance had exceeded the new credit limit on 

several dates between January 1 and February 

15. If the consumer’s balance did not exceed 

the new credit limit on February 16 but the 

consumer conducted a transaction on 

February 17 that caused the balance to 

exceed the new credit limit, the general rule 

in § 226.9(g)(1)(ii) would apply and the 

creditor would be required to give an 

additional 45 days’ notice prior to imposition 

of the penalty rate (but under these 

circumstances the consumer would have no 

ability to cure the over-the-limit balance in 

order to avoid penalty pricing). 

9(h) Consumer rejection of significant 

change in terms or increase in annual 

percentage rate. 

9(h)(1) Right to reject. 

1. Reasonable requirements for submission 

of rejections. A creditor may establish 

reasonable requirements for the submission 

of rejections of a significant change in terms 

or other increase in an annual percentage rate 

for a credit card account. For example: 

i. It would be reasonable for a creditor to 

require that rejections be made by the 

primary account holder and that the 

consumer identify the account number. 

ii. It would be reasonable for a creditor to 

require that rejections be made only using the 

toll-free telephone number disclosed 

pursuant to § 226.9(c) or (g). It would also be 

reasonable for a creditor to designate 

additional channels for the submission of 

rejections (such as an address for rejections 

submitted by mail) so long as the creditor 

does not require that rejections be submitted 

through such additional channels. 

iii. It would be reasonable for a creditor to 

require that rejections be received before the 

effective date disclosed pursuant to § 226.9(c) 

or (g) and to treat the account as not subject 

to § 226.9(h) if a rejection is received on or 

after that date. It would not, however, be 

reasonable to require that rejections be 

submitted earlier than the day before the 

effective date. If a creditor is unable to 

process all rejections received before the 

effective date, the creditor may delay 

implementation of the change in terms or rate 

increase until all rejections have been 

processed. In the alternative, the creditor 

could implement the change or increase on 

the effective date and then, on any account 

for which a timely rejection was received, 

reverse the change or increase and remove or 

credit any interest charges or fees imposed as 

a result of the change or increase. For 

example, if the effective date for a rate 

increase is June 15 and the creditor cannot 

process all rejections received by telephone 

on June 14 until June 16, the creditor may 

delay imposition of the rate increase until 

June 17. Alternatively, the creditor could 

impose the increased rate on all affected 

accounts on June 15 and then, once all 

rejections have been processed, return any 

account for which a timely rejection was 

received to the prior rate and ensure that the 

account is not assessed any additional 

interest as a result of the increased rate or 

that the account is credited for such interest. 

2. Use of account following provision of 

notice. A consumer does not waive or forfeit 

the right to reject a significant change in 

terms or a rate increase by using the account 

for transactions prior to the effective date of 

the change or increase. Similarly, a consumer 

does not revoke a rejection by using the 

account for transactions after the rejection is 

received. If, however, the account is used for 

a transaction more than 14 days after 

provision of the § 226.9(c) or (g) notice, 

§ 226.9(h)(3)(ii) permits the creditor to apply 

the changed term or increased rate to that 

transaction even if the consumer rejects the 

change or increase before the effective date. 

See example in comment 9(h)(3)(ii)–3.i. 

9(h)(2)(i) Prohibition on applying changed 

term or increased rate. 

1. Application to promotional rates and 

deferred interest and similar programs. 

Section 226.9(h)(2)(i) provides that, when a 

creditor is notified of a rejection of a 

significant change to an account term or 

other increase in an annual percentage rate 

as provided in § 226.9(h)(1), the creditor 

must not apply the change or increase to the 

account. However, § 226.9(h)(2)(i) does not 

prohibit a creditor from applying the terms 

of a pre-existing promotional rate or deferred 

interest or similar program. The following 

examples illustrate the application of 

§ 226.9(h)(2)(i) in these circumstances: 

i. Promotional rates. Assume that a credit 

card account is opened on January 1 of year 

one and that, on December 31 of year one, 

the creditor notifies the consumer of the 

following promotional rate offer: A nonvariable annual percentage rate of 5% will 


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36100 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

apply to purchases for nine months (from 

January 1 through September 30 of year two) 

and, beginning on October 1, the rate for 

purchases will increase to a non-variable rate 

of 15%. The required minimum periodic 

payment due on July 5 is not received by the 

creditor until July 15. On July 15, the account 

has a purchase balance of $1,000 at the 5% 

rate. On that same date, the creditor provides 

a notice pursuant to § 226.9(g) informing the 

consumer that, consistent with the terms of 

the cardholder agreement, the rate on the 

$1,000 balance and for new purchases will 

increase to a 30% penalty rate on August 29. 

The notice further states that the consumer 

may reject the increase by calling a specified 

toll-free telephone number before August 29 

but that, if the consumer does so, credit 

availability for the account will be 

terminated. On July 31, the consumer calls 

the toll-free telephone number and rejects the 

increase. Section 226.9(h)(2)(i) prohibits the 

creditor from increasing the rate applicable to 

the $1,000 balance at this time. However, 

consistent with the terms of the promotional 

rate offer, § 226.9(h)(2)(i) does not prohibit 

the creditor from beginning to accrue interest 

on any remaining portion of the $1,000 

balance at 15% on October 1. Furthermore, 

pursuant to § 226.9(c)(2)(v)(B), the creditor is 

not required to provide advance notice of this 

increase. 

ii. Deferred interest and similar programs. 

Assume that a credit card account is opened 

on January 1 of year one and that, on 

December 31 of year one, the creditor notifies 

the consumer of the following promotional 

program: Interest on purchases made during 

the months of January through June of year 

two will accrue at a non-variable annual 

percentage rate of 15% but the consumer will 

not be obligated to pay that accrued interest 

if all required minimum periodic payments 

are received by the creditor on or before the 

payment due date and all purchases made 

during the six-month period are paid in full 

by December 31 of year two. On January 15 

of year two, the consumer uses the account 

for a $1,000 purchase. The payment due on 

September 1 of year two is not received by 

the creditor until September 15. On that same 

date, the creditor provides a notice pursuant 

to § 226.9(g) informing the consumer that on 

October 30, consistent with the terms of the 

promotional program, interest accrued on the 

$1,000 purchase at 15% since January 15 will 

be added to the outstanding balance account. 

The notice also states that the consumer may 

reject the addition of accrued interest to the 

outstanding balance by calling a specified 

toll-free telephone number before October 30 

but that, if the consumer does so, credit 

availability for the account will be 

terminated. On October 1, the consumer calls 

the toll-free telephone number and exercises 

the right to reject. Section 226.9(h)(2)(i) 

prohibits the creditor from adding the 

accrued interest to the outstanding balance at 

this time. However, on January 1 of year 

three, § 226.9(h)(2)(i) does not prohibit the 

creditor from, consistent with the terms of 

the promotional program, adding interest 

accrued on the $1,000 purchase at 15% since 

January 15 of year two to the outstanding 

balance if the $1,000 purchase is not paid in 

full by December 31 of year two. 

Furthermore, pursuant to § 226.9(c)(2)(v)(B), 

the creditor is not required to provide 

advance notice of this increase. 

9(h)(2)(ii) Prohibition on penalties. 

1. Solely as a result of rejection. A creditor 

is prohibited from imposing a fee or charge 

or treating an account as in default solely as 

a result of the consumer’s rejection of a 

significant change in terms or a rate increase. 

For example, a creditor is prohibited from 

imposing a monthly maintenance fee that 

would be charged only if the consumer 

rejected the change or increase. A creditor is 

not, however, prohibited from continuing to 

charge a fee that was charged before the 

rejection. For example, a creditor that 

charged a periodic fee or a fee for late 

payment before a change or increase was 

rejected is not prohibited from charging those 

fees after rejection of the change or increase. 

2. Termination of credit availability. 

Section 226.9(h)(2)(ii) does not prohibit a 

creditor from terminating or suspending 

credit availability if the consumer rejects a 

significant change in terms or a rate increase. 

If, however, the creditor elects not to 

terminate or suspend credit availability for 

consumers who reject a change or increase, 

§ 226.9(h)(3)(ii) permits the creditor to apply 

the changed term or increased rate to 

transactions that occur more than 14 days 

after provision of the § 226.9(c) or (g) notice. 

See example in comment 9(h)(3)(ii)–3.ii. 

9(h)(2)(iii) Repayment of outstanding 

balance. 

1. No less beneficial to the consumer. A 

creditor may provide a method of repaying 

the balance subject to § 226.9(h)(2)(iii) that is 

different from the methods listed in 

§ 226.9(h)(2)(iii) so long as the method used 

is no less beneficial to the consumer than one 

of the listed methods. A method is no less 

beneficial to the consumer if the method 

results in a required minimum periodic 

payment that is equal to or less than a 

minimum payment calculated using the 

method for the account prior to the date on 

which the creditor received the rejection. 

Similarly, a method is no less beneficial to 

the consumer if the method amortizes the 

balance in five years or longer or if the 

method results in a required minimum 

periodic payment that is equal to or less than 

a minimum payment calculated consistent 

with § 226.9(h)(2)(iii)(C). For example: 

i. If at account opening the cardholder 

agreement stated that the required minimum 

periodic payment would be either the total of 

fees and interest charges plus 1% of the total 

amount owed or $20 (whichever is greater), 

the creditor may require the consumer to 

make a minimum payment of $20 even if 

doing so would pay off the balance in less 

than five years or constitute more than 2% 

of the balance plus fees and interest charges. 

ii. A creditor could increase the percentage 

of the balance included in the required 

minimum periodic payment from 2% to 5% 

so long as doing so would not result in 

amortization of the balance in less than five 

years. 

iii. A creditor could require the consumer 

to make a required minimum periodic 

payment that amortizes the balance in four 

years so long as doing so would not more 

than double the percentage of the balance 

included in the minimum payment prior to 

the date on which the creditor was notified 

of the rejection. 

9(h)(2)(iii)(B) Five-year amortization 

period. 

1. Amortization period starting from date 

on which creditor was notified of rejection. 

Section 226.9(h)(2)(iii)(B) provides for an 

amortization period for the balance subject to 

§ 226.9(h)(2)(iii) of no less than five years, 

beginning no earlier than the date on which 

the creditor was notified of the rejection. A 

creditor is not required to recalculate the 

required minimum periodic payment for the 

balance if, during the amortization period, 

the balance is reduced as a result of 

payments by the consumer in excess of that 

minimum payment. 

2. Amortization when applicable rate is 

variable. If the annual percentage rate that 

applies to the balance subject to 

§ 226.9(h)(2)(iii) varies with an index, the 

creditor may adjust the interest charges 

included in the required minimum periodic 

payment for that balance accordingly in order 

to ensure that the balance is amortized in five 

years. For example, assume that a variable 

rate that is currently 15% applies to a 

balance subject to § 226.9(h)(2)(iii) and that, 

in order to amortize that balance in five 

years, the required minimum periodic 

payment must include a specific amount of 

principal plus all accrued interest charges. If 

the 15% variable rate increases due to an 

increase in the index, the creditor may 

increase the required minimum periodic 

payment to include the additional interest 

charges. 

9(h)(2)(iii)(C) Doubling repayment rate. 

1. Example. Assume that the method used 

by a creditor to calculate the required 

minimum periodic payment for a credit card 

account requires the consumer to pay either 

the total of fees and accrued interest charges 

plus 2% of the total amount owed or $50, 

whichever is greater. Assume also that, on 

the date on which the creditor is notified of 

the rejection, the account has a balance 

subject to § 226.9(h)(2)(iii) of $2,000. 

Following rejection, § 226.9(h)(2)(iii)(C) 

permits the creditor to require the consumer 

to pay fees and interest plus 4% of the $2,000 

balance or $50, whichever is greater. 

9(h)(3) Exceptions. 

1. Additional circumstances in which 

§ 226.9(h) does not apply. As a general 

matter, § 226.9(h) applies when 

§ 226.9(c)(2)(iv) or (g)(3) require disclosure of 

the consumer’s right to reject a significant 

change to an account term or other increase 

in an annual percentage rate. Accordingly, in 

addition to the circumstances listed in 

§ 226.9(h)(3), § 226.9(h) does not apply to 

home equity plans subject to the 

requirements of § 226.5b that are accessible 

by a credit or charge card because 

§ 226.9(c)(2) and 226.9(g) do not apply to 

such plans. Similarly, § 226.9(h) does not 

apply when the required minimum periodic 

payment is increased because 

§ 226.9(c)(2)(iv) does not require disclosure 

of the right to reject in those circumstances. 

9(h)(3)(i) Delinquencies of more than 60 

days. 

1. Examples. Section 226.9(h)(3)(i) 

provides that § 226.9(h) does not apply when 


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Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 36101 

the creditor has not received the consumer’s 

required minimum periodic payment within 

60 days after the due date for that payment. 

The following examples illustrate the 

application of this exception: 

i. Account becomes more than 60 days 

delinquent before notice provided. Assume 

that a credit card account is opened on 

January 1 of year one and that the payment 

due date for the account is the fifteenth day 

of the month. On June 20 of year two, the 

account has a purchase balance of $5,000 at 

a non-variable annual percentage rate of 17% 

and the creditor has not received the required 

minimum periodic payments due on April 

15, May 15, and June 15. On June 20, the 

creditor provides a notice pursuant to 

§ 226.9(g) informing the consumer that, 

consistent with the terms of the cardholder 

agreement, the rate for the $5,000 balance 

and for new purchases will increase to a nonvariable penalty rate of 28% on August 4. 

Because the creditor has not received the 

April 15 minimum payment within 60 days 

after the due date, the exception in 

§ 226.9(h)(3)(i) applies and the consumer 

may not reject the rate increase. Even if the 

consumer closes or cancels the account 

before August 4, the creditor may apply the 

increased rate to the $5,000 balance. 

ii. Account becomes more than 60 days 

delinquent after rejection. Assume that a 

credit card account is opened on January 1 

of year one and that the payment due date 

for the account is the fifteenth day of the 

month. On April 20 of year two, the account 

has a purchase balance of $2,000 at a nonvariable annual percentage rate of 15% and 

the creditor has not received the required 

minimum periodic payment due on April 15. 

On April 20, the creditor provides a notice 

pursuant to § 226.9(g) informing the 

consumer that, consistent with the terms of 

the cardholder agreement, the rate for the 

$2,000 balance and for new purchases will 

increase to a non-variable penalty rate of 

28% on June 4. The notice further states that 

the consumer may reject the increase by 

calling a specified toll-free telephone number 

before June 4 but that, if the consumer does 

so, credit availability for the account will be 

terminated. On May 5, the consumer calls the 

toll-free telephone number and rejects the 

increase. On June 4, § 226.9(h) prohibits the 

creditor from applying the 28% rate to the 

$2,000 balance. If, however, the creditor does 

not receive the minimum payments due on 

April 15 and May 15 by June 15, 

§ 226.9(h)(3)(i) permits the creditor to 

increase the rate that applies to the $2,000 

balance. The creditor must comply with the 

notice requirements of § 226.9(g), but the 

consumer may not reject the increase. 

Similarly, the restrictions in § 226.9(h)(2)(ii) 

and (iii) no longer apply to the $2,000 

balance. 

9(h)(3)(ii) Transactions that occur more 

than 14 days after provision of notice. 

1. Application of § 226.9(h)(3)(ii). Section 

226.9(h)(3)(ii) permits a creditor to apply a 

changed term or increased rate to 

transactions that occur more than 14 days 

after provision of the notice required by 

§ 226.9(c) or (g). Section 226.9(h)(3)(ii) does 

not, however, permit a creditor to reach back 

to days before the effective date of the change 

in terms or rate increase when calculating 

interest charges. See examples in comment 

9(h)(3)(ii)–3. Furthermore, because the 

exception in § 226.9(h)(3)(ii) is limited to 

changed terms and increased rates that can 

be applied to transactions, it does not permit 

a creditor to apply a changed term to the 

entire account simply because the account 

was used for a transaction more than 14 days 

after provision of a § 226.9(c) or (g) notice. 

For example, if a consumer rejects an 

increase in a periodic fee or late payment fee, 

the creditor is prohibited from applying the 

increased fee to the account even if the 

account is used for a transaction more than 

14 days after provision of the § 226.9(c) 

notice. In contrast, § 226.9(h)(3)(ii) does 

permit a creditor to apply an increased rate 

or a transaction fee to a transaction that 

occurred more than 14 days after provision 

of the § 226.9(c) or (g) notice so long as that 

increased rate or transaction fee is not 

applied to other transactions. See examples 

in comment 9(h)(3)(ii)–3. 

2. More than 14 days after provision of 

notice. Whether a transaction occurred prior 

to provision of a notice or within 14 days 

after provision of a notice is generally 

determined by the date of the transaction. 

However, if a transaction that occurred 

within 14 days after provision of the notice 

is not charged to the account prior to the 

effective date of the change or increase, the 

creditor may treat the transaction as 

occurring more than 14 days after provision 

of the notice for purposes of § 226.9(h)(3)(ii). 

See example in comment 9(h)(3)(ii)–3.iv. In 

addition, when a merchant places a ‘‘hold’’ 

on the available credit on an account for an 

estimated transaction amount because the 

actual transaction amount will not be known 

until a later date, the date of the transaction 

for purposes of § 226.9(h)(3)(ii) is the date on 

which the actual transaction amount is 

charged to the account. See example in 

comment 9(h)(3)(ii)-3.iii. 

3. Examples. The following examples 

illustrate the application of § 226.9(h)(3)(ii): 

i. Use of account after notice provided. 

Assume that a credit card account is opened 

on January 1 of year one. On March 14 of 

year two, the account has a purchase balance 

of $2,000 at a non-variable annual percentage 

rate of 15%. On March 15, the creditor 

provides a notice pursuant to § 226.9(c) 

informing the consumer that the rate for the 

$2,000 balance and for new purchases will 

increase to a non-variable rate of 18% on 

April 30. The notice further states that the 

consumer may reject the increase by calling 

a specified toll-free telephone number before 

April 30 but that, if the consumer does so, 

credit availability for the account will be 

terminated. The fourteenth day after 

provision of the notice is March 29 and, on 

that date, the consumer makes a $200 

purchase. On March 30, the consumer makes 

a $500 purchase. On April 1, the consumer 

calls the toll-free telephone number and 

rejects the increase. On April 5, a $150 

automated recurring charge is honored by the 

creditor. On April 30, § 226.9(h)(3)(ii) 

permits the creditor to begin accruing interest 

at 18% on the $500 purchase made on March 

30 and the $150 transaction made on April 

5. The creditor may not, however, apply the 

18% rate to the $2,200 purchase balance as 

of March 29 because that balance reflects 

transactions that occurred prior to or within 

14 days of the provision of the § 226.9(c) 

notice. Similarly, the restrictions in 

§ 226.9(h)(2)(ii) and (iii) apply to the $2,200 

purchase balance as of March 29 but not the 

$500 purchase made on March 30 and the 

$150 charge made on April 5. 

ii. Credit availability not terminated after 

rejection. Same facts as paragraph i. above 

except that the § 226.9(c) notice does not 

state that the creditor will terminate credit 

availability if the consumer rejects the 

increase, which the consumer does on April 

1. On April 30, § 226.9(h)(3)(ii) permits the 

creditor to begin accruing interest at 18% on 

the $500 purchase made on March 30 and the 

$150 transaction made on April 5. The 

creditor may not, however, apply the 18% 

rate to the $2,200 purchase balance as of 

March 29 because that balance reflects 

transactions that occurred prior to or within 

14 days of the provision of the § 226.9(c) 

notice. Similarly, the restrictions in 

§ 226.9(h)(2)(ii) and (iii) apply to the $2,200 

purchase balance as of March 29 but not the 

$500 purchase made on March 30 and the 

$150 charge made on April 5. 

iii. Hold on available credit. Assume that 

a credit card account is opened on January 

1 of year one. On September 14 of year two, 

the account has a purchase balance of $1,000 

at a non-variable annual percentage rate of 

17%. On September 15, the creditor provides 

a notice pursuant to § 226.9(c) informing the 

consumer that the rate for the $1,000 balance 

and for new purchases will increase to a nonvariable rate of 20% on October 30. The 

notice further states that the consumer may 

reject the increase by calling a specified tollfree telephone number before October 30 but 

that, if the consumer does so, credit 

availability for the account will be 

terminated. The fourteenth day after 

provision of the notice is September 29. On 

that date, the consumer uses the credit card 

to check into a hotel and the hotel obtains 

authorization for a $750 hold on the account 

to ensure there is adequate available credit to 

cover the anticipated cost of the stay. On 

October 1, the consumer calls the toll-free 

telephone number and rejects the increase. 

When the consumer checks out of the hotel 

on October 2, the actual cost of the stay is 

$850 because of additional incidental costs. 

On October 2, the $850 transaction is charged 

to the account by the hotel and honored by 

the creditor. For purposes of § 226.9(h)(3)(ii), 

the transaction occurred on October 2. 

iv. Transaction charged to account after 

effective date. Same facts as paragraph iii. 

above except that the $850 transaction is not 

charged to the account by the hotel until 

November 1. For purposes of § 226.9(h)(3)(ii), 

the creditor may treat the transaction as 

occurring more than 14 days after provision 

of the § 226.9(c) notice (i.e., after September 

29). 

* * * * * 


jlentini on DSKJ8SOYB1PROD with RULES
36102 Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / Rules and Regulations 

By order of the Board of Governors of the 

Federal Reserve System, July 15, 2009. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. E9–17195 Filed 7–21–09; 8:45 am] 

BILLING CODE 6210–01–P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 707 

RIN 3133–AD57 

Truth in Savings 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Final rule. 

SUMMARY: NCUA is amending its Truth 

in Savings rule and official staff 

interpretation to remove the provisions 

regarding the electronic delivery of 

disclosures. The official staff 

interpretations are amended to include 

guidance on electronic disclosures. 

Additionally, NCUA is amending the 

rule to require all credit unions to 

disclose aggregate overdraft fees on 

periodic statements regardless of 

whether they promote the payment of 

overdrafts. The final rule also addresses 

account balance disclosures provided to 

members through automated systems. 

DATES: This rule is effective January 1, 

2010. 

FOR FURTHER INFORMATION CONTACT: 

Moisette Green, Staff Attorney, Office of 

General Counsel, National Credit Union 

Administration, 1775 Duke Street, 

Alexandria, Virginia 22314–3428, or 

telephone: (703) 518–6540. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Truth in Savings Act (TISA) 

requires NCUA to promulgate 

regulations substantially similar to those 

promulgated by the Federal Reserve 

Board (FRB). 12 U.S.C. 4311(b). In doing 

so, NCUA is to take into account the 

unique nature of credit unions and the 

limitations under which they pay 

dividends on member accounts. In 

March 2009, NCUA proposed 

amendments to its TISA rule to align it 

with recent changes the Federal Reserve 

Board made to Regulation DD. See 74 

FR 13129 (March 26, 2009). 

As required by the Truth in Savings 

Act (TISA), NCUA proposed to amend 

its TISA rule and official staff 

interpretation to align it with the 

Federal Reserve Board’s Regulation DD. 

Specifically, the proposed rule 

contained the provisions and guidance 

on the electronic delivery of disclosures. 

Additionally, NCUA proposed to amend 

the rule and the official staff 

commentary to require all credit unions 

to disclose aggregate overdraft fees on 

periodic statements. The proposed rule 

also addressed balance disclosures 

credit unions provide to members 

through automated systems. 

II. Comments and the Final Rule 

NCUA is adopting the rule as it was 

proposed with minor changes. 

Specifically, the final rule amends 

§ 707.1 to include the Office of 

Management and Budget approval 

number for the information collections 

in the rule and includes a minor 

technical correction to the sample form 

in Appendix B–12 for formatting 

purposes. 

NCUA received comments from two 

credit unions and two trade 

associations. One credit union 

supported the proposal to withdraw the 

provisions regulating electronic delivery 

of disclosures under TISA and to permit 

electronic disclosures in accordance 

with the E–Sign Act, but opposed the 

proposed amendments that would 

require all credit unions to disclose the 

aggregate periodic and year-to-date fees 

charged to a member account for 

overdraft services. The credit union 

commented the amendment would be 

burdensome and act as a disincentive to 

credit unions that do not advertise or 

market overdraft programs to their 

members. NCUA must issue TISA rules 

that are substantially similar to 

Regulation DD, 12 CFR Part 230, unless 

the unique nature of credit unions and 

their payment of dividends call for 

different regulations. See 12 U.S.C. 

4311(b). The Board concludes the nature 

of credit unions and the payment of 

dividends do not give it reason to issue 

regulations regarding overdraft fees and 

the electronic delivery of disclosures 

that differ from Regulation DD. 

The second credit union commenter 

requested a final rule become effective 

no earlier than January 1, 2010, to give 

credit unions sufficient time to make the 

necessary operational changes and 

educate members. The Board is aware 

that credit unions have anticipated 

amendments to Part 707 since the 

Federal Reserve Board issued 

amendments to Regulation DD in 

December 2008. Therefore, the Board is 

issuing this final rule with an effective 

date of January 1, 2010. 

One trade association supported the 

proposed amendments regarding 

electronic disclosures, but had concerns 

with the provisions involving disclosure 

of overdraft fees. It does not believe the 

benefit of the rule would outweigh the 

burden. To mitigate the burden, the 

trade association suggested permitting 

members to request the aggregate 

overdraft fee disclosures instead of 

requiring credit unions to provide them 

to all members. Additionally, it 

encouraged NCUA to differentiate 

between overdraft fees resulting from 

credit unions paying funds to cover an 

overdraft as a courtesy and fees that 

result from a credit union’s contractual 

obligation to pay a transaction, such as 

under an agreement with VISA or 

MasterCard. The trade association 

believes credit unions should be 

required to disclose the fees resulting 

from a courtesy payment, but not the 

fees that stem from a contractual 

obligation. Another trade association 

supported the provisions that would 

exclude funds in an overdraft program 

from a member’s available balance 

disclosed in response to a balance 

inquiry on an automated system and 

that address electronic disclosures, but 

questioned the need for the 

amendments to the overdraft fee 

disclosures. 

The final rule requires all credit 

unions to disclose periodic and 

aggregate year-to-date overdraft fees on 

periodic statements, regardless of 

whether they advertise or promote 

member use of overdraft services. Under 

the current TISA regulation, credit 

unions that provide periodic statements 

must disclose fees or charges imposed 

on a member account during the 

statement period. 12 CFR 707.6(a)(3). 

Further, credit unions that promote the 

payment of overdrafts in an 

advertisement must also disclose the 

aggregate totals for overdraft fees and 

returned item fees for both the statement 

period and calendar year-to-date. 12 

CFR 707.11(a). The rule eliminates the 

distinction between credit unions that 

promote overdraft services and those 

that do not, and requires all credit 

unions offering overdraft services to 

disclose the fees imposed for the 

payment of overdrafts for each 

statement period and the year-to-date 

aggregate. The amendment also 

eliminates the confusion surrounding 

the distinction between marketing and 

educational materials for purposes of 

determining when to disclose the yearto-date fees. 

Additionally, credit unions are not 

required to offer overdraft services and 

may restrict the payment of overdrafts 

on debit card or point-of-sale 

transactions. Credit unions generally 

impose a fee for overdraft services 

regardless of whether the payment of an 

overdraft is a courtesy or results from a 

contractual obligation. To inform 

members about the fees charged for 

using discretionary overdraft services 


jlentini on DSKJ8SOYB1PROD with RULES