Source: https://www.federalregister.gov/articles/2000/10/03/00-25316/truth-in-lending
Timestamp: 2015-10-06 08:05:52
Document Index: 680857373

Matched Legal Cases: ['§ 226', 'art 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', 'art 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', 'art 226', 'art 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', 'art 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226', '§ 226']

Publication Date: Tuesday, October 03, 2000
Dates: The rule is effective September 27, 2000; compliance is mandatory as of October 1, 2001.
-58911 (9 pages)
Document Number: 00-25316
Shorter URL: https://federalregister.gov/a/00-25316 Related Topics
§ 226.5—General Disclosure Requirements
The purpose of the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The Board's Regulation Z (12 CFR part 226) implements the act. The act requires creditors to disclose the cost of credit as a dollar amount (the finance charge) and as an annual percentage rate (the APR). Uniformity in creditors' disclosures is intended to assist consumers in comparison-shopping.
II. The Proposed Revisions Back to Top
In general, most commenters supported the Board's effort to improve disclosures for credit and charge card applications and solicitations. Most industry commenters, however, objected to specific aspects of the proposal or requested clarification of the rules. In particular, industry commenters objected to the use of type-size requirements and stated that the use of italics, bolding, or similar means of making disclosures clear and conspicuous is preferable. They raised concerns about the prominent location standard and requested more flexibility in locating the table within an application or solicitation. Most industry commenters were supportive of efforts to decrease clutter and use more concise language, and these commenters supported the removal of the penalty rate explanation from the table. They also opposed the inclusion of additional rates and fees in the table. A few industry commenters objected to the Board's proposal to remove the penalty rate explanation from the table and suggested that the disclosure might be overlooked if it were outside the table.
IV. Section-by-Section Analysis of the Final Rule Back to Top
Subpart B—Open-End Credit Back to Top
Section 226.5—General Disclosure Requirements Back to Top
Section 226.5(a)(1) states the general rule that TILA disclosures for open-end credit plans must be made clearly and conspicuously. Existing comment 5(a)(1)-1 interprets this standard to require disclosures to be in a “reasonably understandable form.” Under the final rule, as proposed, this standard is more strictly construed for purposes of the disclosures required under § 226.5a for credit and charge card applications and solicitations. Accordingly, comment 5(a)(1)-1 is revised to reflect this fact, by including a cross-reference to the special rules for § 226.5a disclosures. See comments 5a(a)(2)-1 and -2.
Section 226.5(a)(2) n.9 provides that the APRs under § 226.5a need not be more conspicuous than other disclosures. Footnote 9 is revised by adding a cross-reference to reflect the special type-size rule under § 226.5a for purchases APRs. Comment 5(a)(2)-1 is also revised to make a technical correction.
Section 226.5a—Credit and Charge Card Applications and Solicitations Back to Top
Disclosures that are required by § 226.5a must be clear and conspicuous and prominently located on or with an application or solicitation or other applicable document. Certain of these disclosures also are required to be in a table format. As proposed, comment 5a(a)(2)-1 is added to establish a stricter standard for satisfying the “clear and conspicuous” standard with respect to credit or charge card application or solicitation disclosures. Comment 5a(a)(2)-2 provides additional interpretative guidance on the requirement that certain disclosures be prominently located. Because the interpretations differ somewhat from those currently provided, they are intended to apply prospectively.
Industry commenters that opposed the revision cited a variety of reasons including the belief that a court might apply the stricter construction of the clear and conspicuous standard under § 226.5a to other sections of Regulation Z. Consumers and their representatives generally favored the stricter construction and thought the revisions would assist consumers in comparison-shopping for credit and charge cards by making disclosures more noticeable.
Many commenters representing financial institutions expressed a belief that the stricter construction of the “clear and conspicuous” standard is unnecessary and the same result could be achieved through more rigorous enforcement of the existing standard. These commenters generally objected to the proposal's use of particular type-size examples. Under the final rule, comment 5a(a)(2)-1 provides, as proposed, that as to type size, disclosures are deemed to be readily noticeable if they are in at least 12-point type. A number of commenters stated that using the example of 12-point type to satisfy the standard would have the effect of establishing a minimum type-size requirement. Accordingly, some commenters suggested that the final rule use 10-point type as the example of a conspicuous type size, or that the final rule includes additional language clarifying that some disclosures smaller than 12-point may also satisfy the rule. To address commenters concerns, the comment states that disclosures printed in less than 12-point type do not automatically violate the standard. Disclosures in less than 8-point type, however, would likely be too small to satisfy the standard.
Some commenters requested further guidance on whether the new “clear and conspicuous standard” would apply only to information required to be disclosed in a tabular format, or to all disclosures required under § 226.5a. In response to the comment received, comment 226.5a(a)(2)-1 provides that the stricter clear and conspicuous standard applies to all § 226.5a disclosures.
The revised comment clarifies that the tabular disclosures required under § 226.5a(b) must all appear on the same page. Disclosures required under § 226.5a(b)(8)-(11) that appear outside the table must start on the same page as the table but may continue on subsequent pages.
The Board's proposal specifically requested comment on any guidance that may be needed when credit and charge card applications and solicitations are provided by electronic communication. The majority of commenters requested that the Board provide guidance in the final rule on the use of electronic disclosures for credit and charge card applications and solicitations. Some commenters requested clarification that electronically transmitting or posting the APR disclosures in the required type size is sufficient in light of the consumer's ability to alter the appearance of information received electronically. In response to commenters' concerns, comment 5a(a)(2)-1 indicates that if disclosures required by § 226.5a(b) are provided by electronic communication, they are judged for purposes of the clear and conspicuous standard based on the form in which they are provided even though they may be viewed by consumers in a different format.
Disclosure of Additional Rates and Fees—The table required under § 226.5a provides consumers with key cost information, grouped together in one place to facilitate consumers' use of the information for comparison-shopping. These disclosures are not intended to be as detailed as disclosures provided to consumers at account opening. At the time the 1988 Act was adopted, the primary focus was on cost disclosures for purchase transactions. Thus, under the current rules the APR and transaction fees for purchases must be disclosed in the table, but not the APR for cash advances.
On balance, the Board believes that consumers seeking to comparison-shop would benefit from having the APR and transaction fee for balance transfers and the APR for cash advances provided in a consistent and uniform manner along with other key cost information. Balance transfer features have become common and cash advance features are an integral part of many card programs. Frequently, these features are prominently listed by card issuers in their promotional materials, sometimes as part of an introductory offer that expires after several months. Consumers' ability to understand the offered terms is likely to be enhanced by more uniform disclosure of these terms, particularly as consumers become familiar with the new format. Accordingly, § 226.5a(b)(1) has been revised to include the APR for cash advances and balance transfers in the tabular disclosures. Under the final rule, § 226.5a(b)(11) has also been added to provide that a balance transfer fee must also be disclosed, either in the table, or clearly or conspicuously elsewhere.
Appendices G and H to Part 226—Open-end and Closed-End Model Forms and Clauses Back to Top
Revisions to comment App. G and H-1 are adopted, as proposed, to clarify that there are special rules for disclosures required under § 226.5a for applications and solicitations for credit and charge cards.
The Board provides model forms to aid compliance with the disclosure requirements of § 226.5a(b). See Appendix G-10(A)-(C). Model form G-10(A) is revised and model form G-10(B) has been removed as unnecessary. A new sample form G-10(B) is added to illustrate an account with an introductory rate and a penalty rate. The forms also reflect the inclusion of the cash advance APR, balance transfer APR, and the balance transfer fee. Also comment G-5 is revised to clarify that there are format and sequence requirements for certain § 226.5a disclosures.
V. Regulatory Flexibility Analysis Back to Top
Some smaller financial institutions, particularly credit unions, expressed concerns that the need to revise disclosures to comply would increase costs; however, costs could be minimized by delaying the mandatory compliance date for at least six months thereby permitting them to utilize existing stocks of disclosures. Since the mandatory compliance date is October 1, 2001, the amendments do not have any significant impact on small entities beyond these initial revisions. VI. Paperwork Reduction Act Back to Top
2.Section 226.5 is amended by revising footnote 9 to read as follows: Section 226.5 General disclosure requirements.
The terms need not be more conspicuous when used under § 226.5a generally for credit and charge card applications and solicitations under § 226.7(d) on periodic statements, under § 226.9(e) in credit and charge card renewal disclosures, and under § 226.16 in advertisements. (But see special rule for annual percentage rate for purchases, § 226.5a(b)(1).)
§ 226.5a Credit and charge card applications and solicitations.
(a)(2) Form of disclosures.* * *
(1) Annual percentage rate. Each periodic rate that may be used to compute the finance charge on an outstanding balance for purchases, a cash advance, or a balance transfer, expressed as an annual percentage rate (as determined by § 226.14(b)). When more than one rate applies for a category of transactions, the range of balances to which each rate is applicable shall also be disclosed. The annual percentage rate for purchases disclosed pursuant to this paragraph shall be in at least 18-point type, except for the following: a temporary initial rate that is lower than the rate that will apply after the temporary rate expires, and a penalty rate that will apply upon the occurrence of one or more specific events.
4.Appendix G to Part 226 is amended by: a. Revising the table of contents at the beginning of the appendix;
Appendix G To Part 226—Open-End Model Forms and Clauses Back to Top
G-1Balance-Computation Methods Model Clauses (§§ 226.6 and 226.7)
G-2Liability for Unauthorized Use Model Clause (§ 226.12) G-3Long-Form Billing-Error Rights Model Form (§§ 226.6 and 226.9)
G-4Alternative Billing-Error Rights Model Form (§ 226.9)
G-10(A)Applications and Solicitations Model Forms (Credit Cards) (§ 226.5a(b))
G-10(B)Applications and Solicitations Sample (Credit Card) (§ 226.5a(b))
G-10(C)Applications and Solicitations Model Form (Charge Cards) (§ 226.5a(b))
G-11Applications and Solicitations Made Available to General Public Model Clauses(§ 226.5a(e))
G-12Charge Card Model Clause (When Access to Plan Offered by Another) (§ 226.5a(f))
G-14AHome Equity Sample
G-14BHome Equity Sample
G-15Home Equity Model Clauses
5.In Supplement I to Part 226, MAKE the following amendments: a. Under Section 226.5—General Disclosure Requirements, under Paragraph 5(a)(1), paragraph 1. introductory text is revised;
Subpart B—End Credit Back to Top
1. Clear and conspicuous. The clear and conspicuous standard requires that disclosures be in a reasonably understandable form. Except where otherwise provided, the standard does not require that disclosures be segregated from other material or located in any particular place on the disclosure statement, or that numerical amounts or percentages be in any particular type size. (But see comments 5a(a)(2)-1 and -2 for special rules concerning § 226.5a disclosures for credit card applications and solicitations.) The standard does not prohibit:
1. Clear and conspicuous standard. For purposes of § 226.5a disclosures, clear and conspicuous means in a reasonably understandable form and readily noticeable to the consumer. As to type size, disclosures in 12-point type are deemed to be readily noticeable for purposes of § 226.5a. Disclosures printed in less than 12-point type do not automatically violate the standard; however, disclosures in less than 8-point type would likely be too small to satisfy the standard. Disclosures that are transmitted by electronic communication are judged for purposes of the clear and conspicuous standard based on the form in which they are provided even though they may be viewed by the consumer in a different form.
2. Prominent location. i. Generally. Certain of the required disclosures provided on or with an application or solicitation must be prominently located. Disclosures are deemed to be prominently located, for example, if the disclosures are on the same page as an application or solicitation reply form. If the disclosures appear elsewhere, they are deemed to be prominently located if the application or solicitation reply form contains a clear and conspicuous reference to the location of the disclosures and indicates that they contain rate, fee, and other cost information, as applicable. Disclosures required by § 226.5a(b) that are placed outside the table must begin on the same page as the table but need not end on the same page.
7. Increased penalty rates. If the initial rate may increase upon the occurrence of one or more specific events, such as a late payment or an extension of credit that exceeds the credit limit, the card issuer must disclose in the table the initial rate and the increased penalty rate that may apply. If the penalty rate is based on an index and an increased margin, the issuer must also disclose in the table the index and the margin as well as the specific event or events that may result in the increased rate, such as “applies to accounts 60 days late.” If the penalty rate cannot be determined at the time disclosures are given, the issuer must provide an explanation of the specific event or events that may result in imposing an increased rate. In describing the specific event or events that may result in an increased rate, issuers need not be as detailed as for the disclosures required under § 226.6(a)(2). For issuers using a tabular format, the specific event or events must be placed outside the table and an asterisk or other means shall be used to direct the consumer to the additional information. At its option, the issuer may include in the explanation of the penalty rate the period for which the increased rate will remain in effect, such as “until you make three timely payments.” The issuer need not disclose an increased rate that is imposed when credit privileges are permanently terminated.
Appendices G and H—Open-End and Closed-End Model Forms and Clauses Back to Top
1. Permissible changes.* * * (But see Appendix G comment 5 for special rules concerning certain disclosures required under § 226.5a for credit and charge card applications and solicitations). * * *
APPENDIX G—OPEN-END MODEL FORMS AND CLAUSES Back to Top
5. Model G-10(A), Sample G-10(B) and Model G-10(C). i. Model G-10(A) and Sample G-10(B) illustrate, in the tabular format, all of the disclosures required under § 226.5a for applications and solicitations for credit cards other than charge cards. Model G-10(B) is a sample disclosure illustrating an account with a lower introductory rate and penalty rate. Model G-10(C) illustrates the tabular format disclosure for charge card applications and solicitations and reflects all of the disclosures in the table.
ii. Except as otherwise permitted, disclosures must be substantially similar in sequence and format to model forms G-10(A) and (C). The disclosures may, however, be arranged vertically or horizontally and need not be highlighted aside from being included in the table. While proper use of the model forms will be deemed in compliance with the regulation, card issuers are permitted to use headings and disclosures other than those in the forms (with an exception relating to the use of “grace period”) if they are clear and concise and are substantially similar to the headings and disclosures contained in model forms. For further discussion of requirements relating to form, see the commentary to § 226.5a(a)(2).