have sometimes had difficulty determining whether a particular fee is properly classified as a " finance charge " or " other charge, " or as neither of these. although the regulation and commentary give specific guidance, sometimes new services develop before the guidance can be updated. when that happens, creditors can find it difficult to determine if the fee for the service must be disclosed in writing at account opening ( or before the fee takes effect, if a service is added later ). this uncertainty can pose legal risks for creditors that act in good faith to comply with the law, and it can lead to inconsistent disclosure to consumers. moreover, it is not clear that consumers benefit from requiring creditors to disclose every potential fee in writing and at account opening. it may be months, and possibly years, until the consumer requests the service for which the fee is imposed. furthermore, the consumer may request the service by telephone for speed and convenience, and not expect to have to wait for a written disclosure before the transaction can be completed. the proposal seeks to address these potential limitations of the present rule while taking into account the truth in lending act's ( tila ) requirement to disclose plan - related charges before they are imposed. accordingly, under the proposal, the rules would be revised to 2 specify precisely the charges that creditors must disclose in writing at account opening ( interest, minimum charges, transaction fees, annual fees, and penalty fees such as for paying late ), which would be listed in the summary table referred to above ; and ( 2 ) permit creditors to disclose other charges, typically fees for optional services that may be used infrequently, orally or in writing before the consumer agrees to or becomes obligated to pay the charge. to prevent abuse of this flexibility, the proposal requires that an oral disclosure be clear and conspicuous, and that it be given when the consumer would likely notice it. periodic statements once an account has been opened, creditors are required to provide periodic statements reflecting the account activity for each billing cycle, typically monthly. the statement must identify each transaction on the account, such as a purchase or cash advance. it must also identify each " finance charge " ( using that term ) and other charges imposed as part of the plan during the cycle. and it must identify the periodic rate ( s ) and corresponding annual percentage rate ( s ), also known as the nominal apr, that applied during the last cycle. if finance charges were imposed in the form of fees ( e. g., a cash

vigorous comment. the effective apr reflects the cost of interest and certain other finance charges imposed during the statement period. as an example, a cash advance carries an effective apr that reflects both interest assessed on the balance in the billing period and any fee charged by the creditor for the cash advance. the effective apr can be quite high, often much higher than the nominal apr, in part because it amortizes the cost of credit, including fees, over one month. although consumer groups argue that the resulting " sticker shock " helps consumers make better credit shopping and account management decisions, creditors argue that it confuses consumers and misleads them to think the cost of credit is higher than it is. consumer testing conducted for the board suggests that many consumers have a limited understanding, if any, of the effective apr, but it also suggests that clearer presentation of the disclosure can improve understanding. thus, the proposal seeks to present the effective apr more clearly to consumers with more straightforward terminology and better formatting that promotes understanding. in addition, the proposal seeks to improve consumer understanding and reduce creditor uncertainty by specifying more clearly than the present regulation which fees are to be included in the effective apr. however, because of inherent limitations of the calculation – such as the need to assume the repayment period – and continued concern that adequate consumer understanding may be difficult to achieve, the board is also seeking comment on an alternative proposal to eliminate the disclosure. when evaluating these two alternatives, and any others the public comments might suggest, the board will consider the comments as well as the results of additional consumer testing. conclusion madam chair, in closing, let me emphasize the federal reserve's commitment to ensuring that consumers get key information about credit card terms in ways they can understand, in formats they can use, and at times when it is most helpful. we appreciate efforts in the congress and among consumer groups and the credit card industry to ensure that disclosure practices are in line with the needs of consumers. as my testimony this morning indicates, more complex pricing and continuous change in the marketplace make the task of writing rules for effective disclosure challenging. nevertheless, the combination of extensive review, substantial public input, and systematic consumer testing has enabled us to propose changes that we believe will further the original goals of the truth in lending act to promote economic stability and competition through the informed use of credit. i look forward to our continuing efforts in this regard, and i am happy to address any questions you might have. appendix i summary of proposed changes