[Federal Register Volume 74, Number 164 (Wednesday, August 26, 2009)]
[Proposed Rules]
[Pages 43428-43613]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18121]



[[Page 43427]]

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Part III





Federal Reserve System





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12 CFR Part 226



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Truth in Lending; Proposed Rule

Federal Register / Vol. 74, No. 164 / Wednesday, August 26, 2009 / 
Proposed Rules

[[Page 43428]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1367]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Board proposes to amend Regulation Z, which implements the 
Truth in Lending Act (TILA), and the Official Staff Commentary to the 
regulation, following a comprehensive review of TILA's rules for open-
end home-secured credit, or home-equity lines of credit (HELOCs).
    The Board proposes changes to the format, timing, and content 
requirements for the four main types of HELOC disclosures required by 
Regulation Z: disclosures at application; disclosures at account 
opening; periodic statements; and change-in-terms notices. The Board 
proposes to replace disclosures required at the time that a consumer 
applies for a HELOC with a one-page, Board-published summary of basic 
information and risks regarding HELOCs. The Board also proposes to move 
the timing of disclosures regarding a creditor's HELOC plan from the 
time of application to within three business days after application, 
and to require the disclosures to include significant transaction-
specific rates and terms.
    The Board also proposes to provide additional guidance on when a 
creditor may temporarily suspend advances on a HELOC or reduce the 
credit limit, and what a creditor's obligations are concerning 
reinstating such accounts. In addition, the proposal would limit the 
ability of a creditor to terminate a HELOC for payment-related reasons; 
a creditor could do so only if the consumer failed to make a required 
minimum payment more than 30 days after the due date for that payment. 
Changes to disclosure requirements related to suspension of HELOC 
advances, reduction of the credit limit, and account terminations are 
also proposed.

DATES: Comments must be received on or before December 24, 2009.

ADDRESSES: You may submit comments, identified by Docket No. R-1367, by 
any of the following methods:
     Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include the 
docket number in the subject line of the message.
     FAX: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    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 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: Lorna M. Neill, Attorney; John Wood or 
Krista Ayoub, Counsel; or Jelena McWilliams, Attorney, Division of 
Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, at (202) 452-3667 or 452-2412; for users of 
Telecommunications Device for the Deaf (TDD) only, contact (202) 263-
4869.

SUPPLEMENTARY INFORMATION: The Board proposes changes to the format, 
timing, and content requirements for the four main types of home equity 
line of credit (HELOC) disclosures required by Regulation Z: (1) 
Disclosures at application; (2) disclosures at account opening; (3) 
periodic statements; and (4) change-in-terms notices. The Board 
proposes to replace disclosures required at the time that a consumer 
applies for a HELOC with a one-page, Board-published summary of basic 
information and risks regarding HELOCs. The Board also proposes to move 
the timing of disclosures regarding a creditor's HELOC plan from the 
time of application to within three business days after application, 
and to require the disclosures to include significant transaction-
specific rates and terms. At the time of account opening, the creditor 
would be required to provide a disclosure with formatting similar to 
that provided within three business days after application, but with 
certain changes such as additional information regarding fees. 
Formatting and other changes are proposed for the periodic statement, 
such as elimination of the requirement to disclose the effective annual 
percentage rate (APR) and a requirement to disclose the total of 
interest and fees for both the period and the year to date. HELOC 
creditors would be required to give consumers notice of a change in a 
HELOC term at least 45 days in advance of the effective date of the 
change.
    The Board also proposes to provide additional guidance on when a 
creditor may temporarily suspend advances on a HELOC or reduce the 
credit limit, and what a creditor's obligations are concerning 
reinstating such accounts. In addition, the proposal would limit the 
ability of a creditor to terminate a HELOC for payment-related reasons; 
a creditor could do so only if the consumer failed to make a required 
minimum payment more than 30 days after the due date for that payment. 
Changes to disclosure requirements related to suspension of HELOC 
advances, reduction of the credit limit, and account terminations are 
also proposed.

I. Background

A. TILA and Regulation Z

    Congress enacted TILA based on findings that economic stability 
would be enhanced and competition among consumer credit providers 
strengthened by the informed use of credit resulting from consumers' 
awareness of the cost of credit. The purposes of TILA are (1) to 
provide meaningful disclosure of credit terms to enable consumers to 
compare credit terms available in the marketplace more readily and 
avoid the uninformed use of credit; and (2) to protect consumers 
against inaccurate and unfair credit billing.
    TILA's disclosures differ depending on whether consumer credit is 
an open-end (revolving) plan or a closed-end (installment) loan. TILA 
also contains procedural and substantive protections for consumers. 
TILA is implemented by the Board's Regulation Z. An Official Staff 
Commentary interprets the requirements of Regulation Z. By statute, 
creditors that follow in good faith Board or official staff 
interpretations are insulated from civil liability, criminal penalties, 
or administrative sanction.

B. TILA and Regulation Z Provisions on Open-end Credit Secured by a 
Consumer's Dwelling

    In 1989, the Board revised Regulation Z to implement the Home 
Equity Loan Consumer Protection Act of 1988 (Home Equity Loan Act) 
(Pub. L. 100-709, enacted on Nov. 23, 1988). See 15 U.S.C. 1637a, 1647, 
implemented by 54 FR 24670 (June 9, 1989) (1989 HELOC Final

[[Page 43429]]

Rule). The 1989 revisions required creditors to disclose extensive 
information about HELOCs to consumers at the time of application and 
again when consumers open a HELOC plan. They also imposed substantive 
limitations on HELOC creditors--principally by prohibiting changing the 
interest rate and other terms except under very limited circumstances. 
Since 1989, the Board has revised the HELOC provisions in the 
regulation and staff commentary from time to time as necessary, 
although the disclosure requirements and substantive limitations have 
remained substantially the same. See, e.g., 56 FR 13751 (April 4, 
1991); 60 FR 15463 (March 24, 1995); 63 FR 16669 (April 6, 1998); 66 FR 
17329 (March 30, 2001); 72 FR 63462 (November 9, 2007).
    In January 2009, the Board published final rules regarding open-end 
(not home-secured) credit (74 FR 5244 (January 29, 2009)) (January 2009 
Regulation Z Rule), which were the result of the Board's comprehensive 
review of Regulation Z's open-end (not home-secured) credit rules. At 
that time, the Board indicated that it was also reviewing open-end 
home-secured credit rules. This proposal reflects the Board's review of 
all aspects of Regulation Z and accompanying Official Staff Commentary 
related to open-end home-secured credit, or HELOCs. The Board is not at 
this time, however, specifically addressing issues related to 
rescinding HELOCs, and requests comment in the proposal on any needed 
changes to Regulation Z provisions and commentary regarding reverse 
mortgages.

C. HELOC Market Trends

    Board and other research has tracked a number of changes in the 
HELOC market since 1989. One important trend is that HELOCs have become 
much more popular with consumers: in 1988, 5.6% of homeowners had 
HELOCs; \1\ in 1998, 10.6% of homeowners had HELOCs; and by 2007, the 
percentage of homeowners with HELOCs had jumped to 18.4%.\2\ A number 
of factors may have contributed to this trend, such as low interest 
rates compared with other forms of consumer credit, appreciation in 
home values, the deductibility of interest payments on mortgage debt, 
and changes in mortgage practices.\3\ The uses of HELOCs have remained 
relatively constant, with the highest uses in the areas of home 
improvement and debt consolidation.\4\ Beginning in the late 1990s, 
consumers increased their use of HELOCs for expenses such as vehicle 
purchases, education, and vacations.\5\ Many HELOC consumers today, as 
in the past, use their lines as an emergency source of funds.\6\
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    \1\ Glenn Canner, Charles Luckett, and Thomas Durken, ``Home 
Equity Lending,'' Federal Reserve Bulletin (May 1989).
    \2\ Brian Bucks, Arthur Kennickell, Traci Mach, Kevin Moore, 
``Changes in U.S. Family Finances from 2004 to 2007: Evidence from 
the Survey of Consumer Finances,'' Federal Reserve Bulletin (Feb. 
2009) and accompanying tables at http://www.federalreserve.gov/Pubs/OSS/oss2/2007/scf2007home.html.
    \3\ Id.
    \4\ Glenn Canner, Charles Luckett, and Thomas Durken, ``Recent 
Developments in Home Equity Lending,'' Federal Reserve Bulletin 
(April 1998); see also Brian Bucks, Arthur Kennickell, Traci Mach, 
Kevin Moore, ``Changes in U.S. Family Finances from 2004 to 2007: 
Evidence from the Survey of Consumer Finances,'' Federal Reserve 
Bulletin (Feb. 2009) and accompanying tables at http://www.federalreserve.gov/Pubs/OSS/oss2/2007/scf2007home.html.
    \5\ Id.
    \6\ Supra note 2.
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    As home prices rose in the past decade, more creditors entered the 
HELOC market and creditors became more willing to extend HELOCs to 
consumers with little equity in their homes.\7\ When the Board 
published the 1989 HELOC Final Rule, it was commonly expected that most 
HELOC borrowers would, at their maximum credit line limit, retain 
around 20 percent of their home equity. See comment 5b(f)(3)(vi)-6. By 
the mid-2000s, more creditors were willing to lend HELOCs at a combined 
loan-to-value ratio of 100 percent or more, and, despite home value 
appreciation, the overall percentage of equity remaining in homes was 
appreciably lower than in earlier years.\8\ The Board's Survey of 
Consumer Finances indicates that the average outstanding dollar amount 
of a HELOC grew from $24,000 in 1998 to $39,000 in 2007.\9\
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    \7\ Id.
    \8\ Id.
    \9\ Id.
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    The recent economic downturn, a central component of which has been 
declining property values, has dampened the availability of HELOCs and 
reversed some of the overall trends in the HELOC market. The Board 
believes, however, that a resurgence of these trends may occur once 
property values stabilize. The Board expects that factors such as the 
flexibility HELOC borrowers have to draw on a line as needed and the 
tax deductibility of interest on home-secured debt should continue to 
make HELOCs appealing to consumers over the long term.
    Finally, in response to the economic challenges of the last few 
years, creditors have relied more than in the past on provisions in 
Regulation Z that allow them to terminate HELOC plans, suspend advances 
on lines, and reduce the credit limit. As a result, many questions 
regarding the requirements and limitations of these provisions have 
been raised with the Board.

II. Summary of Major Proposed Changes

    The Board proposes content, format, and timing changes to the four 
main types of HELOC disclosures governed by Regulation Z: (1) 
Disclosures at application; (2) disclosures at account opening; (3) 
periodic statements; and (4) change-in-terms notices. The proposal also 
provides additional guidance and protections, as well as revised 
disclosure requirements, related to account terminations, line 
suspensions and credit limit reductions, and reinstatement of accounts.
    Disclosures at Application. Format, timing, and content changes are 
proposed to make the disclosures currently required at application more 
meaningful and easy for consumers to use. The proposed changes include:
     Eliminating the requirement to provide a multiple-page 
disclosure of generic rates and terms of the creditor's HELOC products, 
as well as the requirement to provide the Board-published brochure 
explaining HELOC products and risks entitled, ``What You Should Know 
about Home Equity Lines of Credit.'' (HELOC brochure)
     Requiring creditors to provide a new one-page Board 
publication summarizing basic information and risks regarding HELOCs 
entitled, ``Key Questions to Ask about Home Equity Lines of Credit.''
     Replacing the application disclosure of generic rates and 
terms with a transaction-specific disclosure that must be given within 
three days after application. This disclosure would:
     Provide information about rates and fees, payments, and 
risks in a tabular format.
     Highlight whether the consumer will be responsible for a 
balloon payment.
     Present payment examples based on both the current rate 
available and the maximum possible rate for the HELOC.
    Disclosures at Account Opening. The proposal would retain the 
existing requirement to provide consumers with transaction-specific 
information about rates, terms, payments, and risks at the time of 
account opening. To facilitate comparison between terms provided within 
three business days after application and terms available at account-
opening, the proposal would prescribe formatting for this information 
similar to that of the proposed

[[Page 43430]]

disclosure to be provided within three business days after application.
    Periodic Statements. To make disclosures on periodic statements 
more understandable, the proposal would revise the format and content 
of the periodic statement for HELOCs, largely conforming to the 
periodic statement provisions finalized in the January 2009 Regulation 
Z Rule for credit cards. The proposed changes include:
     Eliminating the disclosure of the effective APR.
     Grouping fees and interest charges separately, and 
requiring disclosure of separate totals of interest and fees for both 
the period and the year to date.
    Change-in-Terms Notices. The proposal would revise the format and 
content of the change-in-terms notice, largely conforming to the 
change-in-terms provisions finalized in the January 2009 Regulation Z 
Rule. To improve consumer protection, proposed changes include:
     Expanding the circumstances under which advance written 
notice of a rate change is required.
     Increasing advance notice of a change in a HELOC term from 
15 to 45 days in advance of the effective date of the change.
    Account Terminations. The proposal would prohibit creditors from 
terminating an account for payment-related reasons until the consumer 
has failed to make a required minimum periodic payment more than 30 
days after the due date for that payment. The Board is requesting 
comment on whether a delinquency threshold of more than 30 days or some 
other time period is appropriate.
    Suspensions and Credit Limit Reductions. The proposal contains a 
number of additional consumer protections related to temporary 
suspensions of advances and credit limit reductions. The proposed 
changes include:
     Establishing a new safe harbor for suspending or reducing 
a line of credit based on a ``significant'' decline in property value. 
For HELOCs with a combined loan-to-value ratio at origination of 90 
percent or higher, a five percent decline in the property value would 
be ``significant.''
     Providing additional guidance regarding the information on 
which a creditor may rely to take action based on a material change in 
the consumer's financial circumstances, such as the type of credit 
report information that would be appropriate to consider.
    Reinstatement of Accounts. The proposal contains additional 
requirements regarding reinstating accounts that have been temporarily 
suspended or reduced. The proposed changes include:
     Requiring additional information in notices of suspension 
or reduction about consumers' ongoing right to request reinstatement 
and creditors' obligation to investigate this request.
     Requiring creditors to complete an investigation of a 
request for reinstatement within 30 days of receiving a request for 
reinstatement and to give a notice of the investigation results to 
consumers whose lines will not be reinstated.

III. The Board's Review of Open-End Credit Rules

A. Advance Notices of Proposed Rulemakings

    December 2004 ANPR. The Board's current review of Regulation Z's 
open-end credit rules was initiated in December 2004 with an advance 
notice of proposed rulemaking.\10\ 69 FR 70925 (December 8, 2004). At 
that time, the Board announced its intent to conduct its review of 
Regulation Z in stages, focusing first on the rules for open-end 
(revolving) credit accounts that are not home-secured, chiefly general-
purpose credit cards and retailer credit card plans. The December 2004 
ANPR sought public comment on a variety of specific issues relating to 
three broad categories: the format of open-end credit disclosures, the 
content of those disclosures, and the substantive protections provided 
for open-end credit under the regulation. The December 2004 ANPR 
solicited comment on the scope of the Board's review, and also 
requested commenters to identify other issues that the Board should 
address in the review.
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    \10\ The review was initiated pursuant to requirements of 
section 303 of the Riegle Community Development and Regulatory 
Improvement Act of 1994, section 610(c) of the Regulatory 
Flexibility Act of 1980, and section 2222 of the Economic Growth and 
Regulatory Paperwork Reduction Act of 1996. An announced notice of 
proposed rulemaking is published to obtain preliminary information 
prior to issuing a proposed rule or, in some cases, deciding whether 
to issue a proposed rule.
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    October 2005 ANPR. The Bankruptcy Abuse Prevention and Consumer 
Protection Act of 2005, Public Law 109-8, enacted on April 20, 2005 
(the Bankruptcy Act) primarily amended the federal bankruptcy code, but 
also contained several provisions amending TILA. The Bankruptcy Act's 
TILA amendments principally deal with open-end credit accounts and 
require new disclosures on periodic statements, on credit card 
applications and solicitations, and in advertisements.
    In October 2005, the Board published a second ANPR to solicit 
comment on implementing the Bankruptcy Act amendments (October 2005 
ANPR). 70 FR 60235, October 17, 2005. In the October 2005 ANPR, the 
Board stated its intent to implement the Bankruptcy Act amendments as 
part of the Board's ongoing review of Regulation Z's open-end credit 
rules.

B. Notices of Proposed Rulemakings

    June 2007 Proposal. The Board published proposed amendments to 
Regulation Z's rules for open-end plans that are not home-secured in 
June 2007. 72 FR 32948 (June 14, 2007). The goal of the proposed 
amendments was to improve the effectiveness of the disclosures that 
creditors provide to consumers at application and throughout the life 
of an open-end (not home-secured) account. In developing the proposal, 
the Board conducted consumer research, in addition to considering 
comments received on the two ANPRs. Specifically, the Board retained a 
research and consulting firm (ICF Macro) to assist the Board in using 
consumer testing to develop proposed model forms. The proposal would 
have made changes to format, timing, and content requirements for the 
five main types of open-end credit disclosures governed by Regulation 
Z: (1) Credit and charge card application and solicitation disclosures; 
(2) account-opening disclosures; (3) periodic statement disclosures; 
(4) change-in-terms notices; and (5) advertising provisions.
    May 2008 Proposal. In May 2008, the Board published revisions to 
several disclosures in the June 2007 Proposal (May 2008 Proposal). 73 
FR 28866 (May 19, 2008). In developing these revisions the Board 
conducted additional consumer testing in consultation with ICF Macro. 
In addition, the May 2008 Proposal contained proposed amendments to 
Regulation Z that complemented a proposal published by the Board, along 
with the Office of Thrift Supervision and the National Credit Union 
Administration, to adopt rules prohibiting specific unfair acts or 
practices regarding credit card accounts under their authority under 
the Federal Trade Commission Act. See 15 U.S.C. 57a(f)(1). 73 FR 28904 
(May 19, 2008).
    May 2009 Proposal. In May 2009, the Board issued proposals to 
clarify provisions of the January 2009 Final Rule (see below). 74 FR 
20784 (May 5, 2009). Along with other federal banking agencies, the 
Board also issued proposals to clarify provisions of the January 2009 
UDAP Final Rule (see below). 74 FR 20804 (May 5, 2009).

[[Page 43431]]

C. Final Rulemakings

    January 2009 Final Rule. In January 2009, the Board issued final 
rules for open-end credit that is not home-secured (i.e., the January 
2009 Regulation Z Rule). The goal of the amendments to Regulation Z was 
to improve the effectiveness of the disclosures that creditors provide 
to consumers at application and throughout the life of an open-end (not 
home-secured) account. The Board adopted changes to format, timing, and 
content requirements for the five main types of open-end credit 
disclosures governed by Regulation Z: (1) Credit and charge card 
application and solicitation disclosures; (2) account-opening 
disclosures; (3) periodic statement disclosures; (4) change-in-terms 
notices; and (5) advertising provisions. Certain additional protections 
for consumers were adopted as well.
    January 2009 UDAP Final Rule. In January 2009, the Board and other 
federal banking agencies jointly issued rules to prohibit institutions 
from engaging in certain acts or practices regarding consumer credit 
card accounts. 74 FR 5498 (January 29, 2009).

D. Consumer Testing

    A principal goal for the Regulation Z review is to produce revised 
and improved disclosures that consumers will be more likely to 
understand and use in their decisions, while at the same time not 
creating undue burdens for creditors. Currently, Regulation Z requires 
HELOC creditors to provide generic disclosures regarding various terms 
and features of the creditor's HELOC plans at application, along with a 
lengthy, Board-published brochure explaining HELOC products. The 
creditor does not have to provide a transaction-specific disclosure for 
HELOCs until the consumer opens the account. During the life of the 
plan, the creditor is required to provide periodic statements and 
change-in-terms notices as applicable.
    In 2007, the Board retained ICF Macro, a research and consulting 
firm that specializes in designing and testing documents to conduct 
consumer testing to help the Board's review of Regulation Z's 
disclosures. Beginning in the fall of 2008, ICF Macro worked closely 
with the Board to conduct several tests on HELOC disclosures in 
different cities throughout the United States. The HELOC testing 
consisted of five rounds of one-on-one cognitive interviews. The goals 
of these interviews were to learn more about what information consumers 
read when they receive HELOC disclosures, to research how easily 
consumers can find various pieces of information in these disclosures, 
and to test consumers' understanding of certain HELOC-related words and 
phrases.
    Some of the key methods and findings of the consumer testing are 
summarized below. ICF Macro also issued a report of the results of the 
testing for HELOCs, which is available on the Board's public Web site: 
http://www.federalreserve.gov.
    Development and testing of Regulation Z disclosures. The Board 
worked with ICF Macro to develop and test several types of disclosures, 
including:
     A Board publication to be provided at application, 
entitled ``Key Questions to Ask about Home Equity Lines of Credit'';
     A transaction-specific TILA disclosure to be provided 
within three business days of application, but no later than at 
account-opening; and
     A transaction-specific TILA disclosure to be provided at 
the time the consumer opens the account.
    The Board revised two additional HELOC disclosures: a periodic 
statement and a change-in-terms notice that must be provided after 
account opening as applicable. The Board intends to test these two 
disclosures during the comment period. In addition, the Board developed 
model clauses for proposed notices required in connection with 
terminating, suspending or reducing a HELOC, as well as reinstating 
suspended or reduced HELOCS, and may test these clauses during the 
comment period.
    Testing. The primary goal of the Board's consumer testing was to 
develop clear and conspicuous model HELOC disclosure forms that would 
enable borrowers easily to identify material terms of the plan and to 
compare such terms among various plans in order to make informed 
decisions about HELOCs. The Board also wanted to gain a better 
understanding of what information consumers need to receive early in 
the process when shopping for HELOCs, when such information should be 
provided, what form it should take, and how it can be integrated into 
the overall shopping process to facilitate informed consumer decision-
making regarding HELOCs.
    Beginning in the fall of 2008, five rounds of one-on-one cognitive 
interviews with a total of 50 participants were conducted in different 
cities throughout the United States. The consumer testing groups 
comprised participants representing a range of ethnicities, ages, 
educational levels, and levels of experience with home equity 
borrowing. Each round of testing involved testing a set of model 
disclosure forms, including currently required disclosures described 
above. Interview participants were asked to review model forms and 
provide their reactions, and were then asked a series of questions 
designed to test their understanding of the content. Data were 
collected on which elements and features of each form were most 
successful in providing information clearly and effectively. The 
findings from each round of interviews were incorporated in revisions 
to the model forms for the following round of testing.
    Cognitive interviews on existing disclosures. Participants in the 
first two rounds of testing were shown an application disclosure based 
on a sample disclosure conforming to the existing HELOC application 
disclosure samples in Appendix G of Regulation Z and currently used by 
a financial institution. This form provided required information in a 
mostly narrative format. The goals of these interviews were to learn 
more about what information consumers read when they receive current 
disclosures; to research how easily consumers can find various pieces 
of information in these disclosures; and to test consumers' 
understanding of certain HELOC-related words and phrases.
    Participants found this form difficult to read and understand, and 
their responses to follow-up questions showed that it was also 
difficult for them to identify information in the text. For example, 
several participants in the first two rounds of testing became confused 
when reviewing the application disclosure because they could not find 
their interest rate, and were surprised when told that the rate was not 
on the form. Other participants incorrectly assumed that one of the 
rates shown in a payment example on the application disclosure was 
being offered to them, when in fact that rate was used for illustrative 
purposes. When the same information was presented in a tabular format, 
participants commented that the information was easier to understand 
and had more success answering comprehension questions. As a result, 
after the second round of testing, the decision was made to use a 
tabular format for all model disclosure forms.
    1. Initial design of disclosures for testing. The results from the 
first two rounds of testing, and similar findings from testing of 
closed-end mortgage disclosures conducted by the Board at the same 
time, called into question the usefulness of the current generic 
application disclosures for consumers. As a result, three new types of 
disclosure were developed and tested:

[[Page 43432]]

    (1) A one-page disclosure developed by the Board entitled, ``Key 
Questions to Ask about Home Equity Lines of Credit'' (``Key Questions'' 
document) that summarized the most important information in the HELOC 
brochure in a shorter, question-and-answer format found effective with 
consumers;
    (2) A disclosure to be provided not later than three business days 
after application that would include information about the terms and 
features of the creditor's HELOC plans currently required at 
application, but also transaction-specific information; and
    (3) A similar form that would be provided when the consumer opens 
the account. The content of the new transaction-specific HELOC 
disclosure that would be provided three days after application would be 
similar to that of the current application disclosure, except that it 
would include information specific to the consumer based on initial 
underwriting--most notably, the specific APR and credit limit. The 
content of the account opening disclosure would be similar, except that 
it would provide additional information about fees.
    2. Additional cognitive interviews and revisions to disclosures. 
The ``Key Questions'' document tested very well in subsequent rounds; 
all participants indicated that they would find it useful, and most 
found it very clear and easy-to-read. As a result, the Board is 
proposing to require lenders to provide the ``Key Questions'' document 
to prospective borrowers instead of the HELOC brochure.
    Model forms for the transaction-specific HELOC disclosures to be 
provided three days after application were first tested in the third 
round and participants overwhelmingly indicated that they would prefer 
to receive a transaction-specific disclosure soon after application, 
even if it meant that they would not receive a disclosure of terms 
before they applied. The remaining two rounds of testing focused on 
developing, testing and refining the two transaction-specific 
disclosures (i.e., that would be provided within three business days of 
application and at account opening), rather than variations of the 
generic application disclosure currently required.
    Testing results. Specific findings from the consumer testing are 
discussed in detail throughout the SUPPLEMENTARY INFORMATION where 
relevant.\11\ This section highlights certain key findings.
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    \11\ The report by ICF Macro summarizing the findings from the 
consumer testing is available on the Board's Web site at http://www.federalreserve.gov.
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    Consumer testing showed that consumers seldom contact more than one 
loan originator when looking for a HELOC and generally go to their 
current mortgage provider, a prior lender, or a bank with which they 
have an existing banking relationship. Consumer testing indicated that 
consumers generally do not comprehend how HELOCs work, especially the 
draw and repayment periods. Consumer comprehension of the costs and 
effects of various terms significantly increased when consumers 
reviewed model forms developed by the Board and ICF Macro. Most 
participants agreed that they would prefer to receive specific 
information about the HELOC terms that would apply to them shortly 
after application rather a generic disclosure currently provided to all 
borrowers on or with the application. Consumer testing also showed that 
consumers prefer to receive a detailed breakdown of fees required to 
open the account early in the application process to help them 
understand what costs to anticipate in obtaining a HELOC. Thus, the 
Board is proposing to replace the generic program disclosure required 
at application with disclosures that include key terms specific to the 
consumer, such as the APR and credit limit, within three business days 
after application.
    Most consumers tested found the generic HELOC program disclosures 
and HELOC brochure required at application too dense and difficult to 
understand. When the same information was presented in plain language, 
segregated in a tabular format, participants found the information 
easier to understand and had more success answering comprehension 
questions. Thus, under the proposal, the revised TILA disclosure would 
explain more complicated terms in plain language and present them in a 
tabular format.
    A large number of participants erroneously concluded that the rate 
and payment information shown in the currently required historical 
example table showed their exact monthly payments when in fact it 
showed how the interest rate and monthly payments fluctuated over the 
preceding 15 years based on a $10,000 example. Most participants 
identified the interest rate fluctuation as the most important 
information in the historical payment example. For these reasons, the 
proposed disclosures include a statement providing the high and low 
interest rates for the preceding 15 years but do not include the table 
showing the interest rate and corresponding monthly payments for each 
year.
    Creditors typically incorporate disclosures required at the time a 
HELOC account is opened into the account agreement. Consumer testing 
indicated, however, that consumers commonly do not review their account 
agreements, which are often in small print and dense prose. When 
consumers were presented with a revised account-opening disclosure 
based on the tabular format of the revised early disclosure, their 
comprehension of complex terms significantly increased. Thus, the 
proposal would require creditors to provide a table summary of key 
terms applicable to the account at account opening, with similar 
formatting as the disclosure proposed to be provided within three days 
after application. Consumer testing showed that setting apart the most 
important terms in this way better ensures that consumers are apprised 
of those terms. Moreover, the similarity in presentation and structure 
of the early and account-opening disclosures enables consumers to focus 
on and compare key terms at both stages of the process.
    The Board did not test model periodic statement and change-in-terms 
notices for HELOCs, but intends to do so during the comment period for 
this proposal. The Board worked with ICF Macro, however, to develop 
model periodic statements and change-in-terms notices for HELOCs 
largely based on the results of consumer testing conducted for credit 
cards for the Board's January 2009 Regulation Z rule. Many consumers 
more easily noticed the number and amount of fees when the fees were 
itemized and grouped together with interest charges. Consumers also 
noticed fees and interest charges more readily when they were located 
near the disclosure of the transactions on the account. Thus, under the 
proposal, creditors would be required to group all charges together and 
describe them in a manner consistent with consumers' general 
understanding of costs (``interest charge'' or ``fee''), without regard 
to whether the charges would be considered ``finance charges,'' ``other 
charges'' or neither under the regulation.
    Regarding change-in-terms notices, consumer testing for the Board's 
January 2009 Regulation Z Rule on credit cards indicated that, much 
like the account-opening disclosures, consumers may not typically read 
such notices because they are often in small print and dense prose. To 
enhance the effectiveness of change-in-terms notices, the proposed 
rules would require the creditor to include a table summarizing any 
changed terms. Consumer testing indicates that consumers may not 
typically look at the notices if they are provided as separate inserts 
given with periodic statements.

[[Page 43433]]

Thus, under the proposal, a table summarizing the change would have to 
appear on the periodic statement, where consumers are more likely to 
notice the changes.
    Additional testing during and after comment period. During the 
comment period, the Board will work with ICF Macro to conduct 
additional testing of model disclosures. After receiving comments from 
the public on the proposal and the proposed disclosure forms, the Board 
will work with ICF Macro to further revise model disclosures based on 
comments received, and to conduct additional rounds of cognitive 
interviews to test the revised disclosures. After the cognitive 
interviews, quantitative testing will be conducted. The goal of the 
quantitative testing is to measure consumers' comprehension of the 
newly-developed disclosures relative to existing disclosures and 
formats.

E. Other Outreach and Research

    Throughout the review process leading to this proposal, the Board 
met or conducted conference calls with industry and consumer group 
representatives, as well as consulted with other federal banking 
agencies. The Board also reviewed HELOC disclosures currently used by 
creditors, internal Board research on home equity lending, and surveys 
on HELOC usage and trends.\12\
---------------------------------------------------------------------------

    \12\ Surveys reviewed include: Brian Bucks, Arthur Kennickell, 
Traci Mach, Kevin Moore, ``Changes in U.S. Family Finances from 2004 
to 2007: Evidence from the Survey of Consumer Finances,'' Federal 
Reserve Bulletin (Feb. 2009); Alan Greenspan and James Kennedy, 
``Sources and Uses of Equity Extracted from Homes,'' Finance and 
Economics Discussion Series, Divisions of Research & Statistics and 
Monetary Affairs, Federal Reserve Board (2007-20); Glenn Canner et 
al., ``Recent Developments in Home Equity Lending,'' Federal Reserve 
Bulletin (April 1998); Consumer Bankers Ass'n, ``Home Equity Loan 
Study'' (2005, 2007); and American Bankers Ass'n, ``ABA Home Equity 
Lending Survey Report'' (2005).
---------------------------------------------------------------------------

F. Reviewing Regulation Z in Stages

    Based on the comments received and its own analysis, the Board is 
proceeding with a review of Regulation Z in stages. In January 2009, 
the Board published final rules regarding open-end (not home-secured) 
credit (74 FR 5244 (January 29, 2009) (January 2009 Regulation Z Rule), 
which were the result of the Board's comprehensive review of Regulation 
Z's open-end (not home-secured) credit rules. At that time, the Board 
indicated that it was also reviewing open-end home-secured credit 
rules. This proposal reflects the Board's review of all aspects of 
Regulation Z and accompanying Official Staff Commentary related to 
open-end home-secured credit. The Board is not at this time, however, 
specifically addressing issues related to rescinding HELOCs, and 
requests comment in the proposal on any needed changes to Regulation Z 
provisions and commentary regarding reverse mortgages.

G. Implementation Period

    The Board contemplates providing creditors sufficient time to 
implement any revisions that may be adopted. The Board seeks comment on 
an appropriate implementation period.

IV. The Board's Rulemaking Authority

    TILA mandates that the Board prescribe regulations to carry out the 
purposes of the act. TILA also specifically authorizes the Board, among 
other things, to do the following:
     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 the act, or prevent circumvention or 
evasion. 15 U.S.C. 1604(a).
     Exempt from all or part of TILA any class of transactions 
if the Board determines that TILA coverage does not provide a 
meaningful benefit to consumers in the form of useful information or 
protection. The Board must consider factors identified in the act and 
publish its rationale at the time it proposes an exemption for comment. 
15 U.S.C. 1604(f).
     Require additional disclosures for HELOC plans. 15 U.S.C. 
1637(a)(8), 1637a(a)(14).
    In the course of developing the proposal, the Board has considered 
information gathered from industry and consumer representatives during 
outreach meetings and calls, consultations with other federal banking 
agencies, the Board's experience in implementing and enforcing 
Regulation Z, and the results obtained from testing various disclosure 
options in controlled consumer tests. For the reasons discussed in this 
proposal, the Board believes this proposal is appropriate pursuant to 
the authorities noted above.

V. Discussion of Major Proposed Revisions

    The goal of the proposed revisions is to improve the effectiveness 
of the Regulation Z disclosures that must be provided to consumers for 
open-end credit transactions secured by the consumer's dwelling, and to 
strengthen substantive protections for HELOC consumers. To shop for and 
understand the cost of credit, consumers must be able to identify and 
understand the key terms of a HELOC, which can be very complex. The 
proposed revisions to Regulation Z are intended to provide the most 
essential information to consumers when the information would be most 
useful to them, as clearly and conspicuously as possible. The proposed 
revisions are expected to improve consumers' ability to make informed 
credit decisions and enhance competition among HELOC originators. Many 
of the changes are based on consumer testing for this proposal and the 
Board's overall review of Regulation Z.
    In considering the proposed revisions, the Board sought to ensure 
that the proposal would not reduce access to credit, and sought to 
balance the potential benefits for consumers with the compliance 
burdens imposed on creditors. For example, the proposed revisions seek 
to provide greater certainty to creditors in identifying what costs 
must be disclosed for HELOCs, and how those costs must be disclosed. 
More effective disclosures may also reduce confusion and 
misunderstanding, which may ease creditors' costs relating to consumer 
complaints and inquiries.

A. Disclosures at Application

    Regulation Z requires creditors to provide to the consumer two 
types of disclosures at the time of application: a set of disclosures 
describing various features of a creditor's HELOC plans (the 
``application disclosures'') and a home-equity brochure published by 
the Board (the ``HELOC brochure''), which provides information about 
how HELOCs work. Neither contains transaction-specific information 
about the terms of the HELOC dependent on underwriting, such as the APR 
or credit limit.
Summary of Proposed Revisions
    The proposal would require a creditor to provide to consumers at 
application a new one-page document published by the Board entitled, 
``Key Questions to Ask about Home Equity Lines of Credit'' (the ``Key 
Questions'' document). The Board proposes eliminating the requirement 
for creditors to provide the HELOC brochure at application. In 
addition, the proposal would replace the application disclosures with 
transaction-specific HELOC disclosures (``early HELOC disclosures'') 
that must be given within three business days after application (but no 
later than account opening).

[[Page 43434]]

    ``Key Questions'' document. Currently, a creditor is required to 
provide to a consumer the HELOC brochure or a suitable substitute at 
the time an application for a HELOC is provided to the consumer. The 
HELOC brochure is around 20 pages long and provides general information 
about HELOCs and how they work, as well as a glossary of relevant terms 
and a description of various features that can apply to HELOCs.
    The proposal would eliminate the requirement for creditors to 
provide to consumers the HELOC brochure with applications. The Board's 
consumer testing on HELOC disclosures has shown that consumers are 
unlikely to read the HELOC brochure because of its length. Instead, the 
proposal would require a creditor to provide the new ``Key Questions'' 
document that would be published by the Board. This one-page document 
is intended to be a simple, straightforward and concise disclosure 
informing consumers about HELOC terms and risks that are important to 
consider when selecting a home-equity product, including potentially 
risky features such as variable rates and balloon payments. The ``Key 
Questions'' document was designed based on consumers' preference for a 
question-and-answer tabular format, and refined in several rounds of 
consumer testing.

B. Disclosures Within Three Days After Application

    Regulation Z currently requires the disclosures that must be 
provided on or with an application to contain information about the 
creditor's HELOC plans, including the length of the draw and repayment 
periods, how the minimum required payment is calculated, whether a 
balloon payment will be owed if a consumer only makes minimum required 
payments, payment examples, and what fees are charged by the creditor 
to open, use, or maintain the plan. These disclosures do not include 
information dependent on a specific borrower's creditworthiness or the 
value of the dwelling, such as a credit limit or the APRs offered to 
the consumer, because the application disclosures are provided before 
underwriting takes place.
Summary of Proposed Revisions
    The Board's consumer testing on HELOC disclosures has shown that, 
because the current application disclosures do not contain transaction-
specific information applicable to the consumer, these disclosures may 
not provide meaningful information to consumers to enable them to 
compare different HELOC products and to make informed decisions about 
whether to open an HELOC plan. Thus, the proposal would replace the 
application disclosures with transaction-specific ``early HELOC 
disclosures'' that must be given within three business days after 
application (but no later than account opening), and revise the format 
and content of the disclosures to make them more clear and conspicuous.
    Content of proposed early HELOC disclosures. The proposal would 
require creditors to include several additional disclosures in the 
early HELOC disclosures not currently required to be disclosed as part 
of the application disclosures, such as (1) the APRs and credit limit 
being offered; (2) a statement that the consumer has no obligation to 
accept the terms disclosed in the early HELOC disclosures; and (3) if 
the creditor has a provision for the consumer's signature, a statement 
that a signature by the consumer only confirms receipt of the 
disclosure statement. Based on consumer testing conducted by the Board 
on HELOC disclosures, the Board believes that these new disclosures 
would provide meaningful information to consumers in deciding whether 
to open a HELOC plan.
    The proposal would not require creditors to provide certain 
disclosures currently required to be disclosed as part of the 
application disclosures. For example, currently creditors must disclose 
a 15-year historical payment example table, a statement that the APR 
does not include costs other than interest, and a statement of the 
earliest time the maximum rate could be reached. Based on consumer 
testing, the Board believes that these disclosures do not provide 
meaningful information to consumers in deciding whether to open a HELOC 
plan. Other information that consumer testing demonstrated would be 
helpful to consumers, however, would be required to be disclosed.
    Moreover, the proposal would revise certain information currently 
required to be disclosed in the application disclosures. For example, 
the application disclosures currently must include several payment 
examples based on a $10,000 outstanding balance. Under the proposal, 
the Board would require in the early HELOC disclosures payment examples 
based on the full credit line. Also, to prevent ``information 
overload'' for consumers, the proposal would allow a creditor to 
disclose information about only two payment plan options. Based on 
consumer testing, the Board believes that the above revisions to the 
payment examples, and other revisions to the existing application 
disclosures, would effectively provide meaningful information to 
consumers in deciding whether to open a HELOC plan.
    Format requirements for the proposed early HELOC disclosures. The 
proposal would impose stricter format requirements for the proposed 
early HELOC disclosures than currently are required for the application 
disclosures. The application disclosures may be provided in a narrative 
form; under the proposal, the early HELOC disclosures must be provided 
in the form of a table with headings, content, and format developed 
through multiple rounds of consumer testing. In consumer testing, 
participants found information in a structured, tabular format easier 
to understand and had more success answering comprehension questions 
than when these participants reviewed application disclosures in a 
narrative form.

C. Disclosures at Account Opening

    Regulation Z requires creditors to disclose costs and terms before 
the first transaction is made for a HELOC. The disclosures must specify 
the circumstances under which a ``finance charge'' may be imposed and 
how it will be determined, including charges such as interest, 
transaction charges, minimum charges, each periodic rate of interest 
that may be applied to an outstanding balance (e.g., for purchases or 
cash advances) as well as the corresponding APR. In addition, creditors 
must disclose the amount of certain charges other than finance charges, 
such as a late-payment charge. Currently, few format requirements apply 
to account-opening disclosures; typically they are interspersed among 
other contractual terms in the creditor's account agreement.
Summary of Proposed Revisions
    The proposal would revise the account-opening disclosure 
requirements in two significant ways. First, the proposal would require 
a tabular summary of key terms. Second, the proposal would reform how 
and when cost disclosures must be made.
    Account-opening summary table. The proposal seeks to make the cost 
disclosures provided at account opening more conspicuous and easier to 
read. Accordingly, the proposal identifies specific costs and terms 
that creditors would be required to summarize in a table. This account 
opening table would be substantially similar to the early HELOC 
disclosure table that would be provided within three business days 
after application, with two major exceptions. First, the account-
opening

[[Page 43435]]

table would show only the payment plan chosen by the consumer, rather 
than a maximum of two plans required in the early HELOC disclosures. 
Second, the account-opening table would contain transaction fees and 
penalty fees not required to be disclosed in the early HELOC disclosure 
table. Despite these differences between the two tables, the Board 
believes that consumers could use the new table provided at account 
opening to compare the terms of their accounts to the early HELOC 
disclosure table. Consumers would no longer be required to search for 
the information in the credit agreement.
    How charges are disclosed. Under the current rules, a creditor must 
disclose any ``finance charge'' or ``other charge'' in the written 
account-opening disclosures. In addition, the regulation identifies 
fees that are not considered to be either ``finance charges'' or 
``other charges'' and, therefore, need not be included in the account-
opening disclosures. The distinctions among finance charges, other 
charges, and charges that do not fall into either category are not 
always clear. Examples of included or excluded charges are in the 
regulation and commentary, but these examples cannot provide definitive 
guidance in all cases. This uncertainty can pose legal risks for 
creditors that act in good faith to comply with the law. Creditors are 
subject to civil liability and administrative enforcement for under-
disclosing the finance charge or otherwise making erroneous 
disclosures, so the consequences of an error can be significant. 
Furthermore, over-disclosure of rates and finance charges is not 
permitted by Regulation Z for open-end credit.
    The fee disclosure rules also have been criticized as being 
outdated and impractical. These rules require creditors to provide fee 
disclosures at account opening, which may be months, and possibly 
years, before a particular disclosure is relevant to the consumer, such 
as when the consumer calls the creditor to request a service for which 
a fee is imposed. In addition, an account-related transaction may occur 
by telephone, when a written disclosure is not feasible.
    The proposed rule is intended to respond to these criticisms while 
still giving full effect to TILA's requirement to disclose credit 
charges before they are imposed. Accordingly, under the proposal, the 
revised rules would (1) specify precisely the charges that creditors 
must disclose in writing at account opening (e.g., interest, account-
opening fees, transaction fees, annual fees, and penalty fees such as 
for paying late), which would be listed in the summary table, and; (2) 
permit creditors to disclose certain optional charges orally or in 
writing before the consumer agrees to or becomes obligated to pay the 
charge. These proposed changes correspond to amendments adopted in the 
January 2009 Regulation Z Rule applicable to open-end (not home-
secured) credit, but would not change current substantive restrictions 
on permissible changes in HELOC terms.

D. Periodic Statements

    Currently, Regulation Z requires creditors to provide periodic 
statements reflecting the account activity for the billing cycle 
(typically, one month). In addition to identifying each transaction on 
the account, creditors must identify each ``finance charge'' using that 
term, and each ``other charge'' assessed against the account during the 
statement period. Creditors must disclose the periodic rate that 
applies to an outstanding balance and its corresponding APR. Creditors 
also must disclose an ``effective'' or ``historical'' APR for the 
billing cycle, which includes not just interest but also finance 
charges imposed in the form of fees.
Summary of Proposed Revisions
    The proposal contains a number of significant revisions to periodic 
statement disclosures. First, the Board recommends eliminating the 
requirement to disclose the effective APR for HELOCs. Second, creditors 
would no longer be required to characterize particular costs on the 
periodic statement as ``finance charges.'' Instead, costs would be 
described either as ``interest'' or as a ``fee.'' Third, interest 
charges and fees imposed as part of the plan must be grouped together 
and totals disclosed for the statement period and year to date. To 
facilitate compliance, the proposal would include sample forms 
illustrating the revisions.
    The effective APR. The ``effective'' APR disclosed on periodic 
statements reflects the cost of interest and certain other finance 
charges imposed during the statement period. For example, for a cash 
advance, the effective APR reflects both interest and any flat or 
proportional fee assessed for the advance. For the reasons discussed 
below, the Board recommends eliminating the requirement to disclose the 
effective APR.
    In general, creditors believe that the effective APR should be 
eliminated. They believe that consumers do not understand the effective 
APR, including how it differs from the corresponding (interest rate) 
APR, why it is often ``high,'' and which fees the effective APR 
reflects. Creditors say that they find it difficult, if not impossible, 
to explain the effective APR to consumers who call them with questions 
or concerns. They note that callers sometimes believe, erroneously, 
that the effective APR signals a prospective increase in their interest 
rate, and they may make uninformed decisions as a result. And, 
creditors say, even if the consumer does understand the effective APR, 
the disclosure does not provide any more information than a disclosure 
of the total dollar costs for the billing cycle. Moreover, creditors 
say the effective APR is arbitrary and inherently inaccurate, 
principally because it amortizes the cost for credit over only one 
month (billing cycle) even though the consumer may take several months 
(or longer) to repay the debt.
    Consumer groups acknowledge that the effective APR is not well 
understood, but argue that it nonetheless serves a useful purpose by 
showing the higher cost of some credit transactions. They contend the 
effective APR helps consumers decide each month whether to continue 
using the account, to shop for another credit product, or to use an 
alternative means of payment such as a debit card. Consumer groups also 
contend that reflecting costs, such as cash advance fees, in the 
effective APR creates a ``sticker shock'' and alerts consumers that the 
overall cost of a transaction for the cycle is high and exceeds the 
advertised corresponding APR. This shock, they say, may persuade some 
consumers not to use certain features on the account, such as cash 
advances, in the future. In their view, the utility of the effective 
APR would be maximized if it reflected all costs imposed during the 
cycle (rather than only some costs as is currently the case).
    As part of consumer testing conducted by the Board on credit cards 
in relation to the January 2009 Regulation Z Rule, consumer awareness 
and understanding of the effective APR was evaluated, as well as 
whether changes to the presentation of the disclosure could increase 
awareness and understanding. The overall results of this testing 
demonstrated that most consumers do not correctly understand the 
effective APR.
    Based on this consumer testing and other factors, the Board 
proposes to eliminate the requirement to disclose the effective APR. 
Under this proposal, creditors offering HELOCs would be required to 
disclose interest and fees in a manner that is more readily 
understandable and comparable across

[[Page 43436]]

institutions. The Board believes that this approach can more 
effectively further the goals of consumer protection and the informed 
use of credit for HELOCs.
    Fees and interest costs. Currently, creditors must identify on 
periodic statements any ``finance charges'' that have been added to the 
account during the billing cycle; creditors typically list these 
charges with other transactions, such as purchases or cash advances, 
chronologically on the statement. The finance charges must be itemized 
by type. Thus, interest charges might be described as ``finance charges 
due to periodic rates.'' Charges such as late-payment fees, which are 
not ``finance charges,'' are typically disclosed individually and 
interspersed among other transactions.
    The Board drew on consumer testing for open-end (not home-secured) 
credit, the results of which the Board believes apply equally to 
HELOCs, to recommend a number of changes to the required HELOC 
disclosures related to finance charges. As under rules adopted in the 
January 2009 Regulation Z Rule for open-end (not home-secured) credit, 
this proposal would require HELOC creditors to group all charges 
together and describe them in a manner consistent with consumers' 
general understanding of costs (``interest charge'' or ``fee''), 
without regard to whether the charges would be considered ``finance 
charges,'' ``other charges,'' or neither. If different periodic rates 
apply to different types of transactions, creditors would be required 
to itemize interest charges for the statement period by type of 
transaction (for example, interest on cash advances) or group of 
transactions subject to different periodic rates.
    In addition, the proposal would require creditors to disclose the 
(1) total fees and (2) total interest imposed for the cycle, as well as 
year-to-date totals for interest charges and fees. The year-to-date 
figures are intended to help consumers understand annualized costs and 
the overall cost of their HELOC better than does the effective APR. The 
Board intends to conduct consumer testing of periodic statement notices 
for HELOCs during the comment period for this proposal.

E. Change-in-Terms Notices

    Currently, Regulation Z requires creditors to send, in most cases, 
notices 15 days before the effective date of certain changes in the 
account terms. Advance notice is not required in all cases; for 
example, if an interest rate increases due to a consumer's default or 
delinquency, notice has been required, but not in advance of the rate 
increase. In addition, no notice (either advance or contemporaneous) 
has been required if the specific change is set forth in the account 
agreement.
Summary of Proposed Revisions
    The Board proposes to revise the change-in-terms rules for HELOCs 
to parallel in most respects the revisions adopted for open-end (not 
home-secured) credit in the January 2009 Regulation Z Rule, including 
the content, timing, and format of such notices. The Proposed revisions 
to change-in-terms notice requirements for HELOCs are intended to 
improve consumers' awareness about changes to their account terms or 
increased rates due to delinquency, default, or other reason disclosed 
in the agreement, and to enhance consumers' ability to make alternative 
financial choices if necessary.
    There are three major components of the proposal regarding change-
in-terms notices. First, the proposal would expand the circumstances in 
which consumers receive advance notice of changed terms, including 
increased rates. Second, the proposal would provide consumers with 
earlier notice--45 days in advance of the effective date of the change 
rather than 15 days. Third, the proposal would introduce format 
requirements to make the disclosures about changes in terms, including 
increased rates, more effective.
    Rate increases. Currently, a change-in-terms notice is not required 
if the agreement between the consumer and the creditor specifically 
sets forth the change and the specific triggering event. In the January 
2009 Regulation Z Rule, the Board expressed concern that the imposition 
of penalty rates might come as a costly surprise to consumers who are 
not aware of, or do not understand, what behavior constitutes a default 
under the credit agreement. The Board also stated that it believed that 
consumers would be the most likely to notice and be motivated to act to 
avoid the imposition of the penalty rate if they receive a specific 
notice alerting them of an imminent rate increase, rather than a 
general disclosure stating the circumstances when a rate might 
increase.
    The Board believes that the same reasoning applies in the case of 
HELOCs, although the circumstances under which a penalty rate may be 
imposed on a HELOC are more restricted than for credit cards. The HELOC 
proposal would also require advance notice of any increased rates due 
to a triggering event specified in the agreement, such as loss of an 
employee preferred rate because the consumer leaves the creditor's 
employ.
    Timing. The Board proposes that the requirement for notice 15 days 
in advance of the effective date of a change be changed to require 
notice 45 days in advance, for the same reasons the Board adopted this 
requirement for open-end (not home-secured) credit. As discussed in the 
January 2009 Regulation Z Rule, shorter notice periods, such as 30 days 
or one billing cycle, may not provide consumers with sufficient time to 
shop for and possibly obtain alternative financing, or to make other 
financial adjustments. The 45-day advance notice requirement refers to 
when the change-in-terms notice must be sent, but it may take several 
days for the consumer to receive the notice. As a result, the Board 
believes that the 45-day advance notice requirement would give 
consumers, in most cases, at least one calendar month after receiving a 
change-in-terms notice to seek alternative financing or otherwise to 
mitigate the impact of an unexpected change in terms.
    The Board is soliciting comment on whether it may be more difficult 
to seek alternative financing or otherwise mitigate the impact of a 
change in terms for HELOCs than for credit cards. The Board is also 
soliciting comment on whether, because changes in terms are more 
narrowly restricted for HELOCs than for credit card accounts, the 
impact on consumers of term changes for HELOCs is likely to be less 
severe than for credit cards and thus whether the proposed time period 
is likely adequate.
    Format. Few format requirements apply to change-in-terms 
disclosures. As with account-opening disclosures, creditors commonly 
intersperse change-in-terms notices with other amendments to the 
account agreement, and both are provided in pamphlets in small print 
and dense prose. Consumer testing conducted for the January 2009 
Regulation Z Rule suggests that consumers tend to set aside change-in-
terms notices when they are presented as a separate pamphlet inserted 
in the periodic statement. Testing also revealed that consumers are 
more likely to identify the changes to their account correctly if the 
changes in terms are summarized in a tabular format.
    The Board therefore proposes that if a changed term is one that 
must be provided in the account-opening summary table, creditors must 
also provide that change in a summary table to enhance the 
effectiveness of the change-in-terms notice. Further, if a notice 
enclosed with a periodic statement discusses a change to a term that 
must be disclosed in the account-opening summary table, or announces

[[Page 43437]]

that a default rate will be imposed on the account, a table summarizing 
the impending change would have to appear on the periodic statement. 
The Board intends to conduct consumer testing of change-in-terms 
notices with a tabular format during the comment period for this 
proposal.

F. Additional Protections

    Account Terminations. Regulation Z currently permits a creditor to 
terminate a HELOC for several reasons, including when the consumer has 
``fail[ed] to meet the repayment terms of the agreement for any 
outstanding balance.'' The proposal would revise this provision to 
provide that a creditor may not terminate a HELOC plan for payment-
related reasons unless the consumer has failed to make a required 
minimum periodic payment more than 30 days after the due date for that 
payment. The Board is requesting comment on whether a delinquency 
threshold of more than 30 days is appropriate, or whether some other 
time period would better achieve the purposes of TILA.
    The proposal is principally intended to protect consumers from so-
called ``hair-trigger'' terminations based on minor payment 
infractions. Overall, the proposal is intended to strike a more 
equitable balance between creditors' authority to protect themselves 
against risk (and, for depositories, to ensure their safety and 
soundness) and effective protection of HELOC consumers from constraints 
on their credit privileges that do not correspond with reasonable 
expectations.
    Suspensions and credit limit reductions based on a significant 
decline in the property value. Regulation Z permits a creditor 
temporarily to suspend advances or reduce a credit line on a HELOC if 
``the value of the dwelling that secures the plan declines 
significantly below the dwelling's appraised value for purposes of the 
plan.'' The commentary provides a ``safe harbor'' standard for 
determining whether a decline is significant: specifically, a decline 
in value is significant if it results in the initial difference between 
the credit limit and the available equity (the ``equity cushion'') 
diminishing by 50 percent.
    Concerns have been expressed to the Board that the existing safe 
harbor may not be a viable standard for the higher combined loan-to-
value (CLTV) HELOCs made in recent years. For loans nearing or 
exceeding 100 percent CLTV when originated, for example, a decline in 
value of a few dollars could result in more than a 50 percent decline 
in the creditor's equity cushion, because the equity cushion was zero 
or close to zero at origination. For these higher CLTV loans in 
particular, creditors have indicated uncertainty about how to determine 
whether a decline in value is ``significant.'' For their part, consumer 
advocates have expressed concerns that the lack of guidance on the 
proper application of the safe harbor allows creditors to take action 
based on nominal declines in value.
    To address these concerns, the proposal would revise the staff 
commentary to delineate two ``safe harbors'' on which creditors could 
rely to determine whether a decline in property value is 
``significant'':
     First, for plans with a CLTV at origination of 90 percent 
or higher, a five (5) percent reduction in the property value on which 
the HELOC terms were based would constitute a significant decline in 
value.
     Second, for plans with a CLTV at origination of under 90 
percent, the existing safe harbor would be retained, under which a 
decline in the value of the property securing the plan is significant 
if, as a result of the decline, the creditor's equity cushion is 
reduced by 50 percent.
    Suspensions and credit limit reductions based on a material change 
in the consumer's financial circumstances. Regulation Z permits a 
creditor to suspend advances or reduce the credit limit of a HELOC when 
``the creditor reasonably believes that the consumer will be unable to 
fulfill the repayment obligations of the plan because of a material 
change in the consumer's financial circumstances.'' Some creditors 
appear uncertain about when action is permissible under this provision, 
and many have requested more detailed guidance. Consumer advocates have 
expressed dissatisfaction with the guidance on this provision as well, 
voicing concerns that the lack of clear guidance may enable some 
creditors to take action when consumers are fully capable of meeting 
their repayment obligations.
    The proposal is intended to protect consumers by ensuring that 
creditors exercise prudent judgment in relying on this provision. 
Revised commentary would clarify that evidence of a material change in 
financial circumstances may include credit report information showing 
late payments or nonpayments on the part of the consumer, such as 
delinquencies, defaults, or derogatory collections or public records 
related to the consumer's failure to pay other obligations. The 
proposed commentary would clarify that any payment failures relied on 
to show a material change in the consumer's financial circumstances 
would need to have occurred within a reasonable time from the date of 
the creditor's review of the consumer's credit performance. A six-month 
safe harbor for this ``reasonable time'' is proposed.
    The proposed commentary would retain the existing commentary's 
guidance stating that evidence supporting a creditor's reasonable 
believe that a consumer is ``unable'' to meet the repayment terms may 
include the consumer's nonpayment of debts other than the HELOC. Under 
the proposal, these payment failures would have to have occurred within 
a reasonable time from the date of the creditor's review of the 
consumer's credit performance, with a proposed six-month safe harbor. 
The Board is requesting comment on whether late payments of 30 days or 
fewer would be adequate evidence of a failure to pay a debt for 
purposes of this provision, and whether and under what circumstances 
credit score declines alone might satisfy the requirements of this 
provision.
    Reinstatement of accounts. Regulation Z requires creditors to 
reinstate credit privileges once no circumstances permitting a freeze 
or credit limit reduction under the statute or regulation exist. 
Recently, due to declining property values and for other reasons, 
HELOCs have been suspended and credit limits reduced more often than in 
the past. Consumer groups and other federal agencies have raised 
concerns about whether consumers are properly informed about the 
creditor's obligation to reinstate credit lines and consumers' rights 
to request reinstatement, and the Board independently researched the 
reinstatement practices of several creditors. As a result, the Board 
has determined that additional guidance is appropriate. The proposed 
changes are intended to ensure that consumers have a meaningful 
opportunity to request reinstatement and to have this request 
investigated. Major proposed revisions include the following:
     Requiring additional information in notices of suspension 
or reduction about consumers' ongoing right to request reinstatement 
and creditors' obligation to investigate this request.
     Requiring creditors to complete an investigation of a 
request within 30 days of receiving the request and to provide notice 
of the results to consumers whose credit privileges will not be 
restored.
     Requiring creditors to cover the costs associated with 
investigating the first reinstatement request by the consumer.

VI. Section-by-Section Analysis

    Other than in the section-by-section analysis of Sec.  226.5b, 
unless otherwise

[[Page 43438]]

indicated, references to the ``current'' or ``existing'' regulation and 
staff commentary refer to the version of Regulation Z and staff 
commentary finalized in the January 2009 Regulation Z Rule. The 
regulation text and commentary in the January 2009 Regulation Z Rule 
will not go into effect until July 1, 2010, and certain changes to both 
the substance and effective date of these have been made by the Credit 
Card Accountability, Responsibility and Disclosure Act of 2009 (Credit 
Card Act), Public Law 111-24, enacted on May 22, 2009. The Board 
determined, however, that it is appropriate for this proposed 
rulemaking to refer to rules that have been finalized and will go into 
effect in the near future, rather than the version of Regulation Z and 
the commentary now in effect but that will soon be obsolete. The 
section-by-section analysis of Sec.  226.5b and references to Sec.  
226.5b refer to the version of Regulation Z and accompanying staff 
commentary currently in effect.

Section 226.2 Definitions and Rules of Construction

2(a)(6) Definition of Business Day
    Currently, Sec.  226.2(a)(6) contains two definitions of ``business 
day.'' Under the general definition, a ``business day'' is a day on 
which the creditor's offices are open to the public for carrying on 
substantially all of its business functions. However, for some purposes 
a more precise definition applies; ``business day'' means all calendar 
days except Sundays and specified federal legal public holidays for 
purposes of determining when disclosures are received under Sec. Sec.  
226.15(e), 226.19(a)(1)(ii), 226.23(a), and 226.31(c)(1) and (2). The 
Board also recently adopted the more precise definition for purposes of 
the presumption in Sec.  226.19(a)(2) that consumers receive corrected 
disclosures three business days after they are mailed and for other 
timing determinations. See 74 FR 23289 (May 19, 2009). As discussed 
more fully below in the section-by-section analysis under proposed 
Sec. Sec.  226.5b(e) and 226.9(j)(2), the Board is proposing to use the 
more precise definition of business day in providing presumptions of 
when consumers receive mailed disclosures required under proposed 
Sec. Sec.  226.5b(b) and 226.9(j)(1).

Section 226.4 Finance Charge

    Various provisions of TILA and Regulation Z specify how and when 
the cost of consumer credit expressed as a dollar amount, the ``finance 
charge,'' is to be disclosed. The rules for determining which charges 
make up the finance charge are set forth in TILA Section 106 and 
Regulation Z Sec.  226.4. 15 U.S.C. 1605. In the January 2009 
Regulation Z Rule, the Board made several revisions to Sec.  226.4. 
Some of the revisions, such as those relating to transaction charges 
imposed by credit card issuers for obtaining cash advances from 
automated teller machines (ATMs) or making purchases in foreign 
currencies or foreign countries, affect all open-end credit, including 
HELOCs as well as open-end (not home-secured) credit. Other revisions 
made in the January 2009 rule affect only open-end (not home-secured) 
credit.
Charges for Credit Insurance or Debt Cancellation or Suspension 
Coverage
    In the case of charges for credit insurance, debt cancellation 
coverage, and debt suspension coverage, some of the revisions affect 
all open-end credit, while others affect only open-end (not home-
secured) credit. The Board is now proposing to revise Sec.  226.4 as it 
applies to HELOCs in a manner generally paralleling the latter category 
of revisions, as discussed further below.
    In addition to the proposed revisions to Sec.  226.4 discussed in 
this HELOC proposal, the Board is separately proposing a number of 
other revisions to Sec.  226.4 and other sections of Regulation Z, 
regarding finance charge, credit insurance, and debt cancellation or 
suspension coverage, in its proposal regarding closed-end mortgage 
lending under Regulation Z, published today elsewhere in this Federal 
Register. Some of these proposed revisions would affect HELOCs as well 
as closed-end mortgage loans. These other proposals are discussed 
below; for a detailed discussion, see the Board's separate Federal 
Register notice. The proposed regulatory text and proposed staff 
commentary for Sec.  226.4, as well as other affected sections, appear 
in the Board's separate Federal Register notice.
    Premiums or other charges for credit life, accident, health, or 
loss-of-income insurance are finance charges if the insurance or 
coverage is ``written in connection with'' a credit transaction. 15 
U.S.C. 1605(b); Sec.  226.4(b)(7). Creditors may exclude from the 
finance charge premiums for credit insurance if they disclose the cost 
of the insurance and the fact that the insurance is not required to 
obtain credit. In addition, the statute requires creditors to obtain an 
affirmative written indication of the consumer's desire to obtain the 
insurance, which, as implemented in Sec.  226.4(d)(1)(iii), requires 
creditors to obtain the consumer's initials or signature. 15 U.S.C. 
1605(b). In 1996, the Board expanded the scope of the rule to include 
plans involving charges or premiums for debt cancellation coverage. See 
Sec.  226.4(b)(10) and (d)(3). 61 FR 49237 (September 19, 1996.)
    The January 2009 Regulation Z Rule amended the regulation to treat 
debt suspension coverage in the same way as debt cancellation coverage. 
Debt suspension is the creditor's agreement to suspend, on the 
occurrence of a specified event, the consumer's obligation to make the 
minimum payment(s) that would otherwise be due. During the suspension 
period, interest may continue to accrue or it may be suspended as well, 
depending on the plan. Thus, under Sec.  226.4(b)(10), charges for debt 
suspension coverage written in connection with a credit transaction are 
finance charges, unless excluded under Sec.  226.4(d)(3). However, to 
exclude the cost of debt suspension coverage from the finance charge, 
creditors are also required to inform consumers, as applicable, that 
the obligation to pay loan principal and interest is only suspended, 
and that interest will continue to accrue during the period of 
suspension. These revisions apply to all open-end plans (both HELOCs 
and open-end (not home-secured) credit), as well as to closed-end 
credit transactions.
    Insurance or coverage sold after opening of an account. One of the 
revisions made in the January 2009 Regulation Z Rule affecting only 
open-end (not home-secured) credit involves the meaning of the phrase 
``written in connection with a credit transaction.'' Prior to the 
January 2009 rule, credit insurance or debt cancellation or suspension 
coverage sold after consummation of a closed-end credit transaction or 
after the opening of an open-end plan and upon a consumer's request was 
considered not to be ``written in connection with the credit 
transaction,'' and, therefore, a charge for such insurance or coverage 
was not a finance charge. See comment 4(b)(7) and (8)-2. The Board 
stated in its 2007 proposal for open-end (not home-secured) credit (72 
FR 32945 (June 14, 2007) (June 2007 Regulation Z Proposal) that it 
believed this approach remained sound for closed-end transactions, 
which typically consist of a single transaction with a single advance 
of funds. However, in an open-end plan, where consumers can engage in 
credit transactions after the opening of the plan, a creditor may have 
a greater opportunity to influence a consumer's decision whether or not 
to purchase credit insurance or debt cancellation or suspension 
coverage than in the case of closed-end credit. Accordingly, the

[[Page 43439]]

disclosure and consent requirements are important in open-end plans, 
even after the opening of the plan, to ensure that the consumer is 
fully informed about the offer of insurance or coverage and that the 
decision to purchase it is voluntary. Therefore, the Board adopted in 
the January 2009 Regulation Z Rule amendments to comment 4(b)(7) and 
(8)-2, to state that insurance purchased after an open-end (not home-
secured) plan is opened is considered to be written ``in connection 
with a credit transaction.'' New comment 4(b)(10)-2 provides the same 
treatment to purchases of debt cancellation or suspension coverage. 
Therefore, purchases of voluntary insurance or debt cancellation or 
suspension coverage after account opening trigger disclosure and 
consent requirements. This amendment does not apply to HELOCs; the 
Board stated that it intended to consider this issue when the home-
equity credit plan rules are reviewed in the future.
    The Board proposes to apply the same rule to HELOCs. Thus, comments 
4(b)(7) and (8)-2 and 4(b)(10)-2 would be amended to state that credit 
insurance or debt cancellation or suspension coverage purchase after 
any open-end plan is opened is considered to be written in connection 
with a credit transaction, and therefore charges for such insurance or 
coverage would be finance charges unless the disclosure and consent 
requirements under Sec.  226.4(d)(1) and (3) are met. The Board 
believes that the same reasons for extending the ``written in 
connection with'' rule to insurance or coverage purchased after the 
opening of an open-end (not home-secured) plan exist with regard to 
insurance or coverage purchased after the opening of a HELOC. Although 
the creditors' ability to terminate or restrict HELOC accounts is more 
limited than in the case of open-end (not home-secured) accounts, 
consumers may not be aware of this difference and therefore consumers' 
decisions about whether to purchase insurance or coverage may be 
influenced by concern about their continued access to credit, or about 
possible adverse changes to the terms and conditions of the account.
    Telephone sales of insurance or coverage. Another of the revisions 
made in the January 2009 Regulation Z Rule affecting only open-end (not 
home-secured) credit involves sales of credit insurance or debt 
cancellation or suspension coverage by telephone. Under Sec.  
226.4(d)(1) and (d)(3), creditors may exclude from the finance charge 
credit insurance premiums and debt cancellation or suspension charges 
if the consumer signs or initials an affirmative written request for 
the insurance or coverage, after disclosure of the fact that the 
insurance or coverage is optional and of the cost.
    In the June 2007 Regulation Z Proposal the Board proposed, and in 
the January 2009 Regulation Z Rule adopted, an exception to the 
requirement to obtain a written signature or initials for telephone 
purchases of credit insurance or debt cancellation and debt suspension 
coverage on an open-end (not home-secured) plan. Under new Sec.  
226.4(d)(4), for telephone purchases, the creditor is permitted to make 
the disclosures orally and the consumer may affirmatively request the 
insurance or coverage orally, provided that the creditor (1) maintains 
evidence that demonstrates that the consumer, after being provided the 
disclosures orally, affirmatively elected to purchase the insurance or 
coverage; and (2) mailed the disclosures under Sec.  226.4(d)(1) or 
(d)(3) within three business days after the telephone purchase. Comment 
4(d)(4)-1 provides that a creditor does not satisfy the requirement to 
obtain an affirmative request if the creditor uses a script with 
leading questions or negative consent. This new rule is consistent with 
rules published by the federal banking agencies to implement Section 
305 of the Gramm-Leach-Bliley Act regarding the sale of insurance 
products by depository institutions, as well as guidance published by 
the Office of the Comptroller of the Currency regarding the sale of 
debt cancellation and suspension products. See 12 CFR 208.81 et seq. 
regarding insurance sales; 12 CFR part 37 regarding debt cancellation 
and debt suspension products. HELOCs subject to Sec.  226.5b were not 
affected by this revision.
    The Board adopted this approach pursuant to its exception and 
exemption authorities under TILA Section 105. Section 105(a) authorizes 
the Board to make exceptions to TILA to effectuate the statute's 
purposes, which include facilitating consumers' ability to compare 
credit terms and helping consumers avoid the uniformed use of credit. 
15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes the Board to 
exempt any class of transactions from coverage under any part of TILA 
if the Board determines that coverage under that part does not provide 
a meaningful benefit to consumers in the form of useful information or 
protection. 15 U.S.C. 1604(f)(1). Section 105(f) directs the Board to 
make this determination in light of specific factors. 15 U.S.C. 
1604(f)(2). These factors are (1) the amount of the loan and whether 
the disclosure provides a benefit to consumers who are parties to the 
transaction involving a loan of such amount; (2) the extent to which 
the requirement complicates, hinders, or makes more expensive the 
credit process; (3) the status of the borrower, including any related 
financial arrangements of the borrower, the financial sophistication of 
the borrower relative to the type of transaction, and the importance to 
the borrower of the credit, related supporting property, and coverage 
under TILA; (4) whether the loan is secured by the principal residence 
of the borrower; and (5) whether the exemption would undermine the goal 
of consumer protection.
    The Board stated in the January 2009 Regulation Z Rule that it 
considered each of these factors carefully, and based on that review, 
believed it is appropriate to exempt, for open-end (not home-secured) 
plans, telephone sales of credit insurance or debt cancellation or debt 
suspension plans from the requirement to obtain a written signature or 
initials from the consumer. Requiring a consumer's written signature or 
initials is intended to evidence that the consumer is purchasing the 
product voluntarily; the rule contains safeguards intended to insure 
that oral purchases are voluntary. Under the rule, creditors must 
maintain tapes or other evidence that the consumer received required 
disclosures orally and affirmatively requested the product. Comment 
4(d)(4)-1 indicates that a creditor does not satisfy the requirement to 
obtain an affirmative request if the creditor uses a script with 
leading questions or negative consent. In addition to oral disclosures, 
under the proposal consumers will receive written disclosures shortly 
after the transaction.
    The Board proposes to extend the telephone sales rule for credit 
insurance and debt cancellation or suspension coverage, as adopted in 
the January 2009 Regulation Z Rule, to HELOCs. Section 226.4(d)(4) 
would be amended to apply to all open-end credit, not only open-end 
(not home-secured) credit. The Board proposes this approach pursuant to 
its exception and exemption authorities under TILA Section 105, and has 
considered the factors specified in Section 105(f) as discussed above. 
The proposed rule contains safeguards to ensure that the purchase is 
voluntary. In addition, other proposed safeguards regarding eligibility 
restrictions and revised disclosures, discussed in the Board's separate 
proposal regarding closed-end mortgage lending provisions of Regulation 
Z and published today

[[Page 43440]]

elsewhere in the Federal Register, would apply to HELOCs as well as 
closed-end mortgage loans.
    The fee for the credit insurance or debt cancellation or debt 
suspension coverage would also appear on the first monthly periodic 
statement after the purchase, and, as applicable, thereafter. As 
discussed in the section-by-section analysis under Sec.  226.7, under 
the proposal fees, including insurance and debt cancellation or 
suspension coverage charges, would be better highlighted on statements. 
Consumers who are billed for insurance or coverage they did not 
purchase may dispute the charge as a billing error. At the same time, 
the proposed amendments should facilitate the convenience to both 
consumers and creditors of conducting transactions by telephone. The 
proposed amendments, therefore, have the potential to better inform 
consumers and further the goals of consumer protection and the informed 
use of credit.
Proposals Regarding Finance Charge and Credit Insurance, Debt 
Cancellation Coverage, and Debt Suspension Coverage Published in 
Separate Federal Register Notice
    As noted above, in addition to the proposed amendments discussed 
above, the Board is separately proposing a number of amendments to the 
rules in Sec.  226.4 regarding finance charge, and to the rules in 
Sec.  226.4 and other sections of Regulation Z regarding credit 
insurance and debt cancellation or suspension coverage. These other 
proposed amendments are discussed in detail in the Board's separate 
Federal Register notice, published today and appearing elsewhere in 
this Federal Register. Also, the regulatory and staff commentary text 
for these proposed amendments appears in the Board's separate Federal 
Register notice. A brief discussion of these other proposed amendments 
follows.
    ``All-in'' finance charge. The Board is proposing to adopt, for 
closed-end mortgage lending under Regulation Z only, an ``all-in'' 
finance charge concept, under which all fees payable directly or 
indirectly by the consumer and imposed directly or indirectly by the 
creditor as an incident to or condition of the extension of credit 
would be included in the finance charge. Thus, many of the exclusions 
from the finance charge under Sec.  226.4(a), (c), (d), and (e) would 
no longer apply to closed-end mortgage loans. For example, for closed-
end mortgage loans, charges for credit insurance and debt cancellation 
or suspension coverage would be considered finance charges, whether or 
not the insurance or coverage is optional and even though revised 
disclosures would be required.
    The Board is not proposing this ``all-in'' finance charge approach 
for credit other than closed-end mortgage loans. Thus, the proposed 
approach would not apply, for example, to closed-end non-mortgage 
credit, or to HELOCs or other open-end credit. As discussed below in 
the section-by-section analysis under Sec. Sec.  226.5 and 226.7, 
disclosures for HELOCs would no longer be required to use the term 
``finance charge,'' and would no longer be required to contain a 
disclosure of the effective APR (i.e., an APR that includes not only 
interest but also other fees that constitute finance charges). In the 
January 2009 Regulation Z Rule, the Board adopted these changes for 
open-end (not home-secured) credit. Therefore, the Board believes that 
changing the definition of finance charge for HELOC accounts would not 
have a material effect on the HELOC disclosures and accordingly is 
unnecessary. However, the Board requests comment on whether there are 
reasons why consideration should be given to changing the definition of 
finance charge for HELOCs. For a detailed discussion of the Board's 
proposals regarding the ``all-in'' finance charge for closed-end 
mortgage loans, see the Board's separate Federal Register notice 
published today.
    Age or employment eligibility criteria. The Board is proposing to 
add new Sec.  226.4(d)(1)(iv) and (d)(3)(v) to permit creditors to 
exclude a credit insurance premium or debt cancellation or suspension 
charge from the finance charge only if the creditor determines at the 
time of enrollment that the consumer meets any applicable age or 
employment eligibility criteria for the insurance or coverage. These 
provisions would apply to all open-end credit, including HELOCs, as 
well as to closed-end (non-real-property) credit. The Board is 
proposing these new provisions because some creditors offer credit 
insurance or debt cancellation or suspension products with eligibility 
restrictions, but may not evaluate whether applicants actually meet the 
criteria at the time the applicants request the product. As a result, 
many consumers may not discover until they file a claim that they were 
paying for a product for which they were not eligible. For a detailed 
discussion of this proposal, see the Board's separate Federal Register 
notice published today. Note that, for HELOCs and other open-end credit 
in which the telephone purchase rule under Sec.  226.4(d)(4) could be 
used, the new conditions under proposed Sec.  226.4(d)(1)(iv) and 
(d)(3)(v) would still apply.
    Revised disclosures for insurance or coverage. The Board is 
proposing to add model clauses that would provide clearer information 
to consumers about the optional nature and costs of credit insurance or 
debt cancellation or suspension coverage. The model clauses would apply 
to open-end as well as closed-end credit transactions, and appear in 
Appendix G-16(C) for open-end credit and Appendix H-17(C) for closed-
end credit. The disclosure language is based on consumer testing 
conducted by the Board to determine whether consumers understood the 
optional nature and costs of credit insurance or debt cancellation or 
suspension coverage. In addition, the disclosures would contain 
language about eligibility restrictions and a reference to the Board's 
Web site to learn more about the product. These model clauses would be 
in addition to the Debt Suspension Model Clause found at Appendix G-
16(A) for open-end credit and Appendix H-17(A) for closed-end credit. 
For a detailed discussion of this proposal, see the Board's separate 
Federal Register notice published today.

Section 226.5 General Disclosure Requirements

    Section 226.5 contains the general requirements for open-end credit 
disclosures under Regulation Z, both for credit cards and other open-
end (not home-secured) credit and for HELOCs subject to Sec.  226.5b. 
Section 226.5 addresses, among other requirements, that disclosures be 
clear and conspicuous, in writing, and in a form the consumer can keep, 
as well as requirements concerning terminology, formats for 
disclosures, and timing of disclosures. In the January 2009 Regulation 
Z Rule, the Board adopted a number of changes to the general disclosure 
requirements for open-end (not home-secured) credit, but did not change 
the requirements applicable to HELOCs. The Board is now proposing to 
revise the format and other disclosure requirements for HELOCs in a 
manner generally paralleling the revisions in the requirements for 
open-end (not home-secured) credit.
    In addition to the proposed changes to the specific rules for 
disclosures, the Board proposes to adopt a new comment 5-1 that would 
provide guidance in situations where a creditor is uncertain whether an 
open-end credit plan is covered by the Sec.  226.5b rules for HELOCs or 
the rules for open-end (not home-secured) credit. The Board understands 
that there is uncertainty for

[[Page 43441]]

creditors that offer open-end credit secured by real property, where it 
is unclear whether that property is, or remains, the consumer's 
dwelling. Such creditors may be uncertain how they should comply with 
the January 2009 Regulation Z Rule. The Board solicited comment on this 
issue in the May 2009 proposal regarding technical revisions and other 
changes to open-end (not home-secured) credit rules. 74 FR 20784 (May 
5, 2009) (May 2009 Regulation Z Proposal). The comment period ended on 
June 4, 2009. Financial institutions commenters suggested that 
creditors be permitted to treat all open-end credit secured by 
residential property as covered by Sec.  226.5b, rather than the rules 
for open-end (not home-secured) credit, regardless of whether the 
property is the consumer's dwelling. Consumer group commenters did not 
address this issue.
    Proposed comment 5-1 generally permits creditors to assume that the 
property securing the line of credit is the principal residence or a 
second or vacation home of the consumer and, therefore, that the line 
of credit is covered by the HELOC rules. (The HELOC rules cover not 
only credit secured by consumer's principal residence, but also credit 
secured by vacation and second homes, assuming the credit is for 
personal, family, or household purposes.) However, creditors are also 
permitted to investigate the actual use of the property. If the 
creditor ascertains that the property is not the consumer's principal 
residence or a second or vacation home, the creditor may comply with 
the rules applicable to open-end (not home-secured) credit under 
Regulation Z. In this case, if the credit plan is accessible by credit 
card, the creditor must comply with, in addition to the rules 
applicable to open-end credit generally, the rules for open-end (not 
home-secured) credit card plans under Sec.  226.5a and associated 
sections in the regulation. The Board requests comment on whether the 
proposed comment provides useful and appropriate guidance.
5(a) Form of Disclosures
5(a)(1) General
Paragraph 5(a)(1)(i)
    Section 226.5(a)(1)(i) requires that disclosures required under the 
regulation be clear and conspicuous. Comment 5(a)(1)-1 states that the 
``clear and conspicuous'' standard generally requires that disclosures 
be in a reasonably understandable form. The comment further states that 
disclosures for credit card applications and solicitations under Sec.  
226.5a, and related disclosures such as those required to be in a 
tabular format under Sec.  226.6(b)(1), must also be readily noticeable 
to the consumer. Comment 5(a)(1)-3 explains that the disclosures 
subject to the readily noticeable standard must be given in a minimum 
of 10-point font and cross-references the rule that the APR for 
purchases in an open-end (not home-secured) plan under Sec. Sec.  
226.5a(b)(1) and 226.6(b)(2)(i) must be in a minimum 16-point font.
    The Board proposes to revise comments 5(a)(1)-1 and -3 to apply the 
same standards to home-equity plan disclosures as those applicable to 
the comparable disclosures for credit cards and other open-end (not 
home-secured) credit. Specifically, the Board proposes to revise 
comments 5(a)(1)-1 and -3 to require that the following home-equity 
disclosures be readily noticeable to the consumer, meaning that they 
must be provided in a minimum font size of 10-point: disclosures 
required to be given in a tabular format within three business days 
after application (Sec.  226.5b(b)); disclosures required to be given 
in a tabular format at account opening (Sec.  226.6(a)(1)); change-in-
terms disclosures required to be given in a tabular format (Sec.  
226.9(c)(1)(iii)(B)); and disclosures required to be given in a tabular 
format when a rate is increased due to delinquency or default under 
Sec.  226.5b(f)(2) (Sec.  226.9(i)(4)). The proposal also adds a cross-
reference to the 16-point minimum font size requirement for the APR in 
a home-equity plan under proposed Sec. Sec.  226.5b(c)(10) and 
226.6(a)(2)(vi).
    The Board believes that the same reasoning underlying the minimum 
font size requirements for open-end (not home-secured) plan disclosures 
applies to the comparable home-equity plan disclosures. In the June 
2007 Regulation Z Proposal, the Board stated its belief that special 
formatting requirements, such as a tabular format and font size 
requirements, are needed to highlight for consumers the importance and 
significance of certain disclosures required at application or 
solicitation for a credit card, and at the opening of a credit card 
account. Similarly, for disclosures that may appear on periodic 
statements, such as the change-in-terms disclosures under Sec.  
226.9(c)(2)(iii)(B) and disclosures when a rate is increased due to 
delinquency, default or as a penalty under Sec.  226.9(g)(3)(ii), the 
Board stated that highlighting these disclosures by using a minimum 10-
point font size is important because consumers do not expect to see 
these disclosures each billing cycle and because the changes may have a 
significant impact on the consumer.
    Consumer comments on the June 2007 Regulation Z Proposal noted that 
credit card disclosures are in fine print and argued that disclosures 
should be given in a larger font. Many consumer and consumer group 
commenters suggested that the regulation require a minimum 12-point 
font for disclosures. In consumer testing conducted by the Board in the 
open-end (not home-secured) credit review demonstrated that 
participants were able to read and notice information in a 10-point 
font. Consumer testing conducted by the Board in the home-equity credit 
review showed the same result. Accordingly, the Board proposes to 
require that the HELOC disclosures discussed above must be provided in 
a minimum 10-point font size.
Paragraph 5(a)(1)(ii)
Paragraph 5(a)(1)(ii)(A)
    Section 226.5(a)(1)(ii) requires that disclosures required by the 
regulation be given in writing and in a form that the consumer may 
keep. Section 226.5(a)(1)(ii)(A) specifies several exceptions to the 
requirement that disclosures be in writing, including account-opening 
disclosures of charges imposed as part of an open-end (not home-
secured) plan that are not required to be disclosed in a tabular format 
under Sec.  226.6(b)(2) and related change-in-terms disclosures under 
Sec.  226.9(c)(2)(ii)(B), when such charges change. The Board proposes 
to add a parallel exception, applicable to home-equity plans, for 
disclosures of certain charges not required to be given in tabular 
format at the time of account opening and for related change-in-terms 
disclosures.
    The Board believes that the same reasoning underlying the exception 
to the written disclosure requirement for certain open-end (not home-
secured) plan disclosures applies to home-equity plan disclosures. As 
discussed in the January 2009 Regulation Z Rule, in permitting certain 
charges in open-end (not home-secured) credit to be disclosed either 
orally or in writing (and after account opening, as discussed further 
under Sec.  226.5(b)(1)(ii) below), the Board's goal was to better 
ensure that consumers receive disclosures at a time and in a manner in 
which they would be likely to notice them. At account opening, both for 
open-end (not home-secured) plans and for HELOCs, written disclosure 
has obvious merit because account opening is a time when a consumer 
must assimilate information that may influence major decisions by

[[Page 43442]]

the consumer about how, or even whether, to use the account. During the 
life of an account, however, a consumer may sometimes need to decide 
whether to purchase a single service from the creditor that may not be 
central to the consumer's use of the account, such as an expedited 
telephone payment service. The consumer may have become accustomed to 
purchasing similar services by telephone for other financial products, 
such as credit cards, and expect to receive an oral disclosure of the 
charge for the service during the same telephone call. Permitting oral 
disclosure of charges that are not central to the consumer's use of the 
account would be consistent with consumer expectations and with the 
business practices of creditors.
    Accordingly, the Board proposes to exempt from the written 
disclosure requirement the following HELOC disclosures: charges not 
required to be in given in tabular format at account opening under 
Sec.  226.6(a)(2) (i.e., charges that are not the most significant 
charges related to the plan) and related change-in-terms notices under 
Sec.  226.9(c)(1)(ii)(B). A creditor would not be permitted to increase 
the APR (assuming a rate increase were permissible at all) without 
providing written notice, because the APR is a disclosure required to 
be given in tabular format. Of course, any change in terms in a HELOC 
subject to Sec.  226.5b would have to be permissible under Sec.  
226.5b(f). For example, the charge for an expedited telephone payment 
service would not be permitted to be increased; however, the charge 
could be decreased, or a new optional telephone payment service, with 
its associated charge, could be introduced, because these would be 
beneficial changes permitted under Sec.  226.5b(f).
    The most significant charges would not be covered by the proposed 
exemption and would continue to have to be disclosed in writing at 
account opening, because these charges would be required to be shown in 
the tabular account-opening disclosures. For example, the annual fee, 
early termination fee, penalty fees such as late payment and over-the-
credit-limit fees, and fees to use the account such as transaction fees 
would have to be disclosed in writing at account opening in the tabular 
disclosure. Further, any changes in these charges (assuming a change 
were permissible at all, which in most cases it would not be) would be 
required to be disclosed in a written change-in-terms notice under 
Sec.  226.9(c).
Paragraph 5(a)(1)(ii)(B)
    Application disclosures. Section 226.5(a)(1)(ii)(B) lists several 
exceptions to the requirement that disclosures be in a form that the 
consumer may keep, including the disclosures required to be given at 
the time of application for a HELOC under Sec.  226.5b(d) (to be 
redesignated Sec.  226.5b(c) under the proposal). The Board proposes to 
eliminate this exception because, as discussed in greater detail below 
in this section-by-section analysis under Sec. Sec.  226.5(b)(4) and 
226.5b(b), the Board is proposing to change the timing and content of 
HELOC disclosures under Sec.  226.5b(c). Under the proposal, these 
disclosures would be required to show the terms and conditions that 
would apply to the particular consumer, rather than only describing the 
creditor's plans in general terms. In addition, Sec.  226.5b(c) 
disclosures would be given within three business days after application 
rather than at the time of application.
    The purpose of the existing exception to the retainability 
requirement was to avoid requiring creditors to give consumers a 
separate disclosure document, in addition to the application form 
itself. When proposing and adopting in final form the amendments to 
Regulation Z implementing the 1988 Home Equity Loan Act (cited above), 
the Board noted that the exception from the retainability requirement 
would permit the creditor to place the disclosures on the application 
form that the consumer would return to the creditor to apply for the 
plan. 54 FR 3063 (January 23, 1989); 54 FR 24670 (June 9, 1989). This 
purpose for the exception from the retainability requirement would not 
apply under the proposal because the relevant disclosures would be not 
be provided at the time of application, but instead within three 
business days later.
    Home-equity brochure. The current regulation does not exempt the 
home-equity brochure required under Sec.  226.5b(e) from the 
retainability requirement under the current regulation, even though the 
brochure is required to be provided to a consumer at the time of 
application. One reason is that the brochure is not easily incorporated 
into the application form itself. As discussed under Sec.  226.5b(a) 
below, the Board is proposing to replace the brochure with a shorter 
disclosure serving the same purpose of informing consumers generally 
about home-equity plan features and risks (``Key Questions to Ask about 
Home Equity Lines of Credit'' or ``Key Questions'' document). The 
retainability requirement would continue to apply to this disclosure; 
it would be a form developed and specifically prescribed by the Board, 
and therefore would not necessarily be readily incorporated into the 
application form itself.
Paragraph 5(a)(1)(iii)
    Under Sec.  226.5(a)(1)(iii), a creditor may give a consumer open-
end credit disclosures in electronic form, as long as the creditor 
complies with the consumer notice and consent procedures and other 
applicable provisions of the Electronic Signatures in Global and 
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). Under 
certain circumstances, however, the disclosures required at application 
for a home-equity plan under Sec.  226.5b (as well as the application 
and solicitation disclosures for credit cards under Sec.  226.5a and 
disclosures in open-end credit advertising under Sec.  226.16) may be 
provided to a consumer in electronic form without regard to the 
requirements of the E-Sign Act. Section 226.5b(a)(3) (proposed to be 
redesignated Sec.  226.5b(a)(2)), in turn, requires that for the Sec.  
226.5b disclosures to be provided in electronic form, the application 
must be accessed by the consumer in electronic form and the disclosures 
must be provided on or with the application. The Board proposes to 
continue to apply this exception from the E-Sign consumer notice and 
consent requirements to the disclosure that would be provided to a 
consumer at application under proposed Sec.  226.5b(a) (i.e., ``Key 
Questions'' document).
    The purpose of these exceptions from the E-Sign Act's notice and 
consent requirements is to facilitate credit shopping. When proposing 
these exceptions, the Board stated its belief that the exceptions would 
eliminate a potentially significant burden on electronic commerce 
without increasing the risk of harm to consumers: requiring consumers 
to follow the notice and consent procedures of the E-Sign Act to access 
an online application, solicitation, or advertisement is potentially 
burdensome and could discourage consumers from shopping for credit 
online; at the same time, there appears to be little, if any, risk that 
the consumer will be unable to view the disclosures online when they 
are already able to view the application, solicitation, or 
advertisement online. 72 FR 63462 (November 9, 2007).
    This exception would not be extended to the disclosures that would 
be provided within three business days after application under proposed 
Sec.  226.5b(b). The credit shopping process takes place primarily when 
a consumer reviews applications and associated disclosures and decides 
whether to

[[Page 43443]]

submit an application. Three business days after the consumer has 
submitted an application, the consumer may have completed the credit 
shopping process. Requiring compliance with the E-Sign Act's notice and 
consent procedures for disclosures at this point would not likely 
hinder credit shopping, and would ensure that the consumer is able and 
willing to receive disclosures in electronic form. In addition, 
compliance with the E-Sign Act for disclosures provided within three 
business days after application should not be unduly burdensome, 
because the time between application and three days later should be 
sufficient for the creditor to carry out the E-Sign Act notice and 
consent procedures.
5(a)(2) Terminology
Paragraph 5(a)(2)(ii)
    ``Finance charge'' and ``annual percentage rate.'' Section 
226.5(a)(2) relates to terminology used in disclosures. Section 
226.5(a)(2)(ii) requires that for HELOCs subject to Sec.  226.5b, the 
terms ``finance charge'' and ``annual percentage rate,'' when required 
to be disclosed with a corresponding amount or percentage rate, must be 
more conspicuous than any other required disclosure, with some 
exceptions. This regulatory provision implements section 122(a) of 
TILA; 15 U.S.C. 1632(a).
    In the January 2009 Regulation Z Rule, the Board eliminated the 
``more conspicuous'' rule for open-end (not home-secured) credit, using 
the Board's authority under TILA Section 105(a) to make ``such 
adjustments and exceptions for any class of transactions, as in the 
judgment of the Board are necessary or proper to effectuate the 
purposes of this title, to prevent circumvention or evasion thereof, or 
to facilitate compliance therewith.'' 15 U.S.C. 1604(a). The Board 
concluded that requiring the terms ``annual percentage rate'' and 
``finance charge'' to be more conspicuous than other disclosures was 
unnecessary, because creditors would be required to emphasize APRs and 
certain other finance charges by disclosing them in a tabular format 
with a minimum 10-point font size (or 16-point font size as required 
for the APR for purchases). Furthermore, the Board noted that the use 
of the term ``finance charge'' in disclosures for open-end (not home-
secured) plans is no longer required; as a result, creditors would in 
many cases not use the term ``finance charge'' at all.
    The Board believes that the same reasoning applies to the terms 
``finance charge'' and ``annual percentage rate'' when disclosed for 
home-equity plans. As for open-end (not home-secured) credit, for 
HELOCs subject to Sec.  226.5b the Board is proposing to require 
creditors to disclose the APR and certain other finance charges in a 
tabular format with a minimum 10-point font size (or 16-point font size 
for the APR the first time it appears in the table). The Board is also 
proposing to eliminate the requirement that creditors use the term 
``finance charge'' in disclosures for HELOCs subject to Sec.  226.5b 
(see discussion in this section-by-section analysis under Sec.  226.7). 
Accordingly, under the Board's authority in TILA Section 105(a) 
discussed above, the Board proposes to revise Sec.  226.5(a)(2)(ii) to 
eliminate the ``more conspicuous'' rule for the terms ``finance 
charge'' and ``annual percentage rate'' for home-equity plans. Comments 
5(a)(2)-1, -2, and -3, providing guidance on the ``more conspicuous'' 
rule, would be deleted, and comment 5(a)(2)-4 would be renumbered as 
5(a)(2)-1.
    ``Borrowing period,'' ``repayment period,'' and ``balloon 
payment.'' The Board also proposes to revise Sec.  226.5(a)(2)(ii) to 
require the use of the terms ``borrowing period,'' ``repayment 
period,'' and ``balloon payment'' in disclosures required to be given 
in tabular format in HELOCs subject to Sec.  226.5b, as applicable. In 
consumer testing conducted by the Board to develop the proposed revised 
home-equity plan disclosures, consumers understood these terms. In 
particular, consumers overall understood that the term ``borrowing 
period'' referred to the part of a HELOC term during which consumers 
could obtain funds, whereas they did not clearly understand the 
alternative term ``draw period,'' which is used in the existing 
regulation's home-equity sample disclosures (Appendices G-14A and G-
14B).
    ``Required'' for required credit insurance or debt cancellation or 
suspension coverage. Section 226.5(a)(2)(ii) would also be revised to 
require that, if credit insurance or debt cancellation or suspension 
coverage is required as part of the plan, the term ``required'' must be 
used and the program must be identified by its name. This would be 
parallel to the requirement adopted in the January 2009 Regulation Z 
Rule for open-end (not home-secured) credit under Sec.  
226.5(a)(2)(iii) discussed below.
Paragraph 5(a)(2)(iii)
    Section 226.5(a)(2)(iii) contains three terminology requirements 
adopted in the January 2009 Regulation Z Rule for open-end (not home-
secured) credit. First, if credit insurance or debt cancellation or 
suspension coverage is required as part of the plan, the term 
``required'' must be used and the program must be identified by its 
name. This requirement is proposed to apply to HELOCs subject to Sec.  
226.5b as well (under proposed Sec.  226.5(a)(2)(ii), as discussed 
above).
    Second, Sec.  226.5(a)(2)(iii) requires a creditor to use the term 
``penalty APR'' as applicable. Third, Sec.  226.5(a)(2)(iii) prohibits 
a creditor from using the term ``fixed'' to describe a rate unless the 
creditor also specifies a time period during which the rate will be 
fixed and the rate will not increase during that period, or, if the 
creditor does not disclose a time period during which the rate will be 
fixed, the rate will not increase while the plan is open.
    These latter two rules would not be applied to HELOCs subject to 
Sec.  226.5b; accordingly, Sec.  226.5(a)(2)(iii) would be revised to 
exclude home-equity plans from the terminology requirements relating to 
the terms ``penalty APR'' and ``fixed.'' Regarding the ``penalty APR'' 
requirement, the Board's review of home-equity plans and HELOC creditor 
practices indicates that most HELOCs do not have penalty rates. Even if 
a penalty rate could apply, under Sec.  226.5b(f) such a rate could 
apply to balances (both outstanding and future) only if an event 
permitting termination and acceleration of the plan, such as a 
significant payment default (more than 30 days late), has occurred. See 
proposed Sec.  226.5b(f)(2)(ii) and comment 5b(f)(2)(ii)-1. In general, 
rate increases of any kind, including application of penalty rates, are 
much more restricted for HELOCs subject to Sec.  226.5b than for credit 
card accounts, in which penalty rates can be applied even for minor 
defaults (although only on future transactions). For these reasons, the 
disclosures required for HELOCs, unlike those for credit card accounts, 
do not include penalty rates; see the discussion of this issue under 
Sec. Sec.  226.5b and 226.6, below. Therefore, a terminology 
requirement relating to penalty rates is inapplicable.
    Regarding using the term ``fixed'' to describe a rate, the Board 
believes that the reason for the prohibition applicable to credit card 
accounts does not exist for HELOCs. Credit card accounts have been 
marketed as having ``fixed'' rates even though rates could be increased 
at any time and for any reason. The rates of HELOCs subject to Sec.  
226.5b generally may only be changed in accordance with a publicly 
available index not under the control of the creditor or due to a 
circumstance permitting termination and acceleration. Thus,

[[Page 43444]]

HELOC rates are generally variable, and would not be marketed as 
``fixed.''
5(a)(3) Specific Formats
    Section 226.5(a)(3) contains formatting requirements applicable to 
credit card and other open-end (not home-secured) credit, including 
tabular format requirements for applications and solicitations under 
Sec.  226.5a, account-opening disclosures under Sec.  226.6(b), 
disclosures accompanying checks that access a credit card account under 
Sec.  226.9(b)(3), change-in-terms notices under Sec.  226.9(c)(2), and 
notices of application of a penalty rate under Sec.  226.9(g). Section 
226.5(a)(3) also includes formatting requirements for periodic 
statements under Sec.  226.7(b)(6) and (b)(13). In addition, this 
provision sets forth formatting requirements for HELOC disclosures at 
application under Sec.  226.5b(b), but does not require use of a 
tabular format for these or any other HELOC disclosures.
    The Board proposes to adopt tabular format requirements for HELOC 
disclosures, paralleling requirements adopted for credit card and other 
open-end (not home-secured) credit in the January 2009 Regulation Z 
Rule. Section 226.5(a)(3)(ii) would be revised to require a tabular 
format for HELOC disclosures currently required to be provided at the 
time of application. (The timing of these disclosures would be changed 
from at application to within three business days after application. 
See the discussion in this section-by-section analysis under Sec. Sec.  
226.5(b)(4) and 226.5b(b) below.) The tabular format requirement is 
discussed in detail under Sec.  226.5b(b)(2)) below. The proposal would 
also revise Sec.  226.5(a)(3) to eliminate the requirement that certain 
disclosures must precede other disclosures, as discussed below under 
Sec.  226.5b(b)(2). Similarly, Sec.  226.5(a)(3)(iii), (iv), (vi), and 
(vii) would be revised to impose formatting requirements comparable to 
those applicable to credit card and other open-end (not home-secured) 
credit for home-equity plan account-opening disclosures (Sec.  
226.6(a)(1)), periodic statements (Sec.  226.7(a)(6)), change-in-terms 
notices (Sec.  226.9(c)(1)(iii)(B)), and notices of application of a 
penalty rate (Sec.  226.9(i)(4)), as discussed in this section-by-
section analysis below under those disclosure provisions.
5(b) Time of Disclosures
5(b)(1) Account-Opening Disclosures
5(b)(1)(ii) Charges Imposed as Part of an Open-End Plan
    In the January 2009 Regulation Z Rule, the Board adopted new Sec.  
226.5(b)(1)(ii) to provide, for open-end (not home-secured) credit, an 
exception to the requirement to provide account-opening disclosures 
before the first transaction under the plan. The exception applies to 
charges that are imposed as part of an open-end (not home-secured) 
credit plan but that are not required to be disclosed in a tabular 
format in the account-opening disclosures under Sec.  226.6(b)(2). 
Under Sec.  226.5(a)(1)(ii), these disclosures do not have to be 
provided in writing. Thus, a creditor may disclose these charges orally 
or in writing, after account opening but before the consumer agrees to 
pay or becomes obligated to pay for the charge, as long as the creditor 
discloses them at a time and in a manner such that a consumer would be 
likely to notice them.
    As discussed above, the Board is proposing to revise Sec.  
226.5(a)(1)(ii) to apply the same exception to the written disclosure 
requirement to HELOCs subject to Sec.  226.5b. For the reasons 
discussed above under Sec.  226.5(a)(1)(ii), the Board also proposes to 
revise Sec.  226.5(b)(1)(ii) to except the same charges from the 
general timing requirements. These are charges that are not required to 
be provided in a tabular format in the account-opening disclosures in a 
home-equity plan, and therefore would be expected to be less 
significant. Further, as discussed above, disclosure of these charges 
at the time a consumer agrees to pay the charge may be more useful to 
the consumer, because the disclosure would come at a time when the 
consumer would be more likely to notice the disclosure.
    Comment 5(b)(1)(ii)-1, which provides guidance on compliance with 
the provisions of Sec.  226.5(b)(1)(ii), would be revised to apply to 
HELOCs as well as open-end (not home-secured) plans. New comment 
5(b)(1)(ii)-2 would be added to explain the relationship of the 
provisions of Sec.  226.5(b)(1)(ii) to the restrictions on changes in 
terms of HELOCs under Sec.  226.5b(f). The comment states that even if 
certain charges may be disclosed at a time later than account opening, 
the creditor would not be permitted to impose a charge for a feature or 
service previously available under the plan for no charge, or to 
increase a fee for a service previously available under the plan for a 
lower charge.
5(b)(1)(iv) Membership Fees
    Section 226.5(b)(1)(iv)(A) provides that in general, a creditor may 
not collect any fee before account-opening disclosures are given. 
However, this provision allows creditors to collect a membership fee at 
an earlier time, as long as the consumer may, after receiving the 
disclosures, reject the plan and have the fee refunded. Section 
226.5(b)(1)(iv)(B) provides that this provision does not apply to 
HELOCs, because separate rules about collection and refunds of fees 
apply under Sec. Sec.  226.5b(g) and (h) and 226.15, which would cover 
membership fee reimbursements. Section 226.5b(g) requires that a 
creditor refund all fees paid if a term changes after application and 
the consumer decides not to open a HELOC account; Sec.  226.5b(h) 
requires a refund of all fees upon the consumer's request within three 
business days after receipt of the application disclosures. (Under the 
proposal, Sec.  226.5b(g) and (h) would be redesignated Sec.  226.5b(d) 
and (e), respectively.) Section 226.5(b)(1)(iv)(B) would be revised by 
adding a cross-reference to Sec. Sec.  226.5b(d) and (e) and 226.15, to 
ensure that users of the regulation are aware that even though the fee 
refundability rules of Sec.  226.5(b)(1)(iv)(A) do not apply, home-
equity plans are subject to other rules regarding refunds of fees.
5(b)(1)(v) Application Fees
    Section 226.5(b)(1)(v) provides that application fees excludable 
from the finance charge under Sec.  226.4(c)(1) are subject to the same 
rules regarding collection and refundability as other membership fees 
under Sec.  226.5(b)(1)(iv). To clarify that HELOCs are not subject to 
these rules, but instead are subject to the separate rules about 
collection and refunds of fees under Sec. Sec.  226.5b(d) and (e) and 
226.15, Sec.  226.5(b)(1)(v) would be redesignated Sec.  
226.5(b)(1)(v)(A), and a new Sec.  226.5(b)(1)(v)(B) would be added, 
parallel to Sec.  226.5(b)(1)(iv)(B).
5(b)(2) Periodic Statements
Paragraph 5(b)(2)(ii)
    Section 226.5(b)(2)(ii) requires that the creditor mail or deliver 
a periodic statement at least 14 days before the end of any period 
allowing the consumer to pay to avoid the imposition of finance or 
other charges. Section 106(b) of the 2009 Credit Card Act (cited 
above), amends TILA Section 163 (15 U.S.C. 1666b) to require that the 
period between the mailing of the statement and the due date to avoid 
finance or other charges must be at least 21 days. On July 15, 2009, 
the Board published an interim final rule amending Sec.  
226.5(b)(2)(ii) to implement this provision of the Credit Card Act, 
which under the legislation becomes effective 90 days after enactment. 
Accordingly, no proposed amendments to Sec.  226.5(b)(2)(ii) are in 
this proposal. When this proposal is adopted into a

[[Page 43445]]

final rule, Sec.  226.5(b)(2)(ii) will reflect the amendments made to 
implement the Credit Card Act.
5(b)(4) Home-Equity Plan Application and Three Days After Application 
Disclosures
    Section 226.5(b)(4) states that the disclosures required at the 
time of an application for a home-equity plan must be provided in 
accordance with the timing requirements of Sec.  226.5b. As discussed 
under Sec.  226.5b below, the Board is proposing to change the timing 
requirements for home-equity plan disclosures; some disclosures would 
be required at the time of application, and additional disclosures 
would be required three business days after application. Accordingly, 
Sec.  226.5(b)(4) would be revised to reflect the new timing 
requirements for the disclosures under Sec.  226.5b, and to correct the 
cross-reference to the applicable paragraphs in that section. See the 
discussion of the proposed changes in the disclosure timing 
requirements under Sec.  226.5b below.

Section 226.5b Requirements for Home-Equity Plans

Summary of Proposed Disclosure Requirements
    Current Sec.  226.5b, which implements TILA Section 127A, generally 
requires creditors to provide to the consumer two types of disclosures 
at the time an application for a HELOC is provided: ``application 
disclosures'' and a home-equity brochure published by the Board (the 
``HELOC brochure''). 15 U.S.C. 1637a. The application disclosures and 
HELOC brochure provide information about the creditor's HELOC plans and 
how HELOCs work; neither contains transaction-specific information 
about the terms of the HELOC offered by a creditor to a consumer, such 
as the credit limit or APR.
    Application disclosures. The application disclosures that a 
creditor generally must provide to a consumer on or with an application 
for a HELOC plan must contain details about the creditor's HELOC plan, 
including the length of the draw and repayment periods, how the minimum 
required payment is calculated, whether a balloon payment will be owed 
if a consumer only makes minimum required payments, payment examples, 
and what fees are charged by the creditor to open, use, or maintain the 
plan. Again, they do not include information that is dependent on the 
value of the dwelling or a borrower's creditworthiness, such as a 
credit limit or the APRs offered to the consumer, because the 
application disclosures are provided before underwriting takes place.
    The Board proposes to replace the application disclosures with 
transaction-specific HELOC disclosures (``early HELOC disclosures'') 
that must be given within three business days after application (but no 
later than account opening). Under the proposal, the information 
required to be disclosed in the early HELOC disclosures would differ 
from the information required to be disclosed as part of the current 
application disclosures. For example, the Board proposes to require 
creditors to include several additional disclosures in the early HELOC 
disclosures that are not currently required to be disclosed as part of 
the application disclosures, such as the credit limit and the APRs 
being offered to the consumer. In addition, the Board proposes not to 
require creditors to provide certain disclosures in the early HELOC 
disclosures that are currently required to be disclosed as part of the 
application disclosures. For example, creditors generally would not be 
required to disclose as part of the early HELOC disclosures certain 
information related to variable rates currently required in the 
application disclosures under Sec.  226.5b(d)(12), such as the 
historical payment example table. Moreover, the Board proposes to 
revise the disclosure requirements for other information currently 
required to be disclosed in the application disclosures and included in 
the proposed early HELOC disclosures. For example, the application 
disclosures currently must include several payment examples based on a 
$10,000 outstanding balance. Under the proposal, the Board would 
require payment examples in the early HELOC disclosures, but would 
revise the payment examples to assume the consumer borrowed the full 
credit line offered to the consumer (as disclosed in the early HELOC 
disclosures) at the beginning of the draw period and drew no additional 
advances.
    Moreover, the Board proposes stricter format requirements for the 
proposed early HELOC disclosures than currently are required for the 
application disclosures. Currently, the application disclosures may be 
provided in a narrative form, as shown in the current model forms for 
the application disclosures (see current Home-equity Samples G-14A and 
G-14B of Appendix G). Under the proposal, the early HELOC disclosures 
generally must be provided in the form of a table with headings, 
content, and format substantially similar to any of the applicable 
tables found in proposed G-14 in Appendix G.
    HELOC brochure. Currently, a creditor is required to provide to a 
consumer the HELOC brochure or a suitable substitute at the time an 
application for a HELOC is provided to the consumer. The HELOC brochure 
is around 20 pages long and provides general information about HELOCs 
and how they work, as well as a glossary of relevant terms and a 
description of various features that can apply to HELOCs. The Board 
proposes to eliminate the requirement for creditors to provide to 
consumers the HELOC brochure with applications for HELOCs. Instead, the 
Board proposes to require that a creditor must provide a new document 
published by the Board entitled, ``Key Questions to Ask about Home 
Equity Lines of Credit'' (the ``Key Questions'' document) to a consumer 
when a HELOC application is given to the consumer. This ``Key 
Questions'' document would be a one-page document that is designed to 
contain simple, straightforward and concise information about HELOCs, 
including potentially risky features.
Current Comments 5b-2 and 5b-3
    Current comments 5b-2 and 5b-3 provide transaction rules that were 
included in the commentary when Sec.  226.5b was added to Regulation Z 
in 1989. Specifically current 5b-2 provides that the notice rules of 
Sec.  226.9(c) apply if, by written agreement under Sec.  
226.5b(f)(3)(iii), a creditor changes the terms of a HELOC plan entered 
into on or after November 7, 1989 at or before the plan's scheduled 
expiration (for example, by renewing the plan on different terms). A 
new plan results, however, if the plan is renewed (with or without 
changes to the terms) after the scheduled expiration. The new plan is 
subject to all open-end credit rules, including Sec. Sec.  226.5b, 
226.6, and 226.15.
    The Board proposes a technical revision to this comment to delete 
the reference to November 7, 1989, as obsolete. Thus, this proposed 
comment provides that the notice rules of Sec.  226.9(c) applies if, by 
written agreement under Sec.  226.5b(f)(3)(iii), a creditor changes the 
terms of a HELOC plan at or before its scheduled expiration (for 
example, by renewing the plan on different terms). A new plan would 
result, however, if the plan is renewed (with or without changes to the 
terms) after the scheduled expiration. The new plan would be subject to 
all open-end credit rules, including Sec. Sec.  226.5b, 226.6, and 
226.15.
    Current comment 5b-3 provides that the requirements of Sec.  226.5b 
do not apply to HELOC plans entered into before November 7, 1989. The 
requirements of Sec.  226.5b also do not

[[Page 43446]]

apply if the original consumer, on or after November 7, 1989, renews a 
plan entered into prior to that date (with or without changes to the 
terms). If, on or after November 7, 1989, a security interest in the 
consumer's dwelling is added to a line of credit entered into before 
that date, the substantive restrictions of Sec.  226.5b apply for the 
remainder of the plan, but no new disclosures are required under Sec.  
226.5b. The Board proposes to delete this comment as obsolete.
5b(a) Home-Equity Document Provided on or With the Application
5b(a)(1) General
    Current Sec.  226.5b(b) and (e), which implement TILA Section 
127A(b)(1)(A) and (e), require a creditor to provide the HELOC brochure 
published by the Board, or a suitable substitute, to a consumer when a 
HELOC application is given to the consumer. 15 U.S.C. 1637a(b)(1)(A) 
and (e). Pursuant to Section 4 of the Home Equity Loan Act cited 
earlier, the Board's HELOC brochure must contain (1) a general 
description of HELOC plans and the terms and conditions on which such 
plans are generally extended; and (2) a discussion of the potential 
advantages and disadvantages of such plans. As discussed above, the 
current HELOC brochure is around 20 pages long and provides general 
information about HELOCs and how they work, as well as a glossary of 
relevant terms, and a description of various features that can apply to 
HELOCs.
    ``Key Questions'' document. The Board proposes to eliminate the 
requirement in current Sec.  226.5b(b) and (e) for creditors to provide 
to consumers the HELOC brochure on or with applications for HELOCs. 
Instead, the Board proposes in new Sec.  226.5b(a)(1) to require a 
creditor to provide a new document published by the Board entitled 
``Key Questions to Ask about Home Equity Lines of Credit'' (the ``Key 
Questions'' document) to a consumer when a HELOC application is given 
to the consumer. The Board proposes this rule pursuant to its authority 
in TILA Section 105(a) to make adjustments and exceptions to the 
requirements in TILA to effectuate the statute's purposes, which 
include facilitating consumers' ability to compare credit terms and 
helping consumers avoid the uniformed use of credit. See 15 U.S.C. 
1601(a), 1604(a). TILA also gives the Board authority to require a 
brochure with content ``substantially similar'' to that required in 
Section 4 of the Home Equity Loan Act. 15 U.S.C. 1637(e)(2). In 
consumer testing conducted by the Board on HELOC disclosures, the Board 
asked participants to review the HELOC brochure, and indicate whether 
the brochure provides useful information and whether they would be 
likely to read the brochure if it were given to them with a HELOC 
application. In this consumer testing, some participants found the 
HELOC brochure useful, particularly if they had little experience with 
HELOCs or home-equity products in general. However, a significant 
number of participants indicated that the HELOC brochure is too long, 
and, as a result, they would be unlikely to read it. In the consumer 
testing, most participants had obtained a HELOC in the past, but none 
of the participants recalled reading the HELOC brochure when they 
applied for a HELOC. Some participants recommended that a shorter, more 
concise version of the HELOC brochure would be more useful and easier 
to read and comprehend.
    In many respects, the ``Key Questions'' document (included in this 
SUPPLEMENTARY INFORMATION as Attachment A) satisfies the statutory 
requirements for the HELOC brochure, which, as noted, must include a 
general description of HELOC plans and the terms and conditions on 
which such plans are generally extended; and a discussion of the 
potential advantages and disadvantages of such plans. This one-page 
document would inform consumers about certain HELOC terms that are 
important for consumers to consider when selecting a home-equity 
product, including potentially risky features such as variable rates 
and balloon payments. As shown in Attachment A, the ``Key Questions'' 
document would contain answers to the following questions: ``Can my 
interest rate increase?,'' ``Can my minimum payment increase?,'' ``When 
can I borrow money?,'' ``How soon do I have to pay off my balance?,'' 
``Will I owe a balloon payment?'', ``Do I have to pay any fees?,'' and 
``Should I get a home equity loan instead of a line of credit?'' The 
``Key Questions'' document also would provide a link to the Board's Web 
site for further information, which currently contains an electronic 
version of the HELOC brochure. The ``Key Questions'' document was 
designed based on consumers' preference for a question-and-answer 
tabular format, and refined in several rounds of consumer testing. In 
the consumer testing, the ``Key Questions'' document tested well with 
participants: all indicated that they would find it useful, most found 
it very clear and easy to read, and the majority indicated that they 
would read a one-page disclosure, such as the ``Key Questions'' 
document, when considering a HELOC.
    As a result, proposed Sec.  226.5b(a)(1) requires a creditor to 
provide the Board's ``Key Questions'' document to a consumer at the 
time an application is provided to the consumer. Proposed Sec.  
226.5b(a)(1) requires creditors to provide this document ``as 
published.'' Proposed comment 5b(a)(1)-9 clarifies that a creditor may 
not revise the ``Key Questions'' document. The Board believes that 
requiring creditors to provide the ``Key Questions'' document without 
revision would benefit consumers. Consumers would receive consistent 
information about certain HELOC terms that are important to consider 
when selecting a home-equity product; this information would be 
provided in a question-and-answer format using language proven to be 
useful to consumers through consumer testing.
    HELOC applications contained in magazines or other publications, or 
when the application is received by telephone or through an 
intermediary agent or broker. Under footnote 10a, which implements TILA 
Section 127A(b)(1)(A), the application disclosures and HELOC brochure 
may be delivered or placed in the mail not later than three business 
days following receipt of a consumer's application that was in a 
magazine or other publication, or when the application is received by 
telephone or through an intermediary agent or broker. 15 U.S.C. 
1637a(b)(1)(A). Current comment 5b(b)-6 provides a cross reference to 
comment 19(b)-3 for guidance on determining whether or not an 
application involves an ``intermediary agent or broker.'' Current 
comment 19(b)-3 provides that an example of an ``intermediary agent or 
broker'' is a broker who (1) customarily within a brief time after 
receiving an application inquires about the credit terms of several 
creditors with whom the broker does business and submits the 
application to one of them; and (2) is responsible for only a small 
percentage of the applications received by that creditor. During the 
time the broker has the application, the broker might request a credit 
report and an appraisal (or even prepare an entire loan package if 
customary in that particular area). (In the proposal issued by the 
Board on closed-end mortgages published elsewhere in today's Federal 
Register, the Board proposes to move current comment 19(b)-3 to 
proposed comment 19(d)(3)-3.)
    The Board proposes to revise and move the contents of footnote 10a 
related to telephone applications and applications received through

[[Page 43447]]

intermediary agents and brokers to proposed Sec.  226.5b(a)(1)(ii). 
Specifically, proposed Sec.  226.5b(a)(1)(ii) provides that for 
telephone applications and applications received through an 
intermediary agent or broker, the ``Key Questions'' document must be 
delivered or mailed within three business days following receipt of a 
consumer's application by the creditor (but no later than account 
opening). In these cases, the ``Key Questions'' document must be 
provided along with the early HELOC disclosures (which are discussed in 
more detail in the section-by-section analysis to proposed Sec.  
226.5b(b)(1)). In addition, current comment 5b(b)-6 (that provides a 
cross reference to current comment 19(b)-3 for guidance on determining 
whether an application involves an ``intermediary agent or broker'') 
would be moved to proposed comment 5b(a)(1)-7 with technical revisions. 
The Board also proposes to add new comment 5b(a)(1)-8 to cross 
reference the definition of ``business day'' contained in Sec.  
226.2(a)(6).
    The Board proposes, however, to delete the contents of footnote 10a 
related to applications contained in magazines or other publications. 
Specifically, current footnote 10a permits a creditor not to provide 
application disclosures and the HELOC brochure with applications that a 
creditor makes available to consumers in magazine or other 
publications. Instead, the creditor may provide these disclosures 
within three business days following receipt of a consumer's 
application. The rationale for this approach was that requiring a 
creditor to provide the application disclosures and HELOC brochure with 
applications available to consumers in magazines or other publications 
would overly burden creditors because these disclosures would take up 
many pages in a magazine or other publication.
    Nonetheless, the Board proposes under new Sec.  226.5b(a)(1) to 
require a creditor to provide the ``Key Questions'' document with 
applications that the creditor makes available to consumers in 
magazines or other publications, rather than providing the pamphlet 
within three days of application as required by TILA 127A(b)(1)(A). 15 
U.S.C. 1637a(b)(1)(A). The Board proposes this rule pursuant to its 
authority in TILA Section 105(a) to make adjustments and exceptions to 
the requirements in TILA to effectuate the statute's purposes, which 
include facilitating consumers' ability to compare credit terms and 
helping consumers avoid the uniformed use of credit. See 15 U.S.C. 
1601(a), 1604(a). Unlike the application disclosures and the HELOC 
brochure that could take up multiple pages in a magazine or other 
publication, the ``Key Questions'' document would be one page. Thus, 
the Board believes that requiring the ``Key Questions'' document to be 
disclosed with applications in magazines or other publications would 
not place undue burdens on creditors. In addition, requiring the ``Key 
Questions'' document to be given with applications in magazines or 
other publications would benefit consumers by providing with the 
application, information about HELOC terms that are important for 
consumers to consider when selecting a home-equity product. The Board 
solicits comments on this approach.
    Mail applications. Current comment 5b(b)-1 provides that if a 
creditor sends an application through the mail, the application 
disclosures and the HELOC brochure must accompany the application. In 
addition, as discussed above, if an application is taken over the 
telephone, the application disclosures and HELOC brochure may be 
delivered or mailed within three business days of taking the 
application. If an application is mailed to the consumer following a 
telephone request, however, the creditor also must send the application 
disclosures and a HELOC brochure along with the application. The Board 
proposes to move this comment to proposed comment 5b(a)(1)-1 and to 
apply this comment to disclosure of the ``Key Questions'' document. 
Specifically, proposed comment 5b(a)(1)-1 provides that if the creditor 
sends an application through the mail, the ``Key Questions'' document 
must accompany the application. In addition, proposed comment 5b(a)(1)-
1 provides that if an application is taken over the telephone, the 
``Key Questions'' document must be delivered or mailed within three 
business days of taking the application (but not later than account 
opening). If an application is mailed to the consumer following a 
telephone request, however, the creditor would be required to send the 
``Key Questions'' document along with the application.
    General purpose applications. Current comment 5b(b)-2 provides that 
the application disclosures and the HELOC brochure need not be provided 
when a general purpose application is given to a consumer unless (1) 
the application or materials accompanying it indicate that it can be 
used to apply for a HELOC plan, or (2) the application is provided in 
response to a consumer's specific inquiry about a HELOC plan. If a 
general purpose application is provided in response to a consumer's 
specific inquiry only about credit other than a HELOC plan, the 
application disclosures and HELOC brochure need not be provided even if 
the application indicates it can be used for a HELOC plan, unless it is 
accompanied by promotional information about HELOC plans.
    The Board proposes to move this comment to proposed comment 
5b(a)(1)-2 and to apply this comment to disclosure of the ``Key 
Questions'' document. Specifically, proposed comment 5b(a)(1)-2 
provides that the ``Key Questions'' document need not be provided when 
a general purpose application is given to a consumer unless (1) the 
application or materials accompanying it indicate that it can be used 
to apply for a HELOC plan or (2) the application is provided in 
response to a consumer's specific inquiry about a HELOC plan. Proposed 
comment 5b(a)(1)-2 also provides that if a general purpose application 
is provided in response to a consumer's specific inquiry only about 
credit other than a HELOC plan, the ``Key Questions'' document need not 
be provided even if the application indicates it can be used for a 
HELOC, unless it is accompanied by promotional information about HELOC 
plans.
    Publicly-available applications. Current comment 5b(b)-3 addresses 
applications for HELOCs that are available without the need for a 
consumer to request them, such as so-called ``take-one forms''. This 
comment provides that these applications must be accompanied by the 
application disclosures and the HELOC brochure, such as by attaching 
the application disclosures and the HELOC brochure to the application 
form. The Board proposes to move this comment to proposed comment 
5b(a)(1)-3 and to apply this comment to disclosure of the ``Key 
Questions'' document. Specifically, proposed comment 5b(a)(1)-3 
provides that a creditor must include the ``Key Questions'' document 
with applications that are available without the need for a consumer to 
request them, such as take-ones, and that a creditor may provide this 
document by attaching it to the application.
    Response cards. Current comment 5b(b)-4 states that sometimes a 
creditor may solicit consumers for its HELOC plan by mailing a response 
card which the consumer returns to the creditor to indicate interest in 
the plan. If the only action taken by the creditor upon receipt of the 
response card is to send the consumer an application form or to 
telephone the consumer to discuss the plan, the creditor need not send 
the application disclosures and the HELOC brochure with the response 
card. The

[[Page 43448]]

Board proposes to move this comment to proposed comment 5b(a)(1)-4 and 
to apply this comment to disclosure of the ``Key Questions'' document. 
Specifically, proposed comment 5b(a)(1)-4 provides that a creditor is 
not required to send the ``Key Questions'' document with a response 
card if the only action taken by the creditor upon receipt of the 
response card is to send the consumer an application form or to 
telephone the consumer to discuss the plan. If the creditor sends the 
consumer an application form in response to receiving a response card, 
proposed comment 5b(a)(1)-1 provides that a creditor must provide the 
``Key Questions'' document with the application form. In addition, if a 
creditor calls the consumer in response to receiving a response card 
and an application is taken over the phone, proposed comment 5b(a)(1)-1 
provides that the ``Key Questions'' document must be delivered or 
mailed within three business days of taking the application (but not 
later than account opening).
    Denial or withdrawal of application. Current comment 5b(b)-5 
provides that in situations where current footnote 10a permits the 
creditor a three-day delay in providing application disclosures and the 
HELOC brochure, if the creditor determines within that period that an 
application will not be approved, the creditor need not provide the 
consumer with the application disclosures or HELOC brochure. Similarly, 
if the consumer withdraws the application within this three-day period, 
the creditor need not provide the application disclosures or the HELOC 
brochure. The Board proposes to move this comment to proposed comment 
5b(a)(1)-5 and to apply this comment to the ``Key Questions'' document. 
Specifically, proposed comment 5b(a)(1)-5 provides that in situations 
where proposed Sec.  226.5b(a)(1)(ii) allows a creditor to delay 
providing the ``Key Questions'' document until three business days 
following receipt of a consumer's application--namely, for telephone 
applications and applications received through an intermediary agent or 
broker--if the creditor determines within that three-day period that an 
application will not be approved, the creditor would not need to 
provide the ``Key Questions'' document. Similarly, under this proposed 
comment, if a consumer withdraws the application within this three-day 
period, the creditor would not need to provide the ``Key Questions'' 
document.
    Prominent location. Current Sec.  226.5b provides that the 
application disclosures and the HELOC brochure must be provided on or 
with the application. See current Sec.  226.5b(a)(1), (b) and (e). 
Current comment 5b(a)(1)-5 contains guidance on providing the 
application disclosures and the HELOC brochure on or with a blank 
application that is made available to the consumer in electronic form, 
such as on a creditor's Internet Web site. Current comment 5a(a)(1)-5 
provides creditors with flexibility in satisfying the requirement to 
provide the application disclosures and the HELOC brochure on or with a 
blank application that is made available to the consumer in electronic 
form. Methods creditors could use to satisfy the requirement include, 
but are not limited to, the following examples. First, the application 
disclosures and HELOC brochure could automatically appear on the screen 
when the application appears. Second, the application disclosures and 
the HELOC brochure could be located on the same Web page as the 
application (whether or not they appear on the initial screen), if the 
application contains a clear and conspicuous reference to the location 
of the application disclosures and the HELOC brochure and indicates 
that the application disclosures contain rate, fee, and other cost 
information, as applicable. Third, creditors could provide a link to 
the electronic application disclosures and HELOC brochure on or with 
the application as long as consumers cannot bypass the application 
disclosures and HELOC brochure before submitting the application. The 
link would take the consumer to the application disclosures and HELOC 
brochure, but the consumer need not be required to scroll completely 
through the application disclosures or HELOC brochure. Fourth, the 
application disclosures and HELOC brochure could be located on the same 
Web page as the application without necessarily appearing on the 
initial screen, immediately preceding the button that the consumer will 
click to submit the application. Whatever method is used, a creditor 
need not confirm that the consumer has read the application disclosures 
and HELOC brochure.
    Under proposed Sec.  226.5b(a)(1), creditors would be required to 
provide the ``Key Questions'' document in a prominent location on or 
with the application. Proposed comment 5b(a)(1)-6 provides guidance to 
creditors for how to comply with the prominent location requirement 
when the document is given in either paper or electronic form. Proposed 
comment 5b(a)(1)-6.i provides that when the ``Key Questions'' document 
is provided in paper form, the document is prominently located, for 
example, if the document is on the same page as an application. If the 
document appears elsewhere, it is deemed to be prominently located if 
the application contains a clear and conspicuous reference to the 
location of the document and indicates that the document provides 
information about HELOCs.
    With respect to disclosure of the ``Key Questions'' document in 
electronic form, the Board proposes to move current comment 5b(a)(1)-5, 
which provides guidance on providing the application disclosures and 
the HELOC brochure on or with a blank application that is made 
available to the consumer in electronic form, to proposed comment 
5b(a)(1)-6.ii and to apply this guidance to the ``Key Questions'' 
document. In particular, proposed comment 5b(a)(1)-6.ii provides that 
generally, creditors must provide the ``Key Questions'' document in a 
prominent location on or with a blank application that is made 
available to the consumer in electronic form, such as on a creditor's 
Internet Web site. Creditors would have flexibility in satisfying this 
requirement. Under proposed comment 5b(a)(1)-6, methods creditors could 
use to satisfy the requirement include, but are not limited to, the 
following examples. First, the ``Key Questions'' document could 
automatically appear on the screen when the application appears. 
Second, the ``Key Questions'' document could be located on the same Web 
page as the application (whether or not they appear on the initial 
screen), if the application contains a clear and conspicuous reference 
to the location of the document and indicates the document includes 
information about HELOCs. Third, creditors could provide a link to the 
electronic ``Key Questions'' document on or with the application as 
long as consumers cannot bypass the document before submitting the 
application. The link would take the consumer to the document, but the 
consumer need not be required to scroll completely through the 
document. Fourth, the ``Key Questions'' document could be located on 
the same Web page as the application without necessarily appearing on 
the initial screen, immediately preceding the button that the consumer 
will click to submit the application. Whatever method is used, a 
creditor would not need to confirm that the consumer has read the ``Key 
Questions'' document.
5b(a)(2) Electronic Disclosures
    Current Sec.  226.5b(a)(3) provides that for an application 
accessed by the

[[Page 43449]]

consumer in electronic form, the application disclosures and HELOC 
brochure may be provided to the consumer in electronic form on or with 
the application. Current comment 5b(a)(3)-1 provides guidance on when 
the application disclosures and HELOC brochure must be in electronic 
form. Specifically, current comment 5b(a)(3)-1 provides that if a 
consumer accesses a HELOC application electronically (other than as 
described below), such as online at a home computer, the creditor must 
provide the application disclosures and HELOC brochure in electronic 
form (such as with the application form on its Web site) in order to 
meet the requirement to provide disclosures in a timely manner on or 
with the application. If the creditor instead mailed paper disclosures 
to the consumer, this requirement would not be met. In contrast, if a 
consumer is physically present in the creditor's office, and accesses a 
HELOC application electronically, such as via a terminal or kiosk (or 
if the consumer uses a terminal or kiosk located on the premises of an 
affiliate or third party that has arranged with the creditor to provide 
applications to consumers), the creditor may provide the application 
disclosures and HELOC brochure in either electronic or paper form, 
provided the creditor complies with the timing, delivery, and 
retainability requirements of the regulation.
    The Board proposes to move current Sec.  226.5b(a)(3) and current 
comment 5b(a)(3)-1 to proposed Sec.  226.5b(a)(2) and proposed comment 
5b(a)(2)-1, respectively, and to apply these provisions to the ``Key 
Questions'' document. Specifically, proposed Sec.  226.5b(a)(2) 
provides that for an application accessed by the consumer in electronic 
form, the ``Key Questions'' document may be provided to the consumer in 
electronic form on or with the application. In addition, proposed 
comment 5b(a)(2)-1 provides guidance on when the ``Key Questions'' 
document must be in electronic form. Specifically, proposed comment 
5b(a)(2)-1 provides that if a consumer accesses a HELOC application 
electronically (other than as described below), such as online at a 
home computer, the creditor must provide the ``Key Questions'' document 
in electronic form (such as with the application form on its Web site) 
in order to meet the requirement to provide the document in a timely 
manner on or with the application. If the creditor instead mailed the 
``Key Questions'' document in paper form to the consumer, the 
requirement that the ``Key Questions'' document be provided on or with 
the application would not be met. In contrast, if a consumer is 
physically present in the creditor's office, and accesses a HELOC 
application electronically, such as via a terminal or kiosk (or if the 
consumer uses a terminal or kiosk located on the premises of an 
affiliate or third party that has arranged with the creditor to provide 
applications to consumers), the creditor may provide the ``Key 
Questions'' document in either electronic or paper form, provided the 
creditor complies with the timing, delivery, and retainability 
requirements of the regulation.
5b(a)(3) Duties of Third Parties
    Current Sec.  226.5b(c), which implements TILA Section 127A(c), 
provides that persons other than the creditor who provide applications 
to consumers for HELOC plans generally must provide the HELOC brochure 
at the time an application is provided. 15 U.S.C. 1637a(c). If such 
persons have the application disclosures for a creditor's HELOC plan, 
they also must provide the disclosures at the time an application is 
provided. Current comment 5b(c)-1 clarifies that although third parties 
who give applications to consumers for HELOC plans must provide the 
HELOC brochure in all cases, such persons are required to provide the 
application disclosures only in certain instances. A third party has no 
duty to obtain application disclosures about a creditor's HELOC plan or 
to create a set of disclosures based on what it knows about a 
creditor's plan. If, however, a creditor provides the third party with 
application disclosures along with its application form, the third 
party must give the disclosures to the consumer with the application 
form. Current comment 5b(c)-1 also provides that the duties under 
current Sec.  226.5b(c) are those of the third party; the creditor is 
not responsible for ensuring that a third party complies with those 
obligations. Current comment 5b(c)-1 further provides that if an 
intermediary agent or broker takes an application over the telephone or 
receives an application contained in a magazine or other publication, 
current footnote 10a permits that person to mail the application 
disclosures and the HELOC brochure within three business days of 
receipt of the application. In addition, current comment 5b(e)-2 
provides that if a creditor determines that third party has provided a 
consumer with the required HELOC brochure, the creditor need not give 
the consumer a second brochure.
    The Board proposes to delete current Sec.  226.5b(c) and current 
5b(c)-1 as obsolete. As discussed above and in more detail in the 
section-by-section analysis to proposed Sec.  226.5b(b)(1), the Board 
proposes to delete the requirement that the application disclosures and 
HELOC brochure be provided on or with an application for a HELOC plan. 
Regarding obligations on third parties to provide disclosures on or 
with HELOC applications, the Board proposes in new Sec.  226.5b(a)(3) 
to require persons other than the creditor who provide applications to 
consumers for HELOC plans to provide the ``Key Questions'' document on 
or with HELOC applications (except for telephone applications, 
discussed below). This proposed requirement on third parties generally 
to provide the ``Key Questions'' document on or with HELOC applications 
is consistent with the requirement in current Sec.  226.5b(c) that 
third parties must provide the HELOC brochure on or with HELOC 
applications.
    Nonetheless, unlike current Sec.  226.5b(c), which does not require 
a third party to provide the HELOC brochure with applications the third 
party makes available in magazines and other publications, proposed 
Sec.  226.5b(a)(3) requires third parties to provide the ``Key 
Questions'' document with these HELOC applications. As discussed above 
regarding a creditor's duty to provide the ``Key Questions'' document 
with HELOC applications in magazines or other publications, the Board 
believes that requiring the ``Key Questions'' document to be disclosed 
with applications in magazines or other publications would not place 
undue burdens on third parties because the ``Key Questions'' document 
is a single page. In addition, requiring the ``Key Questions'' document 
to be given with applications in magazines or other publications would 
benefit consumers by providing with the application information about 
HELOC terms that are important for consumers to consider when selecting 
a home-equity product. The Board solicits comments on this approach.
    Under proposed Sec.  226.5b(a)(3), third parties would not be 
required to provide the ``Key Questions'' document with respect to 
telephone applications. Proposed comment 5b(a)(3)-3 clarifies that for 
telephone applications taken by a third party, the creditor would have 
the duty to provide the ``Key Questions'' document within three days 
following receipt of the consumer's application by the creditor (but 
not later than account opening). The Board believes that imposing a 
separate duty on a third

[[Page 43450]]

party to provide the ``Key Questions'' document for telephone 
applications is unnecessary, because the creditor would be required 
under proposed Sec.  226.5b(a)(1) to provide the ``Key Questions'' 
document and the early HELOC disclosures (as discussed in more detail 
in the section-by-section analysis to proposed Sec.  226.5b(b)(1)) 
within three days after the application has been received by the 
creditor (but not later than account opening).
    Proposed comment 5b(a)(3)-1 provides that the duties to provide the 
``Key Questions'' document under proposed Sec.  226.5b(a)(3) are those 
of the third party; the creditor would not responsible for ensuring 
that a third party complies with those obligations. This proposed 
comment is consistent with current guidance in current comment 5b(c)-1. 
Proposed comment 5b(a)(3)-2 provides that if a creditor determines that 
a third party has provided a consumer with the ``Key Questions'' 
document, the creditor need not give the consumer a second copy of the 
document. This proposed comment is consistent with current guidance in 
comment 5b(e)-2 regarding disclosure of the HELOC brochure.
5b(b) Home-Equity Disclosures Provided No Later Than Account-Opening or 
Three Business Days After Application, Whichever Is Earlier
5b(b)(1) Timing
    Current Sec.  226.5b(b), which implements TILA Section 
127A(b)(1)(A), generally requires creditors to provide to the consumer 
two types of disclosures at the time an application for a HELOC is 
provided: Application disclosures and the HELOC brochure. 15 U.S.C. 
1637a(b)(1)(A). The Board proposes to delete current Sec.  226.5b(b). 
As discussed in more detail above in the section-by-section analysis to 
proposed Sec.  226.5b(a), the Board proposes no longer to require 
creditors to disclose the HELOC brochure to consumers on or with HELOC 
applications. In addition, as discussed below, the Board proposes to 
replace the application disclosures with transaction-specific HELOC 
disclosures (the ``early HELOC disclosures'') that must be given within 
three business days after application (but no later than account 
opening). See proposed Sec.  226.5b(b)(1).
    The application disclosures that a creditor generally must provide 
to a consumer on or with an application for a HELOC plan must contain 
details about the creditor's HELOC plan, including the length of the 
draw and repayment periods, how the minimum required payment is 
calculated, whether a balloon payment will be owed if a consumer only 
makes minimum required payments, payment examples, and what fees are 
charged by the creditor to open, use, or maintain the plan. The 
application disclosures do not include information dependent on the 
value of the dwelling or a borrower's creditworthiness, such as a 
credit limit or the APRs offered to the consumer, because the 
application disclosures are provided before underwriting takes place.
    In the proposed rule implementing the Mortgage Disclosure 
Improvement Act of 2008 (contained in Sections 2501-2503 of the Housing 
and Economic Recovery Act of 2008, Pub. L. 110-289, enacted on July 30, 
2008, as amended by the Emergency Economic Stabilization Act of 2008, 
Pub. L. 110-343, enacted on October 3, 2008) (MDIA), the Board 
solicited comment on the timing of HELOC disclosures. 73 FR 74989 
(December 10, 2008). MDIA, which applies only to closed-end mortgage 
transactions, requires that early mortgage disclosures be provided no 
later than three business days after application and seven business 
days before consummation of the loan. The Board noted that the timing 
of HELOC application disclosures is not affected by MDIA, but solicited 
comment on whether it would be necessary or appropriate to change the 
timing of the HELOC application disclosures and, if so, what changes 
should be made. The Board asked whether transaction-specific 
disclosures (such as the APR, an itemization of fees, and potential 
payment amounts) should be required after application and earlier than 
account opening, at least in some circumstances. The Board noted that 
many consumers take a major draw on the account immediately upon 
opening it, to fund a home purchase, for example, or pay for an 
immediate large expense such as a college tuition bill. The Board asked 
commenters to address whether a requirement to disclose the final HELOC 
terms, including the APR and fees, three days before account opening 
would substantially benefit consumers who plan to take a draw 
immediately. The Board also requested comment on whether the potential 
costs of such a requirement would outweigh the potential benefits.
    Financial institution commenters opposed requiring disclosures 
based on the amount of an initial draw on the line of credit to be 
given in advance of account opening. Commenters contended that it would 
be impracticable to provide disclosures based on the amount of an 
initial draw, because the creditor, at the time disclosures would be 
required, would have no way of knowing the amount of the draw, or even 
whether the consumer planned to take a draw immediately upon account 
opening. Commenters argued that it would be difficult for creditors to 
discern the consumer's intent prior to account opening. The consumer 
might not have plans at the time of the disclosures regarding the 
initial draw; thus, even if the creditor asked the consumer, the 
creditor might still be unable to obtain this information. Commenters 
also contended that consumers might need funds soon and that in such 
cases the enforced three-day waiting period would be more 
disadvantageous than beneficial to consumers.
    Another commenter discussed the possibility of two separate timing 
requirements--one for cases in which the amount of the initial draw is 
known, and another in which this amount is not known--but argued that 
such a rule would be difficult for creditors to manage correctly. Other 
commenters argued generally that existing disclosures provide adequate 
information for consumers and that imposing the suggested timing 
requirement would impose undue burdens and costs on creditors.
    Consumer group commenters argued that HELOCs are widely used by 
creditors in place of closed-end second mortgages, and that some 
creditors use HELOCs for first mortgages as well, to avoid having to 
provide closed-end TILA disclosures. Accordingly, these commenters 
argued that HELOC creditors should be required to disclose the expected 
total of payments, finance charge, and payment schedule. One consumer 
group commenter stated that the differences in content and timing 
between closed-end mortgage disclosures and HELOC disclosures makes it 
difficult for consumers effectively to comparison shop between these 
two types of credit, and thus difficult to make meaningful choices. The 
commenter also argued that since creditors must revise their systems to 
comply with MDIA for closed-end mortgage loans, complying with the same 
rules for HELOCs would cause little additional expense.
    The Board believes that providing disclosures that would be 
transaction-specific, based on the amount of an initial draw, or on 
expected amounts of draws and payments over the life of the plan, would 
not be practicable. In addition, the Board believes that requiring the 
account-opening HELOC disclosures to be provided some period, such as 
three or seven business days, in

[[Page 43451]]

advance of account opening could unnecessarily delay the process of 
opening a HELOC in some cases and thus could disadvantage some 
consumers.\13\
---------------------------------------------------------------------------

    \13\ An American Bankers Association (ABA) survey reported that 
the average business days between application and closing for HELOCs 
and home equity loans ranged from 8 days for larger institutions to 
10 days for smaller institutions. American Bankers Ass'n, ``ABA Home 
Equity Lending Survey Report'' (2005), pp. 18 and 71.
---------------------------------------------------------------------------

    The Board nevertheless believes that consumers could benefit from 
receiving early HELOC disclosures that are more transaction-specific 
than the application disclosures provided under the current regulation. 
Therefore, the proposal provides for early HELOC disclosures to be 
given within three business days after application or no later than 
account opening, whichever is earlier. The Board anticipates that in 
most cases account opening will not occur prior to three business days 
after application, and the early HELOC disclosures will be given at 
least some days in advance of account opening. Further, as discussed in 
more detail in the section-by-section analysis to proposed Sec.  
226.5b(c), the proposal requires early HELOC disclosures to be based on 
(1) the actual APR for which the consumer qualifies (unlike the 
application disclosures, which do not include a consumer-specific APR) 
and (2) the amount of the credit limit for which the consumer likely 
qualifies (unlike the current application disclosures, which include 
disclosures based on a hypothetical draw of $10,000). The Board 
proposes this rule pursuant to its authority in TILA Section 105(a) to 
make adjustments and exceptions to the requirements in TILA to 
effectuate the statute's purposes, which include facilitating 
consumers' ability to compare credit terms and helping consumers avoid 
the uniformed use of credit. See 15 U.S.C. 1601(a), 1604(a). The Board 
believes that to assure a meaningful disclosure of the credit terms of 
a HELOC, so that consumers can fully understand the terms offered on 
the HELOC, it is necessary and proper to adjust the timing of the HELOC 
disclosures from at-application to within three business days after 
application (but no later than account opening).
    Consumer testing conducted by the Board on HELOC disclosures 
supports this proposed approach. In the first two rounds of testing, 
some participants reviewing a disclosure based on the current 
requirements for the application disclosures either tried to find an 
interest rate applicable to their plan and were surprised to learn that 
such a rate is not contained in the disclosure, or incorrectly assumed 
that one of the rates shown in the disclosure (which are hypothetical, 
not actual, rates) was the rate that was being offered to them. In 
subsequent testing of a disclosure form with more transaction-specific 
information (including the APR and credit limit for which the consumer 
qualified), participants indicated they would prefer to receive a 
transaction-specific disclosure, as opposed to a more generic 
disclosure at application (such as the one provided under the current 
regulation), even if this choice meant that the consumer would not 
receive any disclosure of HELOC plan terms at the time of application. 
Participants indicated that the APR and the credit limit offered on a 
HELOC plan are two of the most important pieces of information that 
they want to know in deciding whether to open a HELOC. The participants 
said that they would still prefer to receive transaction-specific 
disclosures soon after application rather than generic disclosures at 
application even if they were required to pay an application fee before 
receiving the later, more transaction-specific disclosure.\14\ These 
findings are consistent with the findings in the Board's testing of 
closed-end mortgage disclosures, as discussed in the proposal issued by 
the Board on closed-end mortgages published elsewhere in today's 
Federal Register.
---------------------------------------------------------------------------

    \14\ The rules regarding refundability of fees, discussed in 
more detail in the section-by-section analysis to Sec. Sec.  
226.5b(d) and (e) below, would permit consumers to obtain a refund 
of such fees in some cases; however, most participants were not 
aware of this fact when they expressed their preference for the more 
transaction-specific disclosure.
---------------------------------------------------------------------------

    The proposal regarding the early HELOC disclosures is also 
supported by the legislative history of the Home Equity Loan Act. The 
chief sponsor of the Act, Representative David Price, explained that 
the disclosure provisions of the bill (H.R. 3011) were enacted to 
address concerns about the then-current law on HELOC disclosures, under 
which ``a consumer may never be advised about the essential features of 
his or her home-equity loan until it's time to sign the full 
agreement.'' \15\ It appears that the intent of the legislation was to 
provide the consumer information about the consumer's particular HELOC, 
based on the belief that transaction-specific information could be 
given at the time of application. Because transaction-specific 
information is not available until after application, the Board 
believes that the proposed approach of requiring disclosures to contain 
more transaction-specific information, and to be given within three 
business days after application, is in accord with the congressional 
intent.
---------------------------------------------------------------------------

    \15\ Remarks of Rep. Price on H.R. 3011, the Home Equity Loan 
Consumer Protection Act of 1988, Pub. L., 100-709, enacted on Nov. 
23, 1988, Congr. Rec., H4472 (June 20, 1988).
---------------------------------------------------------------------------

    The Board notes that delaying the early HELOC disclosures until 
three days after application would not result in added cost to a 
consumer, because as noted above, and as further discussed in the 
section-by-section analysis to proposed Sec.  226.5b(d) and (e), the 
consumer has the right to a refund of any fees paid in connection with 
the HELOC for three business days after the consumer receives the 
disclosures. In addition, if the disclosed terms change after the early 
HELOC disclosures are provided but before the plan is opened, the 
consumer has the right to a refund of any fees at any time before 
account opening.
    Substitution of account-opening disclosures for early HELOC 
disclosures. Proposed Sec.  226.5b(b)(1) provides that the early HELOC 
disclosures must be provided within three business days after 
application, but no later than account opening. Account opening might 
be unlikely to occur sooner than three business days after application, 
but this situation could arise. In that event, under the proposal, a 
creditor would be required to provide both the early HELOC disclosures 
under proposed Sec.  226.5b(b)(1) and account-opening disclosures under 
proposed Sec.  226.6. As discussed in more detail in the section-by-
section analysis to proposed Sec.  226.6, the Board proposes that 
certain account-opening disclosures must be disclosed in a tabular 
format. Under the proposal, the account-opening summary table would not 
be identical to the table containing the early HELOC disclosures. For 
example, the table containing the early HELOC disclosures would show 
and compare two payment options offered on the HELOC (unless a creditor 
offers only one), while the account-opening summary table would show 
only the payment plan chosen by the consumer. In addition, the table 
containing the early HELOC disclosures contains a summary of fees, 
while the account-opening summary table shows fees in greater detail.
    The Board solicits comment on whether, and if so in what 
circumstances, creditors should be permitted to substitute the account-
opening summary table for the table containing the early HELOC 
disclosures in situations where the early HELOC disclosures are 
required to be given at the time the account is opened (because

[[Page 43452]]

account opening occurs within three business days after application). 
For example, the regulation could provide that, because the account-
opening summary table shows only one HELOC payment plan, the account-
opening summary table would be permitted to be used in place of the 
early HELOC disclosures only if the creditor offers only one payment 
plan or the consumer had already chosen a plan before account opening. 
The Board also requests comment on how frequently account opening for 
HELOCs occurs within three business days after application.
    Denial or withdrawal of application. Current footnote 10a provides 
that the application disclosures and HELOC brochure may be delivered or 
placed in the mail not later than three business days following receipt 
of a consumer's application for applications in magazines or other 
publications, or when the application is received by telephone or 
through an intermediary agent or broker. Current comment 5b(b)-5 
provides that in situations where current footnote 10a permits the 
creditor a three-day delay in providing application disclosures and the 
HELOC brochure, if the creditor determines within that period that an 
application will not be approved, the creditor need not provide the 
consumer with the application disclosures or HELOC brochure. Similarly, 
if the consumer withdraws the application within this three-day period, 
the creditor need not provide the application disclosures or the HELOC 
brochure.
    The Board proposes to move this comment to proposed comment 
5b(b)(1)-1 and apply this comment to disclosure of the early HELOC 
disclosures. As discussed above, Sec.  226.5b(b)(1) provides that 
creditors must deliver or mail the early HELOC disclosures to a 
consumer not later than account opening or three business days 
following receipt of a consumer's application by the creditor, 
whichever is earlier. The Board also proposes to add new comment 
5b(b)(1)-2 to cross reference the definition of ``business day'' 
contained in Sec.  226.2(a)(6). Proposed comment 5b(b)(1)-1 provides 
that if the creditor determines within this three-day period that an 
application will not be approved, the creditor would not need to 
provide the early HELOC disclosures. Similarly, under this proposed 
comment, if a consumer withdraws the application within this three-day 
period, the creditor would not need to provide the early HELOC 
disclosures.
5b(b)(2) Form of Disclosures; Tabular Format
    Tabular format. Current Sec.  226.5b(a)(1), which implements TILA 
Section 127A(b)(2)(B), provides that the application disclosures must 
be made clearly and conspicuously and generally must be grouped 
together and segregated from all unrelated information. 15 U.S.C. 
1637a(b)(2)(B). Nonetheless, several application disclosures are not 
required to be grouped together with other application disclosures. 
Specifically, current Sec.  226.5b(a)(1), which in part implements TILA 
Section 127A(b)(2)(D), provides that disclosures about variable rates 
offered on an HELOC plan that are required to be disclosed as part of 
the application disclosures may be grouped together with the other 
application disclosures, or may be provided separately from the other 
application disclosures. 15 U.S.C. 1637a(b)(2)(D). In addition, under 
current Sec.  226.5b(a)(1), a disclosure of conditions under which a 
creditor can take certain actions under the plan, such as terminating 
the plan, described in current Sec.  226.5b(d)(4)(iii), and an 
itemization of fees imposed by third parties to open the HELOC plan 
described in current Sec.  226.5b(d)(8) also may be grouped together 
with the other application disclosures or may be disclosed separately.
    Current comment 5b(a)(1)-3 provides that while most of the 
application disclosures must be grouped together and segregated from 
all unrelated information, a creditor is permitted to include with the 
application disclosures information that explains or expands on the 
required disclosures. This comment also provides guidance on what types 
of information explain or expand on the required disclosures.
    Although the application disclosures generally must be grouped 
together and segregated from all unrelated information, current Sec.  
226.5b(a)(1) does not require the application disclosures to be 
disclosed in a tabular format. Currently, creditors generally provide 
the application disclosures in a narrative form, consistent with the 
current sample forms for the application disclosures set forth in 
current G-14A and G-14B of Appendix G.
    Proposal. The Board proposes to delete current Sec.  226.5b(a)(1) 
and current 5b(a)(1)-3. As described above, the Board proposes to 
delete the requirement that creditors must provide the application 
disclosures required under current Sec.  226.5b. Instead, the Board 
proposes to require creditors to provide early HELOC disclosures within 
three business days following receipt of the consumer's application by 
the creditor (but not later than account opening). In addition, the 
Board proposes stricter format requirements for the proposed early 
HELOC disclosures than currently are required for the application 
disclosures. Specifically, proposed Sec.  226.5b(b)(2)(i) requires that 
the early HELOC disclosures generally must be provided in the form of a 
table with headings, content, and format substantially similar to any 
of the applicable tables found in proposed G-14 in Appendix G. Proposed 
comment 5b(b)(2)-1 clarifies that proposed Sec.  226.5b(b)(2)(i) 
generally requires that the headings, content and format of the tabular 
disclosures be substantially similar, but need not be identical, to the 
applicable tables in proposed G-14 to Appendix G. Under the proposal, 
creditors would not be allowed to include in the table information that 
is not specifically required or permitted to be disclosed in the table, 
as set forth in proposed Sec.  226.5b(c)(4)(ii) through (c)(19). 
Creditors would be required to place certain information, such as the 
name and address of the borrower, directly above the table, in a format 
substantially similar to any of the applicable tables found in proposed 
G-14 in Appendix G. See proposed Sec.  226.5b(b)(2)(iii). Creditors 
would be required to place certain information, such as a statement 
that the consumer is not required to accept the disclosed terms, 
directly below the table, in a format substantially similar to any of 
the applicable tables found in proposed G-14 in Appendix G. See 
proposed Sec.  226.5b(b)(2)(iv). Creditors could include other 
information outside the table. See proposed Sec.  226.5b(b)(2)(v). The 
Board proposes this rule pursuant to its authority in TILA Section 
105(a) to make adjustments and exceptions to the requirements in TILA 
to effectuate the statute's purposes, which include facilitating 
consumers' ability to compare credit terms and helping consumers avoid 
the uninformed use of credit. See 15 U.S.C. 1601(a), 1604(a). The 
proposed requirements that the early HELOC disclosures must be provided 
in a table (or directly above or below the table) and no other 
information may be disclosed in the table is consistent with TILA 
Section 127A(b)(2)(B), which generally requires the application 
disclosures to be segregated from all unrelated information.
    As discussed above, creditors typically provide the application 
disclosures in a narrative form, consistent with the model forms for 
the

[[Page 43453]]

application disclosures set forth in current Home-equity Samples G-14A 
and G-14B of Appendix G. In the consumer testing conducted by the Board 
on HELOC disclosures, the Board tested application disclosures in a 
narrative form, designed to simulate those currently in use. 
Participants in consumer testing found this form difficult to read and 
understand, and their responses to follow-up questions showed that they 
also had difficulty identifying specific information in the text. 
Participants who saw forms that were structured in a tabular format, on 
the other hand, commented that the information was easier to understand 
and had more success answering comprehension questions. These results 
regarding the benefit of disclosing information in a tabular format are 
consistent with the results of research that the Board conducted on 
credit card disclosures in relation to the January 2009 Regulation Z 
Rule. (See Sec. Sec.  226.5a(a)(2), 226.6(b)(1), 226.9(b)(3), 
226.9(c)(2)(iii)(B) and 226.9(g)(3)(iii) for certain disclosures 
applicable to open-end (not home-secured) credit that must be disclosed 
in a tabular format.) For these reasons, the Board proposes to require 
that the early HELOC disclosures generally must be provided in the form 
of a table with headings, content, and format substantially similar to 
any of the applicable tables found in proposed G-14 in Appendix G.
    Unlike with current Sec.  226.5b(a)(1), under the proposal, 
creditors would not be allowed to disclose information about variable 
rates pursuant to proposed Sec.  226.5b(c)(10) separately from the 
other early HELOC disclosures. See proposed Sec.  226.5b(b)(2)(i) and 
(c)(10). The Board proposes to require the variable-rate information to 
be disclosed in the table with the other early HELOC disclosures. The 
Board proposes this rule pursuant to its authority in TILA Section 
105(a) to make adjustments and exceptions to the requirements in TILA 
to effectuate the statute's purposes, which include facilitating 
consumers' ability to compare credit terms and helping consumers avoid 
the uniformed use of credit. See 15 U.S.C. 1601(a), 1604(a). In the 
consumer testing conducted by the Board on HELOC disclosures, 
participants indicated that information about the current rate on the 
plan (based on the current value of the index and margin) was one of 
the most important pieces of information that the participants wanted 
to know as part of the early HELOC disclosures. Requiring creditors to 
disclose the current rate offered on the plan, along with other 
variable-rate information, in the table, as proposed, would better 
ensure that consumers are aware of and understand those terms. As 
discussed above, in the consumer testing on HELOC disclosures, 
participants were more likely to notice and understand information when 
it was presented in a tabular format, than when it was presented in a 
narrative form. In addition, as discussed in more detail below in the 
section-by-section analysis to proposed Sec.  226.5b(c)(9)(iii), 
information about sample payments is required to be disclosed in the 
table, and these sample payments are calculated using the rates 
applicable to the HELOC plan. Requiring information about rates and 
certain other variable-rate information to be disclosed in the table 
would allow consumers to understand how the sample payments relate to 
the rates offered on the plan.
    In addition, unlike current Sec.  226.5b(a)(1), the Board proposes 
to require that information about one-time fees imposed by third 
parties to open the HELOC plan must be disclosed in the table provided 
as part of the early HELOC disclosures. See proposed Sec.  
226.5b(b)(2)(i) and (c)(11). Again, participants in the consumer 
testing conducted by the Board on HELOC disclosures indicated that 
information about fees to open the HELOC account was important 
information that they want to know as part of the early HELOC 
disclosures. Requiring creditors to disclose information about one-time 
fees imposed by third parties to open the HELOC plan in the table would 
better ensure that consumers are aware of these fees. In addition, as 
discussed in more detail below in the section-by-section analysis to 
proposed Sec.  226.5b(c)(11), under the proposal, creditors would be 
required to disclose in the table one-time fees imposed by the creditor 
to open the HELOC plan. Requiring creditors to disclose all one-time 
fees to open the HELOC plan in the table, regardless of whether they 
are charged by the creditor or by a third party, would enable consumers 
to understand better the total fees that they would be required to pay 
to open the HELOC plan. In addition, the Board believes that 
highlighting all one-time fees to open the HELOC plan in the table may 
facilitate consumer shopping for HELOC plans, by helping consumers to 
compare easily these fees from one HELOC plan to another.
    As discussed above, current Sec.  226.5b(a)(1) provides that a 
disclosure of the conditions under which a creditor may take certain 
actions under the plan, such as terminating the plan, described in 
current Sec.  226.5b(d)(4)(iii) may be disclosed with the application 
disclosures that must be segregated or disclosed separately from the 
segregated application disclosures. As discussed in more detail in the 
section-by-section analysis to proposed Sec.  226.5b(c)(7), under the 
proposal, a creditor would not be allowed to include in the table a 
disclosure of the conditions under which a creditor can take certain 
actions under the plan, such as terminating the plan, as described in 
proposed Sec.  226.5b(c)(7) (although the fact that the creditor may 
take these actions under certain circumstances must be disclosed in the 
table under proposed Sec.  226.5b(c)(7)). The Board believes that 
including a disclosure of the conditions in the table could lead to 
``information overload'' for consumers and could distract from other 
information in the table. The conditions under which a creditor may 
take certain actions, such as terminating the HELOC plan, will likely 
not change from creditor to creditor, and thus this information may not 
be useful to consumers in comparing one HELOC plan to another. A 
creditor would be permitted to include this information with the early 
HELOC disclosures table, as long as it is outside the table. See 
proposed Sec.  226.5b(b)(2)(v).
    Precedence of certain disclosures. Current Sec.  226.5b(a)(2), in 
implementing TILA Section 127A(b)(2)(C), provides that the following 
application disclosures must precede all other required application 
disclosures: (1) A statement that the consumer should make or otherwise 
retain a copy of the application disclosures; (2) a statement of the 
time by which the consumer must submit an application to obtain 
specific terms disclosed, an identification of any disclosed term that 
is subject to change prior to opening the plan, and an explanation of 
the right to refund of all fees paid in connection with the application 
if a disclosed term changes prior to opening the plan and the consumer 
therefore elects not to open the plan; (3) a statement that the 
creditor will acquire a security interest in the consumer's dwelling 
and that loss of the dwelling may occur in the event of default; and 
(4) a statement that, under certain conditions, the creditor may 
terminate the plan and require payment of the outstanding balance in 
full in a single payment and impose fees upon termination; prohibit 
additional extensions of credit or reduce the credit limit; and, as 
specified in the initial agreement, implement certain changes in the 
plan, and a statement that the consumer may receive, upon request, 
information about the conditions under which such actions may occur.

[[Page 43454]]

    The Board proposes no longer to require the above statutorily 
required disclosures to precede other information provided as part of 
the proposed early HELOC disclosures. The Board proposes this rule 
pursuant to its authority in TILA Section 105(a) to make adjustments 
and exceptions to the requirements in TILA to effectuate the statute's 
purposes, which include facilitating consumers' ability to compare 
credit terms and helping consumers avoid the uninformed use of credit. 
See 15 U.S.C. 1601(a), 1604(a). As discussed below, based on consumer 
testing, the Board believes that this information is more effectively 
presented when grouped together with related information. As discussed 
in more detail below in the section-by-section analysis to proposed 
Sec.  226.5b(c), the Board also proposes to delete the statement that 
the consumer should make or otherwise retain a copy of the disclosures 
because under the proposal, the early HELOC disclosures must be given 
in a retainable form. In addition, as discussed in more detail in the 
section-by-section analysis to proposed Sec.  226.5b(c)(4), the 
statement of the time by which the consumer must submit an application 
to obtain specific terms disclosed also would be deleted as unnecessary 
because the early HELOC disclosures would be given after the 
application has been submitted.
    1. Disclosure of which terms in the table are subject to change 
prior to the consumer opening the plan: Under the proposal, a creditor 
would be required to disclose which terms in the table, if any, are 
subject to change prior to the consumer opening the plan. Under the 
proposal, this information must be provided directly below the table 
with other general information that a consumer may want to consider 
when deciding whether to open the HELOC plan being offered (in contrast 
to information in the table that provides specific information about 
the terms being offered on the HELOC plan). Specifically, this 
disclosure must be grouped with the following disclosures: (1) A 
disclosure informing the consumer that he or she is not required to 
accept the terms described in the table; (2) a statement that the 
consumer may be entitled to a refund of all fees paid if the consumer 
decides not to open the plan, (3) a cross reference to the disclosure 
in the table of a consumer's right to a refund of fees paid by the 
consumer if the consumer decides not to open the HELOC plan for any 
reason within three business days of receiving the early HELOC 
disclosures, or any time before the plan is opened if any of the 
disclosed terms change (except for the APR), (4) a statement that if 
the consumer does not understand any disclosure shown in the table in 
the consumer should ask questions; and (5) a statement that the 
consumer may obtain additional information at the Web site of the 
Board, and a reference to the Board's Web site. To help ensure that the 
statement about which terms in the table may change prior to account 
opening is noticeable to consumers, the Board proposes to require that 
this statement be disclosed in bold text, as discussed in more detail 
below.
    2. Disclosure of right to a refund of fees if terms change before 
account opening: Under the proposal, the explanation of the right to a 
refund of fees if terms change before account opening and the consumer 
decides not to open the plan would be grouped together with information 
about another right of a consumer to receive a refund of fees if the 
consumer notifies the creditor that he or she does not want to open the 
HELOC account within three business days of receiving the early HELOC 
disclosures. Under the proposal, these explanations about the two 
rights to a refund of fees would be placed in the ``Fees'' section of 
the table. In the consumer testing conducted by the Board on HELOC 
disclosures, the Board tested a version of the early HELOC disclosures 
where the explanations of the two rights to a refund of fees were 
located directly above the table near the top of the early HELOC 
disclosures. The Board also tested a version of the early HELOC 
disclosures where the explanation was disclosed in the table in the 
``Fees'' section. Participants were more likely to notice and 
understand information about the refundability of fees when it was 
provided in the table in the ``Fees'' section, rather than directly 
above the table near the top of the early HELOC disclosures.
    3. Statement about risk of loss of home and statement about certain 
actions that a creditor may take with respect to the plan: Under the 
proposal, the information about risk of loss of the home in case of 
default and the information about certain actions that a creditor may 
take with respect to the plan, such as terminating the plan, are 
identified as ``risks'' to the consumer and are grouped together under 
the heading ``Risks,'' along with information about the deductibility 
of interest for tax purposes. In consumer testing conducted by the 
Board on HELOC disclosures, the Board tested versions of the 
application disclosures (in a narrative format) where the information 
about risk of loss of the home in case of default and the information 
about certain actions that a creditor may take with respect to the 
plan, such as terminating the plan, were placed near the top of the 
application disclosures, but were not grouped together under a common 
heading. The Board also tested versions of the application disclosures 
and the early HELOC disclosures (in a tabular format) where the 
information was grouped in the ``Risks'' section as discussed above. 
Grouping these disclosures in a single ``Risks'' section made them more 
noticeable to participants, and made it easier for participants to 
review the information quickly and efficiently.
    Under the proposal, the ``Risks'' section would be placed at the 
bottom of the table on the second page of the early HELOC disclosures. 
In consumer testing by the Board on HELOC disclosures, the Board tested 
several different locations for the ``Risks'' section in the table, 
namely, (1) at the top of the table on the first page of the early 
HELOC disclosures, (2) in the middle of the table at the bottom of the 
first page of the early HELOC disclosures, and (3) at or near the 
bottom of the table on the second page of the early HELOC disclosures. 
In each round of the consumer testing, participants were asked 
questions to determine whether they noticed and understood the 
information about risk of the loss of the home if a consumer defaulted 
on the plan, and about the creditors' right to terminate the plan in 
certain circumstances. In several rounds of the consumer testing, 
participants also were asked their views on the placement of the 
``Risks'' section in the table. While some participants indicated that 
they preferred to have the ``Risks'' section displayed at the top of 
the table on the first page because of the importance of the 
information, other participants preferred to have the ``Risks'' section 
lower down in the table or at the bottom of the table on the second 
page because they were more interested in the specific terms of their 
line of credit, such as the APRs and the credit limit offered on the 
plan. Regardless of the placement of the ``Risks'' section in the 
table, most participants noticed and understood the disclosure about 
the risk of loss of the home in case of default and the disclosure 
about a creditor's right to terminate the plan in certain 
circumstances.
    The Board proposes to place the ``Risks'' section at the bottom of 
the table on page two of the early HELOC disclosures. The information 
contained in the ``Risks'' section may not be as useful to the 
consumers as other information contained in the table for

[[Page 43455]]

comparing one HELOC to another, such as the APRs and credit limit 
offered on the plan, because the information about risks is likely to 
be the same among all creditors. The Board seeks comment on this aspect 
of the proposal.
    Highlighting of certain disclosures. Proposed Sec.  
226.5b(b)(2)(vi) would require that certain early HELOC disclosures 
must be disclosed in bold text. The Board proposes this rule pursuant 
to its authority in TILA Section 105(a) to make adjustments and 
exceptions to the requirements in TILA to effectuate the statute's 
purposes, which include facilitating consumers' ability to compare 
credit terms and helping consumers avoid the uniformed use of credit. 
See 15 U.S.C. 1601(a), 1604(a).
    Under the proposal, certain disclosures must be disclosed below the 
table because they provide general information that a consumer may want 
to consider when deciding whether to open the HELOC plan being offered 
(in contrast to information in the table that provides specific 
information about the terms being offered on the HELOC plan). To help 
consumers notice the statements that are below the table, the Board 
proposes that the following statements must be disclosed in bold text: 
(1) A statement that the consumer is not required to accept the terms 
disclosed in the table, as required under proposed Sec.  226.5b(c)(2); 
(2) if the creditor has a provision for the consumer's signature, a 
statement that a signature by the consumer only confirms receipt of the 
disclosure statement, as required under proposed Sec.  226.5b(c)(2); 
(3) a statement identifying any disclosed term that is subject to 
change prior to opening the plan, as required under proposed Sec.  
226.5b(c)(4)(i); (4) a statement that if the consumer does not 
understand any disclosure required by this section the consumer should 
ask questions, as required under proposed Sec.  226.5b(c)(20); (5) a 
statement that the consumer may obtain additional information at the 
Web site of the Board, and a reference to the Board's Web site, as 
required under proposed Sec.  226.5b(c)(21); and (6) a statement that 
the consumer may be entitled to a refund of all fees paid if the 
consumer decides not to open the plan, as required under proposed Sec.  
226.5b(c)(22)(i).
    In addition, proposed Sec.  226.5b(c) generally requires that 
certain information about rates, fees, the credit limit, and certain 
limitations or requirements on transactions, such as any minimum 
outstanding balance or minimum draw requirements, applicable to the 
HELOC plan must be disclosed to the consumer as part of the early HELOC 
disclosures. This information includes not only the percentage or 
dollar amounts that will apply, but also explanatory information that 
gives context to these figures. The Board seeks to enable consumers to 
identify easily the rates, fees, the credit limit and the dollar 
amounts related to any limitations or requirements on transactions 
disclosed in the table. Thus, the Board generally proposes to require 
the percentage or dollar amounts related to those disclosures to be 
disclosed in bold text.
    Nonetheless, the Board proposes several exceptions to the general 
rule that fees disclosed in the early HELOC disclosures table must be 
disclosed in bold text. First, while the total amount of account-
opening fees disclosed under proposed Sec.  226.5b(c)(11) would be 
required to be disclosed in bold text, the itemization of those fees 
also required to be disclosed under proposed Sec.  226.5b(c)(11) must 
not be disclosed in bold text. See proposed comment 5b(b)(2)-5 provides 
that a creditor would be deemed to provide the itemization of the 
account-opening fees clearly and conspicuously if the creditor provides 
this information in a bullet format as shown in proposed Samples G-
14(C), G-14(D) and G-14(E) in Appendix G. The Board believes that the 
bullet format properly highlights the itemization of the account-
opening fees, and that requiring these fees also to be disclosed in 
bold text would detract from the total amount of account-opening fees 
that is disclosed in bold text in the same row.
    Second, under the proposal, periodic fees imposed by the creditor 
for availability of the plan pursuant to proposed Sec.  226.5b(b)(12) 
that are not an annualized amount must not be disclosed in bold. 
Proposed comment 5b(b)(2)-3.ii provides guidance on this exception for 
periodic fees. For example, if a creditor imposes a $10 monthly 
maintenance fee for a HELOC plan, the creditor would be required to 
disclose in the table that there is a $10 monthly maintenance fee, and 
that the fee is $120 on an annual basis. In this example, under the 
proposal, the $10 fee disclosure must not be disclosed in bold, but the 
$120 annualized amount must be disclosed in bold. Under the proposal, 
the periodic fee would be disclosed in the same row as the annualized 
amount of the fee. The Board believes that requiring the periodic fee 
to be in bold text would detract from the annualized amount of the fee 
that is disclosed in bold text in the same row. The Board proposes to 
highlight in the table the annualized amount of a periodic fee (rather 
than the amount of the periodic fees) because the Board believes this 
annualized amount will be more useful to consumers in understanding the 
costs of the HELOC plan and deciding whether to open the HELOC plan 
offered by the creditor.
    Proposed Sec.  226.5b(b)(2)(vi)(E) provides that when a creditor is 
required to disclose certain payment terms under proposed Sec.  
226.5b(c)(9) in a format substantially similar to the format used in 
any of the applicable tables found in proposed Samples G-14(C), G-14(D) 
and G-14(E) in Appendix G, the creditor must provide in bold text any 
terms and phrases that are shown in bold text for that disclosure in 
the applicable tables. Proposed comment 5b(b)(2)-3.iii provides 
guidance on this requirement. For example, proposed Sec.  226.5b(c)(9) 
provides that a creditor must distinguish payment terms applicable to 
the draw period and payment terms applicable to the repayment period by 
using the heading ``Borrowing Period'' for the draw period and 
``Repayment Period'' for the repayment period in a format substantially 
similar to the format used in any of the applicable tables found in 
proposed Samples G-14C) and G-14(E) in Appendix G. See the section-by-
section analysis to proposed Sec.  226.5b(c)(9). The tables found in 
proposed Samples G-14(C) and G-14(E) in Appendix G show the headings 
``Borrowing Period'' and ``Repayment Period'' in bold text, thus, a 
creditor must disclose these headings in bold text in providing the 
table.
    In addition, proposed Sec.  226.5b(c)(9)(i) provides that when the 
length of the plan is definite, a creditor must disclose the length of 
the plan, the length of the draw period and the length of the repayment 
period, if any, in a format substantially similar to the format used in 
any of the applicable tables found in proposed Samples G-14(C) and G-
14(D) in Appendix G. The length of the draw period and any repayment 
period are shown in bold text in the applicable tables; thus, a 
creditor would be required to provide these disclosures in bold text. 
Moreover, proposed Sec.  226.5b(c)(9)(iii)(D) requires a creditor to 
provide the sample payments and related information required to be 
disclosed under proposed Sec.  226.5b(c)(9)(iii) in a format 
substantially similar to the format used in any of the applicable 
tables found in proposed Samples G-14(C), G-14(D) and G-14(E) in 
Appendix G. Certain information related to these sample payments is 
shown in bold text in the applicable table; thus, a creditor would

[[Page 43456]]

be required to disclose this same information in bold text in providing 
the table.
    As discussed in more detail below in the section-by-section 
analysis to proposed Sec.  226.5b(c)(9), in the consumer testing 
conducted by the Board on HELOC disclosures, the Board found that 
certain formats set forth in the tables in proposed Samples G-14(C), G-
14(D) and G-14(E) to Appendix G, such as headings to distinguish 
payment terms applicable to the draw period and the repayment period, 
were effective in helping participants identify and understand the 
payment terms offered on the plan. Thus, the Board proposes to require 
the use of these formats, and to require the bold text that is used in 
the formats.
    Terminology. As discussed in the section-by-section analysis to 
proposed Sec.  226.5(a)(2), the Board proposes that creditors offering 
HELOCs subject to Sec.  226.5b must use certain terminology when 
disclosing the draw period, any repayment period, and certain other 
terms in the early HELOC disclosures table. See proposed 
226.5(a)(2)(ii). Proposed comment 5b(b)(2)-1 provides a cross reference 
to the terminology requirements set forth in proposed Sec.  
226.5(a)(2).
    Clear and conspicuous standard. As discussed in the section-by-
section analysis to proposed Sec.  226.5(a)(1), the Board proposes a 
clear and conspicuous standard applicable to Sec.  226.5b disclosures. 
Proposed comment 5b(b)(2)-4 provides a cross reference to the clear and 
conspicuous standard applicable to the disclosures in proposed Sec.  
226.5b(b), as set forth in proposed comment 5(a)(1)-1.
    Other format requirements. Generally, the format requirements 
applicable to the early HELOC disclosures would be set forth in 
proposed Sec.  226.5b(b)(2). Nonetheless, proposed Sec.  226.5b(c)(9) 
contains formatting requirements applicable to certain payment terms 
that must be disclosed in the early HELOC disclosures table. See 
section-by-section analysis to proposed Sec.  226.5b(c)(9). In 
addition, proposed Sec.  226.5b(c)(10)(i)(A)(1) contains formatting 
requirements applicable to disclosure of variable rates in the early 
HELOC disclosures table. Proposed comment 5b(b)(2)-2 provides a cross 
reference to the formatting requirements set forth in proposed Sec.  
226.5b(c)(9) and (c)(10). In addition, this proposed comment cross 
references proposed formatting requirements that would be applicable to 
information that a creditor would be required to provide to a consumer 
upon his or her request prior to account opening, as described in more 
detail in the section-by-section analysis to proposed Sec.  
226.5b(c)(7), (c)(9), (c)(14), and (c)(18).
    Electronic disclosures. Current Sec.  226.5b(a)(3) provides that 
for an application accessed by the consumer in electronic form, the 
application disclosures and HELOC brochure may be provided to the 
consumer in electronic form on or with the application. Guidance on 
providing the required disclosures on or with an application accessed 
by the consumer in electronic form is found in current comments 
5b(a)(1)-5 and 5b(a)(3)-1. As discussed in the section-by-section 
analysis to proposed Sec.  226.5b(a)(2), the Board proposes to move the 
provisions in current Sec.  226.5b(a)(3) and current comments 5b(a)(1)-
5 and 5b(a)(3)-1 to proposed Sec.  226.5b(a)(2) and proposed comments 
5b(a)(1)-6.ii and 5b(a)(2)-1, respectively, and to make revisions to 
those provisions. Under the proposal, the provisions related to 
electronic disclosures would only apply to the disclosure of the ``Key 
Questions'' document published by the Board that a creditor generally 
is required to provide with an application under proposed Sec.  
226.5b(a). As discussed in more detail in the section-by-section 
analysis to proposed Sec.  226.5(a)(1)(iii), the Board is not proposing 
specific provisions on providing the early HELOC disclosures required 
under proposed Sec.  226.5b(b) in electronic form. Thus, creditors 
would be required to obtain the consumer's consent, in accordance with 
the E-Sign Act, to provide the early HELOC disclosures in electronic 
form, or else provide written disclosures. This proposal not to provide 
specific provisions for providing the early HELOC disclosures required 
under proposed Sec.  226.5b(b) in electronic form is consistent with 
the Board's prior decisions on electronic disclosures of early mortgage 
disclosures that are given after application but before consummation of 
the loan under Sec.  226.19(a). In particular, in its rulemaking on 
electronic disclosures issued in November 2007, the Board did not 
include specific provisions for providing these early mortgage 
disclosures in electronic form, and thus, creditors are required to 
obtain the consumer's consent, in accordance with the E-Sign Act, to 
provide the early mortgage disclosures in electronic form, or else 
provide written disclosures. 72 FR 63462 (November 9, 2007); 72 FR 
71058 (December 14, 2007).
    Retainable form. Current comment 5b(a)(1)-1 provides that the 
current application disclosures must be clear and conspicuous and in 
writing, but need not be in a form the consumer can keep. As discussed 
in the section-by-section analysis to Sec.  226.5(a)(1), the Board 
proposes to require that the early HELOC disclosures must be provided 
in a retainable form. See proposed Sec.  226.5(a)(1)(ii)(B). Thus, the 
Board proposes to delete current comment 5b(a)(1)-1 as obsolete.
    Disclosure of APR--more conspicuous requirement. Current comment 
5b(a)(1)-2 provides a cross reference to current Sec.  226.5(a)(2), 
which provides that when the term ``annual percentage rate'' is 
required to be disclosed with a number in the application disclosures, 
the term ``annual percentage rate'' must be more conspicuous than other 
required disclosures. As discussed in the section-by-section to 
proposed Sec.  226.5(a)(2), the Board proposes to delete the 
requirement that the term ``annual percentage rate'' be more 
conspicuous than other required disclosures when disclosed with a 
number. Thus, the Board proposes to delete current comment 5b(a)(1)-2 
as obsolete.
    Method of providing disclosures. Current comment 5b(a)(1)-4 
provides that in providing the application disclosures, a creditor may 
provide a single disclosure form for all of its HELOC plans, as long as 
the disclosure describes all aspects of the plans. For example, if the 
creditor offers several payment options, all payment options must be 
disclosed. Alternatively, a creditor has the option of providing 
separate disclosure forms for multiple options or variations in 
features. For example, a creditor that offers two payment options for 
the draw period may prepare separate disclosure forms for the two 
payment options.
    The Board proposes to delete current comment 5b(a)(1)-4 as 
obsolete. As discussed in more detail in the section-by-section 
analysis to proposed Sec.  226.5b(c)(9), under the proposal, creditors 
would not be allowed to disclose all aspects of the plan in the table. 
For example, proposed Sec.  226.5b(c) provides that in making the early 
HELOC disclosures, a creditor generally must not disclose terms 
applicable to a fixed-rate and -term payment feature offered during the 
draw period of the plan, unless that payment feature is the only 
payment plan offered during the draw period of the plan.
    In addition, as discussed in more detail in the section-by-section 
analysis to proposed Sec.  226.5b(c)(9)(ii), a creditor would not be 
allowed to provide separate early HELOC disclosures for each payment 
option offered on the HELOC. Specifically, if a creditor offers two or 
more payment plans on the HELOC plan (excluding the fixed-rate

[[Page 43457]]

and -term payment plans described above unless those are the only 
payment plans offered during the draw period), a creditor may not 
provide separate early HELOC disclosures for each payment plan, but 
instead must disclose only two payment plans in the table, in 
accordance with the requirements in proposed Sec.  226.5b(c)(9)(ii)(B). 
(Under the proposal, a creditor would be required to disclose to a 
consumer other payment plans offered by the creditor upon request of 
the consumer. See proposed comments 5b(c)(9)(ii)-5 and 5b(c)(18)-2.)
5b(b)(3) Disclosures Based on a Percentage
    As discussed in more detail in the section-by-section analysis to 
proposed Sec.  226.5b(c)(11), current Sec.  226.5b(d)(7) requires a 
creditor to provide in the application disclosures an itemization of 
certain fees imposed by the creditor to open, use, or maintain the 
plan, and these fees may be stated as a dollar amount or percentage of 
another amount (such as disclosing the amount of a fee as ``2% of the 
credit limit''). In addition, current Sec.  226.5b(d)(10) requires a 
creditor to disclose in the application disclosures any limitations on 
the number of extensions of credit and the amount of credit that may be 
obtained during any time period, as well as any minimum outstanding 
balance and minimum draw requirements, stated as dollar amounts or 
percentages. In contrast, current Sec.  226.5b(d)(8) requires a 
creditor to disclose in the application disclosures a good-faith 
estimate of the total amount of fees that may be imposed by third 
parties to open a plan and the creditor must disclose that total as 
either a single dollar amount or range.
    Under the proposal, except for disclosing one-time fees imposed to 
open the plan, if the amount of any fee required to be disclosed in the 
table is determined on the basis of a percentage of another amount, the 
percentage used and the identification of the amount against which the 
percentage is applied may be disclosed instead of the amount of the 
fee. In addition, any limitations on the number of extensions of credit 
and the amount of credit that may be obtained during any time period, 
as well as any minimum outstanding balance and minimum draw 
requirements, required to be disclosed under proposed Sec.  
226.5b(c)(16) may be disclosed as dollar amounts or percentages. See 
proposed Sec.  226.5b(b)(3).
    As discussed in more detail in the section-by-section analysis to 
proposed Sec.  226.5b(c)(11), a creditor would be required to disclose 
in the table as part of the early HELOC disclosures a total of one-time 
fees to open the account, and this total must include fees imposed by 
the creditor and any third party. In addition, a creditor would be 
required to disclose an itemization of all one-time fees to open the 
account, regardless of whether those fees are imposed by a creditor or 
a third party. Both the total of one-time fees to open the account and 
the itemization of the fees must be disclosed as a dollar amount (or a 
range of dollar amounts) and may not be disclosed as a percentage of 
another amount. See proposed Sec.  226.5b(b)(3) and (c)(11). The Board 
believes that requiring the one-time fees that are imposed to open the 
account to be disclosed as dollar amounts, instead of a percentage of 
another amount, would aid consumers' understanding of the account-
opening fees and may aid consumers in comparison shopping for HELOC 
plans. In consumer testing conducted on credit card disclosures in 
relation to the January 2009 Regulation Z Rule, the Board found that 
consumers generally understand dollar amounts better than percentages. 
As a result, the Board believes that requiring account opening fees to 
be disclosed as dollar amounts instead of percentages of another amount 
would better enable consumers to understand the start up costs of 
opening the HELOC plan. In addition, consumers could more easily 
compare the dollar amount of one-time account-opening fees on different 
HELOC plans if all HELOC plans are required to disclose the dollar 
amount. Otherwise, consumers would need to calculate the dollar amount 
themselves for some HELOC plans if the account-opening fees were 
presented as a percentage of another amount.
    Consistent with current Sec.  226.5b(d)(7), however, under the 
proposal, if the amount of other fees that a creditor must disclose in 
the table--namely, fees imposed by the creditor for the availability of 
the plan, fees imposed by the creditor for early termination of the 
plan by the consumer and fees imposed for required insurance, debt 
cancellation or suspension coverage--are determined on the basis of a 
percentage of another amount, the percentage used and the 
identification of the amount against which the percentage is applied 
may be disclosed instead of the amount of the fee. Similarly, 
consistent with current Sec.  226.5b(d)(10), the proposal would permit 
a creditor to disclose the amount of any limitations on the number of 
extensions of credit, the amount of credit that may be obtained during 
any time period, any minimum outstanding balance and minimum draw 
requirements, required to be disclosed under proposed Sec.  
226.5b(c)(16) as either a dollar amount or percentage. The Board 
believes that allowing these fees and transaction requirements to be 
disclosed as a percentage of another amount is appropriate because 
these fees or transaction requirements generally would be imposed 
during the life of the plan, and thus, it may be difficult for a 
creditor to estimate a dollar amount for these fees or transaction 
requirements at the time that the early HELOC disclosures are made.
5b(c) Content of Disclosures
    Currently, Sec.  226.5b(d) sets forth the content for the 
application disclosures that a creditor must provide on or with the 
application. As explained above, other than the ``Key Questions'' 
document required under proposed Sec.  226.5b(a), the Board proposes to 
delete the requirement that creditors provide disclosures to consumers 
on or with HELOC applications. Instead, the Board proposes that a 
creditor must provide the early HELOC disclosures (generally in the 
form of a table) to a consumer within three business days following 
receipt of the consumer's application by the creditor (but not later 
than at account opening). Under the proposal, proposed Sec.  226.5b(c) 
sets forth the content for the early HELOC disclosures.
    Fixed-rate and -term feature during draw period. HELOC plans 
typically offer the ability to obtain advances that must be repaid 
based on a variable interest rate that applies to all outstanding 
balances. Some HELOC plans, however, also offer a fixed-rate and -term 
payment feature, where a consumer is permitted to repay all or part of 
the balance during the draw period at a fixed rate (rather than a 
variable rate) and over a specified time period. The Board understands 
that for most HELOC plans, consumers must take active steps to access 
the fixed-rate and -term payment feature; this feature is not 
automatically accessed when a consumer obtains advances from the HELOC 
plan.
    Current comment 5b(d)(5)(ii)-2, which implements TILA Section 
127A(a)(1), (a)(2), (a)(3), and (a)(8), provides that a creditor 
generally must disclose in the application disclosures terms that apply 
to the fixed-rate and -term payment feature, including the period 
during which the feature can be selected, the length of time over which 
repayment can occur, any fees imposed for the feature, and the specific 
rate or a description of the index and margin that will apply upon 
exercise of the

[[Page 43458]]

feature. 15 U.S.C. 1637a(a)(1), (a)(2), (a)(3), and (a)(8).
    The Board proposes to delete current comment 5b(d)(5)(ii)-2. The 
Board proposes that if a HELOC plan offers a variable-rate feature and 
a fixed-rate and -term feature during the draw period, a creditor 
generally must not disclose in the table the terms applicable to the 
fixed-rate and -term feature, except as discussed below. See proposed 
Sec.  226.5b(c) and proposed comment 5b(c)-4. Instead, a creditor may 
disclose detailed information relating to the fixed-rate and -term 
feature outside of the table. See proposed Sec.  226.5b(b)(2)(v). 
However, if a HELOC plan does not offer a variable-rate feature during 
the draw period, but only offers a fixed-rate and -term feature during 
that period, a creditor must disclose in the table information related 
to the fixed-rate and -term feature when making the disclosures 
required by proposed Sec.  226.5b(c). The Board proposes this rule 
pursuant to its authority in TILA Section 105(a) to make adjustments 
and exceptions to the requirements in TILA to effectuate the statute's 
purposes, which include facilitating consumers' ability to compare 
credit terms and helping consumers avoid the uniformed use of credit. 
See 15 U.S.C. 1601(a), 1604(a).
    The Board believes that including information about the variable-
rate feature and the fixed-rate and -term feature in the table would 
create ``information overload'' for consumers. The terms that apply to 
the fixed-rate and -term features often differ significantly from the 
terms that apply to the variable-rate feature. For example, different 
APRs, fees, length of repayment periods, limitations on the number of 
transactions, and minimum transactions amounts may apply to the fixed-
rate and -term feature than the variable-rate feature. In addition, 
creditors often provide consumers with several options related to the 
fixed-rate and -term feature, such as providing several lengths of 
repayment period (e.g., 3, 5, or 7 years) from which a consumer may 
choose for a particular advance under the fixed-rate and -term feature. 
The Board believes that requiring a creditor to provide all of these 
details about the fixed-rate and -term feature in the table would add 
to the length and complexity of the table, and would create 
``information overload'' for consumers.
    Instead of requiring that all the details of the fixed-rate and -
term feature be disclosed in the table, the Board proposes to require a 
creditor offering this payment feature (in addition to a variable-rate 
feature) to disclose in the table the following: (1) A statement that 
the consumer has the option during the draw period to borrow at a fixed 
interest rate; (2) the amount of the credit line that the consumer may 
borrow at a fixed interest rate for a fixed term; and (3) as 
applicable, either a statement that the consumer may receive, upon 
request, further details about the fixed-rate and -term payment 
feature, or, if information about the fixed-rate and -term payment 
feature is provided with the table, a reference to the location of the 
information. See proposed Sec.  226.5b(c)(18). Thus, under the 
proposal, a consumer would be notified in the table about the fixed-
rate and -term payment feature, and could request additional 
information about this payment feature (if a creditor chose not to 
provide additional information about this feature outside of the 
table).
    In responding to a consumer's request, prior to account opening, 
for additional information about the fixed-rate and -term feature, a 
creditor would be required to provide this additional information as 
soon as reasonably possible after the request. See proposed comment 
5b(c)-2. Additional information disclosed about the fixed-rate and -
term payment feature upon request (or outside the early HELOC 
disclosures table) would have to include in the form of a table, (1) 
information about the APRs and payment terms applicable to the fixed-
rate and -term payment feature, and (2) any fees imposed related to the 
use of the fixed-rate and -term payment feature, such as fees to 
exercise the fixed-rate and -term payment option or to convert a 
balance under a fixed-rate and -term payment feature to a variable-rate 
feature under the plan. See proposed comment 5b(c)(18)-2. The Board 
believes that the above approach to providing information to consumers 
about the fixed-rate and -term feature enables consumers interested in 
this feature to obtain additional information about this optional 
feature easily and quickly, but does not contribute to ``information 
overload'' for consumers in general.
    Duty to respond to requests for information. Current comment 5b(d)-
2 provides that if the consumer, prior to opening a plan, requests 
information as described in the application disclosures, such as the 
current index value or margin, the creditor must provide this 
information as soon as reasonably possible after the request. The Board 
proposes to move this comment to proposed comment 5b(c)-2 and apply it 
to requests for additional information described in the early HELOC 
disclosures, namely requests for additional information about the 
following: (1) Fees applicable to the plan under proposed Sec.  
226.5b(c)(14); (2) the conditions under which a creditor may take 
certain actions under the plan, such as terminating the plan, under 
proposed Sec.  226.5b(c)(7); (3) payment plans offered on the plan not 
described as part of the early HELOC disclosures (other than fixed-rate 
and -term payment plans unless those are the only payment plans offered 
during the draw period) required under proposed Sec.  226.5b(c)(9)(ii); 
and (4) fixed-rate and -term payment plans under proposed Sec.  
226.5b(c)(18). The Board proposes to revise this comment to update the 
examples of information that a consumer may receive upon request (such 
as additional information on fees applicable to the plan or the 
conditions under which the creditor may take certain actions on the 
plan) and to provide a cross reference to comments that specifically 
discuss a consumer's right to request the four types of additional 
information listed above.
    Disclosure of repayment phase--applicability of requirements. Some 
HELOC plans provide in the initial agreement for a repayment period 
during which no further draws may be taken and repayment of the amount 
borrowed is required. Current comment 5b-4 provides that a creditor 
must disclose information relating to the repayment period, as well as 
the draw period, when providing the application disclosures. Thus, for 
example, a creditor must provide payment information about any 
repayment phase as well as about the draw period in the application 
disclosures, as required by current Sec.  226.5b(d)(5). The Board 
proposes to move the relevant part of this comment to proposed 5b(c)-3, 
and to make technical revisions to the comment. Under the proposal, a 
creditor would be required to disclose in the table as part of the 
early HELOC disclosures information relating to any repayment period, 
as well as the draw period.
    Disclosures given as applicable. Current comment 5b(d)-1 provides 
that a creditor may provide the application disclosures described in 
current Sec.  226.5b(d) as applicable. For example, if negative 
amortization cannot occur in a HELOC plan, a reference to it need not 
be made under current Sec.  226.5b(d)(9). The Board proposes to move 
this comment to proposed 5b(c)-1 and revise the comment to refer to the 
following proposed exceptions to the general rule that a creditor is 
only required to include a disclosure required under proposed Sec.  
226.5b(c) as applicable: specifically, proposed 5b(c)-1 cross 
references proposed

[[Page 43459]]

Sec.  226.5b(c)(9)(ii)(B)(3) and (c)(9)(iii)(C)(4), which provide that 
a creditor in certain circumstances must state that a balloon payment 
will not result for plans in which no balloon payment would occur; in 
addition, proposed comment 5b(c)-1 cross references proposed Sec.  
226.5b(c)(10)(i)(A)(5), which provides that if there are no annual or 
other periodic limitations on changes in the APR, a creditor must state 
that no annual limitation exists.
5b(c)(1) Identification Information
    Currently, a creditor is not required to disclose identification 
information about the creditor and the borrower as part of the 
application disclosures. Pursuant to the Board's authority in TILA 
Section 127A(a)(14) to require additional disclosures for HELOC plans, 
the Board proposes to require that a creditor disclose as part of the 
early HELOC disclosures the following identification information: (1) 
The consumer's name and address; (2) the identity of the creditor 
making the disclosure; (3) the date the disclosure was prepared; and 
(4) the loan originator's unique identifier, as defined by the Secure 
and Fair Enforcement for Mortgage Licensing Act of 2008 (``SAFE Act'') 
Sections 1503(3) and (12), 12 U.S.C. 5102(3) and (12). 15 U.S.C. 
1637a(a)(14). Under the proposal, these disclosures must be placed 
directly above the table provided as part of the early HELOC 
disclosures, in a format substantially similar to any of the applicable 
tables found in G-14(C), G-14(D) and G-14(E) in Appendix G. See 
proposed Sec.  226.5b(b)(2)(iii). Proposed comment 5b(c)(1)-1 clarifies 
that in identifying the creditor making the disclosure, use of the 
creditor's name would be sufficient, but the creditor may also include 
an address and/or telephone number. In transactions with multiple 
creditors, any one of them would be allowed to make the disclosures; 
the one doing so must be identified in the early HELOC disclosures. The 
Board solicits comment on whether the creditor making the disclosures 
should be required to disclose its contact information, such as its 
address and/or telephone number.
    The Board believes that this identification information would 
provide context for the disclosures provided in the table. For example, 
the date the disclosure was prepared would provide consumers 
information about the date on which the terms in the table were 
accurate. In addition, the Board believes it is important to disclose 
the creditor's identity so that consumers can easily identify the 
appropriate entity.
    Loan originator's unique identifier. On July 30, 2008, the SAFE 
Act, 12 U.S.C. 5101-5116, was enacted to create a Nationwide Mortgage 
Licensing System and Registry of loan originators to increase 
uniformity, reduce fraud and regulatory burden, and enhance consumer 
protection. 12 U.S.C. 5102. Under the SAFE Act, a ``loan originator'' 
is defined as ``an individual who (i) takes a residential mortgage loan 
application; and (ii) offers or negotiates terms of a residential 
mortgage loan for compensation or gain.'' 12 U.S.C. 5102(3)(A)(i). Each 
loan originator is required to obtain a unique identifier through the 
Nationwide Mortgage Licensing System and Registry. 12 U.S.C. 
5103(a)(2). The term ``unique identifier'' is defined as ``a number or 
other identifier that (i) permanently identifies a loan originator; 
(ii) is assigned by protocols established by the Nationwide Mortgage 
Licensing System and Registry and the Federal banking agencies to 
facilitate electronic tracking of loan originators and uniform 
identification of, and public access to, the employment history of and 
the publicly adjudicated disciplinary and enforcement actions against 
loan originators; and (iii) shall not be used for purposes other than 
those set forth under this title.'' 15 U.S.C. 5102(12)(A). The system 
is intended to provide consumers with easily accessible information to 
research a loan originator's history of employment and any disciplinary 
or enforcement actions against him or her. 12 U.S.C. 5101(7).
    To facilitate the use of the Nationwide Mortgage Licensing System 
and Registry and promote the informed use of credit, pursuant to the 
Board's authority under TILA Section 127A(a)(14) to require additional 
disclosures for HELOC plans, the Board proposes in new Sec.  
226.5b(c)(1) to require that a loan originator to disclose as part of 
the early HELOC disclosures his or her unique identifier, as defined by 
the SAFE Act. 15 U.S.C. 1637a(a)(14). Proposed comment 5b(c)(1)-2 
clarifies that in transactions with multiple loan originators, each 
loan originator's unique identifier must be listed on the early HELOC 
disclosures. For example, in a transaction where a mortgage broker 
meets the SAFE Act definition of loan originator, the identifiers for 
the broker and for its employee loan originator meeting that definition 
would need to be listed on the early HELOC disclosures.
    The Board notes that the Board, FDIC, OCC, OTS, NCUA, and Farm 
Credit Administration have published a proposed rule to implement the 
SAFE Act. See 74 FR 27386 (June 9, 2009). In this proposed rule, the 
federal banking agencies have requested comment on whether there are 
mortgage loans for which there may be no mortgage loan originator. For 
example, the agencies query whether there are situations where a 
consumer applies for and is offered a loan through an automated process 
without contact with a mortgage loan originator. See id. at 27397. The 
Board solicits comments on the scope of this problem and its impact on 
the requirements of proposed Sec.  226.5b(c)(1).
Statement About Retaining a Copy of the Disclosures
    The Board proposes to delete current Sec.  226.5b(d)(1), which 
implements TILA Section 127A(a)(6)(C), and current comment 5b(d)(1)-1 
as obsolete. Current Sec.  226.5b(d)(1) provides that a creditor must 
disclose as part of the application disclosures a statement that the 
consumer should make or otherwise retain a copy of the application 
disclosures. Current comment 5b(d)(1)-1 provides that a creditor need 
not disclose that the consumer should make or otherwise retain a copy 
of the disclosures if they are retainable--for example, if the 
disclosures are not part of an application that must be returned to the 
creditor to apply for the plan. As discussed in more detail in the 
section-by-section analysis to Sec.  226.5(a)(1), however, the Board 
proposes to require a creditor to provide the early HELOC disclosures 
in a retainable form.
5b(c)(2) No Obligation Statement
    Pursuant to the Board's authority in TILA Section 127A(a)(14) to 
require additional disclosures for HELOC plans, the Board proposes in 
new Sec.  226.5b(c)(2) to require a creditor to disclose as part of the 
early HELOC disclosures a statement that the consumer has no obligation 
to accept the terms disclosed in the table. 15 U.S.C. 1637a(a)(14). In 
addition, under proposed Sec.  226.5b(c)(2), if a creditor provides 
space for the consumer to sign or initial the early HELOC disclosures, 
the creditor would be required to include a statement that a signature 
by the consumer only confirms receipt of the disclosure statement. A 
creditor would be required to provide these proposed disclosures 
directly below the table provided as part of the early HELOC 
disclosures, in a format substantially similar to any of the applicable 
tables found in proposed Samples G-14(C), G-14(D) and G-15(E) in 
Appendix G. See proposed Sec.  226.5b(b)(2)(iv).
    As discussed in the proposal issued by the Board on closed-end 
mortgages published elsewhere in today's Federal

[[Page 43460]]

Register, in consumer testing conducted by the Board on closed-end 
mortgage products, participants reviewed mock ups of mortgage 
disclosures that would be given within three business days after a 
consumer's application has been received by the creditor for a mortgage 
loan. These participants were asked whether they would be obligated to 
accept the loan terms described in the disclosures because they had 
submitted an application for a mortgage. Most participants initially 
understood in reviewing the tested mortgage disclosures that they would 
not be required to accept the loan terms described in the disclosures. 
However, some participants later believed they would be obligated to 
accept the loan upon signing or initialing the disclosure. Based on 
this consumer testing, the Board is concerned that although consumers 
may initially understand they are not obligated to accept the terms of 
the HELOC plan, this belief may be diminished if a creditor requires a 
consumer to sign or initial receipt of the early HELOC disclosures. 
This may further discourage negotiation and shopping among HELOC 
products and creditors. Thus, the Board proposes to require a creditor 
to disclose as part of the early HELOC disclosures a statement that the 
consumer has no obligation to accept the terms disclosed in the table. 
In addition, if a creditor provides space for the consumer to sign or 
initial the early HELOC disclosures, the creditor would be required to 
include a statement that a signature by the consumer only confirms 
receipt of the disclosure statement.
5b(c)(3) Identification of Plan as a Home-Equity Line of Credit
    Pursuant to the Board's authority in TILA Section 127A(a)(14) to 
require additional disclosures with respect to HELOC plans, the Board 
proposes in new Sec.  226.5b(c)(3) to require that creditors as part of 
the early HELOC disclosures disclose above the table a statement that 
the consumer has applied for a home-equity line of credit. 15 U.S.C. 
1637a(a)(14).
    In consumer testing the Board conducted on HELOCs disclosures, most 
participants had obtained a HELOC in the past, but some participants 
were also recruited who had considered obtaining a HELOC but opted 
instead for a home-equity loan. A few participants had never obtained a 
home-equity loan or HELOC, but had considered opening a HELOC in the 
past five years. In the consumer testing, during the initial portion of 
the interview, several participants appeared not to understand the 
difference between a home-equity loan and a HELOC. For example, one 
person initially indicated that she had a home-equity loan, but after 
the difference was explained to her she realized that she actually had 
a HELOC.
    Based on this consumer testing, the Board proposes to take several 
steps to address potential confusion by consumers about the differences 
between these two types of home-equity products. First, as discussed in 
the section-by-section analysis to Sec.  226.5b(a), the ``Key 
Questions'' document that would be required to be given with 
applications for HELOCs (except for telephone applications where this 
document must be given with the early HELOC disclosures) includes 
information describing the relative advantages and disadvantages of a 
HELOC and a home-equity loan. Second, as noted, under proposed Sec.  
226.5b(c)(3) creditors would be required as part of the early HELOC 
disclosures to disclose above the table that the consumer has applied 
for a home-equity line of credit. This statement will identify clearly 
for the consumer that he or she has applied for a HELOC, and may help a 
consumer who mistakenly thought he or she was applying for a home-
equity loan.
5b(c)(4) Conditions for Disclosed Terms
    Current Sec.  226.5b(d)(2)(i), which implements TILA Section 
127A(a)(6)(A), provides that creditors must disclose as part of the 
application disclosures a statement of the time by which the consumer 
must submit an application to obtain specific terms disclosed in the 
application disclosures and an identification of any disclosed term 
that is subject to change prior to opening the plan. 15 U.S.C. 
1637a(a)(6)(A). Current comment 5b(d)(2)(i)-1 provides that the 
requirement that a creditor disclose the time by which an application 
must be submitted to obtain the disclosed terms does not require the 
creditor to guarantee any terms. If a creditor chooses not to guarantee 
any terms, it must disclose that all of the terms are subject to change 
prior to opening the plan. The creditor also is permitted to guarantee 
some terms and not others, but must indicate which terms are subject to 
change. Current comment 5b(d)(2)(i)-2 provides that if a creditor 
chooses to guarantee terms disclosed in the application disclosures, a 
creditor may disclose either a specific date or a time period for 
obtaining the guaranteed terms. If the creditor discloses a time 
period, the consumer must be able to determine from the disclosure the 
specific date by which an application must submitted to obtain any 
guaranteed terms.
    Under current Sec.  226.5b(d)(2)(ii), which implements TILA Section 
127A(a)(6)(B), a creditor also must provide as part of the application 
disclosures a statement that if a disclosed term changes (other than a 
change due to fluctuations in the index in a variable-rate plan) prior 
to opening the plan and the consumer therefore elects not to open the 
plan the consumer may receive a refund of all fees paid in connection 
with the application. 15 U.S.C. 1637a(a)(6)(B). Current comment 
5b(d)(2)(ii)-1 provides that a creditor should consult the rules in 
current Sec.  226.5b(g) regarding refund of fees when terms change.
    Proposal. The Board proposes to move the provisions in current 
Sec.  226.5b(d)(2) to proposed Sec.  226.5b(c)(4) and to revise those 
provisions. Specifically, because the early HELOC disclosures would be 
given after the application has been submitted by the consumer, the 
Board proposes to delete as obsolete (1) the requirement in current 
Sec.  226.5b(d)(2), which implements TILA Section 127A(a)(6)(A), that a 
creditor provide a statement of the time by which the consumer must 
submit an application to obtain specific terms disclosed in the 
application disclosures, and (2) guidance for providing that statement 
in current comment 5b(d)(2)(i)-2. 15 U.S.C. 1637a(a)(6)(A). The Board 
proposes this rule pursuant to its authority in TILA Section 105(a) to 
make adjustments and exceptions to the requirements in TILA to 
effectuate the statute's purposes, which include facilitating 
consumers' ability to compare credit terms and helping consumers avoid 
the uniformed use of credit. See 15 U.S.C. 1601(a), 1604(a).
    Consistent with current Sec.  226.5b(d)(2)(i), the Board proposes 
in new Sec.  226.5b(c)(4)(i) to require that a creditor disclose 
directly below the table as part of the early HELOC disclosures an 
identification of any disclosed term that is subject to change prior to 
opening the plan. The Board also proposes to move the provisions in 
current comment 5b(d)(2)(i)-1 that relate to this disclosure to 
proposed comment 5b(c)(4)(i)-1. Specifically, proposed comment 
5b(c)(4)(i)-1 provides that if a creditor chooses not to guarantee any 
terms, it must disclose that all of the terms are subject to change 
prior to opening the plan. The creditor also would be permitted to 
guarantee some terms and not others, but would be required to indicate 
which terms are subject to change.

[[Page 43461]]

    The Board proposes in new Sec.  226.5b(c)(4)(ii) to require that a 
creditor disclose in the table as part of the early HELOC disclosures a 
statement that, if a disclosed term changes (other than a change due to 
fluctuations in the index in a variable-rate plan) prior to opening the 
plan and the consumer elects not to open the plan, the consumer may 
receive a refund of all fees paid. The language in new Sec.  
226.5b(c)(4)(ii) differs from current Sec.  226.5b(d)(2)(ii), to 
reflect proposed changes in proposed Sec.  226.5b(d). Currently Sec.  
226.5b(g) contains the substantive right of a consumer to receive a 
refund if terms change and the consumer decides not to open the HELOC 
plan. As discussed in more detail in proposed Sec.  226.5b(d), the 
Board proposes to move the substantive right to a refund of fees if 
terms change from current Sec.  226.5b(g) to proposed Sec.  226.5b(d) 
and to revise those provisions. The language in proposed Sec.  
226.5b(c)(4)(ii) reflects the proposed changes in Sec.  226.5b(d).
    In addition, the Board proposes to move guidance on disclosing the 
statement about refundability of fees if terms change from current 
comment 5b(d)(2)(ii)-1 to proposed comment 5b(c)(4)(ii)-1, and to make 
technical revisions to the proposed comment.
5b(c)(5) Statement Regarding Refund of Fees Under Proposed Sec.  
226.5b(e)
    Current Sec.  226.5b(h) provides that neither a creditor nor any 
other person may impose a nonrefundable fee in connection with an 
application until three business days after the consumer receives the 
application disclosures and the HELOC brochure. Current comment 5(h)-1 
provides that if a creditor collects a fee after the consumer receives 
the application disclosures and the HELOC brochure and before the 
expiration of the three days, the creditor must notify the consumer 
that the fee is refundable for three days. The notice must be clear and 
conspicuous and in writing, and may be included with the application 
disclosures or as an attachment to them.
    As discussed in more detail in the section-by-section analysis to 
proposed Sec.  226.5b(e), the Board proposes to move current Sec.  
226.5b(h) to proposed Sec.  226.5b(e) and revise it. The Board proposes 
to add new Sec.  226.5b(c)(5) to require a creditor to disclose in the 
table as part of the early HELOC disclosures a statement that the 
consumer may receive a refund of all fees paid, if the consumer 
notifies the creditor within three business days of receiving the early 
HELOC disclosures that the consumer does not want to open the plan. The 
proposed disclosure would be required if a creditor will impose fees on 
the HELOC plan prior to the expiration of the three-day period. 
Proposed comment 5(c)(5)-1 provides that creditors should consult the 
rules in Sec.  226.5b(e) regarding refund of fees if the consumer 
rejects the plan within three business days of receiving the early 
HELOC disclosures.
5b(c)(6) Security Interest and Risk to Home
    Current Sec.  226.5b(d)(3), which implements TILA Section 
127A(a)(5), provides that a creditor must disclose as part of the 
application disclosures a statement that the creditor will acquire a 
security interest in the consumer's dwelling and that loss of the 
dwelling may occur in the event of default. 15 U.S.C. 1637a(a)(5). The 
Board proposes to move this disclosure requirement from current Sec.  
226.5b(d)(3) to proposed Sec.  226.5b(c)(6). Thus, under the proposal, 
a creditor would be required to disclose this statement in the table as 
part of the early HELOC disclosures.
5b(c)(7) Possible Actions by Creditor
    Current Sec.  226.5b(d)(4)(i), which implements TILA Section 
127A(a)(7)(A), provides that a creditor must disclose as part of the 
application disclosures a statement that, under certain conditions, the 
creditor may terminate the plan and require payment of the outstanding 
balance in full in a single payment and impose fees upon termination; 
prohibit additional extensions of credit or reduce the credit limit; 
and, as specified in the initial agreement, implement certain changes 
in the plan.\16\
---------------------------------------------------------------------------

    \16\ TILA Section 127A(a)(7) does not specifically require that 
a creditor disclose as part of the application disclosures a 
statement that under certain conditions the creditor may impose fees 
upon termination or may implement certain changes in the plans as 
specified in the initial agreement. The Board included these 
disclosures in current Sec.  226.5b(d)(4)(i) pursuant to its 
authority in TILA Section 127A(a)(14) to required additional 
disclosures for HELOC plans.
---------------------------------------------------------------------------

    The Board proposes to move the provisions in current Sec.  
226.5b(d)(4)(i) to proposed Sec.  226.5b(c)(7)(i) and to revise those 
provisions. Specifically, proposed Sec.  226.5b(c)(7)(i) provides that 
a creditor must disclose in the table as part of the early HELOC 
disclosures a statement that, under certain conditions, the creditor 
may terminate the plan and require payment of the outstanding balance 
in full in a single payment and impose fees upon termination; prohibit 
additional extensions of credit or reduce the credit limit; and make 
other changes in the plan. Current comment 5b(d)(4)(i)-1 provides 
guidance on when a creditor must provide the statement that a creditor 
under certain conditions may impose fees upon termination of the plan. 
This comment would be moved to proposed comment 5b(c)(7)(i)-1.
    The circumstances in which a creditor must provide the disclosure 
regarding implementing ``changes in the plan'' would be broader under 
proposed Sec.  226.5b(c)(7)(i) than under current Sec.  
226.5b(d)(4)(i). As explained in current comment 5b(d)(4)(i)-2, a 
creditor must provide the disclosure regarding implementing changes in 
the plan under current Sec.  226.5b(d)(4)(i) only if the initial 
agreement contains specific changes that may be made in the plan if 
specific events take place (see Sec.  226.5b(f)(3)(i)), such as 
provisions in the initial agreement that the APR will increase a 
specified amount if the consumer leaves the creditor's employment. If 
no specific changes are set forth in the initial agreement pursuant to 
Sec.  226.5b(f)(3)(i), but the creditor may make changes in the plan 
under Sec.  226.5b(f)(3)(ii) through (v), such as making a change that 
will unequivocally benefit the consumer under Sec.  226.5b(f)(3)(iv), a 
creditor is not required under current Sec.  226.5b(d)(4)(i) to 
disclose that the creditor in certain circumstances may make certain 
changes in the plan.
    As explained in proposed comment 5b(c)(7)(i)-2, under proposed 
Sec.  226.5b(c)(7)(i), a creditor would be required to disclose in the 
table as part of the early HELOC disclosures a statement that the 
creditor under certain conditions may make changes in the plan, if the 
creditor may make any changes in the plan under Sec.  226.5b(f)(3)(i)-
(v), including making a change that will unequivocally benefit the 
consumer under Sec.  226.5b(f)(3)(iv), even if the creditor does not 
set forth specific changes in the plan for specific events in the 
initial agreement under Sec.  226.5b(f)(3)(i). The Board believes that 
if a creditor may make any changes to the plan, consumers should be 
informed generally of this fact.
    Under current Sec.  226.5b(d)(4)(ii), which implements TILA Section 
127a(a)(7)(B), a creditor must disclose as part of the application 
disclosures a statement that the consumer may receive, upon request, 
information about the conditions under which a creditor may take 
certain actions, such as terminating the plan, as discussed above. 15 
U.S.C. 1637a(a)(7)(B). Current Sec.  226.5b(d)(4)(iii) provides a 
creditor may provide a disclosure of the conditions in lieu of the 
statement that

[[Page 43462]]

a consumer may receive that information upon request.\17\
---------------------------------------------------------------------------

    \17\ TILA Section 127A(a)(7) does not specifically allow a 
creditor to disclose a statement of the conditions in lieu of the 
statement that a consumer may receive that information upon request. 
The Board provided this alternative in current Sec.  226.5b(d)(4) 
pursuant to the Board authority in TILA Section 105(a) to make 
adjustments to the requirements in TILA that are necessary to 
effectuate the purposes of TILA.
---------------------------------------------------------------------------

    The Board proposes to move the provisions in current Sec.  
226.5b(d)(4)(ii) and (iii) to proposed Sec.  226.5b(c)(7)(ii) and 
revise those provisions. In particular, under proposed Sec.  
226.5b(c)(7)(ii), a creditor may either provide a statement that the 
consumer may receive, upon request, information about the conditions 
under which a creditor may take certain actions such as terminating the 
plan or disclose those conditions with the early HELOC disclosures 
(outside the table). If a creditor chooses to provide as part of the 
early HELOC disclosures a statement that the consumer may receive, upon 
request, information about the conditions, this statement must be 
disclosed in the table. If a creditor chooses to provide a disclosure 
of the conditions with the early HELOC disclosures, the disclosure of 
the conditions must not be disclosed in the table. The disclosure of 
the conditions must be provided outside the table, and a creditor must 
disclose in the table a reference to the location of the disclosure.
    Current comment 5b(d)(4)(iii)-2 provides if a creditor chooses to 
disclose the conditions in lieu of providing that information upon 
request, the creditor may provide the disclosure of the conditions with 
the other application disclosures or apart from them. If the creditor 
elects to provide the disclosure of the conditions with the application 
disclosures, this disclosure need not comply with the precedence rule 
in current Sec.  226.5b(a)(2). Under the proposal, current comment 
5b(d)(4)(iii)-2 would be deleted. As discussed above, under the 
proposal, a creditor would not be allowed to include the disclosure of 
conditions under which a creditor may take certain actions, as 
discussed above, in the table. See proposed Sec.  226.5b(c)(7)(ii) and 
(b)(2)(v). The Board believes that including a disclosure of the 
conditions in the table could lead to ``information overload'' for 
consumers, distracting consumers from other important information in 
the table. The conditions under which a creditor may take certain 
actions, such as terminating the HELOC plan, will likely not change 
from creditor to creditor, and thus this information may not be useful 
to consumers in comparing one HELOC plan to another.
    Current comment 5b(d)(4)(iii)-1 provides guidance on how a creditor 
may provide the disclosure of the conditions if a creditor is providing 
this information with the application disclosures. The Board proposes 
to move the provisions in current comment Sec.  226.5b(d)(4)(iii)-1 to 
proposed comment Sec.  226.5b(c)(7)(ii)-1 and make revisions to the 
provisions. In particular, proposed comment 5b(c)(7)(ii)-1 would 
provide guidance on how a creditor may provide the disclosures of the 
conditions, either upon the request of the consumer prior to account 
opening or with the early HELOC disclosures (outside the table).
5b(c)(8) Tax Implications
    Current Sec.  226.5b(d)(11), which implements TILA Section 
127A(a)(13)(A), provides that a creditor must disclose as part of the 
application disclosures a statement that the consumer should consult a 
tax advisor regarding the deductibility of interest and charges under 
the plan. 15 U.S.C. 1637a(a)(13)(A). The Board proposes to move current 
Sec.  226.5b(d)(11) to proposed Sec.  226.5b(c)(8) and make technical 
revisions. In addition, to implement Section 1302 of the Bankruptcy Act 
(cited above), which requires disclosure of the tax implications for 
home-secured credit that may exceed the dwelling's fair-market value, 
the Board proposes in new Sec.  226.5b(c)(8) to require a creditor as 
part of the early HELOC disclosures to disclose a statement that the 
interest on the portion of the credit extension that is greater than 
the fair market value of the dwelling may not be tax deductible for 
Federal income tax purposes and that the consumer should consult a tax 
advisor for further information on tax deductibility. 15 U.S.C. 
1637a(a)(13)(B).
    The Board stated its intent to implement the Bankruptcy Act 
amendments in an ANPR published in October 2005 as part of the Board's 
ongoing review of Regulation Z (October 2005 ANPR). 70 FR 60235 
(October 17, 2005). The Board received approximately 50 comment 
letters: forty-five letters were submitted by financial institutions 
and their trade groups, and five letters were submitted by consumer 
groups. In general, creditors asked for flexibility in providing the 
disclosure regarding the tax implications for home-secured credit that 
may exceed the dwelling's fair-market value, either by permitting the 
notice to be provided to all applicants, or to be provided later in the 
approval process after creditors have determined whether the disclosure 
is triggered. Creditor commenters asked for guidance on loan-to-value 
calculations and safe harbors for how creditors should determine 
property values. Consumer advocates favored triggering the disclosure 
when the possibility of negative amortization could occur. A number of 
commenters stated that in order for the disclosure to be effective and 
useful to the borrower, it should be given when the new extension of 
credit, combined with existing credit secured by the dwelling (if any), 
may exceed the fair market value of the dwelling. A few industry 
comments took the opposite view that the disclosure should be limited 
only to when a new extension of credit itself exceeds fair market 
value, citing the difficulty of determining how much debt is already 
secured by the dwelling at the time of application.
    The Board implemented Section 1302 with regard to advertisements in 
its July 2008 HOEPA final rule. See 73 FR 44522 (July 30, 2008). In the 
Supplementary Information to that rule, the Board stated its intent to 
implement the application disclosure portion of the Bankruptcy Act 
during its forthcoming review of closed-end and HELOC disclosures under 
TILA.
    Proposed Sec.  226.5b(c)(8) would implement provisions of the 
Bankruptcy Act by requiring creditors to include in the table required 
under proposed Sec.  226.5b(b) as part of the early HELOC disclosures 
(1) a statement that the interest on the portion of the credit 
extension that is greater than the fair market value of the dwelling 
may not be tax deductible for Federal income tax purposes and (2) a 
statement that the consumer should consult a tax advisor for further 
information on tax deductibility.
    The Board proposes to require creditors offering HELOCs to provide 
this disclosure to all HELOC applicants as part of the early HELOC 
disclosures, even if the particular HELOC plan offered to the consumer 
is not designed to allow the consumer to take extensions of credit that 
exceed the fair market value of the dwelling. The Board recognizes that 
HELOCs by their very nature carry a possibility that subsequent draws 
may exceed the fair market value of the dwelling. First, the market 
value of a dwelling may decline during the term of a HELOC plan, 
leaving less equity available. Second, quite often, consumers who apply 
for HELOCs already have first-lien mortgages; the amount of equity that 
a consumer may be able to utilize is limited, in part, by how much the 
consumer owes on the first mortgage.

[[Page 43463]]

For these reasons, the likelihood is higher with HELOCs than closed-end 
home-equity loans that the consumer may exceed the fair market value of 
the dwelling with subsequent draws.
5b(c)(9) Payment Terms
    Current Sec.  226.5b(d)(5), which implements TILA Section 
127A(a)(8), provides that a creditor must disclose as part of the 
application disclosures the payment terms applicable to the plan, and 
sets forth specific information that must be included in this 
disclosure. As discussed below, the Board proposes to move the 
provisions in current Sec.  226.5b(d)(5) to proposed Sec.  226.5b(c)(9) 
and to revise them.
    Format for identifying payment terms applicable to the draw period 
and the repayment period. Current comment 5b-4 provides that a creditor 
must disclose information relating to the repayment period, as well as 
the draw period, when providing the application disclosures. Thus, for 
example, a creditor must provide payment information about any 
repayment phase as well as about the draw period in the application 
disclosures, as required by current Sec.  226.5b(d)(5). The Board 
proposes to move the relevant part of this comment to proposed 5b(c)-3, 
and to make technical edits to the comment. Under the proposal, a 
creditor would be required to disclose in the table as part of the 
early HELOC disclosures information relating to any repayment period, 
as well as the draw period.
    In addition, the Board proposes to require that when disclosing 
payment terms in the table, a creditor must distinguish payment terms 
applicable to the draw period from payment terms applicable to the 
repayment period, by using the heading ``Borrowing Period'' for the 
draw period and ``Repayment Period'' for the repayment period, in a 
format substantially similar to the format used in any of the 
applicable tables in proposed Samples G-14(C) and G-14(E) in Appendix 
G. 15 U.S.C. 1604(a); see proposed Sec.  226.5b(c)(9). Thus, under the 
proposal, a creditor would be required to include the heading 
``Borrowing Period'' each place payment information about the draw 
period is included in the table, and the heading ``Repayment Period'' 
each place payment information about the repayment period is included 
in the table, in a format substantially similar to the format used in 
any of the applicable tables found in G-14(C) and G-14(E) in Appendix 
G. The Board proposes this rule pursuant to its authority in TILA 
Section 105(a) to make adjustments and exceptions to the requirements 
in TILA to effectuate the statute's purposes, which include 
facilitating consumers' ability to compare credit terms and helping 
consumers avoid the uniformed use of credit. See 15 U.S.C. 1601(a), 
1604(a).
    In consumer testing conducted by the Board on HELOC disclosures, 
the Board tested application disclosures in a narrative form, designed 
to simulate those currently in use. When reviewing these application 
disclosures, many participants had difficulty understanding how the 
draw period differs from the repayment period, and what impact these 
distinctions have on required monthly payments. In the consumer 
testing, the Board tested versions of the early HELOC disclosures where 
the heading ``Borrowing Period'' was included each place payment 
information about the draw period was presented in the table and the 
heading ``Repayment Period'' was included each place payment 
information about the repayment period was presented in the table. In 
reviewing these versions of the early HELOC disclosures, participants 
were better able to understand the differences between the draw period 
and the repayment period, and the impact these differences have on 
required monthly payments. Thus, the Board proposes to require that a 
creditor use the headings ``Borrowing Period'' and ``Repayment Period'' 
in the table to distinguish payment terms applicable to the draw period 
from payment terms applicable to the repayment period, respectively, in 
a format substantially similar to the format used in any of the 
applicable tables in proposed Samples G-14(C) and 14(E) in Appendix G.
Paragraph 5b(c)(9)(i)
    Current Sec.  226.5b(d)(5)(i), which implements TILA Section 
127A(a)(8)(B), requires a creditor to disclose as part of the 
application disclosures the length of the draw period and the length of 
any repayment period. 15 U.S.C. 1637a(a)(8)(B). Current comment 
5b(d)(5)(i)-1 provides that the combined length of the draw period and 
any repayment period need not be disclosed in the application 
disclosures.
    For the reasons described below, pursuant to its authority in TILA 
Section 127A(a)(14) to require additional disclosures for HELOC plans, 
the Board proposes in new Sec.  226.5b(c)(9)(i) to require that a 
creditor disclose in the table as part of the early HELOC disclosures 
the length of the plan, as well as the length of the draw period and 
the length of any repayment period. 15 U.S.C. 1637a(a)(14). In 
addition, under the proposal, if there is no repayment period on the 
HELOC plan, a creditor would be required to disclose in the table as 
part of the early HELOC disclosures a statement that after the draw 
period ends, the consumer must repay the remaining balance in full.
    Length of the HELOC plan is definite. Proposed Sec.  
226.5b(c)(9)(i) would require that when the length of the plan is 
definite, a creditor, when disclosing the length of the plan, the 
length of the draw period and the length of any repayment period in the 
table, must make those disclosures using a format substantially similar 
to the format used in any of the applicable tables found in proposed 
Samples G-14(C) and G-14(D) in Appendix G. Proposed comment 
5b(c)(9)(i)-1.i would provide that if a maturity date is set forth for 
the HELOC plan, the length of the plan, the length of the draw period 
and the length of any repayment period are definite. This proposed 
comment also states that the length of the plan must be based on the 
maturity date of the plan, regardless of whether the outstanding 
balance may be paid off before or after the maturity date. For example, 
assume that a plan has a draw period of 10 years and a maturity date of 
20 years. If the outstanding balance on the plan is not paid off by the 
maturity date, the creditor could extend the maturity date of the plan 
and require the consumer to make minimum payments until the outstanding 
balance is repaid. In this example, the proposed comment clarifies that 
the creditor must disclose the length of the HELOC plan as 20 years, 
the length of the draw period as 10 years and the length of the 
repayment period as 10 years.
    In consumer testing conducted by the Board on HELOC disclosures, 
the Board tested application disclosures in a narrative form, designed 
to simulate application disclosures currently in use. In these versions 
of the application disclosures, the length of the draw period and the 
length of the repayment period were disclosed, but the total length of 
the plan was not disclosed. When reviewing these application 
disclosures, many participants had difficulty understanding the timing 
of the draw and repayment periods. For example, several participants 
incorrectly thought that the two periods ran concurrently, or that the 
repayment period began as soon as money was borrowed.
    In the consumer testing, the Board also tested versions of the 
early HELOC disclosures developed by the Board where the length of the 
plan was 20 years, and the length of the draw and repayment periods was 
10 years each. In these tested versions of the early HELOC disclosures, 
the length of the plan was disclosed as 20 years, along with a

[[Page 43464]]

statement indicating that this period is divided into two periods. The 
length of the draw period was then disclosed as ``Years (1-10)'' and 
the length of the repayment period was disclosed as ``Years (11-20),'' 
to indicate that those periods would run consecutively and not 
concurrently. In addition, the length of the draw period and the length 
of the repayment period were included as part of the headings 
``Borrowing Period'' (for the draw period) and ``Repayment Period'' 
(for the repayment period), respectively, each time those headings were 
used. In the consumer testing, the Board found that including the 
length of the plan in the table and using the above format for 
presenting the length of the plan, the length of the draw period and 
the length of the repayment period effectively helped participants 
understand the timing of the two periods.
    Thus, the Board proposes to require creditors to disclose the 
length of the plan in the table, along with the length of the draw 
period and the length of any repayment period. In addition, as 
explained in proposed comment 5b(c)(9)(i)-3, the Board proposes to 
require that creditors use the above format in presenting the length of 
the plan, the length of the draw period and the length of the repayment 
period in the table for HELOC plans that have a definite length and 
have a draw period and a repayment period, as shown in proposed Sample 
G-14(C) in Appendix G. Proposed comment 5b(c)(9)(i)-3 also specifies 
that proposed Sample G-14(D) in Appendix G shows the format a creditor 
must use to disclose the length of the plan and the length of the draw 
period for HELOC plans that have a definite length and have a draw 
period but no repayment period.
    Length of plan and length of repayment period cannot be determined 
at the time the early HELOC disclosures must be given. Current comment 
5b(d)(5)(i)-1 provides that if the length of the repayment period 
cannot be determined because, for example, it depends on the balance 
outstanding at the beginning of the repayment period, the creditor must 
disclose in the application disclosures that the length of the 
repayment period is determined by the size of the balance. The Board 
proposes to move this provision in current comment 5b(d)(5)(i)-1 to 
proposed comment 5b(c)(9)(i)-1.ii, and to revise it.
    Specifically, proposed comment 5b(c)(9)(i)-1.ii addresses HELOC 
plans that do not have a maturity date, and for which the length of the 
plan and the length of the repayment period cannot be determined at the 
time the early HELOC disclosures must be given because the repayment 
period depends on the balance outstanding at the beginning of the 
repayment period or the balance at the time of the last advance during 
the draw period. For these plans, the creditor would be required to 
state that the length of the plan and the length of the repayment 
period are determined by the size of the balance outstanding at the 
beginning of the repayment period or the balance at the time of the 
last advance during the draw period, as applicable.
    Proposed comment 5b(c)(9)(i)-1.ii provides two illustrations of 
this rule. The first would assume that the plan has no maturity date, 
the draw period is 10 years, and the minimum payment during the 
repayment period is 1.5 percent of the outstanding balance at the time 
of the last advance during the draw period. Under proposed comment 
5b(c)(9)(i)-1.ii.A, a creditor must disclose that the length of the 
plan and the length of the repayment period are determined by the size 
of the outstanding balance at the time of the last advance during the 
draw period.
    The second illustration would assume that the length of the draw 
period is 10 years and the length of the repayment period will be 15 
years if the balance at the beginning of the repayment period is less 
than $20,000, and 30 years if the balance is $20,000 or more. Under 
proposed comment 5b(c)(9)(i)-1.ii.B, a creditor must disclose that the 
length of the plan will be 25 or 40 years depending on the outstanding 
balance at the beginning of the repayment period. In addition, the 
creditor must disclose that the repayment period will be 15 years if 
the balance is less than $20,000, and 30 years if the balance is 
$20,000 or more. This proposed comment provides that a creditor must 
not simply disclose that the repayment period is determined by the size 
of the balance. Guidance on how to disclose the information in this 
illustration is found in proposed Sample G-14(E) in Appendix G.
    The Board requests comment on whether additional guidance is needed 
on how to disclose the length of the HELOC plan and the length of the 
repayment period in the table where the plan does not have a maturity 
date and the length of the repayment period cannot be determined at the 
time the early HELOC disclosures must be given.
    Length of draw period is indefinite. Current comment 5b(d)(5)(i)-1 
provides that if the length of the plan is indefinite (for example, 
because there is no time limit on the period during which the consumer 
can take advances), the creditor must state that fact in the 
application disclosures when disclosing the length of the draw period. 
The Board proposes to move this provision from current comment 
5b(d)(5)(i)-1 to proposed comment 5b(d)(9)(i)-1.iii. Thus, under the 
proposal, a creditor would be required to make this disclosure in the 
table as part of the early HELOC disclosures, to satisfy the 
requirement in proposed Sec.  226.5b(c)(9)(i) to disclose the length of 
the plan and the length of the draw period. The Board requests comment 
on whether additional guidance is needed on how to disclose the length 
of the plan and the length of draw period in the table when the length 
of the draw period is indefinite.
    Length of the plan and length of the draw period are the same. For 
some HELOC plans, the length of the plan and the length of the draw 
period are the same because the HELOC plan does not have a repayment 
period. For example, some HELOC plans offer a payment plan where a 
consumer would only be required to pay interest during the draw period. 
At the end of the draw period, the consumer would be required to pay 
the principal balance as a balloon payment. Proposed comment 
5b(c)(9)(i)-4 provides that if the length of the plan and the length of 
the draw period are the same, a creditor will be deemed to satisfy the 
requirement to disclose the length of plan by disclosing the length of 
the draw period.
    No repayment period on the HELOC plan. Under proposed Sec.  
226.5b(c)(9)(i), if there is no repayment period on the HELOC plan, a 
creditor would be required to include a statement in the table as part 
of the early HELOC disclosures that after the draw period ends, the 
consumer must repay the remaining balance in full. Pursuant to its 
authority under TILA Section 127A(a)(14) to require additional 
disclosures for HELOC plans, the Board proposes to add this disclosure 
to make more clear to consumers that there is no repayment period on 
the HELOC being offered. 15 U.S.C. 1637a(a)(14).
    Draw period renewal provisions. Current comment 5b(d)(5)(i)-2 
provides that if, under the credit agreement, a creditor retains the 
right to review a line at the end of the draw period and determine 
whether to renew or extend the draw period of the plan, the possibility 
of renewal or extension--regardless of its likelihood--should be 
ignored for the application disclosures. For example, if an agreement 
provides that the draw period is five years and that the creditor may 
renew the draw period for an additional five years, the possibility of 
renewal should be ignored and the draw period should be

[[Page 43465]]

considered five years. The Board proposes to move this comment to 
proposed comment 5b(c)(9)(i)-2, and apply it to the early HELOC 
disclosures.
Paragraphs 5b(c)(9)(ii) and (c)(9)(iii)
    Current Sec.  226.5b(d)(5)(ii), which implements TILA Section 
127A(a)(8)(C) and (a)(10), provides that a creditor must disclose as 
part of the application disclosures an explanation of how the minimum 
periodic payments will be determined and the timing of the payments 
(such as whether the payments will be due monthly, quarterly or on some 
other periodic basis). 15 U.S.C. 1637a(a)(8)(C) and (a)(10). In 
addition, current Sec.  226.5b(d)(5)(ii) provides that if paying only 
the minimum periodic payments may not repay any of the principal or may 
repay less than the outstanding balance, the creditor must disclose a 
statement of this fact, as well as a statement that a balloon payment 
may result. Footnote 10b explains that a balloon payment results if 
paying the minimum periodic payments does not fully amortize the 
outstanding balance by a specified date or time, and the consumer must 
repay the entire outstanding balance at that time.
    Under current Sec.  226.5b(d)(5)(iii), which implements TILA 
Section 127A(a)(9), a creditor must disclose as part of the application 
disclosures an example, based on a $10,000 outstanding balance and a 
recent APR, of the minimum periodic payments, the amount of any balloon 
payment, and the time it would take to repay the $10,000 outstanding 
balance if the consumer made only those payments and obtained no 
additional extensions of credit. 15 U.S.C. 1637a(a)(9). In addition, 
current Sec.  226.5b(d)(12)(x), which implements TILA Section 
127A(a)(2)(H), provides that for each payment option offered on a 
variable-rate HELOC plan, a creditor must disclose the minimum periodic 
payments that would be required if the maximum APR were in effect for a 
$10,000 outstanding balance. 15 U.S.C. 1637a(a)(2)(H).
    As discussed in more detail below, the Board proposes to move the 
provisions in Sec.  226.5b(d)(5)(ii) to proposed Sec.  226.5b(c)(9)(ii) 
and to revise them. The Board also proposes to move the provisions in 
Sec.  226.5b(d)(5)(iii) and (d)(12)(x) to proposed Sec.  
226.5b(c)(9)(iii) and to revise them. In addition, the Board proposes 
to move the contents of footnote 10b to proposed comment 5b(c)(9)-1.
    Multiple payment plans. In some cases, creditors may offer more 
than one payment option on a HELOC plan. For example, a creditor may 
provide the following two payment options during the draw period: (1) 
minimum monthly payments during the draw period will cover only 
interest that accrues each month and will not pay down any of the 
principal balance; or (2) minimum monthly payments during the draw 
period will cover interest that accrues each month plus 1.5 percent of 
the principle balance each month. The Board understands that creditors 
typically do not require a consumer to choose the payment plan he or 
she wants when applying for a HELOC plan, but instead require the 
consumer to choose a payment plan either prior to or at account 
opening.
    Under current comment 5b(a)(1)-4, a creditor may provide a single 
application disclosure form for all of its HELOC plans, as long as the 
disclosure describes all aspects of the plans. For example, if the 
creditor offers several payment options, all such options generally 
must be disclosed, including fixed-rate and -term payment features, as 
discussed in more detail above in the section-by-section analysis to 
Sec.  226.5b(c). See also current comment 5b(d)(5)(ii)-2. 
Alternatively, a creditor has the option of providing separate 
disclosure forms for multiple options or variations in features. For 
example, a creditor that offers two payment options for the draw period 
may prepare separate disclosure forms for the two payment options. A 
creditor using this alternative, however, must include a statement on 
each application disclosure form that the consumer should ask about the 
creditor's other HELOC programs. A creditor that receives a request for 
information about other available programs prior to account opening 
must provide the additional disclosures as soon as reasonably possible.
    As discussed in the section-by-section analysis to proposed Sec.  
226.5b(b)(2), the Board proposes to delete current comment 5b(a)(1)-4 
as obsolete. Under the proposal, a creditor would not be allowed to 
disclose more than two payment options offered on the HELOC in the 
table. Specifically, under proposed Sec.  226.5b(c)(9)(ii)(B), if a 
creditor only offers two payment plans (excluding fixed-rate and -term 
payment plans unless these are the only payment plans offered during 
the draw period), the creditor would be required to disclose both of 
those payment plans in the table. If a creditor offers more than two 
payment plans (excluding fixed-rate and -term payment plans unless 
these are the only payment plans offered during the draw period), the 
creditor would be allowed to disclose only two of the payment plans in 
the table. See proposed comment 5b(c)(9)(ii)-2. Proposed comment 
5b(c)(9)(ii)-2 clarifies that the following would be considered two 
payment plans: The draw period is 10 years and the consumer has the 
choice between two repayment periods--10 and 20 years. The two payment 
plans would be (1) a 10 year draw period and a 10 year repayment 
period, and (2) a 10 year draw period and a 20 year repayment period.
    The Board believes that the proposed approach of allowing only two 
payment plans to be disclosed in the table would benefit consumers by 
preventing ``information overload'' that might result if more than two 
payment options were disclosed in the table. In addition, the Board 
believes that requiring a creditor to disclose two payment plans in the 
table, instead of allowing the creditor to disclose each payment plan 
separately to the consumer, would benefit consumers by enabling 
consumers more easily to compare the two payment plans. As discussed in 
more detail below, under proposed Sec.  226.5b(c)(9)(iii), a creditor 
would be required to disclose sample payments for each payment plan 
disclosed in the table based on the assumption that the consumer 
borrows the full credit line at account opening, and does not obtain 
any additional extensions of credit. Under the proposal, if a creditor 
is disclosing two payment plans in the table, the creditor would be 
required to disclose in the table which plan results in the least 
amount of interest, and which plan results in the most amount of 
interest, based on the assumptions used to calculate the sample 
payments. See proposed Sec.  226.5b(c)(9)(iii)(C)(3). In addition, 
under the proposal, a creditor disclosing two payment plans in the 
table, one in which a balloon payment would occur and one in which it 
would not, must disclose that a balloon payment will result for the 
plan in which a balloon payment would occur and that a balloon payment 
will not result for the plan in which no balloon payment would occur. 
See proposed Sec.  226.5b(c)(9)(iii)(C)(4). In consumer testing 
conducted by the Board on HELOC disclosures, the Board tested the above 
disclosures explicitly comparing two payment plans; most participants 
responding to questions about this information indicated that they 
found this information useful.
    Proposed Sec.  226.5b(c)(9)(ii)(B) also provides that if a creditor 
offers one or more payment plans (excluding fixed-rate and -term 
payment plans unless those are the only payment plans offered during 
the draw period) where a consumer would repay all of the

[[Page 43466]]

principal by the end of the plan if the consumer makes only the minimum 
payments due during that period, the creditor would be required to 
describe one of these payment plans in the table. For example, if a 
creditor offers two payment plans where a balloon payment will result 
and one payment plan (excluding fixed-rate and -term payment plans 
unless those are the only payment plans offered during the draw period) 
where a balloon payment will not result, the creditor would be required 
to disclose in the table two payments plans, one of which must be the 
plan where a balloon payment will not result.
    In consumer testing conducted by the Board on HELOC disclosures, 
the Board tested versions of early HELOC disclosures where two payment 
plans were shown in the table--one payment plan that would result in a 
balloon payment and one payment plan that would not result in a balloon 
payment. In this consumer testing, participants were asked which of 
these payment plans they would be likely to choose if they were opening 
the HELOC plan. Most of the participants indicated that they would 
choose the payment plan without the balloon payment because, in part, 
they did not want to owe a balloon payment at the end of the plan. 
Thus, the Board believes that requiring a creditor to disclose in the 
table a payment plan where a balloon will not result (if such a plan is 
offered by the creditor) would benefit consumers by informing them that 
the creditor offers such a payment plan.
    Proposed Sec.  226.5b(c)(9)(ii)(B) also requires a creditor to 
include a statement in the table indicating that the table shows how 
the creditor determines minimum required payments for two plans offered 
by the creditor. If the creditor offers more than the two payment plans 
described in the table (other than fixed-rate and -term payment plans 
unless those are the only payment plans offered during the draw 
period), the creditor would be required to disclose that other payment 
plans are available, and that the consumer should ask the creditor for 
additional details about these other payment plans. Proposed comment 
5b(c)(9)(ii)-3 clarifies that this statement about additional payment 
plans would be required only if the creditor offers additional payment 
plans available to the consumer. If the only other payment plans 
available are employee preferred-rate plans, for example, the creditor 
would be required to provide this statement only if the consumer would 
qualify for the employee preferred-rate plan.
    Proposed comment 5b(c)(9)(ii)-5 provides guidance on how a creditor 
must provide additional information on other payment plans to a 
consumer upon the consumer's request prior to account opening. This 
proposed comment provides that if a creditor offers a payment plan 
other than the two payment plans disclosed in the table as part of the 
early HELOC disclosures (except for fixed-rate and -term payment plans 
unless those are the only payment plans offered during the draw 
period), and a consumer requests additional information about the other 
plan, the creditor must disclose an additional table under Sec.  
226.5b(b) to the consumer with the terms of the other payment plan 
described in the table. See proposed comment 5(c)(18)-2 for disclosure 
of additional information about fixed-rate and -term payment plans upon 
a consumer's request. If the creditor offers multiple payment plans 
that were not disclosed in the table as part of the early HELOC 
disclosures, the creditor would be allowed to disclose only one payment 
plan on each additional table given to the consumer. Under the 
proposal, for example, if a creditor offers two payment plans (other 
than fixed-rate and -term payment plans unless those are the only 
payment plans offered during the draw period) that were not disclosed 
in the table given as part of the early HELOC disclosures, the creditor 
would be required to provide the consumer, upon request, two additional 
tables--one table for each payment plan. A creditor that receives a 
request for information about other available payment plans prior to 
account opening would be required to provide the additional information 
as soon as reasonably possible after the request. See proposed comment 
5b(c)-2.
    The Board believes that this proposed approach of only allowing two 
payment plans to be disclosed in the table, and allowing the consumer 
easily and quickly to receive information about additional payment 
plans upon request, strikes the proper balance between ensuring that 
consumers are adequately informed about the payment plans that are 
offered on the HELOC plan and preventing ``information overload'' that 
might result if all payment plans were disclosed in the table. The 
Board solicits comment on the proposed approach.
    Minimum payment requirements. As discussed above, current Sec.  
226.5b(d)(5)(ii) provides that a creditor must disclose as part of the 
application disclosures an explanation of how the minimum periodic 
payment will be determined and the timing of the payments (such as 
whether the payments will be due monthly, quarterly or on some other 
periodic basis). The Board proposes to move the provisions in Sec.  
226.5b(d)(5)(ii) to proposed Sec.  226.5b(c)(9)(ii) and to revise them. 
Specifically, proposed Sec.  226.5b(c)(9)(ii)(A) provides that if a 
creditor offers to the consumer only one payment plan (except for 
fixed-rate and -term payment plans unless those are the only payment 
plans offered during the draw period), the creditor must disclose in 
the table an explanation of how the minimum periodic payment will be 
determined and the timing of the payments. Proposed Sec.  
226.5b(c)(9)(ii)(B) provides that a creditor disclosing two payment 
plans in the table would be required to provide an explanation of how 
the minimum payment will be determined for both payment plans and the 
timing of the payments.
    Current comment 5b(d)(5)(ii)-1 provides that the disclosure of how 
the minimum periodic payment is determined need describe only the 
principal and interest components of the payment. A creditor, at its 
option, may disclose other charges that may be a part of the payment, 
as well as the balance computation method. The Board proposes to move 
this comment to proposed comment 5b(c)(9)(ii)-1 and revise it. 
Specifically, proposed comment 5b(c)(9)(ii)-1 provides that the 
disclosure of how the minimum periodic payment is determined in the 
early HELOC disclosures table must describe only the principal and 
interest components of the payment.
    Unlike current comment 5b(d)(5)(ii)-1, however, proposed comment 
5b(c)(9)(ii)-1 would not allow a creditor to disclose in the table 
other charges that may be a part of the payment or the balance 
computation method. In addition, under proposed comment 5b(c)(9)(ii)-1, 
a creditor would not be allowed to disclose in the table a description 
of any floor payment amount, where the payment will not go below that 
amount. The Board believes that allowing charges that may be part of 
the payment (other than principal and interest components), the balance 
computation method, and any payment floor amount to be disclosed in the 
table might create ``information overload'' for consumers. The Board 
believes that the proposed approach to allow creditors to disclose 
information only about the principle and interest components of the 
payment in the table strikes the proper balance between informing 
consumers about how minimum periodic payments will be determined, and 
preventing the ``information overload'' that may result if other 
details were included. The concern about ``information overload'' here 
is that

[[Page 43467]]

consumers will either not read the disclosure or not understand or 
retain the information they do read.
    Payment examples. Current Sec.  226.5b(d)(5)(iii) provides that a 
creditor must disclose as part of the application disclosures an 
example, based on a $10,000 outstanding balance and a recent APR, 
showing the minimum periodic payments, the amount of any balloon 
payment, and the time it would take to repay the $10,000 outstanding 
balance if the consumer made only those payments and obtained no 
additional extensions of credit. 15 U.S.C. 1637a(a)(9). To fulfill this 
disclosure requirement, a creditor must disclose the number and amount 
of the minimum periodic payments and the amount of any balloon payment, 
assuming the consumer borrows $10,000 at the beginning of the draw 
period at a recent APR and the outstanding balance is reduced according 
to the terms of the plan. A creditor must assume no additional advances 
are taken at any time, including at the beginning of any repayment 
period. See current comment 5b(d)(5)(iii)-3.
    A creditor must disclose separate hypothetical payments (or ranges 
of payments) for the draw period and the repayment period, if minimum 
periodic payments are calculated differently for the two periods. See 
current comment 5b(d)(5)(iii)-3. In this case, the highest payment in 
the range of payments for the draw period would be based on a $10,000 
balance. The highest payment in the range of payment for the repayment 
period would be based on the outstanding balance at the beginning of 
the repayment period, which is calculated on the assumptions that the 
consumer borrows $10,000 at the beginning of the draw period, the 
consumer makes only minimum payments during the draw period, and the 
APR does not change during the draw period. Footnote 10c and comment 
5b(d)(5)(iii)-1 provide guidance on selecting a recent APR to calculate 
the hypothetical payment schedule under current Sec.  
226.5b(d)(5)(iii). In disclosing the hypothetical payment schedule, if 
the amount of the hypothetical payments may vary within the draw 
period, or any repayment period, a creditor may disclose the 
hypothetical payments as a range of payments. See current Home Equity 
Samples G-14A and G-14B in Appendix G.
    Under current comment 5b(d)(5)(iii)-2, a creditor may show a 
hypothetical payment schedule either for each payment plan disclosed in 
the application disclosures, or for representative payment plans. This 
comment also provides guidance how a creditor should choose 
representative payment plans. Current Home Equity Samples G-14A and G-
14B, and Home Equity Model Clauses G-15 in Appendix G provide model 
language for how to disclose the hypothetical payment schedule required 
by current Sec.  226.5b(d)(5)(iii).
    Current Sec.  226.5b(d)(12)(x) provides that for variable-rate 
HELOC plans, a creditor must disclose, as part of the application 
disclosures for each payment option offered on the HELOC, the minimum 
periodic payment that would be required if the maximum APR were in 
effect for a $10,000 outstanding balance. 15 U.S.C. Unlike the payment 
examples required under current Sec.  226.5b(d)(5)(iii) for a recent 
rate, the payment examples required under current Sec.  
226.5b(d)(12)(x) for the maximum rate do not require the creditor to 
disclose a hypothetical payment schedule based on the maximum APR. 
Instead, under current Sec.  226.5b(d)(12)(x), a creditor is required 
only to show the minimum required payments if the consumer had a 
$10,000 balance during the draw period at the maximum APR, and the 
minimum required payments if the consumer had a $10,000 balance at the 
beginning of the repayment period at the maximum APR, assuming the 
minimum required payments are calculated differently in the two 
periods. (If minimum required payments are calculated the same in the 
two periods, only one payment example need be shown.) See comment 
5b(d)(12)(x)-1. Even if a consumer might owe a balloon payment at the 
end of the HELOC, a creditor would not need to disclose the amount of 
the balloon payment based on the maximum APR. As with the payment 
examples required under current Sec.  226.5b(d)(5)(iii) that are based 
on a recent APR, a creditor may provide the hypothetical payments based 
on the maximum APR either for each payment plan disclosed in the 
application disclosures, or for representative payment plans. See 
current comment 5b(d)(12)(x)-1. Current Home Equity Samples G-14A and 
G-14B and Home Equity Model Clauses G-15 in Appendix G provide model 
language for how to disclose the payment examples required by current 
Sec.  226.5b(d)(12)(x).
    The Board proposes to move the provisions on payment examples in 
Sec.  226.5b(d)(5)(iii) and (d)(12)(x) to proposed Sec.  
226.5b(c)(9)(iii) and to revise them. The Board proposes to streamline 
the payment examples for the current APR and the maximum APR so they 
are calculated in a consistent manner. The Board proposes this rule 
pursuant to its authority in TILA Section 105(a) to make adjustments 
and exceptions to the requirements in TILA to effectuate the statute's 
purposes, which include facilitating consumers' ability to compare 
credit terms and helping consumers avoid the uniformed use of credit. 
See 15 U.S.C. 1601(a), 1604(a). Under proposed Sec.  
226.5b(c)(9)(iii)(B), a creditor would be required to provide payment 
examples for the current and maximum APR for each payment plan 
disclosed in the table. These payment examples would show the first 
minimum periodic payment for the draw period and the first minimum 
periodic payment for any repayment period, and the balance outstanding 
at the beginning of any repayment period, based on the following 
assumptions: (1) The consumer borrows the maximum credit line available 
(as disclosed in the early HELOC disclosures) at account opening, and 
does not obtain any additional extensions of credit; (2) the consumer 
makes only minimum periodic payments during the draw period and any 
repayment period; and (3) the APRs used to calculate the sample 
payments remain the same during the draw period and any repayment 
period. Unlike the payment examples in current Sec.  226.5b(d)(5)(iii), 
which must be based on a recent APR, proposed Sec.  226.5b(c)(9)(iii) 
would require payment examples based on the maximum APR possible for 
the plan, as well as the current APR offered to the consumer on the 
HELOC plan. Under the proposal, if an introductory APR applies, a 
creditor would be required to use the APR that would otherwise apply to 
the plan after the introductory APR expires, as described in proposed 
Sec.  226.5b(c)(10)(ii). Thus, the Board proposes to delete the 
contents of footnote 10c and guidance in current 5b(d)(5)(iii)-1 that 
relate to selecting a recent APR.
    Proposed Sec.  226.5b(c)(9)(iii) also requires additional 
disclosures as part of the proposed payment examples. Specifically, a 
creditor would be required to disclose the following information: (1) A 
statement that the payment examples show the first periodic payments at 
the current and maximum APRs if the consumer borrows the maximum credit 
available when the account is opened and does not borrow any more 
money; (2) a statement that the payment examples are not the consumer's 
actual payments and that the actual payments each period will depend on 
the amount that the consumer has borrowed and the interest rate that 
period; (3) if a creditor is disclosing two payment plans in the

[[Page 43468]]

table, the creditor must identify which plan results in the least 
amount of interest, and which plan results in the most amount of 
interest, based on the assumptions used to calculate the payment 
examples described above; and (4) if a consumer may pay a balloon 
payment under a payment plan disclosed in the table, the creditor must 
disclose that fact, and the amount of the balloon payment based on the 
assumptions used to calculate the payment examples described above. If 
a creditor is disclosing two payment plans in the table, one in which a 
balloon payment would occur and one in which it would not, a creditor 
must disclose that a balloon payment will not result for the plan in 
which no balloon payment would occur. The Board also proposes in new 
Sec.  226.5b(c)(9)(iii)(D) to require a creditor to provide the new 
payment examples and the other related information in a tabular format 
substantially similar to the format used in any of the applicable 
tables found in Samples G-14(C), G-14(D) and G-14(E) in Appendix G.
    As noted, the proposed payment examples for the current and the 
maximum APRs would be based on the assumption that the consumer borrows 
the maximum credit available (as disclosed in the early HELOC 
disclosures) at account opening, and does not obtain any additional 
extensions of credit. The Board proposes not to use $10,000 as the 
hypothetical balance for calculating the payment examples because of 
concerns that using that balance makes the sample payments 
unrealistically low for most consumers. 15 U.S.C. 1604(a). Consumers 
typically may borrow more than $10,000 on their HELOC plans. To 
illustrate, the Board's 2007 Survey of Consumer Finances data indicates 
that the median outstanding balance on HELOCs (for families that had a 
balance at the time of the interview) was $24,000.\18\
---------------------------------------------------------------------------

    \18\ Brian Bucks, et al., Changes in U.S. Family Finances from 
2004 to 2007: Evidence from the Survey of Consumer Finances, Federal 
Reserve Bulletin (February 2009).
---------------------------------------------------------------------------

    The Board believes that the proposed payment examples based on the 
maximum credit available for the current and maximum APRs will provide 
more useful information to consumers than the existing $10,000 example. 
Disclosing the first required minimum payment for the draw period if 
the consumer borrows the maximum credit available at the current APR 
would provide the consumer with an estimate of the actual current 
payment if the consumer borrows the maximum credit available at account 
opening. Disclosing the first required minimum payment for the draw 
period if the consumer borrowers the maximum credit available at the 
maximum APR would show the consumer a ``worst case scenario'' payment. 
In consumer testing conducted by the Board on HELOC disclosures, the 
Board tested versions of the early HELOC disclosures that based the 
payment examples on a $10,000 hypothetical balance, and other versions 
of the disclosures that based the payment examples on the maximum 
credit line. In this testing, a number of participants preferred 
payment examples based on the maximum credit line, indicating that they 
would like to know what would be the highest payment they would have to 
make if they borrowed the entire credit limit.
    The proposed payment examples also would show the first minimum 
periodic payment during the repayment period for both the current and 
maximum APRs. These payment examples would be based on the balance 
outstanding at the beginning of the repayment period, assuming that the 
consumer borrows the full credit line at the beginning of draw period, 
the consumer makes only minimum required payments during the draw 
period and borrows no additional money, and the APR does change during 
the draw period. Under the proposal, the amount of the balance used to 
calculate the first minimum periodic payment during the repayment 
period would be disclosed in the table. The Board recognizes that the 
first payments during the repayment period may be less useful to the 
consumer than the first payments during the draw period, given that the 
first payments during the repayment periods are based on the 
assumptions that the consumer will not take any additional advances 
during the draw period and the APR will not change during the draw 
period. Nonetheless, for some plans the required minimum periodic 
payments in the repayment period may be considerably larger than the 
required minimum periodic payments during the draw period. For example, 
some HELOCs offer a payment plan in which the minimum periodic payments 
during the draw period cover only interest and do not pay down any of 
the principal during the draw period, but during the repayment period, 
minimum periodic payments cover interest and at least some of the 
principal balance. In these plans, the required minimum periodic 
payments during the repayment period could be considerably larger than 
the minimum periodic payments during the draw period. The Board 
believes that showing the first required minimum periodic payment for 
the repayment period will better protect consumers by putting them on 
notice that their payments for the repayment period may be much larger 
than the minimum periodic payments for the draw period.
    Unlike current Sec.  226.5b(d)(5)(iii), proposed Sec.  
226.5b(c)(9)(iii) would not require a creditor to disclose a full 
hypothetical payment schedule in the early HELOC disclosures. Instead, 
proposed Sec.  226.5b(c)(9)(iii) requires a creditor to disclose only 
the first minimum periodic payment during the draw period and the first 
minimum periodic payment during any repayment period. The Board 
proposes to delete the requirement to provide the number of 
hypothetical payments and the range of those payments during the draw 
period and any repayment period because of concerns that including that 
information in the table may confuse consumers and detract from other 
important information. In the consumer testing conducted by the Board 
on HELOC disclosures, the Board tested versions of the early HELOC 
disclosures that showed a range of payments for the draw period and the 
repayment period. In this testing, many participants did not understand 
why the payments during the draw period and the repayment period were 
shown as a range. In addition, participants spent considerable time 
attempting to understand the range of payments at the expense of not 
focusing on other pertinent information on the disclosure forms.
    In addition, the Board believes that showing only the first 
payments for the draw period and the repayment period sufficiently 
informs consumers about how large the payments could be under the 
payment plans. If the range of payments were shown for the draw period, 
the first payment for the draw period would be the highest payment in 
that range. Likewise, if a range of payments were shown for the 
repayment period, the first payment for the repayment period would be 
the highest payment in the range.
    Current Sec.  226.5(d)(5)(iii) also requires that a creditor 
disclose the time it would take to repay a $10,000 advance that is 
taken at the beginning of the draw period at a recent rate and is 
reduced according to the terms of the plan. The Board proposes not to 
include the ``time to repay'' disclosure in the early HELOC 
disclosures. The Board proposes this rule pursuant to its authority in 
TILA Section 105(a) to make adjustments and exceptions to the 
requirements in TILA to effectuate the statute's purposes, which 
include facilitating consumers'

[[Page 43469]]

ability to compare credit terms and helping consumers avoid the 
uninformed use of credit. See 15 U.S.C. 1601(a), 1604(a). In consumer 
testing conducted by the Board on HELOC disclosures, the Board tested 
versions of the early HELOC disclosures that contained two payment 
options. In disclosing the payment examples for each payment option, 
the forms contained a disclosure of the time it would take to repay the 
hypothetical balance if the consumer only made minimum periodic 
payments. Although a few participants cited the ``time to repay'' as a 
reason to choose one payment plan over another, the Board is concerned 
that if a creditor discloses two payment options in the table, the time 
to repay each plan would not always be an accurate measure of which 
payment plan is better for consumers. The Board believes requiring the 
``time to repay'' disclosure in the table may distract consumers from 
considering other information in the table that may be more useful in 
comparing the two payment plans--namely the disclosures of which 
payment plan results in the least amount of interest and whether a plan 
has a balloon payment.
    In addition, the Board understands that most HELOCs have a maturity 
date and a definite length for the plan. For these HELOCs, the time to 
repay the balance will be the same as the length of the plan (which 
must be disclosed in the early HELOC disclosures, see proposed Sec.  
226.5b(c)(9)(i)), unless the HELOC plan has a floor payment amount 
(which may cause the principal to be paid off earlier than the maturity 
date). Even if the plan has a floor payment amount, the length of the 
plan will inform consumers of the ``worst case scenario'' of how long 
it will take to repay the debt if only minimum periodic payments are 
made.
    Under current comments 5b(d)(5)(iii)-2 and 5b(d)(12)(x)-1, a 
creditor may show the hypothetical payment examples required to be 
disclosed under current Sec.  226.5b(d)(5)(iii) and (d)(12)(x) either 
for each payment plan disclosed in the application disclosures, or for 
representative payment plans. The Board proposes to delete these 
comments. Under proposed Sec.  226.5b(c)(9)(iii), a creditor would be 
required to disclose the proposed payment examples (as described above) 
for each payment plan disclosed in the table.
    The current model clauses for disclosing the payment examples under 
current Sec.  226.5b(d)(5)(iii) and (d)(12)(x) are contained in current 
G-15 in Appendix G. These model clauses provide this information in a 
narrative format. The Board proposes in new Sec.  226.5b(c)(9)(iii)(D) 
to require a creditor to provide the proposed payment examples and the 
other related information in a tabular format that is substantially 
similar to the format used in any of the applicable tables found in 
proposed Samples G-14(C), G-14(D) and G-14(E) in Appendix G. In the 
consumer testing conducted by the Board on HELOC disclosures, the Board 
tested versions of the early HELOC disclosures where the proposed 
payment examples and related information were presented in the tabular 
format shown in proposed Samples G-14(C), G-14(D) and G-14(E) in 
Appendix G. This testing showed that presenting this information in a 
tabular format more effectively communicated payment information to 
participants than the current narrative format.
    Current comment 5b(d)(5)(iii)-1 provides guidance to creditors on 
how to calculate the hypothetical payment schedule required to be 
disclosed under current Sec.  226.5b(d)(5)(iii). Specifically, current 
comment 5b(d)(5)(iii)-1 provides that the creditor may assume that the 
credit limit as well as the outstanding balance is $10,000. (If the 
creditor only offers lines of credit for less than $10,000, however, 
the creditor may assume an outstanding balance of $5,000 instead of 
$10,000 in making this disclosure.) The example should reflect the 
payment comprised only of principal and interest. Creditors may provide 
an additional example reflecting other charges that may be included in 
the payment, such as credit insurance premiums. Creditors may assume 
that all months have an equal number of days, that payments are 
collected in whole cents, and that payments will fall on a business day 
even though they may be due on a non-business day. For variable-rate 
plans, the example must be based on the last rate in the historical 
example table required in current Sec.  226.5b(d)(12)(xi), or a more 
recent rate. Where the last rate shown in the historical example table 
is different from the index value and margin (for example, due to a 
rate cap), creditors should calculate the rate by using the index value 
and margin. A discounted rate may not be considered a more recent rate 
in calculating this payment example for either variable- or fixed-rate 
plans.
    The Board proposes to move this comment to proposed comment 
5b(c)(9)(iii)-1 and revise it. Current guidance in comment 
5b(d)(5)(iii)-1 related to the hypothetical $10,000 balance and 
selecting a recent APR would be deleted as obsolete. Unlike current 
comment 5b(d)(5)(iii)-1, proposed comment 5b(d)(9)(iii)-1 would not 
allow a creditor to provide additional payment examples reflecting 
other charges that may be included in the payment, such as credit 
insurance premiums, because of concerns that allowing these additional 
payment examples would be more information than many consumers can 
effectively process and may discourage consumers from reviewing the 
payment examples at all.
    The Board also proposes to include in proposed comment 
5b(c)(9)(iii)-1 additional guidance for calculating and disclosing the 
proposed payment examples in Sec.  226.5b(c)(9)(iii). Specifically, 
proposed comment 5b(c)(9)(iii)-1 provides that in calculating the 
payment examples, a creditor must account for any significant terms 
related to each payment plan, such as payment caps or payment floor 
amounts. A creditor must take payment floor amounts into account when 
calculating the payment examples even though the creditor is not 
permitted to disclose that payment floor in the table when describing 
how minimum payments will be calculated. See proposed comment 
5b(c)(9)(ii)-1. For example, assume that under a payment plan, the 
monthly payment for the draw period will be calculated as the interest 
accrued during that month, or $50, whichever is greater. In the early 
HELOC disclosures table, a creditor would be required to disclose that 
the minimum monthly payment during the draw period only covers 
interest. The creditor would not be allowed to disclose the payment 
floor of $50 in the table as part of the early HELOC disclosures. 
Nonetheless, the creditor would be required to take into account this 
$50 payment floor in calculating the disclosures shown as part of the 
payment examples.
    In disclosing the payment examples, a creditor would be required to 
assume that the consumer borrows the full credit line (as disclosed in 
the early HELOC disclosures) at the beginning of the draw period and 
that this advance is reduced according to the terms of the plan. The 
proposed comment provides that a creditor must not assume that an 
additional advance is taken at any time, including at the beginning of 
any repayment period. The examples also would be required to reflect 
the payment comprised only of principal and interest. The proposed 
sample payments in the table showing the first minimum periodic payment 
for the draw period and any repayment period, as well as the balance 
outstanding at the beginning of any repayment period, must be rounded 
to the nearest whole

[[Page 43470]]

dollar. The proposed comment provides that creditors may assume that 
all months have an equal number of days, that payments are collected in 
whole cents, and that payments will fall on a business day even though 
they may be due on a non-business day. A creditor would be required to 
assume that the APR used to calculate each payment example required by 
Sec.  226.5b(c)(9)(iii) would remain the same during the draw period 
and any repayment period as specified in proposed Sec.  
226.5b(c)(9)(iii)(A)(3) even if that APR is a variable rate under the 
plan.
    Balloon payments. Currently, if a balloon payment may be paid by 
the consumer under a payment plan, creditors are required to make two 
disclosures relating to the balloon payment.
    First, current Sec.  226.5b(d)(5)(ii), which implements TILA 
Section 127A(a)(10), provides that if paying only the minimum periodic 
payments may not repay any of the principal or may repay less than the 
outstanding balance, the creditor must disclose as part of the 
application disclosures a statement of this fact, as well as a 
statement that a balloon payment may result. 15 U.S.C. 1637a(a)(10). 
Footnote 10b explains that a balloon payment results if paying the 
minimum periodic payments does not fully amortize the outstanding 
balance by a specified date or time, and the consumer must repay the 
entire outstanding balance at such time. Current comment 5b(d)(5)(ii)-3 
provides guidance about disclosing balloon payments in the application 
disclosures. This comment provides that in programs where the 
occurrence of a balloon payment is possible, a creditor must disclose 
the possibility of a balloon payment even if such a payment is 
uncertain or unlikely. This comment also provides that in programs 
where a balloon payment will occur, such as programs with interest-only 
payments during the draw period and no repayment period, the 
disclosures must state that a balloon payment will result. Current 
comment 5b(d)(5)(ii)-3 clarifies that in making the disclosure about a 
balloon payment as required by Sec.  226.5b(d)(5)(ii), a creditor is 
not required to use the term ``balloon payment'' and is not required to 
disclose the amount of the balloon payment. In addition, this comment 
clarifies that the balloon payment disclosure as described in Sec.  
226.5b(d)(5)(ii) does not apply in cases where repayment of the entire 
outstanding balance would occur only as a result of termination and 
acceleration, or if the final payment could not be more than twice the 
amount of other minimum payments under the plan.
    Second, as discussed above, current Sec.  226.5b(d)(5)(iii) 
requires disclosure of a hypothetical payment schedule, based on a 
$10,000 outstanding balance and a recent APR, showing the minimum 
periodic payments, the amount of any balloon payment, and the time it 
would take to repay the $10,000 outstanding balance if the consumer 
made only those payments and obtained no additional extensions of 
credit.
    1. Disclosure of balloon payments when one payment plan is 
disclosed in the early HELOC disclosures. Under the proposal, if a 
creditor is only disclosing one payment plan in the early HELOC 
disclosures and under that payment plan the consumer may pay a balloon 
payment, a creditor would be required to disclose information about the 
balloon payment twice in the table as part of the early HELOC 
disclosures: At the beginning of the information about payment terms, 
and as part of the payment examples. The Board proposes to move the 
provisions on disclosing a balloon payment in Sec.  226.5b(d)(5)(ii) to 
proposed Sec.  226.5b(c)(9)(ii)(A). Specifically, proposed Sec.  
226.5b(c)(9)(ii)(A) provides that if a creditor offers to the consumer 
only one payment plan (except for fixed-rate and -term payment plans 
unless those are the only payment plans offered during the draw period) 
and paying only the minimum periodic payments may not repay any of the 
principal or may repay less than the outstanding balance by the end of 
the HELOC plan, the creditor must disclose a statement of this fact, as 
well as a statement that a balloon payment may result. Proposed comment 
5b(c)(9)-2 explains that the row ``Balloon Payment'' in the ``Borrowing 
and Repayment Terms'' section of proposed Sample G-14(D) in Appendix G 
provides guidance on how to comply with the requirements in proposed 
Sec.  226.5b(c)(9)(ii)(A). Proposed Sec.  226.5b(c)(9)(ii)(A) also 
specifies that if a balloon payment will not result under the payment 
plan, a creditor must not disclose in the early HELOC disclosures the 
fact that a balloon payment will not result for the plan. The Board 
believes that allowing a creditor to disclose in the early HELOC 
disclosures table that a balloon payment will not result for the plan 
might create ``information overload'' for consumers and distract 
consumers from more important information in the table because 
consumers are not likely to understand a statement that ``a balloon 
payment will not apply'' without additional language defining what a 
balloon payment is, which would add complexity to the table.
    In addition, as discussed above, the Board proposes to move the 
payment examples in current Sec.  226.5b(d)(5)(iii) to proposed Sec.  
226.5b(c)(9)(iii) and revise them. Regarding disclosure of the amount 
of the balloon payment in the proposed payment examples, proposed Sec.  
226.5b(c)(9)(iii)(C)(4) provides that if a consumer may pay a balloon 
payment under a payment plan disclosed in the table, a creditor would 
be required to disclose that fact when disclosing the proposed payment 
examples, as well as disclose the amount of the balloon payment based 
on the assumptions used the calculate the payment examples as described 
in proposed Sec.  226.5b(c)(9)(iii). Proposed comment 5b(c)(9)-2 
explains that the first paragraph of the ``Sample Payments'' section of 
proposed Sample G-14(D) in Appendix G provides guidance on how to 
comply with the requirements in Sec.  226.5b(c)(9)(iii)(C)(4). 
Consistent with proposed Sec.  226.5b(c)(9)(ii)(A), proposed Sec.  
226.5b(c)(9)(iii)(C)(4) also specifies that if a creditor is disclosing 
only one payment plan in early HELOC disclosures, and a balloon payment 
will not occur for that plan, the creditor must not disclose as part of 
the payment examples that a balloon payment will not result for the 
plan.
    The Board proposes to move current comment 5b(d)(5)(ii)-3 and 
current footnote 10b, which provide guidance on disclosing balloon 
payments, to proposed comment 5b(c)(9)-1 and to revise these 
provisions. Like current footnote 10b, proposed comment 5b(c)(9)-1 
specifies that a balloon payment results if paying the minimum periodic 
payments does not fully amortize the outstanding balance by a specified 
date or time, and the consumer must repay the entire outstanding 
balance at such time. A creditor also would not need to make a 
disclosure about balloon payments if the final payment could not be 
more than twice the amount of other minimum payments under the plan. 
Consistent with current comment 5b(d)(5)(ii)-3, proposed comment 
5b(c)(9)-1 specifies that the balloon payment disclosures in proposed 
Sec.  226.5b(c)(9)(ii) and (iii) do not apply where repayment of the 
entire outstanding balance would occur only as a result of termination 
and acceleration.
    Finally, consistent with current comment 5b(d)(5)(ii)-3, proposed 
comment 5b(c)(9)-1 specifies that, in disclosing a balloon payment 
under Sec.  226.5b(c)(9)(ii) and (iii), a creditor must disclose that a 
balloon payment ``may'' result if a balloon payment under

[[Page 43471]]

a payment plan is possible, even if such a payment is uncertain or 
unlikely; a creditor must disclose a balloon payment ``will'' result if 
a balloon payment will occur under a payment plan, such as a payment 
plan with interest-only payments during the draw period and no 
repayment period.
    2. Disclosure of balloon payments when two payment plans are 
disclosed in the early HELOC disclosures. Under the proposal, a 
creditor that discloses two payment plans in the table as part of the 
early HELOC disclosures and under at least one of the plans a consumer 
may pay a balloon payment, the creditor must disclose information about 
the balloon payment three times in the table: (1) At the beginning of 
information about the payment terms on the HELOC plan; (2) with a 
discussion of how the minimum periodic payments are determined for each 
plan; and (3) with the payment examples.
    First, proposed Sec.  226.5b(c)(9)(ii)(B)(1) provides that if a 
creditor is disclosing two payment options in the table and under at 
least one of the payment plans, paying only the minimum periodic 
payments may not repay any of the principal or may repay less than the 
outstanding balance by the end of the plan, a creditor must disclose in 
the table as part of the early HELOC disclosures a statement of this 
fact, as well as a statement that a balloon payment may result. If a 
balloon payment would result under one payment plan but not both 
payment plans, the creditor must disclose that a balloon payment may 
result depending on the terms of the payment plan. If a balloon payment 
would result under both payment plans, the creditor must disclose that 
a balloon payment will result. If a balloon payment would not result 
under both payment plans, a creditor must not disclose in the early 
HELOC disclosures the fact that a balloon payment will not result for 
both plans. As noted above with respect to proposed Sec.  
226.5b(c)(9)(ii)(A), the Board believes that allowing a creditor to 
disclose in the early HELOC disclosures table that a balloon payment 
will not result for the both payment plans might create ``information 
overload'' for consumers and distract consumers from more important 
information in the table. Proposed comment 5b(c)(9)-3 explains that the 
row ``Balloon Payment'' in the ``Borrowing and Repayment Terms'' 
section of proposed Sample G-14(C) in Appendix G provides guidance on 
how to comply with the requirements in Sec.  226.5b(c)(9)(ii)(B)(1).
    Second, under proposed Sec.  226.5b(c)(9)(ii)(B)(3), for each 
payment plan described in the early HELOC disclosures for which a 
balloon payment may result (or will result as applicable), a creditor 
would be required to disclose that a balloon payment may result or will 
result, as applicable, for that plan. For example, assume a creditor 
describes two payment plans--Plan A and Plan B--in the early HELOC 
disclosures, and a balloon payment will result for both plans. Under 
the proposal, a creditor would be required to disclose that a balloon 
payment will result for Plan A and disclose that a balloon payment will 
result for Plan B. These two statements would be disclosed along with 
the information about how minimum payments would be calculated for each 
plan required under proposed Sec.  226.5b(c)(9)(ii)(B)(2). See the rows 
``Plan A'' and ``Plan B'' in the ``Payment Plans'' section of proposed 
Sample G-14(C) in Appendix G.
    If one of the plans has a balloon payment and the other does not, 
proposed Sec.  226.5b(c)(9)(ii)(B)(3) requires a creditor to disclose 
that a balloon payment will result for the plan in which a balloon 
payment will occur and that a balloon payment will not result for the 
plan in which no balloon payment would occur. If under Plan A, a 
consumer would pay a balloon payment while under Plan B a consumer 
would not pay a balloon payment, the creditor would be required to 
state that a balloon payment will result for Plan A and a statement 
that a balloon payment will not result for Plan B. Again, these two 
statements would be disclosed along with the information about how 
minimum payments would be calculated for each plan required under 
proposed Sec.  226.5b(c)(9)(ii)(B)(2). Consistent with proposed Sec.  
226.5b(c)(9)(ii)(B)(1), proposed Sec.  226.5b(c)(9)(ii)(B)(3) also 
specifies that if neither payment plan has a balloon payment, a 
creditor must not disclose the fact that a balloon payment will not 
result for the each plan.
    Third, proposed Sec.  226.5b(c)(9)(iii)(C)(4) provides that if a 
consumer may pay a balloon payment under a payment plan disclosed in 
the table, a creditor would be required to disclose that fact when 
disclosing the proposed payment examples, and disclose the amount of 
the balloon payment based on the assumptions used the calculate the 
payment examples as described in proposed Sec.  226.5b(c)(9)(iii). If 
under both Plan A and Plan B a consumer would owe a balloon payment, 
proposed Sec.  226.5b(c)(9)(ii)(B)(4) requires a creditor to disclose 
that a balloon payment will result for Plan A and disclose the amount 
of the balloon payment based on the assumptions used to calculate the 
payment examples described in proposed Sec.  226.5b(c)(9)(iii). In 
addition, a creditor would be required to disclose a balloon payment 
will result for Plan B and the amount of the balloon payment. These two 
statements would be disclosed along with the payment examples in 
proposed Sec.  226.5b(c)(9)(iii). See the ``Plan A vs. Plan B'' part of 
the ``Plan Comparison'' section of proposed Sample G-14(C) in Appendix 
G.
    If one of the plans has a balloon payment and the other does not, 
proposed Sec.  226.5b(c)(9)(iii)(C)(4) requires a creditor to disclose 
that a balloon payment will not result for the plan in which no balloon 
payment would occur. In other words, if under Plan A, a consumer would 
pay a balloon payment while under Plan B a consumer would not pay a 
balloon payment, the creditor would be required to disclose a statement 
that a balloon payment will result for Plan A and the amount of the 
balloon payment. In addition, a creditor would be required to disclose 
a statement that a balloon payment will not result for Plan B. These 
two statements would be disclosed along with the payment examples in 
proposed Sec.  226.5b(c)(9)(iii). Consistent with proposed Sec.  
226.5b(c)(9)(ii)(B)(1), proposed Sec.  226.5b(c)(9)(iii)(C)(4) also 
specifies that if neither payment plan has a balloon payment, a 
creditor must not disclose the fact that a balloon payment will not 
result for the each plan. Thus, if under both Plan A and Plan B a 
consumer would not owe a balloon payment, a creditor must not disclose 
in the early HELOC disclosures that a balloon payment would not be paid 
under either plan.
    The Board believes that the above approach of disclosing 
information about balloon payments three places in the table as part of 
the early HELOC disclosures would help consumer better understand that 
a balloon payment may be owed by the consumer at the end of HELOC plan 
if the consumer only makes minimum required payments, and reinforces 
for the consumer which payments plans carry the possibility of a 
balloon payment.
    Reverse mortgages. Current comment 5b(d)(5)(iii)-4 provides 
guidance on disclosing terms of reverse mortgages, also known as 
reverse annuity or home-equity conversion mortgages, as part of the 
application disclosures. The Board proposes to move current comment 
5b(d)(5)(iii)-4 to proposed comment 5b(d)(9)(ii)-6, and to make 
technical revisions to conform this guidance to proposed revisions in 
proposed

[[Page 43472]]

Sec.  226.5b(c). The Board requests comment on whether additional 
guidance is needed by creditors offering reverse mortgages on how to 
meet the disclosure requirements in proposed Sec.  226.5b(c).
Paragraph 5b(c)(9)(iv)
    Pursuant to its authority under TILA Section 127A(a)(14) to require 
additional disclosures with respect to HELOC plans, the Board proposes 
in new Sec.  226.5b(c)(9)(iv) to require a creditor to disclose in the 
table as part of the early HELOC disclosures a statement that the 
consumer can borrow money during the draw period. 15 U.S.C. 
1637a(a)(14). In addition, if a repayment period is provided, the 
creditor would also be required to disclose in the table a statement 
that the consumer cannot borrow money during the repayment period. 
Although creditors are not specifically required to include the above 
information as part of the application disclosures, creditors typically 
include this information in the application disclosures. The Board 
believes that consumers should be informed about when during the HELOC 
plan they can make withdrawals and when they are no longer able to 
borrow money under the plan.
Paragraph 5b(c)(9)(v)
    As discussed above, current Sec.  226.5b(d)(5)(ii) provides that a 
creditor must disclose as part of the application disclosures an 
explanation of how the minimum periodic payments will be determined and 
the timing of the payments (such as whether the payments will be due 
monthly, quarterly or on some other periodic basis). As discussed 
above, the Board proposes to move current Sec.  226.5b(d)(5)(ii) to 
proposed Sec.  226.5b(c)(9)(ii) and make revisions. Nonetheless, 
consistent with current Sec.  226.5b(d)(5)(ii), the Board proposes in 
new Sec.  226.5b(c)(9)(ii) to require that a creditor disclose in the 
table as part of the early HELOC disclosures the timing of the payments 
(such as whether the payments will be due monthly, quarterly or on some 
other periodic basis.) In addition, the Board proposes in new Sec.  
226.5b(c)(9)(v) to require a creditor to disclose in the table as part 
of the early HELOC disclosures a statement indicating whether minimum 
payments are due in the draw period and any repayment period. In 
consumer testing conducted by the Board on HELOC disclosures, the Board 
tested application disclosures in a narrative form, designed to 
simulate those currently in use. When reviewing these application 
disclosures, many participants had difficulty understanding how the 
draw period differs from the repayment period, and what impact these 
distinctions have on required monthly payments. The Board believes that 
requiring a creditor to state explicitly whether minimum payments are 
due in the draw period and any repayment period will help consumers 
better understand when minimum payments will be due under the HELOC.
5b(c)(10) Annual Percentage Rate
    TILA Section 127A(a)(1) provides that a creditor must disclose as 
part of the application disclosures each APR imposed in connection with 
the HELOC plan. 15 U.S.C. 1637a(a)(1). Regulation Z currently 
interprets TILA Section 127A(a)(1) to mean that for fixed-rate payment 
plans, a creditor must disclose as part of the application disclosures 
a recent APR imposed under the plan. See current Sec.  226.5b(d)(6). 
Current footnote 10c provides that a recent APR for fixed-rate plans is 
a rate that has been in effect under the plan within the 12 months 
preceding the date that disclosures are provided to the consumer. For 
variable rate plans, current Sec.  226.5b(d)(12), which implements TILA 
Section 127A(a)(2), requires a creditor to disclose the index that will 
be used to determine the variable rate. 15 U.S.C. 1637a(a)(2). In 
addition, current Sec.  226.5b(d)(12) sets forth a number of other 
disclosures about variable rates that must be included as part of the 
application disclosures, such as a statement that the consumer should 
ask about the current index value, margin, discount or premium, and 
APR. A creditor is not required to disclose in the application 
disclosures the current APRs that are offered to the consumer on the 
HELOC plan.
    The Board proposes to require that a creditor disclose in the table 
as part of the early HELOC disclosures the current APRs that are 
offered to the consumer on the payment plans described in the early 
HELOC disclosures table. Specifically, proposed Sec.  226.5b(c)(10) 
requires that a creditor must disclose in the table each APR applicable 
to any payment plan disclosed in the early HELOC disclosures. The 
proposal to require a creditor to disclose in the table the APRs 
applicable to the payment plans disclosed in the table is consistent 
with TILA Section 127A(a)(1), which provides that a creditor must 
disclose ``each annual percentage rate imposed in connection with 
extensions of credit under the plan. * * *'' 15 U.S.C. 127A(a)(1). In 
addition, as discussed in more detail above in the section-by-section 
analysis to proposed Sec.  226.5b(b), consumer testing on HELOC 
disclosures shows that the current APRs on the HELOC plan are some of 
the most important pieces of information that consumers want to know in 
deciding whether to open a HELOC plan. Participants in the consumer 
testing overwhelmingly indicated that they would prefer to receive 
transaction-specific disclosures, including the current APRs offered to 
the consumer on the HELOC plan, soon after application even if it meant 
that they would not receive disclosure of general terms before they 
applied. The Board proposes to delete as obsolete current Sec.  
226.5b(d)(6) and the contents of footnote 10c, which require the 
consumer to disclose for fixed-rate plans a recent rate that has been 
in effect within the 12 months preceding the date that disclosures are 
provided to the consumer. In addition, the Board proposes to move the 
provisions in current Sec.  226.5b(d)(12) relating to variable-rate 
plans to proposed Sec.  226.5b(c)(10) and to make revisions to those 
provisions.
    Rates applicable to payment plans disclosed. Proposed comment 
5b(c)(10)-3 clarifies that under proposed Sec.  226.5b(c)(10), a 
creditor would only be required to disclose in the table as part of the 
early HELOC disclosures the APRs applicable to the payment plans that 
are disclosed in the table under proposed Sec.  226.5b(c)(9). As 
discussed in more detail in the section-by-section analysis to proposed 
Sec.  226.5b(c), for HELOC plans that are variable-rate plans but also 
offer fixed-rate and -term payment options during the draw period, a 
creditor may only disclose in the table information applicable to the 
variable-rate plan, including the applicable APRs. In this case, a 
creditor may not disclose in the table the APRs applicable to any 
fixed-rate and -term payment plans offered during the draw period. 
However, if a HELOC plan does not offer a variable-rate feature during 
the draw period, but only offers fixed-rate and -term features during 
that period, a creditor must disclose in the table information related 
to the fixed-rate and -term features when making the disclosures 
required by proposed Sec.  226.5b(c), including the APRs applicable to 
these features. The Board believes that requiring disclosure of all the 
APRs applicable to the HELOC plan in the table, even those APRs that 
relate to payment plans that are not disclosed in the table, would be 
confusing to consumers.
    Nonetheless, under the proposal, a creditor would be required to 
disclose the APRs applicable to other payment plans when disclosing 
those payment plans to a consumer upon request prior

[[Page 43473]]

to account opening. In particular, proposed comment 5b(c)(9)(ii)-5 
provides guidance on how a creditor must provide additional information 
on payment plans that are not disclosed in the table as part of the 
early HELOC disclosures (other than fixed-rate and -term payment plans 
unless those are the only payment plans offered during the draw period) 
to a consumer upon the consumer's request. This proposed comment 
provides that if a creditor offers a payment plan other than the two 
payment plans disclosed in the table as part of the early HELOC 
disclosures (except for fixed-rate and -term payment plans unless those 
are the only payment plans offered during the draw period), and a 
consumer requests additional information about the other plan, the 
creditor must disclose an additional table under Sec.  226.5b(b) to the 
consumer with the terms of the other payment plan described in the 
table. Proposed comment 5b(c)(10)-3 makes clear that this additional 
table must include the APRs applicable to that other payment plan.
    In addition, as discussed in more detail in the section-by-section 
analysis to proposed Sec.  226.5b(c)(18), proposed comment 5b(c)(18)-2 
provides guidance on how a creditor must provide additional information 
about fixed-rate and -term payment plans to a consumer upon the 
consumer's request prior to account opening. This proposed comment 
provides that in disclosing additional information about the fixed-rate 
and -term payment plan upon a consumer's request, a creditor must 
disclose in the form of a table (1) the information described by 
proposed Sec.  226.5b(c) applicable to the fixed-rate and -term payment 
plan (including the APRs applicable to the fixed-rate and -term payment 
plan) and (2) any fees imposed related to the use of the fixed-rate and 
-term payment plan, such as fees to exercise the fixed-rate and -term 
payment plan or to convert a balance under a fixed-rate and -term 
payment feature to a variable-rate feature under the plan.
    Rates changes set forth in initial agreement. Current comments 
5b(d)(6)-1 and 5b(d)(12)(viii)-1 provide that a creditor must disclose 
in the application disclosures a disclosure of preferred-rate 
provisions, where the rate will increase upon the occurrence of some 
event, such as the borrower-employee leaving the creditor's employ or 
the consumer closing an existing deposit account with the creditor. The 
Board proposes to move these comments to proposed comment 5b(c)(10)-2 
and revise them. Specifically, proposed comment 5b(c)(10)-2 clarifies 
that proposed Sec.  226.5b(c)(10) requires disclosure of any rate 
changes set forth in the initial agreement (as discussed in Sec.  
226.5b(f)(3)(i)) applicable to the payment plans disclosed in the table 
pursuant to proposed Sec.  226.5b(c)(9). For example, a creditor would 
be required to disclose under proposed Sec.  226.5b(c)(10) preferred-
rate provisions, where the rate will increase upon the occurrence of 
some event, such as the borrower-employee leaving the creditor's employ 
or the consumer closing an existing deposit account with the creditor. 
The creditor would be required to disclose the preferred rate that 
applies to the plan, and the rate that would apply if the event is 
triggered, such as the borrower-employee leaving the creditor's employ 
or the consumer closing an existing deposit account with the creditor. 
Under this proposed comment, if the preferred rate and the rate that 
would apply if the event is triggered are variable rates, the creditor 
would be required to disclose those rates based on the applicable index 
or formula, and disclose other information required by proposed Sec.  
226.5b(c)(10)(i).
    Penalty APRs. Although under the proposal creditors generally would 
be required to disclose in the table as part of the early HELOC 
disclosures the APRs applicable to the payment plans disclosed in the 
table, proposed Sec.  226.5b(c)(10) provides that a creditor must not 
disclose in the table any penalty rate set forth in the initial 
agreement that may be imposed in lieu of termination of the plan. As 
discussed in more detail in the section-by-section analysis to Sec.  
226.5b(f), the Board proposes to restrict creditors offering HELOCs 
subject to Sec.  226.5b from imposing a penalty rate or penalty fees 
(except for a contractual late-payment fee) on the account for a 
consumer's failure to pay the account when due, unless the consumer is 
more than 30 days late in paying the account. Based on Board outreach, 
the Board understands that HELOC creditors generally do not impose a 
penalty rate, regardless of how late the payment is. For this reason, 
as well as due to the very limited circumstances in which a penalty 
rate may be imposed under the proposal, the Board believes that 
information about the penalty rate would not be useful to consumers in 
deciding whether to open a HELOC plan and that including it in the 
table may distract consumers from noticing information that is more 
likely to impact them in choosing and using a HELOC.
    Periodic rates. Proposed comment 5b(c)(10)-1 would clarify that a 
creditor would be allowed to disclose only APRs in the table as part of 
the early HELOC disclosures. Periodic rates would not be allowed to be 
disclosed in the table as part of the early HELOC disclosures. For 
example, assume a monthly periodic rate of 1.5 percent applies to 
transactions on a HELOC account. The corresponding APR to this periodic 
rate would be 18 percent. Under the proposal, creditors would be 
required to disclose the 18 percent corresponding APR in the early 
HELOC disclosures table, but may not disclose the 1.5 percent periodic 
rate in the table. The Board believes information about periodic rates 
that apply to the HELOC would not be useful to consumers in deciding 
whether to open a HELOC plan, and including this information in the 
table may distract consumers from noticing more important information.
    16-point font. Proposed Sec.  226.5b(c)(10) requires that a 
creditor must provide the APRs disclosed in the table as part of the 
early HELOC disclosures in at least 16-point type, except for the 
following: any minimum or maximum APRs that may apply; and any 
disclosure of rate changes set forth in the initial agreement, except 
for rates that would apply after the expiration of an introductory 
rate. As discussed above, in consumer testing conducted by the Board on 
HELOC disclosures, participants indicated that the APRs offered to the 
consumer on the HELOC plans were some of the most important pieces of 
information in deciding whether to open a HELOC plan. Thus, the Board 
proposes generally to highlight the APRs in the table. Given that the 
Board proposes to require a minimum of 10-point font for the 
disclosures of other terms in the table, the Board believes that a 16-
point font size for the APRs would be effective in highlighting the 
APRs in the table.
    Proposed Sec.  226.5b(c)(10) requires that the current APR that 
will apply to the account be disclosed in 16-point font. If an 
introductory rate is offered, a creditor would be required to disclose 
the introductory rate and the rate that would otherwise apply after the 
introductory rate expires in 16-point font. Under the proposal, the 16-
point font requirement would not apply to any minimum or maximum APRs 
disclosed in the table. In addition, the 16-point font requirement 
would not apply to any disclosure of rate changes set forth in the 
initial agreement except for rates that would apply after the 
expiration of an introductory rate. For example, the 16-point font 
requirement would not apply to any disclosure of the rate that would 
apply if any preferred rate is terminated. The Board believes that 
limiting the 16-point font requirement generally to the current

[[Page 43474]]

APRs on the account (or an introductory rate and the rate that would 
otherwise apply after the introductory rate expires) would highlight 
for consumers the rates that will be most relevant for them at account 
opening. The Board believes that requiring all of the APRs disclosed in 
the table to be in 16-point font could create ``information overload'' 
for consumers.
5b(c)(10)(i) Disclosures for Variable-Rate Plans
    Current Sec.  226.5b(d)(12), which implements TILA Section 
127A(a)(2), provides that if a variable-rate feature is offered on a 
HELOC plan, the creditor must disclose as part of the application 
disclosures the following information about the variable-rate feature: 
(1) The fact that the APRs, payment, or other terms may change due to 
the variable-rate feature; (2) the index used in making rate 
adjustments and a source of information about the index; (3) an 
explanation of how the APR will be determined, including an explanation 
of how the index is adjusted, such as by the addition of the margin; 
(4) the frequency of changes in the APR: (5) any rules relating to 
changes in the index value and the APR and resulting changes in the 
payment amount, including, for example, an explanation of payment 
limitations and rate carryover; (6) a statement of any annual or more 
frequent periodic limitations on changes in the APR (or a statement 
that no annual limitation exists), as well as a statement of the 
maximum APR that may be imposed under each payment option; (7) an 
historical example, based on a $10,000 extension of credit, 
illustrating how APRs and payments would have been affected by index 
value changes implemented according to the terms of the plan 
(``historical example table''). The historical example table must be 
based on the most recent 15 years of index values (selected for the 
same time period each year) and must reflect all significant plan 
terms, such as negative amortization, rate carryover, rate discounts, 
and rate and payment limitations, that would have been affected by the 
index movement during the period; (8) the minimum periodic payment 
required when the maximum APR for each payment option is in effect for 
a $10,000 outstanding balance, and a statement of the earliest date or 
time the maximum rate may be imposed; (9) a statement that the APR does 
not include costs other than interest; (10) a statement that the 
consumer should ask about the current index value, margin, discount or 
premium, and APR; (11) a statement that rate information will be 
provided on or with each periodic statement; and (12) as applicable, a 
statement that the initial APR is not based on the index and margin 
used to make later rate adjustments, and the period of time such 
initial rate will be in effect. As discussed in more detail below, the 
Board proposes to move current Sec.  226.5b(d)(12) to proposed Sec.  
226.5b(c)(10) and revise it.
    Current comment 5b(d)(12)-1 provides that sample forms in current 
Appendix G-14 provide illustrative guidance on the variable-rate rules. 
The Board proposes to move this comment to proposed comment 
5b(c)(10)(i)-6 and to make technical revisions. Current comment 5b-4 
provides that if a creditor uses an index to determine the rate that 
will apply at the time of conversion to the repayment phase--even if 
the rate will thereafter be fixed--the creditor must provide the 
variable-rate information in current Sec.  226.5b(d)(12), as 
applicable. The Board proposes to move this provision in current 
comment 5b-4 to proposed comment 5b(c)(10)(i)-3 and to make technical 
revisions.
    In addition, the Board proposes to add new comment 5b(c)(10)(i)-1, 
which would clarify that a variable-rate account exists when rate 
changes are part of the plan and are tied to an index or formula. This 
proposed comment also provides a cross reference to comment 
6(a)(4)(ii)-1 for examples of variable-rate plans.
    Disclosure that APR may change due to the variable-rate feature. 
Current Sec.  226.5b(d)(12)(i) provides that a creditor must include as 
part of the application disclosures a statement that the APRs, payment, 
or other terms may change due to the variable-rate feature. Consistent 
with current Sec.  226.5b(d)(12)(i), proposed Sec.  
226.5b(c)(9)(i)(A)(1) provides that a creditor must disclose in the 
table as part of the early HELOC disclosures the fact that the APR may 
change due to the variable-rate feature. The Board believes that it is 
important to highlight for consumers that the APR is a variable rate. 
Thus, under the proposal, the Board would require a creditor in 
disclosing the variable-rate APR to use the term ``variable rate'' in 
underlined text as shown in any of the applicable tables found in 
proposed Samples G-14(C), G-14(D) and G-14(E) in Appendix G. Unlike 
current Sec.  226.5b(d)(12)(i), under the proposal, a creditor would 
not be required to disclose explicitly the fact that the payment or 
other terms may change due to the variable-rate feature. The Board 
believes that the proposed payment examples that would be included in 
the early HELOC disclosures communicate effectively to consumers that 
the payments would change when the APR changes. In consumer testing 
conducted by the Board on HELOC disclosures, participants were asked 
whether the payments on the HELOC plan could vary. Most participants 
understood from the payment examples contained in the tested forms that 
the payments on the HELOC plan would increase if the APR increased.
    Explanation of how APR will be determined. Current Sec.  
226.5b(d)(12)(iii), which implements TILA Section 127A(a)(2)(B), 
provides that a creditor must include as part of the application 
disclosures the index used in making rate adjustments to the variable 
APR and a source of information about the index. 15 U.S.C. 
1637a(a)(2)(B). Current Sec.  226.5b(d)(12)(iv) provides that a 
creditor also must include as part of the application disclosures an 
explanation of how the variable APR will be determined, including an 
explanation of how the index is adjusted, such as by the addition of a 
margin. Current comment 5b(d)(12)(iv)-1 provides that if a creditor 
adjusts its index through the addition of a margin, the disclosure 
might read, ``Your annual percentage rate is based on the index plus a 
margin.'' The creditor is not required to disclose a specific value for 
the margin.
    Consistent with current Sec.  226.5b(d)(12)(iii) and (iv), proposed 
Sec.  226.5b(c)(9)(i)(A)(2) requires a creditor to disclose in the 
table as part of the early HELOC disclosures an explanation of how the 
APR will be determined. Consistent with current Sec.  
226.5b(d)(12)(iii), under the proposal, a creditor would be required to 
disclose in the table the type of index used in making rate adjustments 
to the variable APR, such as indicating the current APR is based on the 
``prime rate.'' Unlike current Sec.  226.5b(d)(12)(iv), under the 
proposal, a creditor also would be required to disclose in the table 
the value of the margin. In consumer testing conducted on HELOC 
disclosures, the Board tested some versions of the early HELOC 
disclosures that did not contain the current value of the margin, but 
instead included only a statement that the APR ``would vary monthly 
with the Prime Rate.'' The Board also tested other versions of the 
early HELOC disclosures that included the value of the margin, such as 
by stating that the APR will be ``a variable rate that will change 
monthly based on the Prime Rate plus 1.00%.'' Participants in consumer 
testing consistently indicated that they preferred to be shown the 
value of the margin, so that they would have detailed information about 
how their APR would be determined over time.

[[Page 43475]]

Thus, under proposed Sec.  226.5b(10)(i)(A)(2), a creditor would be 
required to disclose in the table the type of index used in making rate 
adjustments (such as the prime rate) and the value of the margin. 
Current comment 5b(d)(12)(iv)-1 would be deleted as obsolete. Under the 
proposal, Samples G-14(C), G-14(D) and G-14(E) would provide guidance 
to creditors on how to disclose the fact that the applicable rate 
varies and how it is determined. See proposed comment 5b(c)(10)(i)-2.
    Under the proposal, in providing an explanation of how the APR will 
be determined, a creditor would not be allowed to disclose in the table 
as part of the early HELOC disclosures the current value of the index, 
such that the prime rate is currently 4 percent. See proposed comment 
5b(c)(10)(i)-2. The Board has concerns that requiring the current value 
of the index in the table could create ``information overload'' for 
consumers and could distract consumers from noticing more important 
information. As described above, the current APR (i.e., the current 
value of the index plus the margin) and the value of the margin would 
be disclosed in the table, so a consumer who is interested in knowing 
the current value of the index could calculate the current value of the 
index from those figures. At the creditor's option, the creditor would 
be allowed under the proposal to disclose the current value of the 
index outside the table. See proposed Sec.  226.5b(b)(2)(v).
    Unlike current Sec.  226.5b(d)(12)(iii), which implements TILA 
Section 127A(a)(2)(B), under the proposal, a creditor would not be 
allowed to disclose in the table as part of the early HELOC disclosures 
a source of information about the index used in the making rate 
adjustments, such as indicating that the prime rate is published in the 
Wall Street Journal. 15 U.S.C. 1637(a)(2)(B); see proposed comment 
5b(c)(10)(i)-2. The Board proposes no longer to require a creditor to 
provide the source of information about the index, pursuant to the 
Board's exception and exemption authorities under TILA Section 105. 
Section 105(a) authorizes the Board to make adjustments and exceptions 
to the requirements in TILA to effectuate the statute's purposes, which 
include facilitating consumers' ability to compare credit terms and 
helping consumers avoid the uniformed use of credit. See 15 U.S.C. 
1601(a), 1604(a). Section 105(f) authorizes the Board to exempt any 
class of transactions from coverage under any part of TILA if the Board 
determines that coverage under that part does not provide a meaningful 
benefit to consumers in the form of useful information or protection. 
See 15 U.S.C. 1604(f)(1). The Board must make this determination in 
light of specific factors. See 15 U.S.C. 1604(f)(2).
    These factors are (1) the amount of the loan and whether the 
disclosure provides a benefit to consumers who are parties to the 
transaction involving a loan of such amount; (2) the extent to which 
the requirement complicates, hinders, or makes more expensive the 
credit process; (3) the status of the borrower, including any related 
financial arrangements of the borrower, the financial sophistication of 
the borrower relative to the type of transaction, and the importance to 
the borrower of the credit, related supporting property, and coverage 
under TILA; (4) whether the loan is secured by the principal residence 
of the borrower; and (5) whether the exemption would undermine the goal 
of consumer protection.
    The Board has considered each of these factors carefully, and based 
on that review, believes that the proposed exemption is appropriate. 
The Board proposes not to require a creditor to include information 
about the source of the index because of concerns of ``information 
overload'' to consumers. In consumer testing conducted by the Board on 
HELOC disclosures, the Board asked participants whether information 
about the source of the index was important information for them to 
know in deciding whether to open a HELOC plan. Most participants 
indicated that this information was not useful information and would 
not affect their decision about whether to open a HELOC plan. At a 
creditor's option, the creditor would be allowed under the proposal to 
disclose information about the source of the index outside of the 
table. See proposed Sec.  226.5b(b)(2)(v).
    Frequency of changes in the APR. Current Sec.  226.5b(d)(12)(vii), 
which implements TILA Section 127A(a)(2)(B), requires a creditor to 
disclose as part of the application disclosures the frequency of 
changes in the variable-rate APR, such as disclosing that the variable 
rate may change on a monthly basis. Consistent with current Sec.  
226.5b(d)(12)(vii), under proposed Sec.  226.5b(c)(10)(i)(A)(3), a 
creditor would be required to disclose in the table as part of the 
early HELOC disclosures the frequency of changes in the variable-rate 
APR.
    Rules relating to changes in the index value and the APR and 
resulting changes in the payment amount. Current Sec.  
226.5b(d)(12)(viii), which implements TILA Section 127(a)(2)(B), 
provides that a creditor must disclose as part of the application 
disclosures any rules relating to changes in the index value and the 
APR and resulting changes in the payment amount, including, for 
example, an explanation of payment limitations and rate carryover. 15 
U.S.C. 127(a)(2)(B). Current comment 5b(d)(12)(viii)-1 clarifies that 
current Sec.  226.5b(d)(12)(viii) requires a creditor to disclose as 
part of the application disclosures any preferred-rate provisions, 
where the rate will increase upon the occurrence of some event, such as 
the borrower-employee leaving the creditor's employ or the consumer 
closing an existing deposit account with the creditor. Current comment 
5b(d)(12)(viii)-2 provides a cross reference to current comment 
5b(d)(5)(ii)-2, which discusses the disclosure requirement for options 
permitting the consumer to convert from a variable rate to a fixed 
rate.
    Consistent with current Sec.  226.5b(d)(12)(viii), proposed Sec.  
226.5b(c)(10)(i)(A)(4) requires a creditor to disclose in the table as 
part of the early HELOC disclosures any rules relating to changes in 
the index value and the APR and resulting changes in the payment 
amount, including, for example, an explanation of payment limitations 
and rate carryover. As discussed above, current comment 
5b(d)(12)(viii)-1 dealing with preferred-rate provisions would be moved 
to proposed comment 5b(c)(10)-2.
    The Board proposes to delete as obsolete current comment 
5b(d)(12)(viii)-2, which deals with disclosure of options permitting 
the consumer to convert from a variable rate to a fixed rate. As 
discussed in the section-by-section analysis to proposed Sec.  
226.5b(c) and (c)(18), under the proposal, a creditor generally would 
not be permitted to disclose in the table as part of the early HELOC 
disclosures information related to fixed-rate and -term payment 
features, including information about how the rates that apply to those 
features are determined.
    Limitations on changes in rates. Current Sec.  226.5b(d)(12)(ix), 
which implements TILA Section 127A(a)(2)(E) and (F), provides that a 
creditor must disclose as part of the application disclosures a 
statement of any annual or more frequent periodic limitations on 
changes in the APR (or a statement that no annual limitation exists), 
as well as a statement of the maximum APR that may be imposed under 
each payment option. 15 U.S.C. 1637a(a)(2)(E) and (F). Under current 
Sec.  226.5b(d)(12)(ix), a creditor is not required to disclose any 
periodic limitations on changes in the

[[Page 43476]]

APR that are longer than a year--such as rate caps that would apply 
every two years.
    Proposed Sec.  226.5b(c)(10)(i)(A)(5) requires a creditor to 
disclose in the table as part of the early HELOC disclosures a 
statement of any limitations on changes in the APR, including the 
minimum and maximum APRs that may be imposed under each payment option 
disclosed in the table. In addition, under the proposal, if no annual 
or other periodic limitations apply to changes in the APR, a creditor 
would be required in the table to include a statement that no annual 
limitation exists. Thus, consistent with current Sec.  
226.5b(d)(12)(ix), under the proposal, a creditor would be required to 
disclose in the table any annual or more frequent periodic limitations 
on changes in the APR and to disclose the maximum APR that may be 
imposed under each payment option disclosed in the table.
    Unlike current Sec.  226.5b(d)(12)(ix), however, under the 
proposal, a creditor must disclose in the table any periodic 
limitations on changes in the APR that are longer than a year--such as 
rate caps that would apply every two years. In addition, unlike current 
Sec.  226.5b(d)(12)(ix), a creditor also would be required to disclose 
in the table any minimum rate that would apply to the payment plans 
disclosed in the table, such as a rate floor. The Board proposes to add 
these disclosures pursuant to its authority under TILA Section 
127A(a)(14) to require additional disclosures with respect to HELOC 
plans. 15 U.S.C. 1637a(a)(14). The Board believes that consumers should 
be informed of all rate caps, and rate floors, as consumer testing has 
shown that rate information is among the most important information to 
a consumer in deciding whether to open a HELOC plan.
    Current comment 5b(d)(12)(ix)-1 clarifies that if a creditor bases 
its rate limitation on 12 monthly billing cycles, this limitation 
should be treated as an annual cap. Rate limitations imposed on less 
than an annual basis must be stated in terms of a specific amount of 
time. For example, if the creditor imposes rate limitations on only a 
semiannual basis, this must be expressed as a rate limitation for a 
six-month time period. If the creditor does not impose periodic 
limitations (annual or shorter) on rate increases, the fact that there 
are no annual rate limitations must be stated.
    The Board proposes to move this comment to proposed comment 
5b(c)(10)(i)-4 and to revise it. Specifically, proposed comment 
5b(c)(10)(i)-4 clarifies that under proposed Sec.  
226.5b(c)(10)(i)(A)(5), a creditor would be required to disclose any 
rate limitations that occur, including rate limitations that occur in a 
time period of more than one year, annually or less than annually. If 
the creditor bases its rate limitation on 12 monthly billing cycles, 
this limitation would be treated as an annual cap. A creditor would be 
required to state rate limitations imposed on more or less than an 
annual basis in terms of a specific amount of time. For example, if the 
creditor imposes rate limitations on only a semiannual basis, a 
creditor would be required to express this limitation as a rate 
limitation for a six-month time period. If a creditor does not impose 
annual or other periodic limitations on rate increases, the creditor 
would be required to state this fact in the table as part of the early 
HELOC disclosures.
    Regarding disclosure of the maximum APR that may be imposed over 
the term of the plan, current comment 5b(d)(12)(ix)-2 provides that a 
creditor may disclose this rate as a specific number (for example, 18 
percent) or as a specific amount above the initial rate. If the 
creditor states the maximum rate as a specific amount above the initial 
rate, the creditor must include a statement that the consumer should 
inquire about the rate limitations that are currently available. If an 
initial discount is not taken into account in applying maximum rate 
limitations, that fact must be disclosed. If separate overall 
limitations apply to rate increases resulting from events such as the 
exercise of a fixed-rate conversion option or leaving the creditor's 
employ, those limitations also must be stated. The current comment 
provides that a creditor is not required to disclose in the application 
disclosures any legal limits in the nature of usury or rate ceilings 
under state or federal statutes or regulations.
    The Board proposes to move current comment 5b(d)(12)(ix)-2 to 
proposed comment 5b(c)(10)(i)-5 and revise it. Specifically, proposed 
comment 5b(c)(10)(i)-5 provides that the maximum APR that may be 
imposed under each payment option disclosed in the table over the term 
of the plan (including the draw period and any repayment period 
provided for in the initial agreement) must be provided. If separate 
overall limitations apply to rate increases resulting from events such 
as leaving the creditor's employ, those limitations also must be 
stated. Limitations would not include legal limits in the nature of 
usury or rate ceilings under state or federal statutes or regulations.
    The Board would delete as obsolete the guidance in current 
5b(d)(12)(ix)-2 related to disclosing the maximum APR as a specific 
amount above the initial rate. Under proposed Sec.  226.5b(c)(10), a 
creditor must disclose the maximum APR as a specific number.
    Current comment 5b(d)(12)(ix)-3 provides that a creditor need not 
disclose each periodic or maximum rate limitation that is currently 
available. Instead, the creditor may disclose the range of the lowest 
and highest periodic and maximum rate limitations that may apply to the 
creditor's HELOC plans. Creditors using this alternative must include a 
statement that the consumer should inquire about the rate limitations 
that are currently available. The Board proposes to delete this comment 
as obsolete. Under proposed Sec.  226.5b(c)(10), a creditor would be 
required to disclose the periodic limitations and maximum APRs that may 
be imposed under each payment option disclosed in the table as part of 
the early HELOC disclosures.
    Disclosure of the lowest and highest value of the index in the past 
15 years. Current Sec.  226.5b(d)(12)(xi), which implements TILA 
Section 127A(a)(2)(G), requires a creditor to provide as part of the 
application disclosures a historical example, based on a $10,000 
extension of credit, illustrating how APRs and payments would have been 
affected by index value changes implemented according to the terms of 
the plan. 15 U.S.C. 1637a(a)(2)(G). The historical example must be 
based on the most recent 15 years of index values (selected for the 
same time period each year) and must reflect all significant plan 
terms, such as negative amortization, rate carryover, rate discounts, 
and rate and payment limitations that would have been affected by the 
index movement during the period. For ease of reference, this 
SUPPLEMENTARY INFORMATION will refer to this disclosure as the 
``historical example table.'' Current comments 5b(d)(12)(xi)-1 through 
-10 provide guidance to creditors on how to provide the historical 
example table.
    For the reasons discussed below, the Board proposes not to require 
that a creditor disclose as part of the early HELOC disclosures the 
historical example table. Thus, the Board proposes to delete current 
Sec.  226.5b(d)(12)(xi) and current comments 5b(d)(12)(xi)-1 through -
10. Instead of requiring a creditor to disclose the historical example 
table, the Board proposes to require that a creditor disclose in the 
table as part of the early HELOC disclosures the lowest and highest 
values of the index used to determine

[[Page 43477]]

the variable rate on the HELOC plan in the past 15 years.
    The Board proposes no longer to require a creditor to provide the 
historical example table, pursuant to the Board's exception and 
exemption authorities under TILA Section 105(a) and 105(f), as 
discussed above. The Board's consumer testing of HELOC disclosures 
shows that this disclosure may be confusing to consumers, and may not 
provide meaningful information to consumers. In consumer testing 
conducted by the Board on HELOC disclosures, the Board tested versions 
of the application disclosures and the early HELOC disclosures that 
contained a historical example table. Many participants misunderstood 
the information provided in the historical example table. A large group 
of participants did not understand that the information in this table 
was based on the actual historical behavior of interest rates; they 
instead assumed that the data shown was a hypothetical example of how 
interest rates and payments might fluctuate in the future. More 
significantly, an even larger group of participants mistakenly thought 
that the rate and payment information shown in the historical example 
table would apply to the HELOC plan going forward, and that the table 
contained information on the exact monthly payments that the 
participant would be required to make in the future under the HELOC 
plan.
    Even after the meaning of the table was explained to participants, 
many participants indicated that, because the rates and payment 
information in the table were based on what had happened to the 
interest rate in the past 15 years, the table did not contain valuable 
information that would inform their decision about the HELOC for which 
they were applying. These participants did not believe that knowing how 
the index had behaved in the past would provide them useful information 
to predict how the index might behave in the future. A few participants 
indicated that the table did not offer any new information that was not 
already communicated in the disclosure, namely that the APR and 
payments may vary.
    Based on this consumer testing, the Board proposes not to require 
that creditors provide the historical example table as part of the 
early HELOC disclosures. However, pursuant to the Board's authority 
under TILA Section 127A(a)(14) to require additional disclosures for 
HELOC plans, the Board proposes to require a creditor to provide in the 
table as part of the early HELOC disclosures the range of the value of 
the index over a 15-year historical period. 15 U.S.C. 1637a(a)(14). 
Although many participants in the consumer testing indicated that the 
historical example table did not provide useful information about how 
interest rates and payment may change in the future, some participants 
did indicate that they found it helpful to know how the index had 
behaved in the past, so that they would have some sense about how it 
might change in the future. In addition, some participants found the 
range of the index useful in determining the likelihood of the APR 
reaching the maximum APR allowed under the plan. The Board believes 
that the proposed disclosure providing the range of the value of the 
index over a 15-year historical period will provide the most important 
information from the historical example table in a simple and efficient 
way.
    The Board solicits comment on the appropriateness of this proposal. 
The Board also solicits comment on whether the new proposed disclosure 
should show the range of the APR that would have applied to the HELOC 
plan over the past 15 years, calculated based on the range of the index 
value plus the margin that is currently offered to the consumer, or as 
proposed, simply show the index range. For example, assume the index on 
the HELOC account is the prime rate and the prime rate varied between 
4.25 percent and 10 percent over the last 15 years. In addition, assume 
the APR offered to the consumer is calculated as the prime rate plus 
1.00 percent. Under the new proposed disclosure in proposed Sec.  
226.5b(c)(10)(i)(A)(6), a creditor would be required to disclose that 
over the past 15 years, the prime rate had varied between 4.25 percent 
and 10 percent. The Board solicits comment on whether the Board should 
instead require that a creditor disclose, based on the example above, 
that over the past 15 years, the APR on the HELOC plan offered to the 
consumer would have varied between 5.25 percent and 11 percent.
    Maximum rate payment example. Current Sec.  226.5b(d)(12)(x), which 
implements TILA Section 127A(a)(2)(H), provides that a creditor must 
provide as part of the application disclosures the minimum periodic 
payment required when the maximum APR for each payment option is in 
effect for a $10,000 outstanding balance, and a statement of the 
earliest date or time the maximum rate may be imposed. 15 U.S.C. 
1637a(a)(2)(H). Current comment 5b(d)(12)(x)-1 provides guidance for 
creditors on how to provide the maximum rate payment example. Current 
comment 5b(d)(12)(x)-2 provides guidance on how a creditor should 
calculate the earliest date or time the maximum rate may be imposed. As 
discussed above in the section-by-section analysis to proposed Sec.  
226.5b(c)(9), the Board proposes to move current Sec.  226.5b(d)(12)(x) 
to proposed Sec.  226.5b(c)(9)(iii), and to delete comment 
5b(d)(12)(x)-1 as obsolete.
    In addition, the Board proposes not to require a creditor to 
disclose in the table as part of the early HELOC disclosures a 
statement of the earliest date or time the maximum rate may be imposed, 
pursuant to the Board's exception and exemption authorities under TILA 
Section 105(a) and 105(f), as discussed above. Based on consumer 
testing, the Board believes that this disclosure may not provide 
meaningful information to consumers, and that including it in the table 
as part of the early HELOC disclosures may distract consumers from more 
important information. The Board tested versions of the early HELOC 
disclosures which indicated that the maximum rate could be reached as 
early as the first month, based on the Board's understanding that this 
statement reflects the terms of most HELOC accounts regarding when the 
maximum rate could be reached. Participants were asked whether they 
found this information useful in deciding whether to open the HELOC 
plan being offered. Many participants did not find this statement 
useful because they believed it was extremely unlikely that the rate 
would actually increase that quickly. The Board also understands that 
while theoretically the maximum rate may be imposed during the first 
month of the HELOC plan, in practice this has rarely if ever occurred.
    Statement that the APR does not include costs other than interest. 
Current Sec.  226.5b(d)(12)(ii), which implements TILA Section 
127A(a)(2)(A) and (C), provides that a creditor must disclose as part 
of the application disclosures that the variable APR does not include 
costs other than interest. 15 U.S.C. 1637a(a)(2)(A) and (C). (A 
creditor also must make this disclosure with respect to disclosure of 
any fixed-rate APR in the application disclosures. See current Sec.  
226.5b(d)(6).)
    The Board proposes not to require a creditor to disclose in the 
table as part of the early HELOC disclosures a statement that the APRs 
applicable to the HELOC plan do not include costs other than interest, 
pursuant to the Board's exception and exemption authorities under TILA 
Section 105(a) and 105(f), as discussed above. Based on consumer 
testing, the Board believes that this disclosure may not provide 
meaningful information to consumers,

[[Page 43478]]

and that including it in the table as part of the early HELOC 
disclosures may distract consumers from more important information. The 
Board tested versions of the early HELOC disclosures indicating that 
the APRs included in the table do not include costs other than 
interest. The purpose of this requirement is to make clear to consumers 
that an APR on a HELOC cannot be directly compared to an APR on a 
closed-end loan, which includes most fees. However, several 
participants misunderstood this sentence; for example, some incorrectly 
thought that they would not be charged any fees. Just as important, no 
participants understood the purpose of this statement, or how they 
could use the information when applying for a home-equity product. 
Different versions of this statement were tested in several rounds to 
give it proper context for maximum comprehension, but all attempts were 
unsuccessful in communicating to consumer the statement's intended 
purpose.
    Statement that the consumer should ask about the current index 
value, margin, discount or premium, and APR. Current Sec.  
226.5b(d)(12)(v), which implements TILA Section 127A(a)(2)(D), provides 
that a creditor must disclose as part of the application disclosures a 
statement that the consumer should ask about the current index value, 
margin, discount or premium, and APR. 15 U.S.C. 127A(a)(2)(D). The 
Board proposes not to require a creditor to include this statement in 
the table as part of the early HELOC disclosures, pursuant to the 
Board's exception and exemption authorities under TILA Section 105(a) 
and 105(f), as discussed above. This statement is obsolete for the 
early HELOC disclosures. As discussed above, a creditor would be 
required to disclose in the table as part of the early HELOC 
disclosures the current APRs offered to the consumer (i.e., the current 
value of the index plus the margin) as well as the margin, including 
any introductory APR (as discussed below). A creditor would not be 
allowed to disclose in the table as part of the early HELOC disclosures 
the current value of the index, such that the prime rate is currently 4 
percent.
    Statement that rate information will be provided on or with each 
periodic statement. Current Sec.  226.5b(d)(12)(xii), which implements 
TILA Section 127A(a)(2)(I), provides that a creditor must disclose as 
part of the application disclosures a statement that rate information 
will be provided on or with each periodic statement. 15 U.S.C. 
1637a(a)(2)(I). The Board proposes not to require a creditor to include 
this statement in the table as part of the early HELOC disclosures, 
pursuant to the Board's exception and exemption authorities under TILA 
Section 105(a) and 105(f), as discussed above. Based on consumer 
testing, the Board believes that this disclosure may not provide 
meaningful information to consumers, and that including it in the table 
as part of the early HELOC disclosures may distract consumers from more 
important information. The Board tested versions of the early HELOC 
disclosures indicating that monthly statements for the HELOC plan would 
tell the consumer each time the rate changes on the plan. Participants 
were asked whether they found this information useful in deciding 
whether to open the HELOC plan offered. Many participants did not find 
this information useful because even in the absence of this statement 
they would assume that they would be notified of rate changes on their 
monthly statements.
    Accuracy of variable rates. Proposed Sec.  226.5b(c)(10)(i)(B) 
provides that a variable rate disclosed in the table as part of the 
early HELOC disclosures would be considered accurate if it is a rate as 
of a specified date and this rate was in effect within the last 30 days 
before the disclosures are provided. The Board believes 30 days would 
provide sufficient flexibility to creditors and reasonably current 
information to consumers.
5b(c)(10)(ii) Introductory Initial Rate
    Current Sec.  226.5b(d)(12)(vi), which implements TILA Section 
127A(a)(2)(C), provides that if a creditor offers a variable rate on a 
HELOC account, a creditor must disclose as part of the application 
disclosures, as applicable, a statement that the initial APR is not 
based on the index and margin used to make later rate adjustments, and 
the period of time the initial rate will be in effect. 15 U.S.C. 
1637a(a)(2)(C). The Board proposes to move Sec.  226.5b(d)(12)(vi) to 
proposed Sec.  226.5b(c)(10)(ii) and revise it.
    Specifically, proposed Sec.  226.5b(c)(10)(ii) provides that if the 
initial rate is an introductory rate, a creditor would be required to 
disclose in the table as part of the early HELOC disclosures the 
introductory rate, and would be required to use the term 
``introductory'' or ``intro'' in immediate proximity to the 
introductory rate. The creditor also would be required to disclose in 
the table the time period during which the introductory rate will 
remain in effect. In addition, a creditor would be required to disclose 
in the table the rate that would otherwise apply to the plan. Where the 
rate that would otherwise apply is variable, the creditor would be 
required to disclose the rate based on the applicable index or formula, 
and disclose the other variable-rate disclosures required under 
proposed Sec.  226.5b(c)(10)(i). See also proposed comment 
5b(c)(10)(ii)-3. The Board believes that clearly labeling the 
introductory rate as such and disclosing when the introductory rate 
will expire will benefit consumers by helping them understand the 
temporary nature of this rate.
    Proposed comment 5b(c)(10)(ii)-1 clarifies that if a creditor 
offers a preferred rate that will increase a specified amount upon the 
occurrence of a specified event other than the expiration of a specific 
time period, such as the borrower-employee leaving the creditor's 
employ, the preferred rate would not be an introductory rate under 
proposed Sec.  226.5b(c)(10)(ii), but must be disclosed in accordance 
with proposed Sec.  226.5b(c)(10).
    Proposed comment 5b(c)(10)(ii)-2 provides guidance on providing the 
term ``introductory'' or ``into'' in immediate proximity to the 
introductory rate. Specifically, this proposed comment provides that if 
the term ``introductory'' is in the same phrase as the introductory 
rate, it will be deemed to be in immediate proximity of the listing. 
For example, a creditor that uses the phrase ``introductory APR X 
percent'' would be deemed to have used the word ``introductory'' within 
the same phrase as the rate. In addition, this proposed comment also 
provides that if more than one introductory rate may apply to a 
particular balance in succeeding periods, the term ``introductory'' 
need only be used to describe the first introductory rate. For example, 
if a creditor offers an introductory rate of 8.99 percent on the plan 
for six months, and an introductory rate of 10.99 percent for the 
following six months, the term ``introductory'' need only be used to 
describe the 8.99 percent rate. This proposed comment also provides a 
cross reference to proposed Samples G-14(C) and G-14(E) in Appendix G, 
which provides guidance on how to disclose clearly and conspicuously 
the expiration date of the introductory rate and the rate that will 
apply after the introductory rate expires, if an introductory rate is 
disclosed in the table.
5b(c)(11) Fees Imposed by the Creditor and Third Parties To Open the 
Plan
    Current Sec.  226.5b(d)(7), which implements TILA Section 
127A(a)(3), provides that a creditor must disclose as part of the 
application disclosures an itemization of any fees imposed by the

[[Page 43479]]

creditor to open, use, or maintain the plan, stated as a dollar amount 
or percentage, and when such fees are payable. 15 U.S.C. 1637a(a)(3). 
Current Sec.  226.5b(d)(8), which implements TILA Section 127A(a)(4), 
provides that a creditor must disclose as part of the application 
disclosures a good faith estimate, stated as a single dollar amount or 
range, of any fees that may be imposed by persons other than the 
creditor to open the plan, as well as a statement that the consumer may 
receive, upon request, a good faith itemization of such fees. 15 U.S.C. 
1637a(a)(4). In lieu of the statement, the itemization of such fees may 
be provided.
    Fees imposed by a creditor to maintain and use the plan. As 
described above, current Sec.  226.5b(d)(7) requires a creditor to 
disclose as part of the application disclosures any fees imposed by the 
creditor to maintain and use the HELOC plan. As discussed in more 
detail in the section-by-section analysis to proposed Sec.  
226.5b(c)(13), the Board proposes to move this part of current Sec.  
226.5b(d)(7) to proposed Sec.  226.5b(c)(13) and to revise it.
    One-time account-opening fees. As discussed above, with respect to 
account-opening fees, current Sec.  226.5b(d)(7) requires a creditor to 
disclose in the application disclosures an itemization of any fees 
imposed by the creditor to open the HELOC plan, stated as a dollar 
amount or percentage. Current Sec.  226.5b(d)(7) does not require a 
creditor to disclose the total of one-time fees imposed by the creditor 
to open the HELOC plan. Under current Sec.  226.5b(d)(8), however, a 
creditor must disclose in the application disclosures a good faith 
estimate of the total of fees imposed by third parties to open the 
HELOC plan. Under current Sec.  226.5b(d)(8), at a creditor's option, 
the creditor may disclose an itemization of third party fees to open a 
HELOC plan. Current comment 5b(d)(8)-2 provides guidance to creditors 
on how to disclose the total of third party fees and an itemization of 
those fees. As discussed in more detail below, the Board proposes to 
move these provisions in current Sec.  226.5b(d)(7) and (d)(8) to 
proposed Sec.  226.5b(c)(11) and revise them. Current comment 5b(d)(8)-
2 would be deleted as obsolete.
    The Board proposes in new Sec.  226.5b(c)(11) to require a creditor 
to disclose in the table as part of the early HELOC disclosures the 
total of all one-time fees imposed by the creditor and any third 
parties to open the plan, stated as a dollar amount. 15 U.S.C. 1604(a). 
In addition, under proposed Sec.  226.5b(c)(11), a creditor would be 
required to itemize in the table all one-time fees imposed by the 
creditor and any third parties to open the plan, stated as a dollar 
amount, and when these fees are payable. Proposed comment 5b(c)(11)-5 
provides that a creditor would be deemed to have itemized the account-
opening fees clearly and conspicuously if the creditor provides this 
information in a bullet format as shown in proposed Samples G-14(C), G-
14(D), and G-14(E) in Appendix G. The Board proposes this rule pursuant 
to its authority in TILA Section 105(a) to make adjustments and 
exceptions to the requirements in TILA to effectuate the statute's 
purposes, which include facilitating consumers' ability to compare 
credit terms and helping consumers avoid the uniformed use of credit, 
and pursuant to its authority in TILA Section 127A(a)(14) to require 
additional disclosures for HELOC plans. See 15 U.S.C. 1601(a), 1604(a), 
and 1637a(a)(14).
    The Board believes that requiring a creditor to disclose in the 
table the total dollar amount for all one-time fees imposed to open the 
HELOC plan and an itemization of those costs, regardless of whether 
those fees are charged by the creditor or a third party, will help 
consumers better understand the costs of opening a HELOC plan. In the 
consumer testing conducted by the Board on HELOC disclosures, all of 
the application and early HELOC disclosure forms that participants were 
shown included a range of the total of one-time fees that the borrower 
would be charged for opening the account. Some forms also provided an 
itemization of the one-time fees that would be charged for opening the 
account. (The one-time fees shown on the disclosure forms were a loan 
origination fee, a loan discount fee, an underwriting fee, and an 
appraisal fee). In this consumer testing, participants consistently 
said that they preferred to see both the total of one-time account-
opening fees and the itemization of these fees to help them understand 
what fees they would be paying to open the HELOC plan.
    Current comment 5b(d)(7)-2 provides that charges imposed by the 
creditor to open a HELOC plan may be stated as an estimated dollar 
amount for each fee, or as a percentage of a typical or representative 
amount of credit. Current 5b(d)(8)-3 provides that a creditor in 
disclosing the total of account-opening fees imposed by third parties 
may provide, based on a typical or representative amount of credit, a 
range for such fees or state the dollar amount of such fees. Fees may 
be expressed on a unit cost basis, for example, $5 per $1,000 of 
credit. The Board proposes to move these comments to Sec.  
226.5b(c)(11) and revise them.
    Specifically, under proposed Sec.  226.5b(c)(11), a creditor would 
be required to disclose the dollar amount of fees that will be imposed 
by the creditor or by third parties to open the plan. Concerning the 
requirement to itemize the one-time account-opening fees, proposed 
Sec.  226.5b(c)(11) allows a creditor to provide a range of these fees, 
if the dollar amount of a fee is not known at the time the early HELOC 
disclosures are delivered or mailed. Proposed comment 5b(c)(11)-2 
provides that if a range is shown, a creditor would be required to 
assume, in calculating the highest amount of the fee that the consumer 
will borrow the full credit line at account opening. In disclosing the 
lowest amount of the fee in the range, a creditor would be required to 
disclose the lowest amount of the fee that may be imposed. Regarding 
disclosure of the total of one-time account-opening fees, proposed 
Sec.  226.5b(c)(11) provides that if the exact total of one-time fees 
for account opening is not known at the time the early HELOC 
disclosures are delivered or mailed, a creditor must disclose in the 
table the highest total of one-time account opening fees possible for 
the plan terms with an indication that the one-time account opening 
costs may be ``up to'' that amount.
    The Board believes that requiring the one-time fees that are 
imposed to open the account to be disclosed as a dollar amount, instead 
of a percentage of another amount, would aid consumers' understanding 
of the account-opening fees and may aid consumers in comparison 
shopping for HELOC plans. In consumer testing conducted on credit card 
disclosures in relation to the January 2009 Regulation Z Rule, the 
Board found that consumers generally understand dollar amounts better 
than percentages. As a result, the Board believes that requiring 
account opening fees to be disclosed as dollar amounts instead of 
percentages of another amount would better enable consumers to 
understand the start up-costs of opening a HELOC plan. In addition, 
consumers could more easily compare the dollar amount of one-time 
account-opening fees on different HELOC plans if all HELOC plans are 
required to disclose the dollar amount. If the account-opening fees 
were presented as a percentage of another amount, consumers would need 
to calculate the dollar amount themselves.
    Current comment 5b(d)(7)-1 provides guidance on what types of fees 
would be considered fees imposed by the creditor to open the plan 
required to be

[[Page 43480]]

disclosed under current Sec.  226.5b(d)(7). Current comment 5b(d)(8)-1 
provides guidance on what types of fees would be considered account-
opening fees imposed by third parties required to be disclosed under 
current Sec.  226.5b(d)(8). The Board proposes to move these provisions 
in current comments 5b(d)(7)-1 and 5b(d)(8)-1 to proposed comment 
5b(c)(11)-1 and revise them. Specifically, proposed comment 5b(c)(11)-1 
clarifies that proposed Sec.  226.5b(c)(11) only applies to one-time 
fees imposed by the creditor or third parties to open the plan. The 
fees referred to in proposed Sec.  226.5b(c)(11) would include items 
such as application fees, points, appraisal or other property valuation 
fees, credit report fees, government agency fees, and attorneys' fees. 
This proposed comment makes clear that annual fees or other periodic 
fees that may be imposed for the availability of the plan would not be 
disclosed under proposed Sec.  226.5b(c)(11), but would be disclosed 
under proposed Sec.  226.5b(c)(12).
    Current comments 5b(d)(7)-4 and 5b(d)(8)-4 provide that if closing 
costs are imposed by the creditor and third parties they must be 
disclosed, regardless of whether such costs may be rebated later (for 
example, rebated to the extent of any interest paid during the first 
year of the plan). The Board proposes to move these comments to 
proposed comment 5b(c)(11)-4 and to make technical revisions.
    Current comment 5b(d)(8)-1 provides that in cases where property 
insurance is required by the creditor, the creditor may disclose as 
part of the application disclosures either the amount of the premium or 
a statement that property insurance is required. The Board proposes to 
delete this comment as obsolete. Under the proposal, proposed Sec.  
226.5b(c)(11) provides that a creditor must not disclose in the table 
as part of the early HELOC the amount of any property insurance 
premiums, even if the creditor requires property insurance. The Board 
believes that disclosure of the amount of any required property 
insurance premiums is not needed in the table as part of the early 
HELOC disclosures. Consumers are likely to have property insurance on 
the home prior to obtaining a HELOC account. For example, most 
consumers obtaining a HELOC will already have a first mortgage on their 
home and will be carrying property insurance on the home as required by 
the first mortgage. The Board solicits comment on this aspect of the 
proposal.
    Current comment 5b(d)(7)-5 provides that a creditor need not use 
the terms ``finance charge'' or ``other charge'' in describing the fees 
imposed by the creditor under current Sec.  226.5b(d)(7) or those 
imposed by third parties under current Sec.  226.5b(d)(8). Under 
current Sec.  226.7, a creditor is required to distinguish costs that 
are finance charges from other charges on the periodic statement by 
requiring finance charges to be labeled as such. Current comment 
5b(d)(7)-5 makes clear that a creditor is not required to use these 
labels in describing fees disclosed under current Sec.  226.5b(d)(7) 
and (d)(8). The Board proposes to delete this comment as obsolete, 
because under the proposal, a creditor would no longer be required to 
distinguish finance charges from other charges in disclosing costs on 
the periodic statement. See the section-by-section analysis to proposed 
Sec.  226.7.
5b(c)(12) Fees Imposed by the Creditor for Availability of the Plan
    As discussed above, current Sec.  226.5b(d)(7) provides that a 
creditor must disclose as part of the application disclosures any fees 
imposed by the creditor to maintain or use the HELOC plans. Current 
comment 5b(d)(7)-1 provides that fees imposed by the creditor to 
maintain or use the HELOC plan include annual fees, transaction fees, 
fees to obtain checks to access the plan, and fees imposed for 
converting to a repayment phase that is provided for in the original 
agreement. Current comment 5b(d)(7)-3 provides that fees not imposed to 
use or maintain a plan, such as fees for researching an account, 
photocopying, paying late, stopping payment, having a check returned, 
exceeding the credit limit, or closing out an account, do not have to 
be disclosed under current Sec.  226.5b(d)(7). In addition, credit 
report and appraisal fees imposed to investigate whether a condition 
permitting a freeze continues to exist--as discussed in the commentary 
to current Sec.  226.5b(f)(3)(vi)--are not required to be disclosed 
under current Sec.  226.5b(d)(7). The Board proposes to move the 
provisions in current Sec.  226.5b(d)(7) relating to disclosing fees 
imposed by the creditor to maintain and use the HELOC plan to proposed 
Sec.  226.5b(c)(12) and to revise them.. Specifically, proposed Sec.  
226.5b(c)(12) requires a creditor to disclose in the early HELOC 
disclosures table any annual or other periodic fees that may be imposed 
by the creditor for the availability of the plan, including any fee 
based on account activity or inactivity; how frequently the fee will be 
imposed; and the annualized amount of the fee.
    The Board proposes not to require a creditor to disclose in the 
table as part of the early HELOC disclosures fees imposed by the 
creditor to maintain and use the HELOC plan, except for fees for the 
availability of the plan. The Board proposes this rule pursuant to its 
authority in TILA Section 105(a) to make adjustments and exceptions to 
the requirements in TILA to effectuate the statute's purposes, which 
include facilitating consumers' ability to compare credit terms and 
helping consumers avoid the uniformed use of credit. See 15 U.S.C. 
1601(a), 1604(a). The Board believes that requiring a creditor to 
disclose in the early HELOC disclosures all fees imposed by the 
creditor to maintain and use the HELOC plan, such as transaction fees, 
could contribute to ``information overload'' for consumers. In the 
consumer testing conducted by the Board on HELOC disclosures, 
participants were shown versions of a disclosure table that itemized 
account-opening fees, penalty fees and transaction fees. Participants 
were asked which of these fees was most important for them to know when 
deciding whether to open a HELOC plan. Most participants indicated that 
it was most important for them to be provided an itemization of the 
account-opening fees in the early HELOC disclosures, so that they could 
better understand the costs of opening the HELOC plan.
    As noted, the Board also proposes in new Sec.  226.5b(c)(12) to 
require a creditor to disclose in the table as part of the early HELOC 
disclosures any fees for the availability of the plan. The Board 
believes that it is important for consumers to be informed in the early 
HELOC disclosures of fees for the availability of the plan, so that 
consumers will be aware of these fees as they decide whether to open a 
HELOC plan. As discussed in the Background section to this 
SUPPLEMENTARY INFORMATION, board research indicates that many HELOC 
consumers do not plan to take advances at account opening, but instead 
plan to use that HELOC account in emergency cases. The on-going costs 
of maintaining the HELOC plan may be of particular importance to these 
consumers in deciding whether to open a HELOC plan for these purposes.
    Other fees to maintain or use the plan that would currently be 
disclosed in the application disclosures under current Sec.  
226.5b(d)(7), such as transactions fees, would not be required to be 
disclosed in the table as part of the early HELOC disclosures under the 
proposal. Nonetheless, as discussed in more detail in the section-by-
section analysis to proposed Sec.  226.5b(c)(14), a creditor would be 
required to disclose in the table a statement that that other fees will

[[Page 43481]]

apply and a reference to penalty fees and transaction fees as examples 
of those fees, as applicable. In addition, a creditor would be required 
to disclose in the table either (1) a statement that the consumer may 
receive, upon request, additional information about fees applicable to 
the plan, or (2) if the additional information about fees is provided 
with the table, a reference where that information is located outside 
the table. The Board believes that this approach of highlighting in the 
table the fees on the HELOC plan that would be most important to 
consumers in deciding whether to open a HELOC plan and allowing 
consumers to receive information about additional fees upon request 
appropriately informs consumers about important fees applicable to the 
HELOC plan in the early HELOC disclosures, without creating 
``information overload'' that discourages consumers from reading 
disclosures at all, distract them from key information, or prevent 
retention and understanding of information.
    Current comment 5b(d)(7)-1 provides that a creditor would be 
required to disclose in the application disclosures any fees imposed by 
the creditor to use or maintain the plan, whether the fees are kept by 
the creditor or a third party. For example, if a creditor requires an 
annual credit report on the consumer and requires the consumer to pay 
this fee to the creditor or directly to the third party, the fee must 
be specifically stated in the application disclosures. The Board 
proposes to move this comment to proposed comment 5b(c)(12)-2 and 
revise it. Specifically, proposed comment 5b(c)(12)-2 clarifies that a 
creditor would be required to disclose all fees imposed by the creditor 
for the availability of the plan in the table as part of the early 
HELOC disclosures, regardless of whether those fees are kept by the 
creditor or a third party. For example, if a creditor requires an 
annual credit report on the consumer and requires the consumer to pay 
this fee to the creditor or directly to the third party, the fee must 
be disclosed in the table under.
    The Board also proposes to add new comment 5b(c)(12)-1, which would 
clarify that fees for the availability of credit required to be 
disclosed under proposed Sec.  226.5b(c)(12) would include any fees to 
obtain access devices, such as fees to obtain checks or credit cards to 
access the plan. For example, a fee to obtain checks or a credit card 
on the account would be required to be disclosed in the table as a fee 
for issuance or availability under Sec.  226.5b(c)(12). This fee would 
be required to be disclosed even if the fee is optional; that is, if 
the fee is charged only if the consumer requests checks or a credit 
card.
    In addition, the Board proposes to add new comment 5b(c)(12)-3 to 
clarify that if fees required to be disclosed under proposed Sec.  
226.5b(c)(12) are waived or reduced for a limited time, a creditor 
would be allowed to disclose, in addition to the required fees, the 
introductory fees or the fact of fee waivers in the table as part of 
the early HELOC disclosures if the creditor also discloses how long the 
reduced fees or waivers will remain in effect.
5b(c)(13) Fees Imposed by the Creditor for Early Termination of the 
Plan by the Consumer
    Currently, a creditor is not required to disclose in the 
application disclosures any fee imposed by the creditor for early 
termination of the plan by the consumer. See current comment 5b(d)(7)-
3. Pursuant to the Board's authority in TILA Section 127A(a)(14) to 
require additional disclosures for HELOC plans, the Board proposes to 
add new Sec.  226.5b(c)(13) to required a creditor to disclose in the 
table as part of the early HELOC disclosures any fee that may be 
imposed by the creditor if a consumer terminates the plan prior to its 
scheduled maturity. 15 U.S.C. 127a(a)(14). The Board believes that it 
is important for consumers to be informed as they decide whether to 
open a HELOC plan of early termination fees. This information may be 
especially important for consumers who may want to have the option of 
refinancing or cancelling the plan at any time. HELOC consumers may 
particularly value these options, as most HELOCs are subject to a 
variable interest rate.
    The Board proposes to add new comment 5b(c)(13)-1 to clarify the 
types of fees that would be required to be disclosed under proposed 
Sec.  226.5b(c)(13). This proposed comment clarifies that fees such as 
penalty or prepayment fees that the creditor imposes if the consumer 
terminates the plan prior to its scheduled maturity would be required 
to be disclosed under Sec.  226.5b(c)(13). These fees also would 
include waived account-opening fees for the plan, if the creditor will 
impose those costs on the consumer if the consumer terminates the plan 
within a certain amount of time after account opening. In addition, the 
proposed comment clarifies that fees that the creditor may impose in 
lieu of termination under comment 5b(f)(2)-2 would not be required to 
be disclosed under proposed Sec.  226.5b(c)(13). However, fees that are 
imposed when the plan expires in accordance with the agreement or that 
are associated with collection of the debt if the creditor terminates 
the plan, such as attorneys' fees and court costs, would not be 
required to be disclosed under proposed Sec.  226.5b(c)(13).
5b(c)(14) Statement About Other Fees
    As discussed in more detail in the section-by-section analysis to 
proposed Sec.  226.5b(c)(11), and (c)(12), the Board proposes not to 
require a creditor to disclose in the early HELOC disclosures table all 
of the fees that may be imposed on the HELOC plan. Instead, a creditor 
would be required to disclose in the table only the following fees: (1) 
Fees imposed by the creditor and third parties to open the HELOC plan; 
(2) fees imposed by the creditor for availability of the plan; (3) fees 
imposed by the creditor if a consumer terminates the plan prior to its 
scheduled maturity; and (4) fees imposed by the creditor for required 
insurance or debt cancellation or debt suspension coverage. See 
proposed Sec.  226.5b(c)(11), (c)(12), (c)(13) and (c)(19). 
Nonetheless, pursuant to the Board's authority in TILA Section 
127A(a)(14) to require additional disclosures for HELOC plans, the 
Board proposes to require a creditor to disclose in the table a 
statement that other fees will apply and a reference to penalty fees 
and transaction fees as examples of those fees, as applicable. 15 
U.S.C. 1637a(a)(14). In addition, a creditor would be required to 
disclose in the table either (1) a statement that the consumer may 
receive, upon request, additional information about fees applicable to 
the plan, or (ii) if the additional information about fees is provided 
with the table, a reference to where that information is located 
outside the table.
    Not all fees applicable to a HELOC plan will be disclosed in the 
table as part of the early HELOC disclosures. Thus, to ensure consumer 
understanding of fees the Board believes that it is important to notify 
consumers that additional fees will apply to the plan, and that 
consumers may receive information about certain additional fees upon 
request prior to account opening. In consumer testing conducted by the 
Board on HELOC disclosures, the Board tested versions of the early 
HELOC disclosures that contained a statement notifying consumers of 
additional fees and versions of the disclosures forms that did not 
contain this statement. Many participants that saw the disclosure forms 
that did not contain the statement that other fees may apply 
incorrectly assumed that no other fees would be charged.

[[Page 43482]]

    The Board proposes to add new comment 5b(c)(14)-1 to require a 
creditor in providing additional information about fees to a consumer 
upon the consumer's request prior to account opening (or along with the 
early HELOC disclosures) to disclose the penalty fees and transaction 
fees that are required to be disclosed in the account-opening summary 
table under proposed Sec.  226.6(a)(2)(x) through (a)(2)(xiv) and a 
statement that other fees may apply. A creditor must use a tabular 
format to disclose the additional information about fees that is 
provided upon request or provided outside the early HELOC disclosures 
table. Under proposed comment 5b(c)-2, a creditor would be required to 
provide this additional information about fees as soon as reasonably 
possible after the request.
    The Board believes that fees applicable to the HELOC plan that 
would be most important to consumers in deciding whether to open a 
HELOC plan should be emphasized by being placed in the table. In 
addition, under the proposal, consumers would be able to obtain quickly 
and easily additional information about other fees upon request. The 
Board believes that this proposed approach appropriately informs 
consumers about important fees applicable to the HELOC plan in the 
early HELOC disclosures, without creating ``information overload'' that 
can discourage consumers from reading disclosures at all, distract them 
from key information, or prevent retention and understanding of 
information.
5b(c)(15) Negative Amortization
    Current Sec.  226.5b(d)(9), which implements TILA Section 
127A(a)(11), provides that if applicable, a creditor must provide as 
part of the application disclosures a statement that negative 
amortization may occur and that negative amortization increases the 
principal balance and reduces the consumer's equity in the dwelling. 15 
U.S.C. 1637a(a)(11). The Board proposes to move current Sec.  
226.5b(d)(9) to proposed Sec.  226.5b(c)(15) and to make technical 
revisions.
    Current comment 5b(d)(9)-1 provides that in transactions where the 
minimum payment will not or may not be sufficient to cover the interest 
that accrues on the outstanding balance, the creditor must disclose 
that negative amortization will or may occur. This disclosure is 
required whether or not the unpaid interest is added to the outstanding 
balance upon which interest is computed. A disclosure is not required 
merely because a loan calls for non-amortizing or partially amortizing 
payments. The Board proposes to move this comment to proposed comment 
5b(c)(15)-1 and revise it. Specifically, proposed comment 5b(c)(15)-1 
contains the guidance discussed above. In addition, proposed comment 
5b(c)(15)-1 provides that a creditor would be deemed to meet the 
requirements of proposed Sec.  226.5b(c)(15) if the creditor provides 
the following disclosure, as applicable: ``Your minimum payment may 
cover/covers only part of the interest you owe each month and none of 
the principal. The unpaid interest will be added to your loan amount, 
which over time will increase the total amount you are borrowing and 
cause you to lose equity in your home.'' This proposed language 
describing negative amortization was developed by the Board through its 
consumer testing on closed-end mortgage loans, as discussed in the 
proposal issued by the Board on closed-end mortgages published 
elsewhere in today's Federal Register. The Board believes that this 
proposed language effectively communicates the risks of negative 
amortization pursuant to the statutory requirements.
5b(c)(16) Transaction Requirements
    Current Sec.  226.5b(d)(10) provides that a creditor must disclose 
as part of the application disclosures any limitations on the number of 
extensions of credit and the amount of credit that may be obtained 
during any time period, as well as any minimum outstanding balance and 
minimum draw requirements, stated as dollar amounts or percentages. The 
Board proposes to move current Sec.  226.5b(d)(10) to proposed Sec.  
226.5b(c)(16) and revise it. Specifically, proposed Sec.  226.5b(c)(16) 
provides that a creditor must disclose in the table as part of the 
early HELOC disclosures any limitations on the number of extensions of 
credit and the amount of credit that may be obtained during any time 
period, as well as any minimum outstanding balance and minimum draw 
requirements. In addition, consistent with current Sec.  226.5b(d)(10), 
proposed Sec.  226.5b(b)(3) provides that the transaction requirements 
disclosed under proposed Sec.  226.5b(c)(16) may be disclosed as dollar 
amounts or as percentages.
    Current comment 5b(d)(10)-1 provides that a limitation on automated 
teller machine usage need not be disclosed in the application 
disclosures under current Sec.  226.5b(d)(10) unless that is the only 
means by which the consumer can obtain funds. The Board proposes to 
move this comment to proposed comment 5b(c)(16)-1 without any 
revisions.
5b(c)(17) Credit Limit
    Currently, a creditor is not required to disclose in the 
application disclosures the credit limit that is being offered to the 
consumer. Pursuant to the Board's authority in TILA Section 127A(a)(14) 
to require additional disclosures for HELOC plans, the Board proposes 
in new Sec.  226.5b(c)(17) to require a creditor to disclose in the 
table as part of the early HELOC disclosures the creditor limit 
applicable to the plan. 15 U.S.C. 1637a(a)(14). As discussed in more 
detail in the section-by-section analysis to proposed Sec.  
226.5b(b)(1), participants in consumer testing conducted by the Board 
on HELOC disclosures indicated that the credit limit was one of the 
most important pieces of information that they wanted to know in 
deciding whether to open a HELOC plan.
5b(c)(18) Statements About Fixed-Rate and -Term Payment Plans
    Current comment 5b(d)(5)(ii)-2 provides that a creditor generally 
must disclose in the application disclosures terms that apply to the 
fixed-rate and -term payment feature, include the period during which 
the feature can be selected, the length of time over which repayment 
can occur, any fees imposed for the feature, and the specific rate or a 
description of the index and margin that will apply upon exercise of 
the feature.
    For the reasons discussed in the section-by-section analysis to 
proposed Sec.  226.5b(c), the Board proposes that if a HELOC plan 
offers both a variable-rate feature and a fixed-rate and -term feature 
during the draw period, a creditor generally must not disclose in the 
table all the terms applicable to the fixed-rate and -term feature. See 
proposed Sec.  226.5b(c). Instead, the Board proposes to require a 
creditor offering this payment feature (in addition to a variable-rate 
feature) to disclose in the table the following: (1) A statement that 
the consumer has the option during the draw period to borrow at a fixed 
interest rate; (2) the amount of the credit line that the consumer may 
borrow at a fixed interest rate for a fixed term; and (3) as 
applicable, either a statement that the consumer may receive, upon 
request, further details about the fixed-rate and -term payment 
feature, or, if information about the fixed-rate and -term payment 
feature is provided with the table, a reference to the location of the 
information. See proposed Sec.  226.5b(c)(18). Thus, under the 
proposal, a consumer would be notified in the table about the fixed-
rate and -term payment feature, and could request additional 
information about

[[Page 43483]]

this payment feature (if a creditor chose not to provide additional 
information about this feature outside of the table).
    In responding to a consumer's request prior to account opening for 
additional information about the fixed-rate and -term feature, a 
creditor would be required to provide this additional information as 
soon as reasonably possible after the request. See proposed comment 
5b(c)-2. The following additional information disclosed about the 
fixed-rate and -term payment feature upon request (or outside the early 
HELOC disclosures table) would have to include in the form of a table: 
(1) information about the APRs and payment terms applicable to the 
fixed-rate and -term payment feature, and (2) any fees imposed related 
to the use of the fixed-rate and -term payment feature, such as fees to 
exercise the fixed-rate and -term payment option or to convert a 
balance under a fixed-rate and -term payment feature to a variable-rate 
feature under the plan. See proposed comment 5b(c)(18)-2. The Board 
believes that the above approach to providing information to consumers 
about the fixed-rate and -term feature enables consumers interested in 
this feature to obtain additional information about this optional 
feature easily and quickly, but does not contribute to ``information 
overload'' for consumers in general.
5b(c)(19) Required Insurance, Debt Cancellation or Debt Suspension 
Coverage
    Currently, creditors are not required to provide any information 
about the insurance or debt cancellation or suspension coverage, 
whether optional or required, in the application disclosures. If a 
creditor requires insurance or debt cancellation or debt suspension 
coverage (to the extent permitted by state or other applicable law), 
the Board proposes new Sec.  226.5b(c)(19) that would require a 
creditor to disclose in the table as part of the early HELOC 
disclosures any fee for this coverage. In addition, proposed Sec.  
226.5a(b)(19) requires that a creditor also disclose in the table a 
cross reference to where the consumer may find more information about 
the insurance or debt cancellation or debt suspension coverage, if 
additional information is included outside the early HELOC disclosures 
table. The Board proposes this rule pursuant to the Board's authority 
in TILA Section 127A(a)(14) to require additional disclosures for HELOC 
plan. 15 U.S.C. 1637a(a)(14). Proposed Samples G-14(D) and G-14(E) 
provide guidance on how to provide the fee information and the cross 
reference in the table. If insurance or debt cancellation or suspension 
coverage is required to obtain a HELOC, the Board believes that any 
fees required for this coverage should be emphasized by being placed in 
the table; consumers need to be aware of these fees when deciding 
whether to open a HELOC plan, because they will be required to pay the 
fee for this coverage every month in order to have the plan.
5b(c)(20) Statement About Asking Questions
    Pursuant to the Board's authority in TILA Section 127A(a)(14) to 
require additional disclosures for HELOC plans, the Board proposes in 
new Sec.  226.5b(c)(20) to require a creditor to disclose as part of 
the early HELOC disclosures a statement that if the consumer does not 
understand any disclosure in the table the consumer should ask 
questions. 15 U.S.C. 1637a(a)(14). Under the proposal, a creditor would 
be required to provide this disclosure directly below the table 
provided as part of the early HELOC disclosures, in a format 
substantially similar to any of the applicable tables found in proposed 
Samples G-14(C), G-14(D), and G-14(E) in Appendix G. See proposed Sec.  
226.5b(b)(2)(iv).
    Consumer testing on HELOC and closed-end mortgage disclosures 
conducted by the Board showed that many participants educated 
themselves about the HELOC and mortgage process through informal 
networking with family, friends, and colleagues, while others relied on 
the Internet for information. To improve consumers' ability to make 
informed decisions about credit, the Board proposes to require a 
creditor to disclose that if the consumer does not understand the 
disclosures contained in the table as part of the early HELOC 
disclosures, the consumer should ask questions.
5b(c)(21) Statement About Board's Web Site
    Pursuant to the Board's authority in TILA Section 127A(a)(14) to 
require additional disclosures for HELOC plans, the Board proposes in 
new Sec.  226.5b(c)(21) to require a creditor to provide as part of the 
early HELOC disclosures a statement that the consumer may obtain 
additional information at the Web site of the Federal Reserve Board, 
and a reference to this Web site. Currently, an electronic copy of the 
HELOC brochure is available at the Board's Web site at http://www.federalreserve.gov/pubs/equity/homeequity.pdf. The Board plans to 
enhance its Web site to further assist consumers in shopping for a 
HELOC. Although it is hard to predict how many consumers might use the 
Board's Web site, and recognizing that not all consumers have access to 
the Internet, the Board believes that this Web site may be helpful to 
some consumers as they decide whether to open a HELOC plan. The Board 
seeks comment on the content for the Web site.
5b(c)(22) Statement About Refundability of Fees
    Pursuant to the Board's authority in TILA Section 127A(a)(14) to 
require additional disclosures for HELOC plans, the Board proposes in 
new Sec.  226.5b(c)(22) to require a creditor to disclose as part of 
the early HELOC disclosures a statement that the consumer may be 
entitled to a refund of all fees paid if the consumer decides not to 
open the plan and a cross reference to the ``Fees'' section in the 
table. Under the proposal, a creditor would be required to disclose 
these statements directly below the table, in a format substantially 
similar to any of the applicable tables found in proposed G-14(C), G-
14(D) and G-14(E) in Appendix G. See proposed Sec.  226.5b(b)(2)(iv).
    As discussed in the section-by-section analysis to proposed Sec.  
226.5b(c)(4) and (c)(5), under the proposal, a creditor would be 
required to disclose in the early HELOC disclosures table circumstances 
in which a consumer could receive a refund of all fees paid if the 
consumer decides not open the HELOC plan offered to the consumer. In 
particular, a creditor must disclose in the table that a consumer has 
the right to receive a refund of all fees paid if the consumer notifies 
the creditor that the consumer does not want to open the HELOC plan (1) 
for any reasons within three business days after the consumer receives 
the early HELOC disclosures; and (2) any time before the HELOC account 
is opened if any terms disclosed in the early HELOC disclosures change 
(except for the APR). In addition, under the proposal, a creditor would 
be required to disclose an indication of which terms disclosed in the 
early HELOC disclosures table are subject to change prior to account 
opening.
    As discussed in the section-by-section to proposed Sec.  
226.5b(b)(2), the Board tested with consumers versions of the early 
HELOC disclosures with the right to a refund of fees disclosures 
located near a statement that terms disclosed in the early HELOC 
disclosures are subject to change prior to account opening as one of 
the rights to a refund of fees relates to changes in terms offered on 
the HELOC prior to account opening.

[[Page 43484]]

The Board also tested other versions of the early HELOC disclosures 
with these disclosures in the ``Fees'' section of the table. These 
tested disclosure forms also included next to the statement about which 
terms in the table may change prior to account opening, a statement 
that the consumer may be entitled to a refund of all fees paid if the 
consumer decides not to open the plan and a cross reference to the 
``Fees'' section in the table provided as part of the early HELOC 
disclosures.
    The Board found through this testing that participants were more 
likely to notice and understand information about the refundability of 
fees when it was included in the ``Fees'' section of the table. Thus, 
under the proposal, the Board proposes to require that the information 
about the refundability of fees be disclosed in the ``Fees'' section of 
the table. In addition, the Board proposes in new Sec.  226.5b(c)(22) 
to require a creditor to disclose as part of the early HELOC 
disclosures a statement that the consumer may be entitled to a refund 
of all fees paid if the consumer decides not to open the plan and a 
cross reference to the ``Fees'' section in the table provided as part 
of the early HELOC disclosures. This statement and cross reference 
would be disclosed below the table, grouped together with other global 
statements that generally relate to the terms being disclosed in the 
table such as an indication of which terms disclosed in the table may 
change prior to account opening.
5b(d) Refund of Fees
    The proposal would redesignate paragraph 5b(g) as paragraph 5b(d) 
and comments 5b(g)-1, -2, -3, -4 as comments 5b(d)-1, -2, -3, and -4, 
and revise these provisions. Current paragraph 5b(g), which implements 
TILA Section 137(d), requires a creditor to refund fees paid ``in 
connection with an application'' if any term required to be disclosed 
under current section 226.5b(d) changes (other than a change due to 
fluctuations in the index in a variable-rate plan) before the plan is 
opened and, as a result of the change, the consumer elects not to open 
the plan. See 15 U.S.C. 1647(d). Comment 5b(g)-1 explains that all fees 
paid must be refunded, including credit-report fees and appraisal fees, 
whether they are paid to the creditor or directly to third parties. 
Comment 5b(g)-3 specifies that when a term is changed that was 
disclosed as a range (as permitted under Sec.  226.5b(d)) and the 
resulting term falls within the disclosed range, the consumer is not 
entitled to a refund of fees. Similarly, if the creditor discloses a 
third-party fee as an estimate (as permitted under Sec.  226.5b(d)) and 
those fees change, the consumer is not entitled to a refund of fees.
    Under the proposal, the phrase ``in connection with the 
application'' would be deleted from both new Sec.  226.5b(d) and 
comment 5b(d)-1. The Board views this phrase as unnecessary to describe 
the fees that must be refunded under this paragraph. As indicated in 
current comment 5b(g)-1, the Board has long interpreted this phrase, 
when modifying the term ``fees'' in both the statute and regulation, to 
mean any fees that the consumer has paid to the creditor or a third 
party related in any way to obtaining a HELOC with the creditor.
    The proposal also would eliminate from the provisions in new Sec.  
226.5b(d) and accompanying commentary any references to the consumer's 
being entitled to a refund of fees only if the consumer decides not to 
obtain a HELOC because of a change in terms. The proposal would instead 
provide that a refund is required if a disclosed term changes before 
account opening and the consumer decides not to enter into the plan. 
Pursuant to the Board's authority in TILA Section 105(a) to make 
adjustments to the requirements in TILA necessary to effectuate the 
purposes of TILA, the Board proposes to eliminate the requirement that 
the consumer's reason for deciding not to enter into the plan must be 
that a term has changed. The Board believes that requiring consumers to 
prove their intent for deciding not to enter a plan, the initially 
disclosed terms of which have changed, and requiring creditors to 
discern consumer intent, are not practicable. In addition, the Board 
believes that when terms change, most consumers who decide not to enter 
into the plan will decide not to do so because of the changed term.
    Comment 5b(d)-3 would be revised to reflect that under the 
proposal, disclosing a range for the maximum rate would no longer be 
permitted in the early HELOC disclosure table, nor would disclosing an 
estimate for a third-party account-opening fee, in contrast to the 
current rule on third-party fees reflected in current comment 5b(g)-3. 
See proposed Sec.  226.5b(c)(10). Disclosing an account-opening fee as 
a range, however, would be permitted if the dollar amount of the fee is 
not known at the time the disclosures under Sec.  226.5b(b) are 
delivered or mailed. See proposed Sec.  226.5b(c)(11).
    The proposal also would make conforming changes to reflect re-
numbered provisions in the proposal.
5b(e) Imposition of Nonrefundable Fees
    The proposal would redesignate paragraph 5b(h) as paragraph 5b(e) 
and comments 5b(h)-1, -2, and -3 as comments 5b(e)-1, -2, and -3, and 
would revise these provisions. Current paragraph 5b(h), which 
implements TILA Section 137(e), obligates a creditor to refund any fee 
imposed within three business days of the consumer receiving the 
application disclosures and brochure required under existing Sec.  
226.5b if, within that time period, the consumer decides not to enter 
into the HELOC agreement. See 15 U.S.C. 1647(e). Comment 5b(h)-1 
provides that if the creditor collects a fee after the consumer 
receives the application disclosures and the HELOC brochure and before 
the expiration of three business days, the creditor must notify the 
consumer--clearly and conspicuously and in writing--that the fee is 
refundable for three business days. This comment also provides that if 
disclosures are mailed to the consumer, a nonrefundable fee may not be 
imposed until six business days after mailing, because footnote 10d to 
the regulation provides that if the disclosures are mailed to the 
consumer, the consumer is considered to have received them three 
business days after they are mailed.
    Proposed comment 5b(e)-1 retains these requirements, but with 
technical changes, including changes to reflect that, under the 
proposal, notice of the consumer's right to receive a refund must be 
included in the early HELOC disclosure table required under proposed 
Sec.  226.5b(b), and may not be provided as an attachment to the early 
HELOC disclosures. Further discussion of this requirement is in the 
section-by-section analysis of Sec.  226.5b(c)(5). In addition, 
footnote 10d is moved into the main text of Sec.  226.5b(e).
    Proposed comment 5b(e)-4 provides that, for purposes of Sec.  
226.5b(e), the term ``business day'' has the more precise definition 
used for rescission and for other purposes, meaning all calendar days 
except Sundays and the federal holidays referred to in Sec.  
226.2(a)(6). For example, if the creditor were to place the disclosures 
in the mail on Thursday, June 4, the disclosures would be considered 
received on Monday, June 8. The Board proposes to use the more precise 
definition of ``business day'' for determining receipt of disclosures 
for purposes of Sec.  226.5b(e) to conform to the Board's rules for 
determining receipt of disclosures for other dwelling-secured 
transactions under Sec. Sec.  226.19(a)(1)(ii) and 226.31(c), as well

[[Page 43485]]

as to the Board's recently adopted rules under Sec.  226.19(a)(2). See 
74 FR 23289 (May 19, 2009).
    Under the proposal, the phrase ``in connection with the 
application'' would be deleted from new Sec.  226.5b(e). The Board 
views this phrase as unnecessary to describe the fees that must be 
refunded under this paragraph. As indicated in current comment 5b(g)-1, 
the Board has long interpreted this phrase, when modifying the term 
``fees'' in both the statute and regulation, to mean any fees that the 
consumer has paid to the creditor or a third party related in any way 
to obtaining a HELOC with the creditor.
    The proposal also would make conforming changes to reflect proposed 
disclosure requirements and re-numbered provisions, and to indicate 
that ``three days'' means, as indicated in the corresponding regulation 
text, ``three business days.''
5b(f) Limitations on Home-Equity Plans
    TILA Section 137, implemented in Sec.  226.5b(f), limits the 
changes that creditors may make to HELOCs subject to Sec.  226.5b. The 
proposal would amend and clarify these limitations by revising Sec.  
226.5b and accompanying Official Staff Commentary, and adding a new 
Sec.  226.5b(g).
    The proposal includes a number of significant changes to the rules 
restricting changes that creditors may make to HELOCs subject to Sec.  
226.5b. First, the proposal would amend Sec.  226.5b(f)(2)(ii), which 
permits creditors to terminate and accelerate a HELOC if ``the consumer 
fails to meet the repayment terms of the agreement,'' to prohibit 
creditors from terminating and accelerating an account or taking lesser 
action permitted under comment 5b(f)(2)-2, unless the consumer has 
failed to make a required minimum periodic payment within a specified 
time period after the due date for that payment. As discussed in more 
detail below, the Board is specifically proposing that account action 
under Sec.  226.5b(f)(2)(ii) be prohibited unless the consumer has 
failed to make a required minimum periodic payment within 30 days of 
the due date. The Board is requesting comment on the appropriateness of 
this timeframe, or whether some other time period is more appropriate.
    Second, the proposal would amend Sec.  226.5b(f)(2)(iv) to permit 
creditors to terminate and accelerate a home-equity plan if a federal 
law requires the creditor to do so. Similarly, the proposal would add a 
new Sec.  226.5b(f)(3)(vi)(G) to permit creditors to suspend advances 
or reduce the credit limit if a federal law requires the creditor to do 
so.
    Third, in a new comment 5b(f)(3)-3, the proposal would clarify that 
Regulation Z's general limitation on changing terms does not prohibit a 
creditor from passing on to consumers bona fide and reasonable costs 
incurred by the creditor for collection activity after default, to 
protect the creditor's interest in the property securing the plan, or 
to foreclose on the securing property.
    Fourth, the proposal would add to comment 5b(f)(3)(v)-2 an example 
of a change that would be considered insignificant under this 
provision: a creditor may eliminate a method of accessing a HELOC, such 
as by credit card, as long as at least one means of access that was 
available at account opening remains available to the consumer on the 
original terms.
    Finally, the proposal would provide additional guidance and amend 
the rules in three major areas related to when a creditor may 
temporarily suspend advances on a home-equity plan or reduce the credit 
limit: (1) Rules regarding when a creditor may suspend or reduce an 
account based on a significant decline in the property value (Sec.  
226.5b(f)(3)(vi)(A) and existing comment 5b(f)(3)(vi)-6); (2) rules 
regarding when a creditor may suspend or reduce an account based on a 
material change in the consumer's financial circumstances (Sec.  
226.5b(f)(3)(vi)(B) and existing comment 5b(f)(3)(vi)-7); and (3) rules 
regarding reinstatement of accounts that have been suspended or reduced 
(proposed Sec.  226.5b(g) and existing comments 5b(f)(3)(vi)-2, -3, and 
-4).
5b(f)(2)(ii) Limitations on Action Taken for Failure To Meet the 
Repayment Terms
Background
    Section 226.5b(f)(2)(ii) permits a creditor to terminate a HELOC 
and accelerate the balance if the consumer has ``fail[ed] to meet the 
repayment terms of the agreement for any outstanding balance.'' The 
corresponding statutory provision reads similarly: ``A creditor may not 
unilaterally terminate any account * * * except in the case of * * * 
(2) failure by the consumer to meet the repayment terms of the 
agreement for any outstanding balance.'' 15 U.S.C. 1647(b)(2). Comment 
5b(f)(2)(ii)-1 clarifies that a creditor may terminate and accelerate a 
plan under this provision ``only if the consumer actually fails to make 
payments.'' Thus, an account may not be terminated for a minor payment 
infraction, such as when a consumer sends a payment to the wrong 
address. Comment 5b(f)(2)-2 interprets this provision to allow 
creditors to take an action short of terminating the plan and 
accelerating the balance, such as temporarily or permanently suspending 
advances, reducing the credit limit, changing the payment terms, or 
requiring the consumer to pay a fee. A creditor may also provide in its 
agreement that a higher rate or fee will apply in circumstances under 
which it could otherwise terminate the plan and accelerate the balance.
Proposal
    The proposal would interpret the statute to mean that creditors may 
not, for payment-related reasons, terminate the plan and accelerate the 
balance or take certain actions short of termination and acceleration 
permitted under comment 5b(f)(2)-2, unless the consumer has failed to 
make a required minimum periodic payment within 30 days after the due 
date for that payment. The Board is specifically proposing that account 
action under Sec.  226.5b(f)(2)(ii) be prohibited unless the consumer 
has failed to make a required minimum periodic payment within 30 days 
of the due date, and requesting comment on whether this timeframe is 
appropriate, or whether some other time period is more appropriate. The 
Board proposes this rule pursuant to its authority in TILA Section 
105(a) to issue provisions and make adjustments to the requirements of 
TILA that are necessary or proper to effectuate the statute's purposes. 
See 15 U.S.C. 1604(a).
    The Board believes that specifying the type of payment infraction 
required to take action under this provision is necessary to effectuate 
the purposes of TILA and Congress in enacting the Home Equity Loan Act 
(cited above). According to section-by-section clarifications in the 
Home Equity Loan Act, this provision specifically ``deals with the 
failure of the borrower to actually make payments. It does not 
encompass minor transgressions such as inadvertently sending the 
payment to the wrong branch.'' \19\ Creditors and consumer groups have 
expressed uncertainty about when an account may be terminated or other 
action taken under this provision, as well as concerns that creditor 
practices in this regard vary widely. In particular, concerns have been 
raised about ``hair-

[[Page 43486]]

trigger'' terminations and other actions being taken on accounts due to 
minor late payments.\20\ Some have pointed out that the plain language 
of this provision--the consumer ``fails to meet the repayment terms of 
the agreement''--arguably allows creditors to take an action that seems 
disproportionate to the consumer's actions, such as account termination 
due to as little as a single-day delinquency.
---------------------------------------------------------------------------

    \19\ Section-by-Section Clarifications to H.R. 3011, the Home 
Equity Loan Consumer Protection Act of 1988, Pub. L. 100-709, 
enacted on Nov. 23, 1988 (inserted by Rep. David Price), Congr. 
Rec., H4474 (June 20, 1988) (emphasis added).
    \20\ Board staff discussions with creditors revealed that 
creditors terminate HELOC accounts due to a consumer's ``fail[ure] 
to meet the repayment terms of the agreement'' for payment 
delinquencies ranging from 16 to 90 days. In addition to creditor 
practices, Board staff have also considered court decisions such 
Cunningham v. Nat'l City, C.A. 1-08-CV-10936-RGS (Dist. Mass., Jan. 
7, 2009), in which the court held that termination of an account was 
permitted based on a seven-day delinquency, even though the consumer 
paid within the contractual late fee courtesy period. Standard HELOC 
agreements reviewed by the Board typically incorporate the 
regulatory language allowing a creditor to terminate and accelerate 
an account or take certain lesser actions due to a consumer's 
``fail[ure] to meet the repayment terms of the agreement,'' without 
specifying the number of days late a consumer's payment may be 
before the account will be terminated or other action taken under 
Sec.  226.5b(f)(2)(ii).
---------------------------------------------------------------------------

    The Board believes that the proposed interpretation of the relevant 
statutory and regulatory provisions better carries out the legislative 
intent to protect consumers against (1) creditor practices that are 
unexpected and harmful,\21\ and (2) actions based on ``minor'' payment 
infractions.\22\ The Board believes, for example, that terminating a 
line based on a payment that was late but made within a contractual 
late fee ``courtesy'' period is arguably unexpected and harmful; a 
consumer may have a reasonable expectation that no penalty will be 
imposed for a payment made within a certain number of days after the 
due date where a late fee courtesy period has consistently been applied 
to an account. In addition, the proposal acknowledges that payments may 
be late for reasons out of the consumer's control, such as postal 
delays or automated funds disbursement errors. A delinquency threshold 
for taking action on the account of more than 30 days would give 
consumers time to discover and correct the error. Finally, a consumer 
who is more than 30 days delinquent will, in most cases, have missed at 
least two due dates--and thus will have wholly failed to make a 
payment. See existing comment 5b(f)(2)(ii)-1 (prohibiting termination 
and acceleration of an account unless the consumer ``actually fails to 
make payments'').\23\
---------------------------------------------------------------------------

    \21\ See, e.g., Remarks of Rep. St. Germain, Chair, House 
Committee on Banking, Finance and Urban Affairs on H.R. 3011, the 
Home Equity Loan Consumer Protection Act of 1988, Public Law 100-
709, enacted on Nov. 23, 1988, Congr. Rec., H4471 (June 20, 1988) 
(The Home-equity Loan Act was intended to ensure that creditors 
could impose ``no hidden fees, no hidden terms * * * on unsuspecting 
homeowners''); Remarks of Rep. Schumer on H.R. 3011, Congr. Rec., 
H4475 (June 20, 1988) (``Home-equity loans have several potential 
pitfalls if a consumer is not completely aware * * *'').
    \22\ Section-by-Section Clarifications to H.R. 3011, the Home 
Equity Loan Consumer Protection Act of 1988, Public Law 100-709, 
enacted on Nov. 23, 1988 (inserted by Rep. David Price), Congr. 
Rec., H4474 (June 20, 1988).
    \23\ See also id.
---------------------------------------------------------------------------

    Overall, the proposal is intended to strike a more equitable 
balance between creditors' need to protect themselves against risk 
(and, for depositories, to ensure their safety and soundness), and 
effective protection of HELOC consumers from constraints on their 
credit privileges that do not correspond with reasonable expectations. 
Consumer protection would be enhanced by eliminating the opportunity 
for hair-trigger terminations and certain lesser actions for nominal 
delinquencies. In addition, the Board believes that a consumer would be 
more likely to expect serious consequences for a delinquency of more 
than 30 days on a debt secured by the consumer's home than on an 
unsecured credit card account. These protections arguably offset the 
risk to consumers that creditors now terminating lines of credit based 
on delinquencies of 30 days or less (or that rarely terminate lines) 
will begin terminating accounts based on the proposed over-30-days 
delinquency rule.
    At the same time, creditors would retain options to protect 
themselves from losses prior to a payment becoming more than 30 days 
delinquent. Specifically, a creditor could impose late payment fees 
specified in the HELOC agreement. Creditors also could temporarily 
suspend or reduce accounts for a ``default of a material obligation'' 
under Sec.  226.5b(f)(3)(vi)(C), as payment obligations are commonly 
considered material obligations. In effect, whether a line can be 
terminated due to failure to meet a payment obligation as permitted 
under TILA depends on the extent of the default (i.e., is a payment 
late by more than 30 days?); whereas whether a line can be temporarily 
suspended or reduced depends on the nature of the obligation on which 
the consumer defaulted (i.e., is the obligation itself ``material''?).
    The Board requests comment on whether a failure to make a payment 
within 30 days is appropriate or whether some other time period is more 
appropriate for permitting action under this provision. In this regard, 
the Board notes that the 2009 Credit Card Act (cited above) has 
suggested considering a delinquency threshold of more than 60 days. 
Specifically, the Credit Card Act adds a new section 171 to TILA (15 
U.S.C. 1666j) to prohibit increasing the APR on existing credit card 
balances unless the creditor has not received a minimum payment within 
60 days after the due date for the payment. See Credit Card Act, Sec.  
101(b). However, the Credit Card Act does not require that a consumer 
must be 60 or even 30 days late before a creditor may terminate a 
credit card account; the Credit Card Act deals with when a credit card 
creditor may reprice balances on an account.
    The Board also requests comment on whether the Board should 
consider any other payment infractions to be sufficient grounds for 
termination and acceleration (and permitted lesser actions).
5b(f)(2)(iv) Terminations Required by Federal Law
    Existing Sec.  226.5b(f)(2)(iv) permits a depository institution to 
terminate and accelerate a HELOC plan if ``compliance with federal law 
dealing with credit extended by a depository institution to its 
executive officers specifically requires that as a condition of the 
plan the credit shall become due and payable on demand.'' The Board 
narrowly tailored this additional provision permitting termination in 
light of Section 22(g) of the Federal Reserve Act (implemented by 
Regulation O, 12 CFR Part 215) and Section 309 of the Federal Deposit 
Insurance Corporation Improvement Act. See 57 FR 34676 (August 6, 
1992).
    The proposal would amend Sec.  226.5b(f)(2)(iv) to permit creditors 
to terminate and accelerate home-equity plans if a federal law requires 
the creditor to do so, expanding this provision to cover other federal 
laws that may require a creditor to terminate and accelerate a plan. 
``Federal law'' under this provision is limited to any federal statute, 
its implementing regulation, and official interpretations issued by the 
regulatory agency with authority to implement such statute and 
regulation.
    With this revision, the Board intends to prevent the need to issue 
separate revisions to Regulation Z to account for any new federal law 
requiring creditors to terminate and accelerate plans under particular 
circumstances. Further discussion of the reasons for this proposal and 
requests for comment are found in the explanation below of a similar 
proposal designated as new Sec.  226.5b(3)(vi)(G).

[[Page 43487]]

    Regarding this proposed provision, the Board requests comment on 
what additional examples of conflicts between Regulation Z's 
restrictions on account termination and other laws the Board should 
consider, if any. The Board also requests comment on whether the 
definition of ``federal law'' should be broadened to include, for 
example, an order or directive of a federal agency.
5b(f)(3) Limitations on Changes in Terms
    Section 226.5b(f)(3) generally prohibits a creditor from changing 
the terms of a HELOC plan after it is opened. Comment 5b(f)(3)-1 states 
that, for example, a creditor may not increase any fee or impose a new 
fee once the plan has been opened, even if the fee is charged by a 
third party. This comment also provides that the change-in-terms 
prohibition applies to ``all features of a plan,'' even if the features 
are not required to be disclosed under Sec.  226.5b (i.e., on the 
application disclosures). Comment 5b(f)(3)-2, however, lists three 
charges that may be changed: (1) Increases in taxes; (2) increases in 
premiums for property insurance (if excluded from the finance charge 
under Sec.  226.4(d)(2)); and (3) increases in premiums for credit 
insurance (if excluded from the finance charge under Sec.  
226.4(d)(2)).
    The proposal would first revise comment 5b(f)(3)-1 to remove the 
example of a charge that is not required to be disclosed--specifically, 
a late-payment fee. Under the proposal, a late-payment fee would not be 
required to be disclosed in the early HELOC disclosure table under 
Sec.  226.5b(b) (see proposed Sec.  226.5b(c)(11), (c)(12) and 
(c)(13)), but it would be required to be disclosed on the account-
opening table under proposed Sec.  226.6(a)(2)(x), along with several 
other types of fees. Further discussion of these proposed rules is 
included in the section-by-section analysis for proposed Sec.  
226.6(a)(2).
    Second, proposed comment 5b(f)(3)-3 clarifies that creditors may 
pass on to consumers costs in the limited categories of debt 
collection, collateral protection and foreclosure under Regulation Z, 
but only if certain conditions are present. First, the costs must 
``bona fide and reasonable,'' meaning that the creditor may pass on to 
the consumer only costs that the creditor actually incurs in taking 
these actions on a particular plan, and that the amount of any costs 
passed on to the consumer must be reasonably related to any services 
related to debt collection, collateral protection or foreclosure 
incurred by the creditor. These costs might include attorneys' fees, 
court costs, property repairs, payment of overdue taxes, or paying sums 
secured by a lien with priority over the lien securing the HELOC. 
Second, the need for the creditor's actions must arise due to the 
consumer's default of an obligation under the agreement.
    During outreach to prepare this proposal, the Board received 
requests to clarify whether creditors may pass on to consumers bona 
fide and reasonable costs incurred by the creditor for collection 
activity after default, to protect the creditor's interest in the 
property securing the plan, and to foreclose on the securing property. 
Creditors have expressed uncertainty about whether a creditor may pass 
these types of costs on to consumers under Regulation Z. As noted, 
Sec.  226.5b(f)(3) prohibits creditors from changing the terms of a 
home-equity plan except in specified circumstances. Existing comment 
5b(f)(3)-2 lists only three types of fees that are not covered by this 
section. Thus, it could be argued that creditors may not pass certain 
costs on to consumers unless they disclose in the agreement the 
specific fees and amounts associated with actions required for debt 
collection, collateral protection and foreclosure. The Board 
understands that the specific amount of costs required for a creditor 
to collect unpaid amounts, protect its collateral or execute 
foreclosure can rarely be known at the outset of a home-equity plan. 
Events giving rise to the need for a creditor to take action for debt 
collection, collateral protection or foreclosure may occur several 
years after the opening of a plan, and the specific actions required 
for collateral protection or foreclosure, for example, may vary widely 
depending on the circumstances, such as the nature of the consumer's 
action or inaction giving rise to the need for the creditor to take 
affirmative action protect its collateral, or the rules of the 
jurisdiction governing the foreclosure proceeding. The Board recognizes 
that for closed-end home-secured credit, creditors have more certainty 
than do HELOC creditors that these costs may be passed on to the 
consumer without specific upfront disclosure of their amounts, and that 
this uncertainty for HELOCs creates compliance challenges.
    Also, other sections of the existing commentary reflect the Board's 
longstanding recognition that specific disclosure of these items and 
the amount of the charge for each may be difficult. For example, 
comment 5b(d)(4)-1 (redesignated in the proposal as comment 
5b(c)(7)(i)-1) excludes from the requirement to disclose termination 
fees at application ``fees associated with collection of the debt, such 
as attorneys' fees and court costs.'' In addition, longstanding comment 
6(b)-2.ii (incorporated with changes into proposed Sec.  
226.6(a)(3)(ii)(B)) excludes from disclosure in the Sec.  226.6 
account-opening statement ``[a]mounts payable by a consumer for 
collection activity after default; attorney's fees, whether or not 
automatically imposed; foreclosure costs; [and] post-judgment interest 
rates imposed by law,'' among others. As discussed in more detail in 
the section-by-section analysis under proposed Sec.  226.6(a)(3), one 
category of ``charges imposed as part of a home-equity plan'' would be 
``charges resulting from the consumer's failure to use the plan as 
agreed, except amounts payable for collection activity after default; 
costs for protection of the creditor's interest in the collateral for 
the plan due to default; attorney's fees whether or not automatically 
imposed; foreclosure costs; and post-judgment interest rates imposed by 
law'' (emphasis added). Proposed Sec.  226.6(a)(3) generally parallels 
Sec.  226.6(b)(3)(ii)(B) applicable to open-end (not home-secured) 
plans finalized in the January 2009 Regulation Z Rule and incorporates, 
as noted, longstanding comment 6(b)-2.ii.
    The Board is mindful of concerns that consumers may be charged a 
wide array of fees upon default without adequate notice or explanation. 
For these reasons, the Board requests comment on the appropriateness of 
this proposed clarification. The Board also requests comment on 
whether, if the proposal is adopted, the Board should clarify 
requirements regarding disclosure of these costs in the initial 
agreement beyond stating that specific amounts need not be disclosed. 
For example, would it be sufficient for the creditor to disclose simply 
the possibility that costs under the three categories contemplated in 
the proposal--debt collection, collateral protection and foreclosure 
upon default--may be charged? Or should the creditor be required to 
itemize in whole or in part the types of costs under each category that 
could be charged?
5b(f)(3)(i) Changes Provided for in Agreement
    Section 226.5b(f)(3)(i) provides exceptions from the general 
prohibition on changes in terms of home-equity plans. One of these 
``exceptions'' is that a creditor may provide in the initial agreement 
that a specified change will take place if a specified event occurs. 
The section gives an example that the agreement may provide that the 
APR may increase by a specified amount if the consumer leaves the 
creditor's

[[Page 43488]]

employment. Comment 5b(f)(3)(i)-1 clarifies that both the triggering 
event and the resulting change in terms must be stated in the agreement 
with specificity. The comment also restates the employee preferred-rate 
example, and gives other examples, including a stepped-rate provision 
in the agreement, under which specified changes in the rate may take 
place after specified periods of time. This section and accompanying 
comment are consistent with the general principle stated in comment 
5b(f)(1)-3 that rate changes specifically set forth in the agreement 
are not prohibited.
    The Board proposes to revise comment 5b(f)(3)(i)-1 to clarify that 
rate increases are also permissible upon the occurrence of special 
circumstances other than those set forth in the existing comment, as 
long as they are specifically set forth in the agreement and do not 
conflict with other substantive limitations on rate changes in the 
regulation. The Board intends this clarification to provide consistency 
between comment 5b(f)(1)-3 and comment 5b(f)(3)(i)-1. The proposal also 
would limit the amount by which a rate could be increased once 
circumstances qualifying the consumer for a preferred rate no longer 
apply. Specifically, a creditor could not raise the rate to be higher 
than it would have been had the consumer never qualified for a 
preferred rate. If a preferred rate of five percent is available to a 
consumer who is an employee of the creditor, for example, and the rate 
applicable if the consumer were not a creditor employee were seven 
percent, the creditor could not raise the rate above seven percent once 
the consumer is no longer the creditor's employee. The Board believes 
that such an increased rate would constitute a penalty rate imposed for 
reasons not permitted under Regulation Z. See Sec.  226.5b(f)(2) and 
comment 5b(f)(2)-2; see also 15 U.S.C. Sec.  1647(a); Sec.  
226.5b(f)(1).
    The revised comment would clarify that the creditor could not 
impose a penalty rate for a reason other than those specified in Sec.  
226.5b(f)(2) (allowing termination and acceleration and certain lesser 
actions only under particular circumstances). The Board believes that 
permitting agreements to provide for the application of penalty rates 
upon the occurrence of any triggering event would be inconsistent with 
the restrictions on rate increases under the statute and regulation. 
See 15 U.S.C. Sec.  1647(a); Sec.  226.5b(f)(1). Thus, the proposed 
comment would state that the creditor would be permitted to increase 
the rate to a penalty rate level only if the triggering event is a 
circumstance that would permit the rate to be increased under the 
commentary to Sec.  226.5b(f)(2), such as fraud or material 
misrepresentation by the consumer (Sec.  226.5b(f)(2)(i)), failure to 
make a required payment within 30 days of the due date for that payment 
(proposed Sec.  226.5b(f)(2)(ii)), or action or inaction by the 
consumer that adversely affects the creditor's security interest for 
the plan (Sec.  226.5b(f)(2)(iii)). The Board believes, however, that a 
rate increased from a preferred rate to the rate available to consumers 
generally, when the condition for the preferred rate is no longer met, 
would be consistent with the statutory provision. A consumer who has a 
preferred rate is likely to be aware of the conditions for the rate, 
and thus if the conditions are no longer met, the rate increase would 
not come as an undue surprise.
5b(f)(3)(iv) Beneficial Changes
    Section 226.5b(f)(3)(iv) permits a creditor to change a term of a 
home-equity plan if the change ``will unequivocally benefit the 
consumer throughout the remainder of the plan.'' Comment 5b(f)(3)(iv)-1 
gives several examples of beneficial changes, including a temporary 
reduction in the rate or fees charged during the plan. In this case, 
however, the comment indicates that a creditor ``may'' be required to 
give a change-in-terms notice required under Sec.  226.9(c) (see 
proposed Sec.  226.9(c)(1)) when the rate or fees return to their 
original level.
    The proposal would clarify in comment 5b(f)(3)(iv)-1 that a change-
in-terms notice ``would,'' rather than ``may,'' be required to be 
provided to the consumer under Sec.  226.9(c) (proposed Sec.  
226.9(c)(1)) when the temporarily reduced rate or fees are returned to 
their original level, if these reductions and subsequent increases were 
not disclosed in the account agreement. The revised comment also would 
clarify that including notice of the increased rate or fee with the 
notice to the consumer that the rate or fee is being reduced would 
constitute appropriate notice of the increase, as long as this notice 
is provided 45 days before the effective date of the increase.
    Comment 9(c)(1)(ii)-2 (redesignated in the proposal as comment 
9(c)(1)(iv)-2) states that a creditor may offer temporary reductions in 
finance charges without giving notice when the charges return to their 
original level--as long as this feature is disclosed in the account-
opening disclosures required under Sec.  226.6 (including an 
explanation of the terms upon resumption).\24\ The ``beneficial 
changes'' provision, however, permits the creditor temporarily to 
reduce finance charges such as rates and fees without disclosing these 
possible reductions in the account agreement (assuming the change is 
``unequivocally'' beneficial). When a creditor relies on this provision 
to raise the rate or fees after the reduction period has ended, 
however, the Board believes that the consumer should be given notice of 
when these charges will return to their original level in accordance 
with the proposed 45 days advance notice rule under proposed Sec.  
226.9(c)(1). This would ensure that the consumer is given sufficient 
notice of the change to make any financial adjustments necessary.
---------------------------------------------------------------------------

    \24\ This provision also states that temporary reductions in 
payments disclosed in the account-opening statement are subject to 
the notice exemption. See comment 9(c)(1)(ii)-2 (proposed comment 
9(c)(1)(iv)-2). Temporary payment reductions might also be 
considered beneficial changes permitted under Sec.  
226.5b(f)(3)(iv). See comment 5b(f)(3)(iv)-1. However, in the 
Supplementary Information to the final rule implementing Sec.  
226.5b(f)(3)(iv), the Board noted that ``reducing the amount of the 
minimum payment would not be unequivocally beneficial since it may 
result in less principal being repaid over the term of the plan and 
may result in a higher total amount of finance charges.'' 54 FR 3063 
(Jan. 23, 1989).
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5b(f)(3)(v) Insignificant Changes
Background
    Section 226.5b(f)(3)(v) permits a creditor to make 
``insignificant'' changes to a home-equity plan's terms. Existing 
comment 5b(f)(3)(v)-1 explains that this provision is intended to 
``accommodate[] operational and similar problems, such as changing the 
address of the creditor for purposes of sending payments.'' Under this 
comment, a creditor may not change a term such as a late-payment fee. 
Comment 5b(f)(3)(v)-2 gives several examples of changes in terms 
considered ``insignificant.'' These include ``minor changes'' to the 
billing cycle date, the payment-due date, and the day of the month on 
which index values are measured; changes to the creditor's rounding 
practices for the APR; and changes to the balance computation method 
used. The comment also provides that these changes will not in all 
cases be considered ``insignificant.'' For example, a change to the 
payment-due date would be insignificant only if this change would not 
diminish the grace period, if any, during which finance charges and 
late fees are not applied to new transactions. A change in the 
creditor's rounding practices for disclosing the APR would be

[[Page 43489]]

insignificant only if the change is within the tolerances prescribed by 
Sec.  226.14(a). A change to the balance computation method would be 
insignificant only if any resulting difference in the finance charge 
paid by the consumer is ``insignificant.''
    A number of creditors have expressed concerns to the Board about 
difficulties arising when the servicing of a HELOC is transferred and 
the new servicer's platform is not programmed to allow for previously 
available terms. Creditors are concerned that changing the terms of a 
HELOC in this circumstance may not be permitted due to Sec.  
226.5b(f)(3)'s limitations on term changes. Creditors have reported 
that, as a result, they sometimes have to use multiple servicers or 
servicing systems to support all the terms of the various HELOCs they 
acquire. These servicers and servicing systems may be of widely varying 
quality, which could mean that consumers do not receive optimal service 
on their HELOCs. Some creditors have reported that a portfolio 
acquisition may not occur at all if the acquirer's servicing system 
cannot support the terms of the HELOCs offered, and that this may also 
harm consumers if, for example, the proposed acquisition was 
necessitated in part by challenges facing the current servicer. 
Differences between servicing systems cited by creditors may impact, 
among other terms, rate indices, minimum payment and late fee 
calculations, or the availability of certain payment options or access 
devices such as credit cards.
Proposal
    The Board proposes to add to comment 5b(f)(3)(v)-2 an example of a 
change that would be considered insignificant under this provision: a 
creditor may eliminate a method of accessing the line, such as a credit 
card, as long as at least one means of access that was available at 
account opening remains available to the consumer on the original 
terms. The Board also proposes to clarify that changes to the original 
terms on which a means of access was originally available--such as any 
fees for using the access method--would not be considered 
insignificant, but might be permitted as ``beneficial'' changes under 
Sec.  226.5b(f)(3)(iv) if the change met the requirements of comment 
5b(f)(3)(iv)-1.
    The Board believes that a general rule permitting changes in terms 
due to servicing transfers would not sufficiently protect consumers, 
and thus would undermine the purpose of the change-in-terms 
restrictions mandated by TILA. Such a rule would allow creditors to 
change terms as a result of a servicer change that are, in practical 
effect, significant. Changes to minimum payment calculations, for 
example, could increase the overall costs to the consumer of the HELOC, 
or materially increase the consumer's payments in the short or long 
term. Changes to late fee calculations could be confusing to consumers 
and cause undue surprise related to the amount or timing of the late-
payment fee; in addition, longstanding Board policy prohibits changing 
fees charged for late payments. See comment 5b(f)(3)(v)-1.
    The Board also considered setting a general standard for changes 
that would be considered insignificant, such as allowing changes to be 
deemed insignificant that result in the same or substantially similar 
payments (including periodic payments and the total of payments), 
rates, fees, and overall loan costs. One concern about establishing a 
general standard is that confusion among creditors and consumers, and 
possibly increased litigation, may result, particularly concerning the 
meaning of terms such as ``substantially similar.'' The Board requests 
comment on whether setting a general standard for term changes that 
would be considered insignificant is desirable. In this regard, the 
Board also requests comment on whether prescribing specific tolerances 
for resulting payments, costs, and fees would be helpful, and what 
appropriate tolerances might be.
    Servicing transfers, while sometimes beneficial to consumers, are 
neither initiated nor controlled by consumers. Thus, the Board believes 
that consumers should not in general be subjected to changes in their 
HELOC terms when their servicing is transferred. The current regulation 
provides several exceptions allowing creditors to change HELOC terms in 
keeping with the consumer protection purpose of TILA and Regulation Z--
such as changes by written agreement (Sec.  226.5b(f) (3)(iii)), 
beneficial changes (Sec.  226.5b(f)(3)(iv)), and insignificant changes 
(Sec.  226.5b(f)(3)(v)). Regarding insignificant changes, current 
comment 5b(f)(3)(v)-2, as noted, clarifies in its examples that, in 
effect, a change cannot be considered insignificant if it diminishes or 
eliminates a financial benefit to the consumer, such as a grace period, 
or if it causes the consumer to pay a finance charge that is more than 
nominally higher than the finance charge that would have applied under 
the original terms.
    Rather than make a broad revision such as permitting all term 
changes related to servicing transfers or setting a general standard 
for determining whether a change in terms is ``insignificant,'' the 
Board is proposing to clarify that an access device such as a credit 
card may be eliminated as long as previously available access devices 
remain available. Creditors indicated that significant problems can 
arise where credit card access, for example, was available on the plan 
but a new servicer cannot support this; the creditor may be unable to 
transfer the servicing or may have to make individual arrangements with 
each consumer. The Board requests comment on the appropriateness of 
this additional example of an insignificant change. In addition, the 
Board requests comment on whether this example, if adopted, should be 
modified, broadened, or narrowed.
5b(f)(3)(vi) Temporary Suspension of Credit or Reduction of Credit 
Limit
Introduction
    Section 226.5b(f)(3)(vi) lists several circumstances under which a 
creditor may temporarily suspend advances on a home-equity plan or 
reduce the credit limit. As discussed below, the Board proposes 
revisions to this section in three major areas: (1) Rules regarding 
when a creditor may suspend or reduce an account based on a significant 
decline in the property value (Sec.  226.5b(f)(3)(vi)(A) and existing 
comment 5b(f)(3)(vi)-6); (2) rules regarding when a creditor may 
suspend or reduce an account based on a material change in the 
consumer's financial circumstances (Sec.  226.5b(f)(3)(vi)(B) and 
existing comment 5b(f)(3)(vi)-7); and (3) rules regarding reinstatement 
of accounts that have been suspended or reduced (existing comments 
5b(f)(3)(vi)-2, -3, and -4). As also discussed below, the proposal 
would permit a creditor to suspend or reduce an account temporarily if 
required to do so by federal law. Certain technical amendments are 
proposed to Sec.  226.5b(f) and accompanying commentary as well.
Changes and Requests for Comment Related to Sec.  226.5b(f)(3)(vi) 
Generally
    No changes are proposed to existing comment 5b(f)(3)(vi)-1, which 
provides that a creditor may temporarily suspend advances on an account 
or reduce the credit limit only under circumstances specified in Sec.  
226.5b(f)(3)(vi), Sec.  226.5b(f)(3)(i) when the maximum annual 
percentage is reached, or Sec.  226.5b(f)(2), permitting suspension of 
advances or reduction of the credit limit in lieu of terminating and 
accelerating the account. See comment 5b(f)(2)-2. The Board requests 
comment, however,

[[Page 43490]]

on the portion of this comment providing that the creditor's right to 
reduce the credit limit does not permit reducing the limit below the 
amount of the outstanding balance if this would require the consumer to 
make a higher payment. Specifically, the Board requests whether other 
limitations on the amount by which a home-equity line may be reduced 
may be appropriate. For example, should the amount by which a credit 
line may be reduced for a significant decline in the property value 
under Sec.  226.5b(f)(3)(vi)(A) (discussed below) be limited to: (1) No 
more than the dollar amount of the property value decline; (2) no more 
than the amount needed to restore the creditor's equity cushion at 
origination (and whether, in this case, the relevant equity cushion 
should be the dollar amount or the percentage of the home value not 
encumbered by debt); or (3) some other measure? A related request for 
comment is whether a creditor should be prohibited from temporarily 
suspending advances on the line until, for example, the property value 
declines by the full amount of the credit line.
    The proposal would redesignate comment 5b(f)(3)(vi)-5 as comment 
5b(f)(3)(vi)-2 and make certain technical revisions. Current comment 
5b(f)(3)(vi)-5 permits a creditor to honor a specific request by a 
consumer to suspend credit privileges. If two or more consumers are 
obligated under a plan and each can take advances, comment 
5b(f)(3)(vi)-5 permits creditors to provide that any of the consumers 
may direct the creditor not to make further advances. This comment also 
permits a creditor to require that all persons obligated under a home-
equity plan request reinstatement.
    Proposed comment 5b(f)(3)(vi)-2 would add that consumers may 
request not only suspended advances but reduction of the credit limit. 
It also clarifies that when a consumer later requests reinstatement, 
but a condition permitting suspension or reduction exists (under 
Sec. Sec.  226.5b(f)(2) or (f)(3)(i) or (f)(3)(vi)), a creditor that 
therefore does not re-open the plan must provide the disclosure of the 
specific reasons for the action taken under Sec.  226.9(j)(1) (for 
temporary suspensions and reductions under Sec. Sec.  226.5b(f)(3)(i) 
or (f)(3)(vi)) or (j)(3) (for termination or permitted lesser actions 
under Sec.  226.5b(f)(2)), as applicable. Concerns were expressed to 
the Board during outreach for this proposal that under some 
circumstances, a person with an ownership interest in the property 
securing the line, but who is not obligated on the plan, may wish to 
request suspension of advances. The Board has not proposed a change to 
this provision to address these concerns, but invites comment on the 
issue.
    Under longstanding Board policy, rate changes for reasons 
permitting suspension of advances or credit limit reductions under 
Sec.  226.5b(f)(3)(i) and (f)(3)(vi) have been prohibited. See comment 
5b(f)(3)(i)-2. Based on issues raised during the Board's outreach to 
prepare this proposal, the Board also requests comment on whether and 
under what circumstances it might be appropriate for Regulation Z to 
permit actions other than temporary suspension of advances or credit 
limit reductions under Sec.  226.5b(f)(3)(i) and (f)(3)(vi).
    Finally, as discussed in more detail under the section-by-section 
analysis for proposed Sec.  226.5b(g), the proposal moves comments 
5b(f)(3)(vi)-2, -3, and -4 regarding reinstatement of accounts to 
proposed Sec.  226.5b(g) and accompanying commentary, and revises them.
5b(f)(3)(vi)(A) Suspensions and Credit Limit Reductions Based on a 
Significant Decline in the Property Value
Background
    Section 226.5b(f)(3)(vi)(A), which implements TILA Section 
137(c)(2)(B), permits a creditor temporarily to suspend advances or 
reduce a credit line on a HELOC if ``the value of the dwelling that 
secures the plan declines significantly below the dwelling's appraised 
value for purposes of the plan.'' 15 U.S.C. 1647(c)(2)(B). Comment 
226.5b(f)(3)(vi)-6 states that whether a decline in value is 
significant under this provision ``will vary according to individual 
circumstances.'' The comment goes on to provide a ``safe harbor'' 
standard for determining whether a decline is significant. 
Specifically, a decline in value would be considered significant if it 
results in the initial difference between the credit limit and the 
available equity (the ``equity cushion'') diminishing by 50 percent or 
more.
    Concerns have been expressed to the Board that the existing safe 
harbor may not be a viable standard for the higher combined loan-to-
value (CLTV) HELOCs made in recent years. For loans nearing or 
exceeding 100 percent CLTV when originated, for example, a decline in 
value of a few dollars could result in more than a 50 percent decline 
in the creditor's equity cushion because the equity cushion was zero or 
close to zero at origination. For these higher CLTV loans in 
particular, creditors have indicated uncertainty about how to determine 
whether a decline in value is ``significant.'' For their part, consumer 
advocates have expressed concerns that the lack of guidance on the 
proper application of the safe harbor gives creditors too much 
authority to take action based on nominal declines in value. Finally, 
noting that appraisals are not required to take action under this 
provision (see comment 5b(f)(3)(vi)-6), creditors have also asked the 
Board for guidance on appropriate property valuation methods for 
assessing property values under this provision.
Proposal
    The proposal would eliminate references to the ``appraised'' value 
in both the regulation and commentary, to reflect that appraisals are 
not required to originate many HELOCs,\25\ nor are they required to 
establish a basis for taking action under this provision. See existing 
comment 5b(f)(3)(vi)-6. Beyond this technical change, the proposal 
would revise the commentary interpreting Sec.  226.5b(f)(3)(vi)(A) in 
two principal ways. First, the commentary would delineate two ``safe 
harbors'' on which creditors could rely to determine that a decline in 
property value is ``significant'' under this section. Second, the 
commentary would provide additional guidance regarding the appropriate 
valuation tools for creditors to use in valuing property under this 
section.
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    \25\ See, e.g., Office of the Comptroller of the Currency, Board 
of Governors of the Federal Reserve System, Federal Deposit 
Insurance Corporation, Office of Thrift Supervision, ``Interagency 
Appraisal and Evaluation Guidelines,'' SR Letter 94-55 (Oct. 28, 
1994); see also 12 CFR 225.63 (FRB); 12 CFR 34.43 (OCC); 12 CFR 
323.3 (FDIC); 12 CFR 564.3 (OTS). ``Appraisal'' is defined in 
federal banking agency regulations relating to appraisal standards 
as ``a written statement independently and impartially prepared by a 
qualified appraiser setting forth an opinion as to the market value 
of an adequately described property as of a specific date(s), 
supported by the presentation and analysis of relevant market 
information.'' 12 CFR 225.62(a) (FRB); 12 CFR 34.42(a) (OCC); 12 CFR 
323.2(a) (FDIC); 12 CFR 564.2(a) (OTS).
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    Proposed comment 5b(f)(3)(vi)-4 confirms existing guidance stating 
that whether a decline is ``significant'' under Sec.  
226.5b(f)(3)(vi)(A) depends on the individual circumstances of a 
particular HELOC secured by a property whose value has declined. Thus, 
in all cases the creditor must make an individualized assessment of 
whether a property value decline is significant, and may not solely 
consider general property value trends.
    Safe harbors. To facilitate compliance, the Board proposes two 
standards under which a property value decline would be deemed 
significant under this section.

[[Page 43491]]

     First, for plans with a CLTV at origination of 90 percent 
or higher, a five percent reduction in the property value on which the 
HELOC terms were based would constitute a significant decline in value 
for purposes of Sec.  226.5b(f)(3)(vi)(A).
     Second, for plans with a CLTV at origination of under 90 
percent, the Board proposes to retain the existing safe harbor, under 
which a decline in the value of the property securing the plan is 
significant if, as a result of the decline, the initial difference 
between the credit limit and the available equity (based on the 
property's value for purposes of the plan) is reduced by 50 percent.
    Five percent decline for HELOCs with a CLTV at origination of 90 
percent or higher. The current commentary allows creditors to assume 
that a decline in property value is ``significant'' if the decline 
results in a 50 percent decline in the creditor's equity cushion. See 
comment 5b(f)(3)(vi)-6. The Board proposes to modify this ``safe 
harbor'' for loans with a CLTV at origination of 90 percent or higher: 
For these loans, the creditor could assume that a decline in the 
property value is significant if the property value declines at least 5 
percent from its value when the HELOC was originated.
    The Board proposes this new safe harbor for several reasons. First, 
the current safe harbor, which allows action on a HELOC when the 
creditor's equity cushion falls by 50 percent, establishes an 
inappropriate metric for measuring whether a value decline on higher 
CLTV loans is ``significant.'' As worded, this provision arguably 
permits action based on nominal property value declines. Specifically, 
the statute permits suspension of advances or reduction of the credit 
limit when the value of property securing the HELOC ``is significantly 
less than'' the value of the property when the HELOC was originated. 15 
U.S.C. 1647(c)(2)(B). The Board's proposal would interpret this 
statutory language to mean that, at minimum, the actual decline in 
value must be more than nominal. The 5 percent safe harbor thus is 
intended to protect consumers with higher CLTV HELOCs from having their 
lines suspended or reduced based on property value declines that are 
only slightly less than the value of the property at origination.
    Second, the new proposed safe harbor standard would be consistent 
with the existing safe harbor. Arithmetically, a five percent decline 
on loans with an originating CLTV of 90 percent or higher results in at 
least a 50 percent decline in the equity cushion. By contrast, a five 
percent property value decline on loans with an originating CLTV of 
under 90 percent would not reduce the creditor's equity cushion by 50 
percent.
    Third, the proposed CLTV threshold of 90 percent or higher for 
applying a five percent value decline safe harbor would be consistent 
with a CLTV threshold already established by the Board. Specifically, 
Board risk management guidance defines a ``high [C]LTV loan'' \26\ 
generally as a loan with a CLTV of 90 percent or higher, unless the 
loan has credit enhancements such as mortgage insurance to mitigate the 
risk of loss.\27\ Research validates that loans in this category have a 
higher probability of default and yield greater losses upon default 
than loans of lower CLTVs.\28\
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    \26\ Relevant guidance uses the term ``LTV'' (loan-to-value 
ratio) to mean what is often referred to as ``CLTV'' (combined loan-
to-value ratio); in other words, all liens on the property are 
considered: ``[A] high LTV residential real estate loan is defined 
as any loan, line of credit, or combination of credits secured by 
liens on or interests in owner-occupied 1- to 4-family residential 
property that equals or exceeds 90 percent of the real estate's 
appraised value, unless the loan has appropriate credit support.'' 
Office of the Comptroller of the Currency, Board of Governors of the 
Federal Reserve System, Federal Deposit Insurance Corporation, 
Office of Thrift Supervision, National Credit Union Administration, 
``Interagency Guidance on High LTV Residential Real Estate 
Lending,'' SR Letter 99-26 (Oct. 12, 1999) (emphasis added).
    \27\ 12 CFR part 208, subpart E, app. C (providing that, if a 
loan's LTV is equal to or exceeds 90 percent, the creditor must add 
other credit enhancements (such as mortgage insurance) or the loan 
will be considered to exceed the supervisory LTV ratios and be 
deemed a ``high LTV loan,'' to which additional rules apply). See 
also Board of Governors of the Federal Reserve System, SR Letter 99-
26 (Oct. 12, 1999).
    \28\ See, e.g., Kristopher Gerardi, Federal Reserve Bank of 
Atlanta, Andreas Lehnert and Shane M. Sherlund, Board of Governors 
of the Federal Reserve System, and Paul Willen, Federal Reserve Bank 
of Boston, ``Making Sense of the Subprime Crisis,'' Brookings Papers 
on Economic Activity (Fall 2008). See also, Min Qi and Xiaolong 
Yang, Office of the Comptroller of the Currency, ``Loss Given 
Default of High Loan-to-Value Residential Mortgages,'' Economics and 
Policy Analysis Working Paper 2007-4 (August 2007).
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    Retention of existing safe harbor for HELOCs with a CLTV at 
origination of lower than 90 percent. For loans with an originating 
CLTV of less than 90 percent, the Board proposes to retain the existing 
the safe harbor, under which a value decline is significant if the 
decline results in the creditor's equity cushion contracting by 50 
percent. Comment 5b(f)(3)(vi)-4 clarifies that in determining whether a 
decline results in a 50 percent equity cushion reduction, the creditor 
may, but does not have to, consider any changes in available equity 
based on the status of the first mortgage.
    The Board proposes to retain the existing safe harbor for several 
reasons. First, no parties during Board outreach to prepare this 
proposal objected to the general principal that a property value 
decline resulting in a 50 percent reduction of the equity cushion can 
reasonably be considered ``significant'' under this provision.
    Second, applying this safe harbor to loans with CLTVs of under 90 
percent does not depart significantly from the assumption on which the 
original safe harbor example was based. See comment Sec.  
226.5b(f)(3)(vi)-6. The commentary illustrates the existing safe harbor 
with a HELOC at a starting CLTV of 80 percent; thus, the illustration 
indicates that a 50 percent equity cushion reduction would be 
significant for loans originated with a CLTV of 80 percent. The 
proposal clarifies that a property value decline resulting in a 50 
percent equity cushion reduction is significant for loans with a CLTV 
of only somewhat higher than 80 percent--under 90 percent.
    Finally, there is an arithmetical basis for applying the existing 
safe harbor, rather than the proposed flat five percent decline safe 
harbor, to HELOCs with an originating CLTV of under 90 percent: a five 
percent decline in the value of the property for lines with a starting 
CLTV lower than 90 percent would not yield an equity cushion decline of 
50 percent or more.
    Among other alternatives, the Board considered proposing a safe 
harbor that applied a flat percentage property value decline to all 
HELOCs, regardless of the originating CLTV, but determined that 
defining an single metric appropriate for all loans was not possible. A 
safe harbor of a 10 percent decline, for example, may impair creditors' 
flexibility to take action where reasonable arguments could be made, as 
for higher CLTV loans such those discussed above, that adequate risk 
mitigation requires action based on a lesser decline. At the same time, 
a 10 percent decline may be inappropriate for loans with lower CLTVs, 
such as 50 percent. For these loans, a 10 percent property value 
decline would still leave the creditor with a significant equity 
cushion. By contrast, even on lower CLTV loans, the current safe harbor 
of a 50 percent reduction in the creditor's equity cushion might 
reasonably be deemed a sufficient change in the creditor's original 
risk level to justify action on the line, such as temporarily reducing 
the credit limit.
    Significant declines outside of the safe harbors. The Board 
recognizes that not all property value declines that might reasonably 
be considered ``significant'' for taking action under this provision 
will fall into one of the two safe harbors. Thus, the Board

[[Page 43492]]

requests comment on whether and what guidance regarding other factors 
that creditors might consider in determining whether a decline is 
significant is desirable. Specific comment is requested on whether the 
Board should provide guidance clarifying that the creditor may (but 
does not have to) consider any changes in available equity based on how 
much the consumer owes on a mortgage with a lien superior to that of 
the HELOC. On a second-lien HELOC where the first-lien mortgage is 
negatively amortizing, or was negatively amortizing during any part of 
the HELOC term, for example, the CLTV will decline more and faster than 
if the first mortgage were fully or partially amortizing, concomitantly 
reducing the HELOC creditor's equity cushion. The actual property value 
decline alone may not reduce the creditor's equity cushion by 50 
percent, but a 50 percent reduction in the equity cushion may 
nonetheless occur if the first mortgage loan is negatively amortizing.
    The Board also requests comment on whether and under what 
circumstances it may be appropriate to permit consideration of a clear 
and consistent trend of declining property values in the market area in 
which the securing property is located. The Board understands that 
creditors commonly rely on general market data to validate findings for 
a property-specific valuation; used in this way, general market data 
may be a valuable quality control tool contributing to sound portfolio 
management. (Depending on comments received, the Board would not 
anticipate that consideration of this factor would be permissible 
unless the creditor first completed a property valuation that accounts 
for specific characteristics of the subject property and meets other 
guidelines proposed in comment 5b(f)(3)(vi)-5.) In addition, the Board 
solicits comment on the type of market data that would be appropriate, 
such as data based on publicly available, empirically-based research, 
as well as on whether a more specific definition of ``market area'' 
would be needed and, if so, what definition would be appropriate.
    Finally, as discussed above under the section-by-section analysis 
on Sec.  5b(f)(3)(vi) (specifically concerning comment 5b(f)(3)(vi)-1), 
the Board requests comment on what, if any, restrictions on the amount 
by which a credit line may be reduced for a significant decline in 
value may be appropriate.
    Property valuation methods. Existing comment 5b(f)(3)(vi)-6 states 
that Sec.  226.5b(f)(3)(vi)(A) does not require a creditor to obtain an 
appraisal before suspending credit privileges or reducing the credit 
limit based on a significant decline in value, although a significant 
decline must have occurred. This means that the creditor must be able 
to demonstrate that a significant value decline in value has occurred, 
even if an appraisal is not obtained. To establish this basis when the 
creditor does not obtain an appraisal, the creditor would have to rely 
on a property value generated by a valuation method other than an 
appraisal. Proposed comment 5b(f)(3)(vi)-5 reaffirms that an appraisal 
is not required to take action under this provision, but provides 
additional guidance about the valuation tools that may be appropriate 
and the standards that should apply to using these tools.
    Proposed comment 5b(f)(3)(vi)-5 would clarify that appropriate 
property valuation methods under Sec.  226.5b(f)(3)(vi)(A) may include, 
but are not limited to, automated valuation models (AVMs),\29\ tax 
assessment valuations (TAVs),\30\ and broker price opinions (BPOs).\31\ 
These examples of appropriate valuation tools are illustrative; the 
Board recognizes that the methods named in the commentary may in the 
future commonly be referred to by other names, and that new valuation 
methods that may be appropriate could be developed over time. Creditors 
would not be able to use any valuation method if state or other 
applicable law prohibits using that method for determining whether to 
suspend or reduce credit lines. For example, some state laws permit 
real estate brokers or salespersons to perform BPOs only as part of the 
real estate sales or listing process.\32\
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    \29\ An automated valuation model or ``AVM'' is a computer 
program that analyzes data to determine a property's market value. 
``Hedonic'' models use property characteristics (such as square 
footage, room count) on the subject and comparable properties to 
determine a value. ``Index'' models determine value based on repeat 
sales in the marketplace rather than property characteristic data. 
``Blended or hybrid'' models use elements of both hedonic and index 
models.
    \30\ A tax assessment valuation or ``TAV'' determines the value 
of the subject property based on the value established for property 
tax purposes.
    \31\ A broker price opinion or ``BPO'' is an estimate of value 
of the subject property prepared by a real estate broker, agent or 
sales person that details the probable listing price of the subject 
property and provides varying level of detail about the property's 
condition, market, and neighborhood, and information on comparable 
sales. A BPO does not include use of an AVM.
    \32\ See, e.g., Ark. Code Ann. Sec.  17-14-104, Conn. Gen. Stat. 
Sec.  20-526, Minn. Stat. Sec.  82B.035, R.I. Gen. Laws Sec.  5-
20.7-3, Tex. Occ. Code Sec.  1103.004.
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    Under proposed comment 5b(f)(3)(vi)-5, any property valuation 
method on which the creditor relies to take action under this section 
must consider specific property characteristics of the underlying 
collateral. Methods that use only indices measuring property values 
generally in a particular geographic area would not be appropriate. 
Thus, AVMs known as ``hedonic'' or ``hybrid'' (also referred to as 
``blended'') models that account for specific property characteristics 
and location to produce a value would generally be appropriate, whereas 
AVMs known as ``repeat sales index'' or ``home price index'' models 
that do not account for property characteristics specific to the 
underlying collateral would not be appropriate.\33\
---------------------------------------------------------------------------

    \33\ See supra note 29, regarding ``hedonic,'' ``hybrid,'' and 
``index'' AVMs.
---------------------------------------------------------------------------

5b(f)(3)(vi)(B) Suspensions and Credit Limit Reductions Based on a 
Material Change in the Consumer's Financial Circumstances
Background
    Section 226.5b(f)(3)(vi)(B), which implements TILA Section 
137(c)(2)(C), permits a creditor to suspend advances or reduce the 
credit limit of a HELOC when ``the creditor reasonably believes that 
the consumer will be unable to fulfill the repayment obligations of the 
plan because of a material change in the consumer's financial 
circumstances.'' 15 U.S.C. 1647(c)(2)(C).
    In the Board's discussions with creditor representatives and 
others, concerns have been raised that the phrase ``unable to meet'' 
the repayment obligations is inappropriate in the modern credit market, 
in which credit decisions generally involve ranking consumers by their 
likelihood of repaying, not on whether they can or cannot repay. The 
Board understands that, in effect, a creditor may decide not to extend 
credit because a consumer's likelihood of default is calculated to be, 
for example, 15 percent over a given period. A 15 percent likelihood of 
default, however, does not necessarily show that the consumer is 
``unable'' to repay the HELOC on the agreed terms. The Board also 
recognizes that credit availability may be reduced if the circumstances 
under which creditors may take action under this provision are 
ambiguous. One creditor expressed to the Board that uncertainty about 
how to fulfill the requirements of this provision contributed to the 
creditor's decision to stop offering HELOCs altogether. In sum, many 
creditors have requested more detailed guidance about when action is 
permissible under this provision, including the extent to which they 
may rely on declines in credit scores.
    Consumer advocates expressed dissatisfaction with the guidance on

[[Page 43493]]

Sec.  226.5b(f)(3)(vi)(B) as well, voicing concerns that the lack of 
clear guidelines results in some creditors taking action on accounts of 
consumers who are fully capable of meeting their repayment obligations 
or whose financial circumstances in fact have not changed in a manner 
truly supporting a reasonable belief that the consumer will be unable 
to meet these obligations.
Proposal
    As an initial matter, the Board is not proposing to eliminate the 
phrase ``unable to meet'' the repayment terms from the regulatory text, 
in part because the statute itself stipulates that the creditor must 
have ``reason to believe that the consumer will be unable to comply 
with the repayment requirements of the account due to a material change 
in the consumer's financial circumstances.'' 15 U.S.C. Sec.  
1647(c)(2)(C) (emphasis added). Legislative history does not explain 
Congress's decision to set this standard; the Board interprets the 
statute's ``unable'' to pay standard as evincing a legislative intent 
to promote creditor restraint in taking action under this provision. At 
the same time, the Board, as did Congress, recognizes the need for 
creditors to be able to protect themselves against losses on home-
equity lines; \34\ TILA and Regulation Z therefore permit creditors to 
take action on accounts in certain circumstances before the creditor 
begins to incur losses on those accounts. See 15 U.S.C. 1647(c)(2)(B)-
(E); Sec.  226.5b(f)(3)(vi)(A)-(F).
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    \34\ See Remarks of Rep. David Price (primary sponsor of the 
H.R. 3011, the Home Equity Loan Consumer Protection Act of 1988, 
Pub. L. 100-709, enacted on Nov. 23, 1988, Congr. Rec., H4473 (June 
20, 1988) (``[T]hese provisions protect the consumer without 
hindering the ability of lenders to operate successfully equity 
credit plans.'').
---------------------------------------------------------------------------

    Thus, the Board requests comment on whether the Board should 
consider expressly interpreting the ``unable'' to pay standard to mean, 
for example, that the change in the consumer's financial circumstances 
resulted in the consumer's likelihood of default ``substantially'' 
increasing. Another possible interpretation on which the Board requests 
comment is that the ``unable'' to pay standard requires that, as a 
result in a change in the consumer's financial circumstances, the 
consumer moved into a higher default risk category than at origination 
(based on the statistical likelihood of default), such that the 
creditor would not have made the loan or would have made the loan on 
materially less favorable terms and conditions.
    Overall, the proposed revisions to guidance in the commentary on 
Sec.  226.5b(f)(3)(vi)(B) is intended to protect consumers by ensuring 
that creditors exercise prudent judgment in relying on this provision, 
while providing certain limited clarifications regarding the 
requirements of this provision to guide creditors. To ensure that 
before taking action, creditors carefully consider the consumer's 
financial circumstances and the likely impact of these circumstances on 
the account, the proposed commentary retains the existing two-part test 
for justifying account suspensions or credit limit reductions under 
Sec.  226.5b(f)(3)(vi)(B). The creditor must first examine the 
consumer's financial circumstances and determine whether a ``material'' 
change has occurred. The Board interprets the word ``material'' in this 
part of the test to mean that the change has some bearing on the 
consumer's ability to pay his or her financial obligations. The 
creditor must then establish that this change supports the creditor's 
reasonable belief that the consumer will be unable to meet the 
repayment obligations of the HELOC. The proposal would revise the 
commentary interpreting Sec.  226.5b(f)(3)(vi)(B) to include additional 
examples of how creditors may demonstrate that both parts of the test 
are met, as discussed below.
    For the first part of the test, under proposed comment 
5b(f)(3)(vi)-6 (based on existing comment 5b(f)(3)(vi)-7 with 
revisions), evidence of a significant change in financial circumstances 
includes, but is not limited to, a significant decrease in the 
consumer's income, or credit report information showing late payments 
or nonpayments on the part of the consumer, such as delinquencies, 
defaults, or derogatory collections or public records related to the 
consumer's failure to pay other obligations. The Board proposes to 
require that these payment failures must have occurred within a 
reasonable time from the date of the creditor's review of the 
consumer's credit performance. A safe harbor for determining whether a 
payment failure occurred within a reasonable time from the date of the 
creditor's review would be one that occurred within six months of the 
creditor's suspending advances or reducing the credit limit. In 
addition, the consumer cannot have brought the account on which the 
payment failure occurred current as of the time of the creditor's 
review. The Board believes that this six-month safe harbor 
appropriately observes the statutory and regulatory rule that action 
can be taken only ``during any period in which'' the consumer's 
financial circumstances have materially worsened from those on which 
the credit terms were based. See 15 U.S.C. 1647(c)(2)(C); Sec.  
226.5b(f)(3)(vi)(B). The Board solicits comment on this approach.
    Meeting the second part of the test requires that the change in 
financial circumstances support the creditor's reasonable belief that 
the consumer will be unable to fulfill the payment obligations of the 
plan. For this part of the test, the proposal retains the existing 
commentary's safe harbor--namely, that the creditor may rely on 
evidence of the consumer's failure to pay other debts other than the 
HELOC to support a reasonable belief that the consumer will not be able 
to meet the HELOC's repayment obligations. Proposed comment 
5b(f)(3)(vi)-6 adds that these payment failures must have occurred 
within a reasonable time from the date of the creditor's review of the 
consumer's credit performance, with the six-month safe harbor discussed 
above.
    Proposed comment 5b(f)(3)(vi)-6 also specifies that for the second 
prong of the test, the payment failures on which the creditor relies 
may not be solely late payments of 30 days or fewer. The Board does not 
believe that a late payment of 30 days or fewer is adequate evidence of 
a failure to pay a debt. For example, the consumer's payment may not 
have reached the creditor due to errors of which the consumer has not 
yet had an opportunity to become aware, such as mail delivery or 
electronic funds transfer errors.
Reliance on Credit Score Declines
    Several industry representatives requested clarity on whether 
creditors could rely on credit score declines to satisfy the 
requirements of Sec.  226.5b(f)(3)(vi)(B). The Board believes that 
credit score declines may be an appropriate screening tool for 
determining which consumers to examine more closely for potential 
action based on this provision. However, the Board is concerned about 
whether credit score declines alone can meet the required statutory 
showing. For reasons discussed below, the proposal neither endorses nor 
prohibits reliance on credit score declines alone to meet the 
requirements of this provision, but solicits comment on this issue.
    Permitting reliance on credit scores alone to satisfy the 
requirements of this provision raises several concerns. First, a Board 
study has observed that credit scores can drop for reasons unrelated to 
the consumer's actual failure to pay

[[Page 43494]]

obligations,\35\ which suggests that a credit score decline alone might 
be an insufficient basis to satisfy the two-part test. Credit scores 
sometimes drop, for example, due to increases in a consumer's 
utilization rate on her credit cards or because a consumer closes one 
or more credit card accounts. But an increased utilization rate may 
occur because a credit card creditor decides to reduce the credit limit 
for reasons out of the consumer's control, not because the consumer is 
relying more heavily on credit card credit. Similarly, if the consumer 
closes accounts because the consumer has consolidated these debts into 
a single, lower interest loan, the consumer may have freed up more 
income to repay the HELOC; here, the consumer's credit score drop in 
fact corresponds with improvement in the consumer's ability to pay.
---------------------------------------------------------------------------

    \35\ Board of Governors of the Federal Reserve System, ``Report 
to the Congress on Credit Scoring and Its Effects on the 
Availability and Affordability of Credit'' (August 2007).
---------------------------------------------------------------------------

    Second, standard credit scores do not show a consumer's actual 
default or delinquency probability--they reflect only a consumer's 
likelihood of falling delinquent or defaulting relative to other 
consumers. For example, a consumer with a score of 700 is less likely 
to default than a consumer with a score of 600--but these scores by 
themselves do not indicate the actual probability that either consumer 
will default.
    Third, the Board also recognizes the challenge of defining how much 
of a decline is sufficient to satisfy the standard. Applying a single 
metric such as a 40 point decline to all consumers is especially 
problematic, because a consumer whose score declines from 800 to 760 is 
still much more likely to be able to pay than, for example, a consumer 
whose score decreases from 600 to 560. In addition, different scoring 
models use different score ranges, so a decline of 40 points on one 
model would not have the same meaning as a 40-point decline in another 
model.
    Fourth, any expected future debt performance associated with 
consumers having a given credit score (relative to consumers with 
different scores) can change over time based on macroeconomic 
conditions. For example, a consumer with a credit score of 700 in Year 
One may have better future debt performance than a consumer with a 
score of 700 in Year Three, if the macroeconomic conditions have 
worsened from Year One to Year Three. This is because all consumers 
will have lower average debt performance levels in Year Three. But 
again, credit scores show only a credit performance rank of one 
consumer compared to other consumers, not an actual default 
probability. Thus, to rely on credit score declines alone to meet the 
requirements of this exception, creditors may also have to account for 
macroeconomic changes.
    In sum, without additional sophisticated empirical analysis, a 
creditor could not show that a particular consumer's credit score 
decline corresponds to an increased default probability that would meet 
either prong of the two-part test.
    At the same time, the Board does not believe that expressly 
prohibiting reliance on credit scores alone under this provision is 
desirable. A black-and-white rule prohibiting reliance on credit scores 
to take action under this provision could be overly restrictive for at 
least two reasons. First, the Board understands that some creditors may 
have a strong empirical basis for relying on credit scores for a 
particular HELOC portfolio. The Board recognizes that creditors may be 
able to show that a particular level of drop is always associated with 
significant negative payment history, for example. Second, the Board's 
prohibition could become outdated or unnecessarily constraining on 
creditors in using innovative credit scoring tools developed in the 
future. Credit scoring methods may change over time in a manner that 
makes them more decisively indicative of default probability than 
today.
    For these reasons, the proposal neither expressly permits nor 
prohibits reliance on credit scores alone to determine that action is 
justified under this provision. The Board requests comment on the 
appropriateness of this approach, as well as whether and why the Board 
should consider expressly permitting or prohibiting reliance on credit 
scores to meet the requirements of Sec.  226.5b(f)(3)(vi)(B).
    In addition, the Board requests comment on the following questions: 
What compliance challenges are posed by the proposed standards for 
meeting each prong of the test? What further guidance for compliance 
with this provision, including examples of well-defined, reasonably 
reliable indicators of compliance with each prong of the test, should 
the Board consider? For example, should reliance on factors not related 
to past credit performance, but that may indicate poor future 
performance, be sufficient grounds for taking action under this 
provision? In this regard, the Board recognizes that, notwithstanding 
the discussion above, factors such as increases in the consumer's 
utilization rate and the number of new accounts opened have been shown 
to correspond to a reduced capacity of the consumer to repay his or her 
financial obligations.\36\
---------------------------------------------------------------------------

    \36\ Id.
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5b(f)(3)(vi)(C) Default of a Material Obligation
    Under Sec.  226.5b(f)(3)(vi)(C), which implements TILA Section 
137(c)(2)(D), a creditor may temporarily suspend or reduce an account 
if ``the consumer is in default of a material obligation under the 
agreement.'' 15 U.S.C. 1647(c)(2)(D). Proposed comment 5b(f)(3)(vi)-7 
would clarify that a creditor ``must,'' rather than ``may,'' specify 
which consumer obligations are ``material'' for purposes of this 
provision, if any. This clarification is intended to ensure that 
Regulation Z is interpreted to reflect the statutory requirement, found 
in TILA Section 137(c)(3), that the consumer must be given upon the 
consumer's request and at the time of account opening a list of the 
contract obligations that are considered ``material'' for purposes of 
TILA Section 137(c)(2)(D), which is the statutory provision permitting 
a creditor to suspend or reduce a line of credit ``during any period in 
which the consumer is in default with respect to any material 
obligation of the consumer under the agreement.'' See 15 U.S.C. 
1647(c)(3) (cross-referencing 15 U.S.C. 1647(c)(2)(D)).
5b(f)(3)(vi)(G) Suspensions and Credit Limit Reductions Required by 
Federal Law
Background
    During outreach conducted by the Board in preparing the proposal, 
creditors pointed out that the federal Internet gambling law (the 
Unlawful Internet Gambling Enforcement Act of 2006 or the ``Internet 
Gambling Act''), 31 U.S.C. 5361-5367, and implementing regulations,\37\ 
require non-exempt financial institutions and other participants in 
payment systems to have and comply with policies and procedures that, 
among other things, ``identify and block restricted transactions.'' 
\38\ Rules administered by the Office of Foreign Assets Control 
(``OFAC'') also require creditors to block accounts under certain 
circumstances.\39\ Creditor representatives raised concerns

[[Page 43495]]

about the potential for claims against creditors that prohibit draws to 
comply with the Internet Gambling Act or other federal laws, because 
TILA and Regulation Z do not expressly permit creditors to refuse to 
grant credit in those circumstances.
---------------------------------------------------------------------------

    \37\ 12 CFR. Part 233 (Board of Governors of the Federal Reserve 
System); 31 CFR part 132 (U.S. Department of Treasury).
    \38\ 31 U.S.C. 5362(7) (defining ``restricted transaction''). 
See also 31 U.S.C. Sec.  5364; 12 CFR 233.5; 31 CFR 132.5 (requiring 
institutions to establish policies and procedures under the Internet 
Gambling Act).
    \39\ See 31 CFR 500.201, .202, .203.
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Proposal
    Similar to the proposed amendments to Sec.  226.5b(f)(2)(iv), 
discussed above, proposed Sec.  226.5b(f)(3)(vi)(G) would permit 
creditors to suspend advances or reduce the credit limit if a federal 
law other than TILA requires the creditor to do so. Proposed Sec.  
226.5b(f)(3)(vi)(G) is intended to resolve the conflict between 
Regulation Z and federal laws that require creditors to block HELOC 
advances or reduce credit limits under circumstances not otherwise 
permitted under Regulation Z. Proposed comment 5b(f)(3)(vi)-9 would 
clarify that this rule permits creditors to prohibit either a single 
advance or multiple advances, depending on what the applicable federal 
law requires. By covering federal laws generally, this proposed section 
is intended to prevent the need for the Board to issue separate 
revisions to Regulation Z to account for any new federal law requiring 
creditors to suspend advances or reduce credit limits under particular 
circumstances.
    The Board believes that this proposal is consistent with 
longstanding policy expressed in provisions that permit creditors to 
suspend an account or reduce the credit limit temporarily due to 
government action. See 15 U.S.C. 1647(c)(2)(E); Sec.  
226.5b(f)(3)(vi)(D) and (E). Specifically, TILA and Regulation Z allow 
creditors to take these actions when the government precludes them from 
imposing the contractual APR or when government action adversely 
affects the priority of the creditor's security interest such that the 
creditor's secured interest in the property is less than 120 percent of 
the credit limit on the account. 15 U.S.C. 1647(c)(2)(E); Sec.  
226.5b(f)(3)(vi)(D) and (E).
    Regarding this proposed section, the Board requests comment on what 
additional examples of conflicts between Regulation Z's restrictions on 
account action and other laws the Board should consider, if any. The 
Board also requests comment on whether the definition of ``federal 
law'' should be broadened to include, for example, an order or 
directive of a federal agency.
5b(g) Reinstatement of Credit Privileges
Background
    Section 226.5b(f)(3)(i) and (f)(3)(vi) permit creditors to suspend 
advances on an account or reduce the credit limit only ``during any 
period in which'' designated circumstances exist. See also 15 U.S.C. 
1647(c)(2)(B)-(E). The Board has long interpreted this language to 
indicate that reinstatement of credit privileges is required once no 
circumstances permitting a freeze or credit limit reduction under the 
statute or regulation exist. To facilitate compliance, the Board 
provided guidance on appropriate reinstatement practices in the 
Official Staff Commentary on this provision. See comments 5b(f)(3)(vi)-
2, -3, -4.
    Recently, due to declining property values and for other reasons, 
HELOCs have been suspended and credit limits reduced more often than in 
the past. Consumer groups and other federal agencies have raised 
concerns about whether consumers are properly informed about the 
creditor's obligation to reinstate credit lines and consumers' rights 
to request reinstatement. The Board has also examined the reinstatement 
practices of several creditors and determined that additional guidance 
is appropriate.
Proposal
    The proposal would revise several provisions regarding 
reinstatement of credit privileges currently in comments 5b(f)(3)(vi)-
2, -3 and -4, and move them to proposed Sec.  226.5b(g) and comments 
5b(g)-1, 5b(g)(1)-1, 5b(g)(2)(i)-1, and 5b(g)(2)(ii)-1. Proposed 
explanatory guidance regarding the reinstatement rules is found in 
proposed commentary on Sec.  226.5b(g).
    Proposed Sec.  226.5b(g) and comment 5b(g)-1 (adopted from existing 
comment 5b(f)(3)(vi)-2 with revisions) confirm that line suspensions 
and credit limit reductions under both Sec.  226.5b(f)(3)(i) and 
(f)(3)(vi) must be temporary and that, accordingly, the creditor is 
obligated to restore the consumer's credit privileges as soon as 
reasonably possible once no condition permitting the creditor's action 
exists, such as reaching the maximum APR or a significant decline in 
the value of the property securing the line. See comments 5b(f)(3)(vi)-
1 and -2 and proposed comment 5b(g)-1. This new paragraph and comment 
5b(g)-1 are also intended to clarify that the creditor is not obligated 
to restore credit privileges if the original condition permitting the 
action no longer exists but another condition permitting the creditor 
to freeze the line or reduce the credit limit exists.
    Proposed comment 5b(g)-2 is adopted from existing comment 
5b(f)(3)(vi)-3, with certain technical revisions. The proposed comment 
retains the existing prohibition on charging a fee to reinstate an 
account, and specifies that this fee prohibition applies when no 
condition permitting an account freeze or reduction exists.
5b(g)(1) Methods of Meeting the Obligation To Reinstate Accounts
    Proposed Sec.  226.5b(g)(1) and comment 5b(g)(1)-1 are adopted from 
existing comment 5b(f)(3)(vi)-4, with revisions. Proposed Sec.  
226.5b(g)(1) retains the existing two options for a creditor to fulfill 
its obligation to ensure that the consumer's credit privileges are 
restored as soon as reasonably possible after no circumstance 
permitting a freeze or credit limit reduction exists. First, a creditor 
may monitor the line on an ongoing basis to determine whether the 
condition permitting the freeze or credit line reduction continues to 
exist or another condition exists. Proposed comment 5b(g)(1)-1 requires 
creditors choosing this option to investigate the HELOC often enough to 
be certain that a condition permitting the action exists. How often a 
creditor must investigate depends on the individual circumstances of a 
particular situation. For example, in a market with long-term property 
value declines that publicly available, independently verifiable data 
show are continuing, a creditor might reasonably decide not to 
investigate the property value as often as might be reasonable if the 
trend of property values begins increasing.
    The second compliance option permits creditors to forego ongoing 
monitoring and instead require the consumer to request reinstatement. 
This option is available only if the creditor complies with the 
provisions of Sec.  226.5b(g)(2), described below. During outreach for 
this proposal, the Board was asked to consider requiring ongoing 
monitoring in all cases, rather than allowing creditors to shift the 
burden to consumers to request reinstatement. Proposals to strengthen 
requirements on creditors that require consumers to request 
reinstatement, as discussed below, were intended in part to address 
concerns about allowing creditors to require consumers to request 
reinstatement. The Board requests comment on requiring ongoing 
monitoring in all cases, including specific information about potential 
benefits and burdens of this approach.
5b(g)(2) Obligations of Creditors That Require the Consumer To Request 
Reinstatement
    Proposed Sec.  226.5b(g)(2)(i), adopted from existing comment 
5b(f)(3)(vi)-4, requires that if the creditor requires the consumer to 
request reinstatement, the

[[Page 43496]]

creditor must disclose this requirement on the notice of action taken 
required under Sec.  226.9(j)(1). As does existing Sec.  
226.9(c)(1)(iii) and comment 9(c)(1)(iii)-1, proposed Sec.  226.9(j)(1) 
requires the creditor to disclose, among other things, the method by 
which the consumer must request reinstatement, such as whether the 
request must be in writing and the address to which a written request 
must be submitted.
    Under Sec.  226.5b(g)(2)(ii), as under the existing commentary (see 
comment 5b(f)(3)(vi)-4), the creditor's receipt of a reinstatement 
request triggers the creditor's obligation investigate whether the 
condition permitting the freeze or credit line reduction exists. See 
comment 5b(f)(3)(vi)-4. Proposed Sec.  226.5b(g)(3)(ii), however, would 
require the creditor to complete the investigation within 30 days of 
receiving the reinstatement request. The Board is proposing a 30-day 
investigation rule to conform to the longstanding policy requiring 
creditors to investigate reinstatement requests ``promptly'' upon 
receiving a request. See comment 5b(f)(3)(vi)-4. Based on information 
on creditor practices, the Board believes that the time required to 
complete a reinstatement investigation may vary. If a new property 
valuation is the primary element of the investigation, creditors may be 
able to complete the investigation in as little as a few days. If the 
creditor must depend on financial information requested from the 
consumer to complete an investigation, the investigation may take 
longer, although the Board also believes that once a creditor receives 
the financial information necessary to determine whether the original 
finding regarding a consumer's financial circumstances continues to 
exist, most creditors should be able to evaluate this information in a 
few days. In sum, the Board understands that a reinstatement 
investigation typically will not take more than two to three weeks to 
complete.
    The Board therefore proposes to require that the creditor complete 
the investigation and mail a notice of reinstatement results (see 
proposed Sec.  226.5b(g)(2)(v), discussed in the section-by-section 
analysis below) within 30 days of receiving the consumer's 
reinstatement request. The Board requests comment on whether this 
timeframe is appropriate and whether the Board should consider 
additional guidance for creditors when consumers do not provide needed 
information to complete the investigation in a timely manner. Such 
guidance might, for example, require that the creditor request the 
information within a reasonable period of time after receiving the 
reinstatement request, and permit the creditor to delay sending the 
notice until a reasonable period of time after receipt of the requested 
information.
    Proposed comment 5b(g)(2)(ii)-1 also provides guidance on 
investigating a reinstatement request. Specifically, the investigation 
should involve verifying that the information on which the creditor 
relied to take action in fact pertained to the specific property 
securing the affected line (as with a property valuation) or to the 
specific consumer (as with a credit report). In addition, to 
investigate whether a significant decline in property value exists 
under Sec.  226.5b(f)(3)(vi)(A), the creditor should reassess the value 
of the property securing the line based on an updated property 
valuation meeting the guidance in proposed comment 5b(f)(3)(vi)-5, 
discussed above. To investigate whether a material change in the 
consumer's financial circumstances exists under Sec.  
226.5b(f)(3)(vi)(B), the creditor should obtain and evaluate financial 
information sufficient to validate the original finding on which the 
action was based.
    Clarification on Fees. Current comment 5b(f)(3)(vi)-3, ``Imposition 
of fees,'' states that, if not prohibited by state law, a creditor may 
collect bona fide and reasonable appraisal and credit report fees 
actually incurred in investigating whether the condition permitting the 
freeze continues to exist. The proposal would move this part of the 
comment to Sec.  226.5b(g)(2)(iii) and (g)(2)(iv) and revise it. (The 
general prohibition in existing comment 5b(f)(3)(vi)-3 on imposing a 
fee to reinstate an account once a condition permitting a freeze or 
reduction no longer exists would be incorporated into the proposal at 
comment 5b(g)-2.)
    First, proposed Sec.  226.5b(g)(2)(iii) and (iv) would use the term 
``property valuation'' rather than ``appraisal,'' reflecting that an 
appraisal will not necessarily be the valuation method used to 
investigate a reinstatement request. Beyond this technical change, 
proposed Sec.  226.5b(g)(2)(iii) would grant the consumer one 
reinstatement request investigation free of charge. That is, for 
consumers required by the creditor to request reinstatement, the 
regulation would prohibit a creditor from charging the consumer any 
fees for investigating the consumer's first reinstatement request after 
each time the line is frozen or reduced. Proposed Sec.  
226.5b(g)(2)(iv) would permit a creditor to charge bona fide and 
reasonable property valuation and credit report fees only for 
investigations of reinstatement requests other than the consumer's 
initial request after a line is suspended or reduced.
    The Board proposes these rules pursuant to its authority in TILA 
Section 105(a) to issue provisions and make adjustments to the 
requirements of TILA necessary or proper to effectuate the statute's 
purposes. See 15 U.S.C. 1604(a). This proposal is intended to ensure 
that consumers have a meaningful opportunity to exercise their right to 
request reinstatement and to have this request investigated. Assessing 
an appraisal fee, for example, before the creditor will investigate the 
request may be a hardship for some consumers; in effect, up-front 
charges for the initial reinstatement investigation may discourage 
those consumers who are potentially the most in need of their HELOC 
funds from requesting reinstatement. The proposal is also intended to 
protect consumers for whom the original reason for the account freeze 
or credit limit reduction turned out to have been incorrect from having 
to pay extra costs for their HELOCs, and from the potential burden of 
having to pay expenses upfront.
    This proposal is based in part on information about creditor 
practices suggesting that investigation costs may not be particularly 
burdensome for creditors. The Board understands that credit reports and 
many valuation methods may be available to a creditor at low cost, 
particularly when the creditor can take advantage of bulk rates for 
these services. Further, the Board believes that potential burdens on 
creditors of the above proposal are adequately offset by proposed Sec.  
226.5b(g)(2)(iv), which would permit creditors to charge reasonable and 
bona fide property valuation and credit report fees associated with 
investigations triggered by reinstatement requests after the consumer's 
first request. The Board is proposing this approach to address concerns 
about the time and expense associated with having to investigate 
multiple reinstatement requests made by a consumer in a period of time 
insufficiently long to support a reasonable expectation that the 
condition justifying the line action has changed. At the same time, the 
consumer's right to request reinstatement as many times as desired is 
retained, as are existing limits on the types of investigation fees 
that creditors may charge.
    The Board requests comment on this approach, including whether 
consumers should have to pay reinstatement investigation costs for any 
reinstatement request. The Board also requests comment on whether, if 
the first reinstatement request is free but fees

[[Page 43497]]

may be charged for subsequent requests, a consumer should be required 
to pay investigation costs for a subsequent reinstatement request made 
a significant time period after the first request, such as six months, 
one year, or other appropriate time period commenters might suggest. 
Finally, the Board requests comment on whether the Board should 
consider requiring that the amount of the fees be disclosed along with 
the notice that the consumer must request reinstatement, and the 
burdens and benefits of this requirement.
    Notice of Reinstatement Results. Proposed Sec.  226.5b(g)(2)(v) 
would require creditors that choose to have the consumer request 
reinstatement under Sec.  226.5b(g)(1)(ii) to disclose to the consumer 
the results of the investigation of the consumer's reinstatement 
request. This notice requirement would apply only for investigations 
conducted in response to a consumer's request for reinstatement and 
only when the investigation results show that reinstatement is not 
warranted, either because the condition permitting the freeze or credit 
limit reduction continues to exist, another condition permitting a 
freeze or credit line reduction under Regulation Z exists, or both. The 
notice must be in writing, and must include the results of the 
investigation, as well as the information required in the Sec.  
226.9(j)(1) notice, such as the specific reasons for the continued 
freeze or credit limit reduction and information about the consumer's 
ongoing right to request reinstatement. To facilitate compliance with 
this provision, the Board is proposing Model Clauses in G-22(A) and G-
22(B) of Appendix G to Regulation Z.
    The Board proposes this rule pursuant to its authority in TILA 
Section 105(a) to issue provisions and make adjustments to the 
requirements of TILA necessary or proper to effectuate the statute's 
purposes. See 15 U.S.C. 1604(a). The Board recognizes that this new 
notice requirement will present a compliance cost on creditors who do 
not already have a policy of disclosing reinstatement results to their 
consumers. The Board believes, however, that the benefits of this 
notice requirement outweigh the burden. First, the Board believes that 
this provision upholds the consumer protection purpose of TILA by 
ensuring that consumers are adequately informed about the status of 
their HELOC accounts and responds to concerns expressed to the Board 
that currently many consumers are not. With this notice, consumers 
would be better equipped to take appropriate action, such as working to 
improve their credit or making alternative financial plans. In 
addition, the Board anticipates that this notice requirement may reduce 
consumer requests and complaints, because transparent investigation 
results will help consumers better understand the reasons for continued 
freezes or reductions and assure consumers that their reinstatement 
requests were considered.
    The Board requests comment on this disclosure requirement, and on 
whether creditors also should be required to provide notice of 
reinstatement results to consumers whose accounts will be reinstated, 
but with the option to provide notice orally to these consumers.
5b(g)(3) Obligation To Make Document Supporting Property Valuation 
Available to the Consumer
    Proposed Sec.  226.5b(g)(2) would require a creditor, upon the 
consumer's request, to provide to the consumer a copy of the 
documentation supporting the property value on which the creditor 
relied to freeze or reduce a line, or to continue an existing line 
freeze or reduction, based on a significant decline in the property 
value under Sec.  226.5b(f)(vi)(A). Proposed comment 5b(g)(2)1 would 
explain that the appropriate documentation under this provision would 
include a copy of a report for the valuation method used, such as an 
appraisal report, or any written evidence of another valuation method 
used (such as an AVM, TAV, or BPO) that clearly and conspicuously shows 
the property value specific to the subject property and factors 
considered to obtain the value.
    The Board believes that consumers should have access to information 
about the property value on which action was relied because a line 
suspension or reduction may result in serious financial consequences to 
consumers. In light of the significance of the impact on the consumer 
of the creditor's actions, the consumer should be fully equipped with 
necessary information to challenge the finding or otherwise request 
reinstatement.
    The Board requests comment on the appropriateness of this 
requirement, as well as the operational practicality for creditors of 
obtaining and providing the required documentation.
5b(g)(4) Reinstatement Rules for Action Taken Under Sec.  226.5b(f)(2)
    Proposed paragraph (g)(4) of Sec.  226.5b would clarify that, when 
a creditor has a justification for terminating and accelerating a home-
equity plan under Sec.  226.5b(f)(2), but opts to suspend or reduce the 
line instead, the creditor is not obligated to comply with the 
reinstatement rules of proposed Sec.  226.5b(g). This provision is 
intended to respond to questions posed to the Board about whether, when 
a creditor has a justification for terminating and accelerating a home-
equity plan under Sec.  226.5b(f)(2), but opts to suspend or reduce the 
line instead, the creditor is obligated to comply with the 
reinstatement rules of proposed Sec.  226.5b(g). The Board believes 
that this clarification is consistent with the existing reinstatement 
scheme.
    First, reinstatement guidance is in the commentary only for Sec.  
226.5b(f)(3)(vi), the provision permitting a creditor temporarily to 
suspend advances or reduce the credit limit, reflecting longstanding 
Board policy that it applies only when action is taken under Sec.  
226.5b(f)(3)(vi) (or under (f)(3)(i); see comments 5b(f)(3)(vi)-1 and -
2). Second, the Board believes that applying the reinstatement rules to 
suspensions or line reductions taken when the creditor could terminate 
and accelerate a line may harm consumers; a creditor may be discouraged 
from choosing the lesser action of temporarily suspending advances or 
reducing the credit limit if additional rules apply to those actions. 
Third, the Board believes that compliance confusion may arise, as well 
as enforcement challenges, in determining to which line suspensions and 
reductions under Sec.  226.5b(f)(2) the reinstatement rules should 
apply. Existing commentary on Sec.  226.5b(f)(2) gives the creditor the 
right to suspend or reduce an account ``temporarily or permanently.'' 
See comment 5b(f)(2)-2 (retained in the proposal). Logically, the 
reinstatement rules could only apply when the creditor chooses to take 
temporary action, but both creditors and examiners may have difficulty 
determining and documenting which line actions are intended to be 
temporary (and thus subject to the reinstatement rules) and which 
permanent. Again, creditors may be inclined simply to make all 
suspensions and reductions under this provision permanent, potentially 
harming consumers to whom creditors might otherwise have given an 
opportunity to restore their credit privileges.

Section 226.6 Account-Opening Disclosures

    TILA Section 127(a), implemented in Sec.  226.6, requires creditors 
to provide information about key credit terms before an open-end plan 
is opened, such as rates and fees that may be assessed on the account. 
Consumers' rights and responsibilities in the case of unauthorized use 
or billing disputes are

[[Page 43498]]

also explained. 15 U.S.C. 1637(a). See also Model Forms G-2 and G-3 in 
Appendix G to part 226.
6(a) Rules Affecting Home-Equity Plans
Summary of Proposed Disclosure Requirements
    Account-opening disclosure and format requirements for HELOCs 
subject to Sec.  226.5b generally were unaffected by the January 2009 
Regulation Z Rule, consistent with the Board's plan to review 
Regulation Z's disclosure rules for home-secured credit in a future 
rulemaking. To facilitate compliance, the Board in the January 2009 
Regulation Z Rule grouped the requirements applicable to HELOCs 
together in Sec.  226.6(a) (moved from former Sec.  226.6(a) through 
(e)).
    This proposal contains two significant proposed revisions to 
account-opening disclosures for HELOCs subject to Sec.  226.5b, which 
are set forth in proposed Sec.  226.6(a). The proposed revisions (1) 
would require a tabular summary of key terms to be provided before an 
account is opened (see proposed Sec.  226.6(a)(1) and (a)(2)), and (2) 
would reform how and when cost disclosures must be made (see proposed 
Sec.  226.6(a)(3) for content, proposed Sec.  226.5(b) and proposed 
Sec.  226.9(c) for timing).
Proposed Comments 6(a)-1 and 6(a)-2
    Fixed-rate and -term payment plans during draw period. As discussed 
in the section-by-section analysis to proposed Sec.  226.5b(c), HELOC 
plans typically offer the ability to obtain advances that must be 
repaid based on a variable interest rate that applies to all 
outstanding balances. Some HELOC plans, however, also offer a fixed-
rate and -term payment feature, where a consumer is permitted to repay 
all or part of the balance during the draw period at a fixed rate 
(rather than a variable rate) and over a specified time period. The 
Board understands that for most HELOC plans, consumers must take active 
steps to access the fixed-rate and -term payment feature; this feature 
is not automatically accessed when a consumer obtains advances from the 
HELOC plan. Current Sec.  226.6(a) requires a creditor to disclose 
information related to fixed-rate and -term payment features. For 
example, a creditor would be required to disclose the rates applicable 
to the fixed-rate and -term feature under current Sec.  226.6(a)(1), 
any fees that are finance charges under current Sec.  226.6(a)(1), any 
fees that are other charges under current Sec.  226.6(a)(2), and 
payment terms and other information required under current Sec.  
226.6(a)(3).
    Under the proposal, the Board would continue to require that a 
creditor disclose information applicable to the fixed-rate and -term 
feature under proposed Sec.  226.6. Generally, under the proposal, 
limited information about the fixed-rate and -term feature would be 
included in the account-opening table, and more detailed information 
would be included outside the table. Specifically, for the reasons 
discussed in the section-by-section analysis to proposed Sec.  
226.5b(c), if a HELOC plan offers a variable-rate feature and a fixed-
rate and -term feature during the draw period, a creditor generally 
must only disclose limited information in the account-opening table 
about the fixed-rate and -term feature. See proposed Sec.  226.6(a)(2). 
Instead of requiring that all the details of the fixed-rate and -term 
feature be disclosed in the table, the Board proposes to require a 
creditor offering this payment feature (in addition to a variable-rate 
feature) to disclose in the account-opening table the following: (1) A 
statement that the consumer has the option during the draw period to 
borrow at a fixed interest rate; (2) the amount of the credit line that 
the consumer may borrow at a fixed interest rate for a fixed term; and 
(3) a statement that information about the fixed-rate and -term payment 
plan is included in the account-opening disclosures or agreement, as 
applicable. See proposed Sec.  226.6(a)(2)(xix). However, if a HELOC 
plan does not offer a variable-rate feature during the draw period, but 
only offers a fixed-rate and -term feature during that period, a 
creditor must disclose in the account-opening table information related 
to the fixed-rate and -term feature when making the disclosures 
required by proposed Sec.  226.6(a)(2). See proposed comment 6(a)-1.
    Even though a creditor generally may not disclose the terms of 
fixed-rate and -term payment plans in the account-opening table, the 
creditor must disclose additional information about these payment plans 
in disclosures required by proposed Sec.  226.6(a)(3), (a)(4) and 
(a)(5). For example, a creditor must disclose fees and rate information 
related to these features under proposed Sec.  226.6(a)(3) and (a)(4), 
and information about payment terms and other terms related to these 
features under proposed Sec.  226.6(a)(5)(v).
    Disclosures for the repayment period. Current comment 6(a)(3)-4 
provides that a creditor must provide disclosures about both the draw 
and repayment phases when giving the disclosures under Sec.  226.6. To 
the extent the required disclosures are the same for the draw and 
repayment phase, the creditor need not repeat such information, as long 
as it is clear that the information applies to both phases. The Board 
proposes to move current comment 6(a)(3)-4 to proposed comment 6(a)-2 
and make technical revisions.
6(a)(1) Format for Home-Equity Plan Account Disclosures
    As provided by Regulation Z, creditors may, and typically do, 
include account-opening disclosures for HELOC plans as a part of an 
account agreement document that also contains other contract terms and 
state law disclosures. The agreement typically is in a narrative form, 
and is lengthy and in small print.
    The Board proposes in new Sec.  226.6(a)(1) to impose format 
requirements for account-opening disclosures for HELOCs subject to 
Sec.  226.5b, similar to proposed format requirements for the proposed 
early HELOC disclosures discussed in the section-by-section analysis to 
proposed Sec.  226.5b(b)(2). The Board proposes this rule pursuant to 
its authority in TILA Section 105(a) to make adjustments and exceptions 
to the requirements in TILA to effectuate the statute's purposes, which 
include facilitating consumers' ability to compare credit terms and 
helping consumers avoid the uniformed use of credit. See 15 U.S.C. 
1601(a), 1604(a). Specifically, under the proposal, a creditor would be 
required to disclose to a consumer key terms relating to the HELOC plan 
in a tabular format at account opening. As discussed in more detail 
below, the proposed account-opening table would contain disclosures 
that are similar to the ones disclosed in the proposed early HELOC 
disclosures table required by proposed Sec.  226.5b(b). A creditor 
would be required to disclose certain identification disclosures, such 
as the borrower's name and address, directly above the account-opening 
table. In addition, a creditor would be required to disclose other 
information, such as a statement that the consumer should confirm that 
the terms disclosed in the table are the same terms for which the 
consumer applied, below the account-opening table. Under the proposal, 
not all disclosures that a creditor would be required to provide to a 
consumer at account opening would be included in the account-opening 
table (or directly above or below the table). For account-opening 
disclosures that are not specifically required to be in the account-
opening table (or directly above or below the table), a creditor would 
be able to include these disclosures as part of the account agreement.
    The Board did not directly test whether providing account-opening

[[Page 43499]]

disclosures in a narrative form as part of the account agreement is an 
effective way to communicate those disclosures to consumers. 
Nonetheless, in the consumer testing conducted by the Board on HELOC 
disclosures, the Board tested application disclosures in a narrative 
form. Participants in consumer testing found this form difficult to 
read and understand, and their responses to follow-up questions showed 
that they also had difficulty identifying specific information in the 
text. Participants who saw forms that were structured in a tabular 
format, on the other hand, commented that the information was easier to 
understand and had more success answering comprehension questions. 
These results regarding the benefit of disclosing information in a 
tabular format are consistent with the results of research that the 
Board conducted on credit card disclosures in relation to the January 
2009 Regulation Z Rule. (See Sec. Sec.  226.5a(a)(2), 226.6(b)(1), 
226.9(b)(3), 226.9(c)(2)(iii)(B) and 226.9(g)(3)(iii) for certain 
disclosures applicable to open-end (not home-secured) credit that must 
be disclosed in a tabular format.) The Board also believes that 
providing key terms in a table at account opening, which would be 
similar to the proposed early HELOC disclosures table required by 
proposed Sec.  226.5b(b), would allow consumers to compare more easily 
the account-opening terms to those terms that were disclosed earlier to 
the consumer. For these reasons, the Board proposes to require that 
certain account-opening disclosures must be provided in the form of a 
table with headings, content, and format substantially similar to any 
of the applicable tables found in proposed G-15 in Appendix G. See 
proposed Sec.  226.6(a)(1). Proposed comment 6(a)(1)-3 clarifies that 
Sec.  226.6(a)(1)(i) generally requires that the headings, content and 
format of the tabular disclosures be substantially similar, but need 
not be identical, to the applicable tables in G-15 to Appendix G.
    Comparison to early HELOC disclosures table. TILA Section 127(a)(8) 
provides that any disclosures required to be disclosed as part of the 
early HELOC disclosures required under TILA Section 127A(a) also must 
be disclosed as part of the account-opening disclosures. 15 U.S.C. 
1637(a)(8). Thus, as discussed in more detail below, most of the 
disclosures required to be disclosed in the proposed early HELOC 
disclosures table described in proposed Sec.  226.5b(b) also would be 
included in the account-opening table described in proposed Sec.  
226.6(a)(1) and (a)(2). Nonetheless, while these two proposed tables 
would be similar, they would not be identical. For example, the table 
containing the early HELOC disclosures would show and compare two 
payment options offered on the HELOC (unless a creditor offers only 
one), while the account-opening disclosures would show only the payment 
plan chosen by the consumer. Proposed comment 6(a)-1 provides guidance 
on how the proposed early HELOC disclosures table described in proposed 
Sec.  226.5b(b) differs from the proposed account-opening table in 
proposed Sec.  226.6(a)(1) and (a)(2). Proposed comment 6(a)(1)-1 
specifically notes which rules in proposed Sec.  226.5b applicable to 
the early HELOC disclosures table described in proposed Sec.  226.5b(b) 
would not apply to the proposed account-opening table.
    Clear and conspicuous standard. As discussed in the section-by-
section analysis to proposed Sec.  226.5(a), the Board proposes a clear 
and conspicuous standard applicable to Sec.  226.6 disclosures. 
Proposed comment 6(a)(1)-2 provides a cross reference to the clear and 
conspicuous standard applicable to proposed Sec.  226.6(a) set forth in 
proposed comment 5(a)(1)-1.
    Terminology. As discussed in the section-by-section analysis to 
proposed Sec.  226.5(a), the Board proposes that creditors offering 
HELOCs subject to Sec.  226.5b must use certain terminology when 
disclosing the draw period, any repayment period, and certain other 
terms in the account-opening table. See proposed Sec.  226.5(a)(2). 
Proposed comment 6(a)(1)-3 provides a cross reference to the 
terminology requirements set forth in proposed Sec.  226.5(a)(2).
6(a)(2) Required Disclosures for Account-Opening Table for Home-Equity 
Plans
    Fees. Current Sec.  226.6(a)(1) and (a)(2), which implements TILA 
Section 127(a)(3) and (a)(5), require a creditor to disclose in the 
account-opening disclosures any finance charges or other charges 
imposed on the HELOC plan. 15 U.S.C. 1637(a)(3) and (a)(5). As 
discussed in more detail below, the Board proposed in new Sec.  
226.6(a)(2) that certain fees must be disclosed in the account-opening 
table described in proposed Sec.  226.6(a)(1) and (a)(2). Under the 
proposal, creditors would have more flexibility regarding disclosure of 
other charges imposed as part of a HELOC plan. See proposed Sec.  
226.6(a)(3) for content, proposed Sec.  226.5(b) and proposed Sec.  
226.9(c) for timing.
    Pursuant to TILA Section 127(a)(8) and for the reasons discussed in 
the section-by-section analysis to proposed Sec.  226.5b(c), the Board 
proposes that a creditor must disclose in the account-opening table the 
following fees that also must be disclosed in the early HELOC 
disclosures table described in proposed Sec.  226.5b(b): (1) a total of 
the one-time fees imposed by the creditor or third parties to open the 
HELOC plan and an itemization of those fees; (2) fees imposed by the 
creditor for the availability of the HELOC plan; (3) fees imposed by 
the creditor for early termination of the plan by the consumer; and (4) 
fees imposed for required insurance, debt cancellation or suspension 
coverage. See proposed Sec.  226.6(a)(2)(vii), (viii), (ix) and (xx). 
In addition, the Board proposes that the account-opening table also 
contain the following additional fees that are not required to be 
disclosed in the early HELOC disclosures table described in proposed 
Sec.  226.5b(b): (1) Late-payment fees; (2) over-the-limit fees; (3) 
transaction charges; (4) returned-payment fees; and (5) fees for 
failure to comply with transaction limitations described under proposed 
Sec.  226.6(a)(2)(xvii). See proposed Sec.  226.6(a)(2)(x), (xi), 
(xii), (xiii), and (xiv).
    The Board intends that the proposed list of fees and categories of 
fees that would be included in the account-opening table be exclusive, 
for two reasons. The Board believes that only allowing an exclusive 
list of fees to be disclosed in the account-opening table would benefit 
consumers. Based on consumer testing conducted by the Board on HELOC 
disclosures, the Board believes the fees listed above to be the most 
important fees, at least in the current marketplace, for consumers to 
know about before they start to use a HELOC account. Participants in 
this testing who were shown an account-opening table which contained 
the fees listed above indicated that they found this list sufficient, 
and could not identify any additional types of fees that they would 
want disclosed to them at account opening.
    The fees listed above include charges that a consumer could incur 
and which a creditor likely would not otherwise be able to disclose in 
advance of the consumer engaging in the behavior that triggers the 
cost, such as fees triggered by a consumer's use of a cash advance 
check or by a consumer's late payment. The proposed list is manageable 
and focuses on key information rather than attempting to be 
comprehensive. Since consumers must be informed of all fees imposed as 
part of the plan before the cost is incurred, the Board believes that 
not all fees need to be included in the

[[Page 43500]]

account-opening table provided at account opening.
    The Board believes an exclusive list also would ease compliance and 
reduce the risk of litigation for creditors; creditors would have the 
certainty of knowing that as new services (and associated fees) 
develop, fees not required to be disclosed in the summary table under 
the proposed rule need not be included in the account-opening summary 
unless and until the Board requires their disclosure after notice and 
public comment. In addition, as discussed in the section-by-section 
analysis to proposed Sec.  226.5(a)(1) and (b)(1), charges required to 
be included in the proposed account-opening table would be required to 
be provided in a written and retainable form before the first 
transaction, and a subsequent written notice is required if one of 
these fees increases or if these fees are newly introduced during the 
life of the plan (but only as permitted under Sec.  226.5b(f)). Under 
the proposal, creditors would have more flexibility regarding 
disclosure of other charges imposed as part of a HELOC plan.
6(a)(2)(i) Identification Information
    Pursuant to TILA Section 127(a)(8) and for the reasons discussed in 
the section-by-section analysis to proposed Sec.  226.5b(c)(1), the 
Board proposes in new Sec.  226.6(a)(2)(i) that a creditor must 
disclose above the account-opening table the following identification 
information that also must be disclosed above the early HELOC 
disclosures table described in proposed Sec.  226.5b(b): (1) The 
consumer's name and address; (2) the identity of the creditor making 
the disclosures; (3) the date the disclosure was prepared; and (4) the 
loan originator's unique identifier, as defined by the Secure and Fair 
Enforcement for Mortgage Licensing Act of 2008 (``SAFE Act'') Sections 
1503(3) and (12). 12 U.S.C. 5102(3) and (12); 15 U.S.C. 1637(a)(8). In 
addition, the Board proposes also that the creditor also disclose the 
account number as part of the identification information that would be 
disclosed above the account-opening table. The Board proposes this rule 
pursuant to its authority in TILA Section 105(a) to make adjustments 
and exceptions to the requirements in TILA to effectuate the statute's 
purposes, which include facilitating consumers' ability to compare 
credit terms and helping consumers avoid the uniformed use of credit. 
See 15 U.S.C. 1601(a), 1604(a). The Board believes that including the 
account number above the account-opening table may allow a consumer in 
the future (after account opening) to connect better the account-
opening table with the account to which the disclosures apply.
6(a)(2)(ii) Security Interest and Risk to Home
    Current Sec.  226.6(a)(4), which implements TILA Section 127(a)(6), 
provides that a creditor must disclose as part of the account-opening 
disclosures the fact that the creditor has or will acquire a security 
interest in the property purchased under the plan, or in other property 
identified by item or type. 15 U.S.C. 1637(a)(6). The Board proposes in 
new Sec.  226.6(a)(2)(ii) to require that a creditor must disclose in 
the account-opening table a statement that the creditor will acquire a 
security interest in the consumer's dwelling and that loss of the 
dwelling may occur in the event of default. This same statement would 
be required to be disclosed as part of the proposed early HELOC 
disclosures table described in proposed Sec.  226.5b(b). See proposed 
Sec.  226.5b(c)(6).
6(a)(2)(iii) Possible Actions by Creditor
    As discussed in the section-by-section analysis to proposed Sec.  
226.5b(c), the Board proposes to require a creditor to disclose in the 
early HELOC disclosures table a statement that, under certain 
conditions, the creditor may terminate the plan and require payment of 
the outstanding balance in full in a single payment and impose fees 
upon termination; prohibit additional extensions of credit or reduce 
the credit limit; and implement changes in the plan. Pursuant to TILA 
Section 127(a)(8), the Board also proposes in new Sec.  
226.6(a)(2)(iii) to require a creditor to disclose the above statement 
in the account-opening table. 15 U.S.C. 1637(a)(8). In addition, under 
the proposal, a creditor also would be required to disclose in the 
account-opening table a statement that information about the 
circumstances under which the creditor may take these actions is 
provided in the account-opening disclosures or agreement, as 
applicable. Current Sec.  226.6(a)(3)(i) requires a creditor to 
disclose as part of the account-opening disclosures the circumstances 
under which the creditor may take the above actions on the HELOC plan. 
The Board proposed to move current Sec.  226.6(a)(3)(i) to proposed 
Sec.  226.6(a)(5)(iv) and make technical revisions. Under the proposal, 
a creditor would be required to disclose the information about the 
circumstances under which the creditor may take the above actions on 
the HELOC plan outside of the account-opening table under proposed 
Sec.  226.6(a)(5)(iv).
6(a)(2)(iv) Tax Implications
    Current Sec.  226.6(a)(3)(v), which implements TILA Section 
127(a)(8), requires that a creditor must disclose in the account-
opening disclosures a statement that the consumer should consult a tax 
adviser for further information regarding the deductibility of interest 
and charges. The Board proposed to move this provision in current Sec.  
226.6(a)(3)(v) to proposed Sec.  226.6(a)(2)(iv). Under the proposal, a 
creditor would be required to include this statement about consulting a 
tax adviser in the account-opening table.
    In addition, as discussed in the section-by-section analysis to 
proposed Sec.  226.5b(c)(8), in implementing Section 1302 of the 
Bankruptcy Act, the Board proposes to require a creditor to disclose in 
the early HELOC disclosures table a statement that the interest on the 
portion of the credit extension that is greater than the fair market 
value of the dwelling may not be tax deductible for Federal income tax 
purposes. Pursuant to TILA Section 127(a)(8), the Board also proposes 
that a creditor be required to disclose this statement in the account-
opening table. 15 U.S.C. 1637(a)(8).
6(a)(2)(v) Payment Terms
    Current Sec.  226.6(a)(3)(ii), which implements TILA Section 
127(a)(8), requires a creditor to disclose as part of the account-
opening disclosures certain information related to payment terms on the 
HELOC plan that is currently required to be disclosed as part of the 
application disclosures, as discussed in the section-by-section 
analysis to proposed Sec.  226.5b(c)(9). 15 U.S.C. 1637(a)(8). For 
example, current Sec.  226.6(a)(3)(ii) requires a creditor to disclose 
in the account-opening disclosures the following information: (1) The 
length of the draw period and any repayment period; (2) an explanation 
of how the minimum periodic payment will be determined and the timing 
of the payments; and (3) if paying only the minimum periodic payments 
may not repay any of the principal or may repay less than the 
outstanding balance, a statement of this fact, as well as a statement 
that a balloon payment may result. In addition, current Sec.  
226.6(a)(3)(vii) requires a creditor to disclose as part of the 
account-opening disclosures payment examples that are currently 
required to be disclosed as part of the application disclosures, unless 
the application disclosures were in a form the consumer could keep and 
included representative payment examples for the category of the 
payment option chosen

[[Page 43501]]

by the consumer. The Board proposes to move these provisions in current 
Sec.  226.6(a)(3)(ii) and (a)(4)(iv) to proposed Sec.  226.6(a)(2)(v) 
and make revisions.
    The proposal. Consistent with TILA Section 127(a)(8), the Board 
proposes to require a creditor to disclose the same disclosures 
relating to payment terms in the account-opening table that a creditor 
would be required to disclose in the early HELOC disclosures table 
described in proposed Sec.  226.5b(b) (as discussed in the section-by-
section analysis to proposed Sec.  226.5b(c)(9)), with one exception. 
15 U.S.C. 1637(a)(8). The table containing the early HELOC disclosures 
would show and compare two payment options offered on the HELOC (unless 
a creditor offers only one), while the account-opening disclosures 
would show only the payment plan chosen by the consumer. Specifically, 
proposed Sec.  226.6(a)(2)(v) requires a creditor to disclose in the 
account-opening table certain payment terms of the plan that will apply 
to the consumer at account opening. Under the proposal, the creditor 
would be required to distinguish payment terms applicable to the draw 
period and the repayment period, by using the applicable heading 
``Borrowing Period'' for the draw period and ``Repayment Period'' for 
the repayment period, in a format substantially similar to the format 
used in any of the applicable tables found in proposed Samples G-15(B) 
and G-15(D) in Appendix G.
    Under the proposal, a creditor would be required to disclose in the 
account-opening table the length of the plan, the length of the draw 
period and the length of any repayment period. When the length of the 
plan is definite, a creditor would be required to disclose the length 
of the plan, the length of the draw period and the length of any 
repayment period in a format substantially similar to the format used 
in any of the applicable tables found in proposed Samples G-15(B) and 
G-15(C) in Appendix G. If there is no repayment period on the plan, the 
creditor would be required to disclose a statement that after the draw 
period ends, the consumer must repay the remaining balance in full. In 
addition, under the proposal, a creditor would be required to disclose 
in the account-opening table an explanation of how the minimum periodic 
payment will be determined and the timing of the payments.
    Also, under the proposal, a creditor would be required to disclose 
in the account-opening table payment examples based on the assumptions 
that the consumer borrows the full credit line at account opening, and 
does not obtain any additional extensions of credit; the consumer makes 
only minimum periodic payments during the draw period and any repayment 
period; and the APRs (as described below) used to calculate the payment 
examples will remain the same during the draw period and any repayment 
period. A creditor would be required to provide payment examples for 
two APRs: (1) The current APR for the plan, except that if an 
introductory APR applies, the creditor would be required to use the 
rate that would otherwise apply to the plan after the introductory rate 
expires, as described in proposed Sec.  226.6(a)(2)(vi)(B); and (2) the 
maximum APR applicable to the payment plan described in the table, as 
described in proposed Sec.  226.6(a)(2)(vi)(A)(1)(v). A creditor also 
would be required to disclose other information along with the payment 
examples, such as a statement that the sample payments are not the 
consumer's actual payments. Under the proposal, a creditor would be 
required to disclose the proposed payment examples, and related 
information, in a format that is substantially similar to the format 
used in any of the applicable tables found in proposed Samples G-15(B), 
G-15(C) and G-15(D) in Appendix G.
    Moreover, under the proposal, if under the payment plan disclosed 
in the account-opening table a consumer may pay a balloon payment, a 
creditor would be required to disclose information about the balloon 
payment twice in the account-opening table: at the beginning of the 
information about payment terms, and as part of the payment examples. 
Specifically, proposed Sec.  226.6(a)(2)(v)(B) provides that if under 
the payment plan disclosed in the table, paying only the minimum 
periodic payments may not repay any of the principal or may repay less 
than the outstanding balance by the end of the HELOC plan, the creditor 
must disclose a statement of this fact in the account-opening table, as 
well as a statement that a balloon payment may result. The ``Balloon 
Payment'' row in the ``Borrowing and Repayment Terms'' section of 
proposed Samples G-15(B) and G-15(C) in Appendix G provides guidance on 
how to comply with the requirements in proposed Sec.  
226.6(a)(2)(v)(B).
    In addition, regarding disclosure of the amount of the balloon 
payment in the proposed payment examples, proposed Sec.  
226.6(a)(2)(v)(C)(3)(iii) provides that if a consumer may pay a balloon 
payment under the payment plan disclosed in the account-opening table, 
a creditor would be required to disclose that fact when disclosing the 
proposed payment examples, as well as disclose the amount of the 
balloon payment based on the assumptions used the calculate the payment 
examples as described in proposed Sec.  226.6(a)(2)(v)(C). The first 
paragraph of the ``Sample Payments'' section of proposed Samples G-
15(B) and G-15(C) in Appendix G provides guidance on how to comply with 
the requirements in proposed Sec.  226.6(a)(2)(v)(C)(3)(iii).
    Under the proposal, a creditor would be required to disclose in the 
account-opening table a statement that the consumer can borrow money 
during the draw period. In addition, if a repayment period is provided, 
a creditor would be required to disclose in the account-opening table a 
statement that the consumer cannot borrow money during the repayment 
period. Under the proposal, a creditor also would be required to 
disclose in the account-opening table a statement indicating whether 
minimum payments are due in the draw period and any repayment period.
    Choosing payment plan at account opening. The Board understands 
that some creditors currently do not require consumers to choose a 
payment plan until account opening. Under the proposal, even if a 
creditor does not require a consumer to choose a payment plan until 
account opening, a creditor would still be required to disclose in the 
account-opening table only the payment plan chosen by the consumer. 
Thus, a creditor that allows a consumer to choose a payment plan at 
account opening would need to prepare account-opening tables for each 
payment plan offered on the HELOC plan from which a consumer may choose 
(except for fixed-rate and -term payment plans unless those are the 
only plans offered during the draw period) and take steps to ensure 
that the proper account-opening table is provided to the consumer 
depending on which payment plan is chosen by the consumer.
6(a)(2)(vi) Annual Percentage Rate
    Current Sec.  226.6(a)(1), which implements TILA Section 127(a)(1) 
and (a)(4), sets forth disclosure requirements for rates that would 
apply to HELOC accounts. 15 U.S.C. 1637(a)(1) and (a)(4). The Board 
proposes to require a creditor to disclose in the account-opening table 
the same disclosures relating to APRs that a creditor would be required 
to disclose in the early HELOC disclosures table described in proposed 
Sec.  226.5b(b) (as discussed in the section-by-section analysis to 
proposed Sec.  226.5b(c)(10)). For example, under the proposal, a 
creditor would be required to disclose in the account-

[[Page 43502]]

opening table each APR applicable to the payment plan disclosed in the 
table, except a creditor must not disclose any penalty rate set forth 
in the initial agreement that may be imposed in lieu of termination of 
the plan. See proposed Sec.  226.6(a)(2)(vi). Under the proposal, a 
creditor also would be required to disclose certain information about 
any variable rates disclosed in the account-opening table, such as the 
fact that the APR may change due to the variable-rate feature. See 
proposed Sec.  226.6(a)(2)(vi)(A). In addition, under the proposal, a 
creditor would be required to disclose in the account-opening table any 
introductory rate that applies to the payment plan disclosed in the 
table, as well as the time period during which the introductory rate 
will remain in effect and the rate that will apply after the 
introductory rate expires. See proposed Sec.  226.6(a)(2)(vi)(B).
    Under the proposal, a creditor would be required to disclose other 
rate information under proposed Sec.  226.6(a)(3) and (a)(4). For 
example, periodic rates would not be permitted to be disclosed in the 
account-opening table. Nonetheless, under the proposal, the Board 
proposes to require creditors to disclose periodic rates, as a cost 
imposed as part of the plan, before the consumer agrees to pay or 
becomes obligated to pay for the charge, and these disclosures could be 
provided in the credit agreement or other disclosure, as is likely 
currently the case.
6(a)(2)(vii) Fees Imposed by the Creditor and Third Parties To Open the 
Plan
    Current Sec.  226.6(a)(1) and (a)(2) require a creditor to disclose 
in the account-opening disclosures any finance charges or other charges 
imposed on the HELOC plan. As discussed above, the Board proposes in 
new Sec.  226.6(a)(2)(vii) to require that a creditor disclose in the 
account-opening table a total of the one-time fees imposed by the 
creditor or third parties to open the HELOC plan and an itemization of 
those fees. Under the proposal, the disclosure of these fees in the 
account-opening table might differ from how these fees may have been 
disclosed in the early HELOC disclosures table. As discussed in the 
section-by-section analysis to proposed Sec.  226.5b(c)(11), with 
respect to disclosing the itemization of the one-time account-opening 
fees in the proposed early HELOC disclosures table, if the dollar 
amount of a fee is not known at the time the early HELOC disclosures 
are delivered or mailed, a creditor would be allowed to provide a range 
for such fee. See proposed Sec.  226.5b(c)(11). With respect to 
disclosure of the total of one-time account-opening fees in the 
proposed early HELOC disclosures table, if the exact total of one-time 
fees for account opening is not known at the time the early HELOC 
disclosures are delivered or mailed, a creditor would be required to 
disclose in the table as part of the early HELOC disclosures the 
highest total of one-time account opening fees possible for the plan 
with a indication that the one-time account opening costs may be ``up 
to'' that amount. See proposed Sec.  226.5b(c)(11). Nonetheless, in the 
account-opening table, a creditor would be required to disclose in the 
account-opening table an itemization of all one-time fees imposed by 
the creditor and third parties to open the plan, and may not disclose a 
range for those fees, as otherwise allowed under proposed Sec.  
226.5b(c)(11) for the proposed early HELOC disclosures table. See 
proposed comment 6(a)(2)(vii)-1. In addition, in the account-opening 
table, a creditor would be required to disclose in the account-opening 
table the total of all one-time fees imposed by the creditor and third 
parties to open the plan, and may not disclose the highest amount of 
possible fees as allowed under proposed Sec.  226.5b(c)(11) for the 
proposed early HELOC disclosures table. See proposed comment 
6(a)(2)(vii)-1. At the time the creditor is disclosing the account-
opening table, a creditor would know the exact amount of the one-time 
fees that will be imposed by the creditor and any third parties to open 
the HELOC account, and thus would be able to disclose the exact total 
of these one-time fees and an exact itemization of these fees.
    Unlike the proposed early HELOC disclosures table, in the account-
opening table, the itemization of the one-time fees to open the account 
would not be disclosed with the total of these one-time fees but 
instead the itemization of the fees would be disclosed on the second 
page of the table with penalty fees and transactions fees. Thus, under 
the proposal, a creditor would be required to include in the account-
opening table a cross reference near the disclosure of the total of 
one-time fees for opening an account, indicating that the itemization 
of the fees is located elsewhere in the table.
6(a)(2)(x) Late-Payment Fee
    As discussed above, under the proposal, a creditor would be 
required to disclose in the account-opening table any fee imposed for a 
late payment. See proposed Sec.  226.6(a)(2)(x) Proposed comment 
6(a)(2)(x)-1 provides that the disclosure of the fee for a late payment 
includes only those fees that will be imposed for actual, unanticipated 
late payments. This proposed comment cross references commentary to 
Sec.  226.4(c)(2) for additional guidance on late-payment fees. In 
addition, this proposed comment notes that Samples G-15(B), G-15(C) and 
G-15(D) provide guidance to creditors on how to disclose clearly and 
conspicuously the late-payment fee in the account-opening table.
6(a)(2)(xi) Over-the-Limit Fee
    As discussed above, under the proposal, a creditor would be 
required to disclose in the account-opening table any fee imposed for 
exceeding a credit limit. See proposed Sec.  226.6(a)(2)(xi). Proposed 
comment 6(a)(2)(xi)-1 provides that the disclosure of fees for 
exceeding a credit limit does not include fees for other types of 
default or for services related to exceeding the limit. For example, no 
disclosure would be required of fees for reinstating credit privileges 
or fees for the dishonor of checks on an account that, if paid, would 
cause the credit limit to be exceeded. In addition, this proposed 
comment notes that Samples G-15(B), G-15(C) and G-15(D) provide 
guidance to creditors on how to disclose clearly and conspicuously the 
over-the-limit fee.
6(a)(2)(xii) Transaction Charges
    As discussed above, under the proposal, a creditor would be 
required to disclose in the account-opening table any transaction 
charge imposed by the creditor for use of the HELOC plan. See proposed 
Sec.  226.6(a)(2)(xii). Proposed comment 6(a)(2)(xii)-1 provides that 
charges imposed by a third party, such as a seller of goods, must not 
be disclosed in the account-opening table. This proposed comment also 
notes that the third party would be responsible for disclosing the 
charge under Sec.  226.9(d)(1).
    In addition, proposed comment 6(a)(2)(xii)-2 provides that a 
transaction charge imposed by the creditor for use of the HELOC plan 
includes any fee imposed by the creditor for transactions in a foreign 
currency or that take place outside the United States or with a foreign 
merchant. This proposed comment cross references comment 4(a)-4 for 
guidance on when a foreign transaction fee is considered charged by the 
creditor. This proposed comment also notes that Sample G-15(D) provide 
guidance to creditors on how to disclose a foreign transaction fee for 
use of a credit card where the same foreign transaction fee applies for 
purchases and cash advances in a foreign currency,

[[Page 43503]]

or that take place outside the United States or with a foreign 
merchant.
6(a)(2)(xv) Statement About Other Fees
    As discussed above, under the proposal, a creditor would not be 
required to disclose all the fees that apply to a HELOC plan in the 
account-opening table. Under the proposal, creditors would be provided 
with flexibility in disclosing fees that would be required to be 
disclosed under the regulation but not in the account-opening table. As 
discussed in more detail in the section-by-section analysis to proposed 
Sec.  226.5(a)(1) and (b)(1), under the proposal, a creditor would be 
permitted to disclose charges that are not required to be disclosed in 
the account-opening table either before the first transaction or later, 
so long as they are disclosed before the cost is imposed. Despite this 
flexibility to disclose certain charges after account opening, the 
Board expects that creditors would continue to disclose some of these 
charges in the account-opening disclosures or account agreement because 
of contract law or other reasons. Thus, the Board proposes in new Sec.  
226.6(a)(2)(xv) to require a creditor to disclose in the account-
opening table a statement that information about other fees is included 
in the account-opening disclosures or agreement, as applicable. In 
addition, because certain fees disclosed in the account-opening table 
would be disclosed on the first page of the table, and other fees 
disclosed in the table would be included on the second page of the 
table, the Board proposes to require a creditor to disclose in the 
account-opening table near the disclosure of fees on the first page of 
the table a statement that other fees are located elsewhere in the 
table.
6(a)(2)(xvi) Negative Amortization
    Current Sec.  226.6(a)(3)(iii), which implements TILA Section 
127(a)(8), provides that a creditor must disclose in the account-
opening disclosures a statement that negative amortization may occur as 
described in current Sec.  226.5b(d)(9). 15 U.S.C. 127(a)(8). The Board 
proposes to move current Sec.  226.6(a)(3)(iii) to proposed 
226.6(a)(2)(xvi) and make revisions. Specifically, under the proposal, 
a creditor would be required to disclose in the account-opening table, 
as applicable, a statement that negative amortization may occur and 
that negative amortization increases the principal balance and reduces 
the consumer's equity in the dwelling. This same disclosure would be 
required as part of the early HELOC disclosures table required under 
proposed Sec.  226.5b(b). See proposed Sec.  226.5b(c)(15).
6(a)(2)(xvii) Transaction Requirements
    Current Sec.  226.6(a)(3)(iv), which implements TILA Section 
127(a)(8), provides that a creditor must disclose in the account-
opening disclosures a statement of any transaction requirements as 
described in current Sec.  226.5b(d)(10). The Board proposes to move 
current Sec.  226.6(a)(3)(iv) to proposed Sec.  226.6(a)(2)(xvii) and 
make revisions. Specifically, under the proposal, a creditor would be 
required to disclose in the account-opening table any limitations on 
the number of extensions of credit and the amount of credit that may be 
obtained during any time period, as well as any minimum outstanding 
balance and minimum draw requirements. This same disclosure would be 
required as part of the early HELOC disclosures table required under 
proposed Sec.  226.5b(b). See proposed Sec.  226.5b(c)16).
6(a)(2)(xviii) Credit Limit
    Currently, a creditor is not required to disclose in the account-
opening disclosures the credit limit applicable to the HELOC plan. As 
discussed in the section-by-section analysis to proposed Sec.  
226.5b(c)(17), the Board proposes to require a creditor to disclose the 
credit limit applicable to the HELOC plan in the early HELOC 
disclosures table required under proposed Sec.  226.5b(b). Pursuant to 
TILA Section 127(a)(8) and for the reasons set forth in the section-by-
section analysis to proposed Sec.  226.5b(c)(17), the Board proposes 
that this disclosure also be required in the account-opening table. 15 
U.S.C. 1637(a)(8).
6(a)(2)(xix) Statements About Fixed-Rate and -Term Payment Plan
    As discussed above, the Board proposes that if a HELOC plan offers 
a variable-rate feature and a fixed-rate and -term feature during the 
draw period, a creditor generally would not be allowed to disclose in 
the account-opening table all the terms applicable to the fixed-rate 
and -term feature. See proposed Sec.  226.6(a)(2). Instead, the Board 
proposes to require a creditor offering this payment feature (in 
addition to a variable-rate feature) to disclose in the account-opening 
table the following: (1) A statement that the consumer has the option 
during the draw period to borrow at a fixed interest rate; (2) the 
amount of the credit line that the consumer may borrow at a fixed 
interest rate for a fixed term; and (3) a statement that information 
about the fixed-rate and -term payment plan is included in the account-
opening disclosures or agreement, as applicable. See proposed Sec.  
226.6(a)(2)(xix). The Board proposes a similar disclosure in the 
proposed early HELOC disclosures table described in proposed Sec.  
226.5b(b). See proposed Sec.  226.5b(c)(18).
6(a)(2)(xx) Required Insurance, Debt Cancellation or Debt Suspension 
Coverage
    Current Sec.  226.6(a)(1) and (a)(2) require a creditor to disclose 
in the account-opening disclosures any finance charges or other charges 
imposed on the HELOC plan. As discussed in the section-by-section 
analysis to proposed Sec.  226.5b(c)(19), in the event that a creditor 
requires the insurance or debt cancellation or debt suspension coverage 
(to the extent permitted by state or other applicable law), the Board 
proposes to require a creditor to disclose in the early HELOC 
disclosures table any fee for this coverage. See proposed Sec.  
226.5b(c)(19). In addition, proposed Sec.  226.5a(b)(19) require that a 
creditor also disclose in the early HELOC disclosures table a cross 
reference to where the consumer may find more information about the 
insurance or debt cancellation or debt suspension coverage, if 
additional information is included outside the early HELOC disclosures 
table. For the reasons set forth in the section-by-section analysis to 
proposed Sec.  226.5b(c)(19), the Board also proposes to require that a 
creditor make these same disclosures in the account-opening table.
6(a)(2)(xxi) Grace Period
    Current Sec.  226.6(a)(1)(i), which implements TILA Section 
127(a)(1), provides that a creditor must disclose as part of the 
account-opening disclosures a statement of when finance charges begin 
to accrue, including an explanation of whether or not any time period 
exists within which any credit extended may be repaid without incurring 
a finance charge. 15 U.S.C. 1637(a)(1). Under the proposal, the Board 
proposes to require that a creditor disclose below the account-opening 
table 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. If no grace period is provided, a creditor would be required to 
disclose that fact below the account-opening table. If the length of 
the grace period varies, the creditor would be allowed to disclose the 
range of days, the minimum number of days, or the average number of the 
days in the grace period, if the disclosure is identified as

[[Page 43504]]

a range, minimum, or average. In disclosing a grace period that applies 
to all features on the account, under the proposal, a creditor would be 
required to use the phrase ``How to Avoid Paying Interest'' as the 
heading for the information below the table describing the grace 
period. If a grace period is not offered on all features of the 
account, in disclosing this fact below the table, a creditor would be 
required to use the phrase ``Paying Interest'' as the heading for this 
information.
    Proposed comment 6(a)(2)(xxi)-1 provides that a creditor that 
offers a grace period on all types of transactions for the account and 
conditions the grace period on the consumer paying his or her 
outstanding balance in full by the due date each billing cycle, or on 
the consumer paying the outstanding balance in full by the due date in 
the previous and/or the current billing cycle(s) will be deemed to meet 
the requirements in proposed Sec.  226.6(a)(2)(xxi) by providing the 
following disclosure, as applicable: ``Your due date is [at least] ---- 
days after the close of each billing cycle. We will not charge you 
interest on your account if you pay your entire balance by the due date 
each month.'' Proposed comment 6(a)(2)(xxi)-2 provides that a creditor 
may use the following language to describe below the account-opening 
table that no grace period is offered, as applicable: ``We will begin 
charging interest on [applicable transactions] on the date the 
transaction is posted to your account.''
    The Board understands that most creditors currently do not offer a 
grace period on any transactions on the HELOC plan. Thus, in most 
cases, creditors would include below the account-opening table a 
statement that the creditor will begin charging interest on the 
transactions on the HELOC plan on the date the transaction is posted to 
the account. The Board believes that requiring a creditor to disclose 
this statement below the account-opening table would be an effective 
way to inform a consumer that he or she cannot avoid paying interest on 
transactions on the HELOC plan.
6(a)(2)(xxii) Balance Computation Method
    Current Sec.  226.6(a)(1)(iii), which implements TILA Section 
127(a)(2), provides that creditors must explain as part of the account-
opening disclosures the method used to determine the balance to which 
rates are applied. 15 U.S.C. 1637(a)(2). Under the proposal, a creditor 
would be required to disclose below the account-opening table the name 
of the balance computation method used by the creditor for each feature 
of the account, along with a statement that an explanation of the 
method(s) is provided in the account agreement or disclosure statement. 
See proposed Sec.  226.6(a)(2)(xxii). To determine the name of the 
balance computation method to be disclosed, a creditor would be 
required to refer to Sec.  226.5a(g) for a list of commonly-used 
methods; if the method used is not among those identified, creditors 
would be required to provide a brief explanation in place of the name. 
In determining which balance computation method to disclose, the 
creditor would be required to assume that credit extended will not be 
repaid within any grace period, if any. The Board believes that the 
proposed approach of disclosing the name of the balance computation 
method below the table, with a more detailed explanation of the method 
in the account-opening disclosures or account agreement, would provide 
an effective way to communicate information about the balance 
computation method used on a HELOC plan to consumers, while not 
distracting from other information included in the account-opening 
table.
    Proposed comment 6(a)(2)(xxii)-1 provides that in cases where the 
creditor uses a balance computation method that is identified by name 
in the regulation, the creditor must disclose below the table only the 
name of the method. In cases where the creditor uses a balance 
computation method that is not identified by name in the regulation, 
the disclosure below the table must clearly explain the method in as 
much detail as set forth in the descriptions of balance computation 
methods in Sec.  226.5a(g). The explanation would not need to be as 
detailed as that required for the disclosures under proposed Sec.  
226.6(a)(4)(i)(D), as discussed below. Proposed comment 6(a)(2)(xxii)-2 
notes that proposed Samples G-15(B), G-15(C) and G-15(D) would provide 
guidance to creditors on how to disclose the balance computation method 
where the same method is used for all features on the account.
6(a)(2)(xxiii) Billing Error Rights Reference
    Current Sec.  226.6(a)(6), which implements TILA Section 127(a)(7), 
provides that creditors offering HELOC accounts subject to Sec.  226.5b 
must provide notices of billing rights at account opening. This 
information is important, but lengthy. The Board proposes in new Sec.  
226.6(a)(2)(xxiii) to draw consumers' attention to the notices by 
requiring a creditor to disclose below the account-opening table a 
statement that information about billing rights and how to exercise 
them is provided in the account-opening disclosures or account 
agreement, as applicable. As discussed in the section-by-section 
analysis to proposed Sec.  226.6(a)(5), under the proposal, a creditor 
would be required to provide information about billing rights in the 
account-opening disclosures or account agreement, as applicable. See 
proposed Sec.  226.6(a)(5)(iii).
6(a)(2)(xxiv) No Obligation Statement
    As discussed in more detail in the section-by-section analysis to 
proposed Sec.  226.5b(c)(2), the Board proposes in new Sec.  
226.5b(c)(2) to require a creditor to disclose below the early HELOC 
disclosures table a statement that the consumer has no obligation to 
accept the terms disclosed in the table. In addition, under proposed 
Sec.  226.5b(c)(2), if a creditor provides space for the consumer to 
sign or initial the early HELOC disclosures, the creditor would be 
required to include a statement that a signature by the consumer only 
confirms receipt of the disclosure statement.
    Pursuant to TILA Section 127(a)(8) and for the same reasons 
discussed in the section-by-section analysis to proposed Sec.  
226.5b(c)(2), the Board proposes in new Sec.  226.6(a)(2)(xxiv) to 
require these same statements below the account-opening table. 15 
U.S.C. 1637(a)(8). In addition, the Board also proposes to require a 
creditor to disclose below the account-opening table a statement that 
the consumer should confirm that the terms disclosed in the table are 
the same terms for which the consumer applied. The Board proposes this 
rule pursuant to its authority in TILA Section 105(a) to make 
adjustments and exceptions to the requirements in TILA to effectuate 
the statute's purposes, which include facilitating consumers' ability 
to compare credit terms and helping consumers avoid the uniformed use 
of credit. See 15 U.S.C. 1601(a), 1604(a). The Board believes this 
statement would be a helpful reminder to consumers to check that the 
terms disclosed in the account-opening table are the terms that the 
consumer expects to apply to the HELOC plan based on the terms 
disclosed in the early HELOC disclosures table.
6(a)(2)(xxv) Statement About Asking Questions
    As discussed in more detail in the section-by-section analysis to 
proposed Sec.  226.5b(c)(20), the Board proposes in new Sec.  
226.5b(c)(20) to require a creditor to disclose below the early HELOC

[[Page 43505]]

disclosures table a statement that if the consumer does not understand 
any disclosure in the table the consumer should ask questions. Pursuant 
to TILA Section 127(a)(8) and for the same reasons discussed in the 
section-by-section analysis to proposed Sec.  226.5b(c)(20), the Board 
proposes in new Sec.  226.6(a)(2)(xxv) to require that a creditor 
disclose this same statement below the account-opening table. 15 U.S.C. 
1637(a)(8).
6(a)(2)(xxvi) Statement About Board's Web Site
    As discussed in more detail in the section-by-section analysis to 
proposed Sec.  226.5b(c)(21), the Board proposes in new Sec.  
226.5b(c)(21) to required a creditor to disclose below the early HELOC 
disclosures table a statement that the consumer may obtain additional 
information at the Web site of the Federal Reserve Board, and a 
reference to that Web site. Pursuant to TILA Section 127(a)(8), the 
Board proposes in new Sec.  226.5b to require a creditor to provide 
these same statements below the account-opening table. 15 U.S.C. 
1637(a)(8). Although it is hard to predict how many consumers might use 
the Board's Web site, and recognizing that not all consumers have 
access to the Internet, the Board believes that this Web site may be 
helpful to some consumers as they use their HELOC plan.
6(a)(3) Disclosure of Charges Imposed as Part of Home-Equity Plans
    The current rules for disclosing costs related to open-end plans 
create two categories of charges covered by TILA: finance charges 
(former Sec.  226.6(a)) and ``other charges'' (former Sec.  226.6(b)). 
The terms ``finance charge'' and ``other charge'' are given broad and 
flexible meanings in the current regulation and commentary. This 
ensures that TILA adapts to changing conditions, but it also creates 
uncertainty. The distinctions among finance charges, other charges, and 
charges that do not fall into either category are not always clear. 
Examples of charges that are included or excluded charges are in the 
regulation and commentary, but they cannot provide definitive guidance 
in all cases. As creditors develop new kinds of services, some 
creditors find it difficult to determine whether associated charges for 
the new services meet the standard for a ``finance charge'' or ``other 
charge'' or are not covered by TILA at all. This uncertainty can pose 
legal risks for creditors that act in good faith to classify fees.
    To address this problem, the January 2009 Regulation Z Rule created 
a single category of ``charges imposed as part of open-end (not home-
secured) plans,'' specified in Sec.  226.6(b)(3). These charges include 
finance charges under Sec.  226.4(a) and (b), penalty charges, taxes, 
and charges for voluntary credit insurance, debt cancellation or debt 
suspension coverage. In addition, charges to be disclosed include any 
charge the payment or nonpayment of which affects the consumer's access 
to the plan, duration of the plan, the amount of credit extended, the 
period for which credit is extended, or the timing or method of billing 
or payment. Charges imposed for terminating a plan are also included.
    Three examples of types of charges that are not imposed as part of 
the plan are listed in Sec.  226.6(b)(3)(iii). These examples include 
charges imposed on a cardholder by an institution other than the card 
issuer for the use of the other institution's ATM; charges for a 
package of services that includes an open-end credit feature, if the 
charges would be required whether or not the open-end credit feature 
were included and the non-credit services are not merely incidental to 
the credit feature; and charges under Sec.  226.4(e).
    The Board proposes to apply the same approach to disclosure of 
charges under HELOC plans subject to Sec.  226.5b, for the same reasons 
as for open-end (not home-secured) plans. Accordingly, proposed Sec.  
226.6(a)(3) would set forth a single category of ``charges imposed as 
part of home-equity plans.'' The disclosures included, as specified in 
proposed Sec.  226.6(a)(3)(i) and (ii), would generally parallel those 
included for open-end (not home-secured) plans in Sec.  226.6(b)(3)(i) 
and (ii). Similarly, proposed Sec.  226.6(a)(3)(iii) would list types 
of charges not considered to be charges imposed as part of a home-
equity plan, generally paralleling Sec.  226.6(b)(3)(iii), which 
specifies types of charges not included as charges imposed as part of 
an open-end (not home-secured) plan.
    As the Board acknowledged in the June 2007 Regulation Z Proposal 
and the January 2009 Regulation Z Rule, this proposed approach does not 
completely eliminate ambiguity about what charges are subject to TILA 
disclosure requirements. However, the proposed commentary provides 
examples to ease compliance. In addition, to further mitigate 
ambiguity, the proposed rule would provide a complete list in Sec.  
226.6(a)(2), as discussed above, of which charges must be disclosed in 
tabular format in writing at account opening. Under the proposal, any 
charges covered by Sec.  226.6(a)(3), but not identified in Sec.  
226.6(a)(2), would not be required to be disclosed in writing at 
account opening. However, if they are not disclosed in writing at 
account opening, a creditor would be required to disclose these other 
charges imposed as part of a HELOC plan in writing or orally at a time 
and in a manner such that a consumer would be likely to notice them 
before the consumer agrees to or becomes obligated to pay the charge. 
This proposed approach is intended in part to reduce creditor burden. 
For example, when a consumer orders a service by telephone, creditors 
presumably disclose fees related to that service at that time for 
business reasons and to comply with other state and federal laws.
    Moreover, compared to the approach reflected in the current 
regulation, the Board believes that the broad application of the 
statutory standard of fees ``imposed as part of the plan'' would make 
it easier for a creditor to determine whether a fee is a charge covered 
by TILA, and reduce litigation and liability risks. Proposed comment 
6(a)(3)(ii)-3 would be added to provide that if a creditor is unsure 
whether a particular charge is a cost imposed as part of the plan, the 
creditor may, at its option, consider such charges as a cost imposed as 
part of the plan for Truth in Lending purposes. In addition, this 
proposed approach will help ensure that consumers receive the 
information they need when it would be most helpful to them.
    Under proposed Sec.  226.6(a)(3)(ii)(B), one of the categories of 
charges included in charges imposed as part of a home-equity plan would 
be ``charges resulting from the consumer's failure to use the plan as 
agreed, except amounts payable for collection activity after default; 
costs for protection of the creditor's interest in the collateral for 
the plan due to default; attorney's fees whether or not automatically 
imposed; foreclosure costs; and post-judgment interest rates imposed by 
law.'' This provision generally parallels Sec.  226.6(b)(3)(ii)(B) 
applicable to open-end (not home-secured) plans under the January 2009 
Regulation Z Rule, as well as longstanding comment 6(b)-2.ii. in the 
current regulation. Two of the excepted charges, ``costs for protection 
of the creditor's interest in the collateral due to default'' and 
``foreclosure costs,'' do not appear in Sec.  226.6(b)(3)(ii)(B); 
``foreclosure costs'' appears in current comment 6(b)-2.ii. These types 
of charges could occur in HELOC accounts, and would most likely not 
occur in the case of open-end (not home-secured) credit; they are 
similar to the other excepted types of charges in that all would likely 
occur in the

[[Page 43506]]

context of default or foreclosure. It would likely be impracticable for 
creditors to disclose, at the time an account is opened, charges 
related to default or foreclosure, since the amount of such charges may 
not be known at that time. Therefore, the Board believes it would be 
appropriate to include these two types of charges in the list of 
exceptions in proposed Sec.  226.6(a)(3)(ii)(B).
    Proposed comment 6(a)(3)(ii)-2 would give examples of fees that 
affect the consumer's access to the plan (and thus are included as 
charges that must be disclosed since they are considered charges 
imposed as part of the plan). This proposed comment generally parallels 
comment 6(b)(3)(ii)-2 for open-end (not home-secured) credit; however, 
proposed comment 6(a)(3)(ii)-2 would refer to ``fees to obtain 
additional checks or credit cards'' and ``fees to expedite delivery of 
checks or credit cards,'' as examples of charges affecting access to 
the plan, rather than only referring to fees to obtain or expedite 
delivery of credit cards, since HELOC plans are typically accessed by 
checks as well as, in some cases, credit cards.
    Proposed Sec.  226.6(a)(3)(iii) would list types of charges not 
considered to be charges imposed as part of a home-equity plan. As in 
the case of open-end (not home-secured) credit under Sec.  
226.6(b)(3)(iii), these charges would include charges imposed on a 
cardholder by an institution other than the card issuer for the use of 
the other institution's ATM; charges for a package of services that 
includes an open-end credit feature, if the charges would be required 
whether or not the open-end credit feature were included and the non-
credit services are not merely incidental to the credit feature; and 
charges under Sec.  226.4(e) (generally, taxes and fees prescribed by 
law and related to security instruments). In proposed comment 
6(a)(3)(iii)(B)-1, discussing charges for a package of services 
including an open-end credit feature, ``credit'' is substituted for ``a 
credit card,'' because HELOCs may not offer credit card access.
    The Board also proposes new comment 6(a)(3)-1, which would cross-
reference comment 6(a)-1 for guidance on disclosing information related 
to fixed-rate and -term payment options; there is no parallel comment 
under Sec.  226.6(b)(3), because open-end (not home-secured) credit 
plans generally do not offer such options. Proposed comments 6(a)(3)-2 
and -3 discuss requirements for disclosing grace periods, and would 
generally parallel comments 6(b)(3)-1 and -2, respectively, applying to 
open-end (not home-secured) credit as adopted in the January 2009 
Regulation Z Rule. Proposed comment 6(a)(3)-4 discusses circumstances 
where no finance charge is imposed when the outstanding balance is less 
than a certain amount, and would generally parallel comment 6(b)(3)-3 
as adopted in the January 2009 Regulation Z Rule.
6(a)(4) Disclosure of Rates for Home-Equity Plans
    The January 2009 Regulation Z Rule reorganizes and consolidates 
rules for disclosing interest rates in open-end (not home-secured) 
credit in Sec.  226.6(b)(4). The Board proposes to follow the same 
approach for HELOCs; thus, rules for disclosing interest rates for 
HELOCs would appear in proposed Sec.  226.6(a)(4). Proposed Sec.  
226.6(a)(4) would generally parallel Sec.  226.6(b)(4). The proposed 
commentary to Sec.  226.6(a)(4) also would generally parallel the 
commentary to Sec.  226.6(b)(4), with adjustments in certain comments 
to address matters in which HELOCs differ from credit card accounts and 
other open-end (not home-secured) credit, as well as differences 
between the rules applicable to HELOCs and those applicable to open-end 
(not home-secured) credit (see, for example, proposed comments 
6(a)(4)(ii)-1, -2, and -3 and 6(a)(4)(iii)-1 and -2). In addition, the 
Board proposes new comment 6(a)(4)-1, which would cross-reference 
comment 6(a)-1 for guidance on disclosing information related to fixed-
rate and -term payment options.
6(a)(4)(i)(D) Balance Computation Method
    Proposed Sec.  226.6(a)(4)(i)(D) would require creditors to explain 
the method used to determine the balance to which rates apply. In 
addition to disclosing the name of the balance computation method with 
the account-opening summary table, as discussed under Sec.  226.6(a)(2) 
above, creditors would be required, as in the current regulation, to 
explain the balance computation method in the account-opening agreement 
or other disclosure statement. Under the proposal, a creditor would be 
required to disclose under the account-opening summary table a 
reference to where the explanation is found, along with the name of the 
balance computation method.
    Model clauses that explain commonly used balance computation 
methods, such as the average daily balance method, are in Model Clauses 
G-1 and G-1(A) in Appendix G. In the January 2009 Regulation Z Rule, 
the Board adopted new Model Clause G-1(A) containing balance 
computation method model clauses for open-end (not home-secured) 
credit, while retaining existing Model Clause G-1 to continue to 
provide the existing model clauses for HELOCs. The Board is now 
proposing to eliminate existing Model Clause G-1 and redesignate Model 
Clause G-1(A) as G-1; all creditors offering open-end credit would use 
the same model clauses for explanations of balance computation methods. 
See the discussion under Appendix G below.
6(a)(4)(ii) Variable-Rate Accounts
    Proposed Sec.  226.6(a)(4)(ii) would set forth the rules for 
variable-rate disclosures, parallel to Sec.  226.6(b)(4)(ii) for open-
end (not home-secured) credit as adopted in the January 2009 Regulation 
Z Rule and contained in footnote 12 to Sec.  226.6(a)(1)(ii) in the 
regulation currently in effect. Guidance on the accuracy of variable 
rates provided at account opening would be moved from the commentary to 
the regulation and revised. Currently, comment 6(a)(1)(ii)-3 provides 
that creditors in disclosing a variable-rate in the account-opening 
disclosures may provide the current rate, a rate as of a specified date 
if the rate is updated from time to time, or an estimated rate under 
Sec.  226.5(c). In the January 2009 Regulation Z Rule, the Board 
adopted an accuracy standard for variable rates disclosed at account 
opening for open-end (not home-secured) credit; the rate disclosed was 
deemed accurate if it was in effect as of a specified date within 30 
days before the disclosures were provided. Creditors' option to provide 
an estimated rate as the rate in effect for a variable-rate account was 
eliminated. In adopting this accuracy standard, the Board stated its 
belief that 30 days provides sufficient flexibility to creditors and 
reasonably current information to consumers. See Sec.  
226.6(b)(4)(ii)(G). The Board proposed a further technical 
clarification to the accuracy standard in the May 2009 Regulation Z 
Proposal. Proposed Sec.  226.6(a)(4)(ii)(G) provides that a variable 
rate on HELOC plans disclosed in the account-opening disclosures is 
accurate if it is a rate as of a specified date and this rate was in 
effect within the last 30 days before the disclosures are provided. 
This proposed accuracy standard reflects the proposed technical 
clarification that the Board proposed to Sec.  226.6(b)(4)(ii)(G) in 
May 2009.
6(a)(5) Additional Disclosures for Home-Equity Plans
    Section 226.6(b)(5) of the January 2009 Regulation Z Rule contains 
rules for additional disclosures relating to open-end (not home-
secured) credit,

[[Page 43507]]

including: The disclosures required under Sec.  226.4(d) that, if 
provided, entitle the creditor to exclude voluntary credit insurance or 
debt cancellation or suspension coverage from the finance charge (Sec.  
226.6(b)(5)(i)); the disclosure of security interests (Sec.  
226.6(b)(5)(ii)); and the statement about consumers' billing rights 
under TILA (Sec.  226.6(b)(5)(iii)). Proposed Sec.  226.6(a)(5) would 
set forth the parallel disclosures for HELOCs, in Sec.  226.6(a)(5)(i), 
(ii), and (iii), respectively.
    Proposed comment 6(a)(5)(i)-1 (similar to comment 6(b)(5)(i)-1 for 
open-end (not home-secured) credit) would provide that creditors comply 
with Sec.  226.6(a)(5)(i) if they provide disclosures required to 
exclude the cost of voluntary credit insurance or debt cancellation or 
debt suspension coverage from the finance charge in accordance with 
Sec.  226.4(d) before the consumer agrees to the purchase of the 
insurance or coverage. For example, if the Sec.  226.4(d) disclosures 
are given at application, creditors need not repeat those disclosures 
at account opening.
    Model forms for the billing rights statement under proposed Sec.  
226.6(a)(5)(iii) are in Appendices G-3 and G-3(A). In the January 2009 
Regulation Z Rule, the Board adopted new Appendix G-3(A) for open-end 
(not home-secured) credit for improved readability, while retaining 
existing Appendix G-3 to give HELOC creditors the option of providing 
the existing model billing rights statement form. The Board proposes to 
eliminate existing Appendix G-3 and redesignate Appendix G-3(A) as G-3; 
thus, all creditors offering open-end credit would use the same model 
form for the billing rights statement. See the discussion under 
Appendix G below.
    Proposed commentary for Sec.  226.6(a)(5)(i), (ii), and (iii) would 
parallel the commentary to Sec.  226.6(b)(5)(i), (ii), and (iii), 
respectively, with adjustments to address differences between HELOCs 
and open-end (not home-secured) credit and between the rules applicable 
to each. For example, in proposed comment 6(a)(5)(ii)-2, a reference to 
``your home'' (as the collateral for the credit) would be substituted 
for ``motor vehicle or household appliances.'' Comments 6(b)(5)(ii)-4 
and -5 for open-end (not home-secured) credit do not appear relevant to 
HELOCs, and therefore parallel comments under Sec.  226.6(a)(5)(ii) are 
not proposed and current comments 6(a)(4)-4 and -5, which state these 
interpretations for HELOCs, would be deleted. Comment 6(b)(5)(ii)-4 
(and comment 6(a)(4)-4) addresses the situation where collateral will 
be required only when the outstanding balance reaches a certain amount; 
HELOCs generally require that the consumer's home secure the line of 
credit from the outset. Comment 6(b)(5)(ii)-5 (and comment 6(a)(4)-5) 
discusses circumstances in which the collateral is owned by someone 
other than the consumer liable for the credit extended; this would 
generally not be the case with HELOCs. However, the Board requests 
comment on whether, and how often, the situations addressed by these 
two comments might occur in HELOC accounts, and accordingly whether 
these two comments should be retained for HELOCs.
    Proposed Sec.  226.6(a)(5) would contain two additional paragraphs 
without counterparts in Sec.  226.6(b)(5). Section 226.6(a)(5)(iv) 
would require a disclosure of the conditions under which the creditor 
in a HELOC may take certain actions, such as terminating the plan or 
changing its terms. The account-opening table required under proposed 
Sec.  226.6(a)(2), as discussed above, would require a statement of the 
actions the creditor may take, such as terminating and accelerating a 
HELOC, reducing the credit limit, suspending further advances, or 
changing other terms, but would not require or permit setting forth the 
conditions under which the creditor is permitted, under Sec.  
226.5b(f), to take such actions. Instead, the account-opening table 
would have to contain a reference to the disclosure or credit agreement 
in which the conditions would be disclosed. See also discussion under 
Sec.  226.6(a)(2)(iii), above.
    Proposed Sec.  226.6(a)(5)(v) would require disclosure of 
additional information about any fixed-rate and -term payment option 
offered under the HELOC plan. Under current Regulation Z, guidance on 
disclosing fixed-rate and -term payment options is contained only in 
the commentary (comment 5b(d)(5)(ii)-2). To provide clearer guidance, 
the Board proposes to state the rules about disclosure of such options 
in Sec.  226.6(a)(5)(v).
    The account-opening table required under proposed Sec.  
226.6(a)(2), as discussed above, would require a brief statement about 
a fixed-rate and -term payment option, including a statement that the 
consumer has the option during the draw period to borrow at a fixed 
interest rate, the amount of credit available under the option, and a 
statement that details about this option are included in the credit 
agreement or other document, as applicable. See the discussion under 
Sec.  226.6(a)(2)(xix), above. Proposed Sec.  226.6(a)(5)(v) would 
require that a creditor disclose at account opening, but outside of the 
table prescribed in Sec.  226.6(a)(2), the following additional 
information about the option: The period during which the option may be 
exercised (Sec.  226.6(a)(5)(v)(A)), the length of time over which 
repayment can occur (Sec.  226.6(a)(5)(v)(B)), an explanation of how 
the minimum periodic payment for the option will be determined (Sec.  
226.6(a)(5)(v)(C)), and any limitations on the number or total amount 
of loans that can be obtained under the option, as well as any minimum 
outstanding balance or minimum draw requirements (Sec.  
226.6(a)(5)(v)(D)). Proposed comment 6(a)(5)(v)-1 would refer to 
proposed comment 6(a)-1 for further guidance on disclosing information 
related to fixed-rate and -term payment options.

Section 226.7 Periodic Statement

    TILA Section 127(b), implemented in Sec.  226.7, identifies 
information about an open-end account that must be disclosed when a 
creditor is required to provide periodic statements. See 15 U.S.C. 
1637(b).
    Periodic statement disclosure and format requirements for HELOCs 
subject to Sec.  226.5b generally were unaffected by the January 2009 
Regulation Z Rule, consistent with the Board's plan to review 
Regulation Z's disclosure rules for home-secured credit in a future 
rulemaking. To facilitate compliance, the Board in the January 2009 
Regulation Z Rule grouped the requirements applicable to HELOCs 
together in Sec.  226.7(a) (moved from former Sec.  226.7(a) through 
(k)).
    This proposal contains a number of significant revisions to 
periodic statement disclosures currently applicable to creditors 
offering HELOCs subject to Sec.  226.5b. Except as discussed below, 
these proposed revisions are substantially similar to revisions adopted 
for open-end (not home-secured) credit plans in the January 2009 
Regulation Z Rule, and as proposed to be revised in the May 2009 
Regulation Z Proposal. First, the Board proposes to eliminate the 
requirement to disclose the effective APR for HELOC accounts subject to 
Sec.  226.5b. Second, the proposal contains several formatting 
requirements for periodic statement disclosures for HELOC accounts 
subject to Sec.  226.5b. For example, interest charges and fees imposed 
as part of the plan must be grouped together and totals disclosed for 
the statement period and year to date. In addition, if an advance 
notice of a change in rates or terms is provided on or with a periodic 
statement, the proposal requires that a summary of the change appear on 
the front of the periodic statement. To

[[Page 43508]]

facilitate compliance, sample forms are proposed to illustrate the 
revisions. See proposed Samples G-24(A), G-24(B) and G-24(C) of 
Appendix G to part 226.
Effective Annual Percentage Rate
    Background on effective APR. TILA Section 127(b)(6) requires 
disclosure of an APR calculated as the quotient of the total finance 
charge for the period to which the charge relates divided by the amount 
on which the finance charge is based, multiplied by the number of 
periods in the year. See 15 U.S.C. 1637(b)(6) (implemented by Sec.  
226.7(a)(7) for HELOCs subject to Sec.  226.5b). This rate has come to 
be known as the ``historical APR'' or ``effective APR.'' A creditor 
does not have to disclose an effective APR when the total finance 
charge is 50 cents or less for a monthly or longer billing cycle, or 
the pro rata share of 50 cents for a shorter cycle. See 15 U.S.C. 
1637(b)(6). In such a case, the creditor must disclose only the 
periodic rate and the annualized rate that corresponds to the periodic 
rate (the ``corresponding APR''). See 15 U.S.C. 1637(b)(5).
    The effective APR and corresponding APR for any given plan feature 
are the same when the finance charge in a period arises only from 
applying the periodic rate to the applicable balance (the balance 
calculated according to the creditor's chosen method, such as average 
daily balance method). When the two APRs are the same, Regulation Z 
requires that the APR be stated just once. The effective and 
corresponding APRs diverge when the finance charge in a period arises 
(at least in part) from a charge not determined by application of a 
periodic rate and the total finance charge exceeds 50 cents. When they 
diverge, Regulation Z currently requires that both be stated. See Sec.  
226.7(a)(4) and (a)(7).
    The statutory requirement of an effective APR is intended to 
provide the consumer with an annual rate that reflects the total 
finance charge, including both the finance charge due to application of 
a periodic rate (interest) and finance charges that take the form of 
fees. This rate, like other APRs required by TILA, presumably was 
intended to provide consumers information about the cost of credit that 
would help consumers compare credit costs and make informed credit 
decisions and, more broadly, strengthen competition in the market for 
consumer credit. See 15 U.S.C. 1601(a). There is, however, a 
longstanding controversy about whether the requirement to disclose an 
effective APR advances TILA's purposes or, as some argue, actually 
undermines them.
    Industry and consumer groups disagree as to whether the effective 
APR conveys meaningful information for open-end plans. Creditors argue 
that the cost of a transaction is rarely, if ever, as high as the 
effective APR makes it appear, and that this tendency of the rate to 
exaggerate the cost of credit makes this APR misleading. Industry 
representatives also claim that the effective APR imposes direct costs 
on creditors that consumers pay indirectly. They represent that the 
effective APR raises compliance costs when they introduce new services, 
including costs of: (1) Conducting legal analysis of Regulation Z to 
determine whether the fee for the new service is a finance charge and 
must be included in the effective APR; (2) reprogramming software if 
the fee must be included; and (3) responding to telephone inquiries 
from confused customers and accommodating them (e.g., with fee waivers 
or rebates).
    Consumer groups contend that the information the rate provides 
about the cost of credit, even if limited, is meaningful. The effective 
APR for a specific transaction or set of transactions in a given cycle 
may provide the consumer a rough indication that the cost of repeating 
such transactions is high in some sense or, at least, higher than the 
corresponding APR alone conveys. Consumer advocates and industry 
representatives also disagree as to whether the effective APR promotes 
credit shopping. Industry and consumer group representatives find some 
common ground in their observations that consumers do not understand 
the effective APR well.
    Consumer research on credit card disclosures conducted by the 
Board. In relation to the January 2009 Regulation Z Rule, the Board 
undertook research through a third-party consultant on consumer 
awareness and understanding of the effective APR, and on whether 
changes to the presentation of the disclosure could increase awareness 
and understanding. The consultant used one-on-one cognitive interviews 
with consumers; consumers were provided mock disclosures of periodic 
statements for credit card accounts that included effective APRs and 
asked questions about the disclosure designed to elicit their 
understanding of the rate. The Board tested effective APR disclosures 
with different versions of explanatory text in seven rounds of one-on-
one interviews with consumers. In the first round the statements were 
copied from examples in disclosures currently used in the market. For 
subsequent testing rounds, the language and design of the statements 
were modified to better convey how the effective APR differs from the 
corresponding APR. Several different approaches and many variations on 
those approaches were tested. For example, in later rounds of testing, 
the effective APR was labeled the ``Fee-Inclusive APR.''
    In all but one round of testing, a minority of participants 
correctly explained that the effective APR for cash advances was higher 
than the corresponding APR for cash advances because the effective APR 
included a cash advance fee that had been imposed. A smaller minority 
correctly explained that the effective APR for purchases was the same 
as the corresponding APR for purchases because no transaction fee had 
been imposed on purchases. A majority offered incorrect explanations or 
did not offer any explanation. In addition, the inclusion of the 
effective APR disclosure on the statement was often confusing to 
participants; in each round some participants mistook the effective APR 
for the corresponding APR.
    In addition, in September 2008 the Board conducted additional 
consumer research using quantitative methods for the purpose of 
validating the qualitative research (one-on-one interviews) conducted 
previously. The quantitative consumer research conducted by the Board 
validated the results of the qualitative testing; it shows that most 
consumers do not understand the effective APR, and that for some 
consumers the effective APR is confusing and detracts from the 
effectiveness of other disclosures. The quantitative consumer research 
involved surveys of around 1,000 consumers at shopping malls in seven 
locations around the country. Two research questions were investigated. 
The first was designed to determine what percentage of consumers 
understand the significance of the effective APR. The interviewer 
pointed out the effective APR disclosure for a month in which a cash 
advance occurred, triggering a transaction fee and thus making the 
effective APR higher than the corresponding APR (interest rate). The 
interviewer then asked what the effective APR would be in the next 
month, in which the cash advance balance was not paid off but no new 
cash advances occurred. A very small percentage of respondents gave the 
correct answer (that the effective APR would be the same as the 
corresponding APR). Some consumers stated that the effective APR would 
be the same in the next month as in the current month, others indicated 
that

[[Page 43509]]

they did not know, and the remainder gave other incorrect answers.
    The second research question was designed to determine whether the 
disclosure of the effective APR adversely affects consumers' ability to 
identify correctly the current corresponding APR on cash advances. Some 
consumers were shown a periodic statement disclosing an effective APR, 
while other consumers were shown a statement without an effective APR 
disclosure. Consumers were then asked to identify the corresponding APR 
on cash advances. A greater percentage of consumers who were shown a 
statement without an effective APR than of those shown a statement with 
an effective APR correctly identified the corresponding APR on cash 
advances. This finding was statistically significant, as discussed in 
the December 2008 Macro Report on Quantitative Testing. Some of the 
consumers who did not correctly identify the corresponding APR on cash 
advances instead mistakenly identified the effective APR as that rate.
    Proposal. After considering the results of the consumer testing and 
other factors mentioned in the background discussion of the effective 
APR, the Board is proposing that creditors offering HELOCs subject to 
Sec.  226.5b no longer be required to disclose the effective APR on 
periodic statements. (An identical exemption was adopted for open-end 
(not home-secured) plans in the January 2009 Regulation Z Rule.) The 
Board proposes this rule pursuant to its exception and exemption 
authorities under TILA Section 105. Section 105(a) authorizes the Board 
to make exceptions to TILA to effectuate the statute's purposes, which 
include facilitating consumers' ability to compare credit terms and 
helping consumers avoid the uniformed use of credit. See 15 U.S.C. 
1601(a), 1604(a). Section 105(f) authorizes the Board to exempt any 
class of transactions from coverage under any part of TILA if the Board 
determines that coverage under that part does not provide a meaningful 
benefit to consumers in the form of useful information or protection. 
See 15 U.S.C. 1604(f)(1). The Board must make this determination in 
light of specific factors. See 15 U.S.C. 1604(f)(2). These factors are 
(1) the amount of the loan and whether the disclosure provides a 
benefit to consumers who are parties to the transaction involving a 
loan of such amount; (2) the extent to which the requirement 
complicates, hinders, or makes more expensive the credit process; (3) 
the status of the borrower, including any related financial 
arrangements of the borrower, the financial sophistication of the 
borrower relative to the type of transaction, and the importance to the 
borrower of the credit, related supporting property, and coverage under 
TILA; (4) whether the loan is secured by the principal residence of the 
borrower; and (5) whether the exemption would undermine the goal of 
consumer protection.
    The Board has considered each of these factors carefully, and based 
on that review, believes that the proposed exemption is appropriate. 
Consumer testing conducted on credit card disclosures in relation to 
the January 2009 Regulation Z Rule shows that consumers find the 
current disclosure of an APR that combines rates and fees to be 
confusing. Based on this consumer testing, the Board believes that 
consumers are likely confused by the effective APR disclosure on HELOC 
accounts. Under this proposal, creditors offering HELOCs subject to 
Sec.  226.5b would be required to disclose interest and fees in a 
manner that is more readily understandable and comparable across 
institutions. The Board believes that this approach can more 
effectively further the goals of consumer protection and the informed 
use of credit for all types of open-end credit.
    The Board also considered whether there were potentially competing 
considerations that would suggest retention of the requirement to 
disclose an effective APR. First, the Board considered the extent to 
which ``sticker shock'' from the effective APR benefits consumers, even 
if the disclosure does not enable consumers to compare costs 
meaningfully from month to month or for different products. A second 
consideration was whether the effective APR may be a hedge against fee-
intensive pricing by creditors, and if so, the extent to which it 
promotes transparency. On balance, however, the Board believes that the 
benefits of eliminating the requirement to disclose the effective APR 
outweigh these considerations.
    The consumer testing conducted for the Board supports this 
determination. Again, with the exception of one round of one-on-one 
testing, the overall results of the testing demonstrated that most 
consumers do not correctly understand the effective APR. Some consumers 
in the testing offered no explanation of the difference between the 
corresponding and effective APR, and others appeared to have an 
incorrect understanding.
    Even if some consumers have some understanding of the effective 
APR, the Board believes that sound reasons support eliminating the 
requirement to disclose it. Disclosure of the effective APR on periodic 
statements does not significantly assist consumers in credit shopping, 
because the effective APR disclosed on a periodic statement for a HELOC 
account cannot be compared to the corresponding APR disclosed in early 
disclosures given pursuant to Sec.  226.5b. In addition, even within 
the same account, the effective APR for a given cycle is unlikely to 
indicate accurately the cost of credit in a future cycle, because if 
any of several factors (such as the timing of transactions and payments 
and the amount carried over from the prior cycle) is different in the 
future cycle, the effective APR will be different even if the amounts 
of the transaction and the fee are the same in both cycles.
    As to contentions that the effective APR for a particular billing 
cycle provides the consumer a rough indication that the cost of 
repeating transactions triggering transaction fees is high in some 
sense, the Board believes the proposed requirements to disclose 
interest and fee totals for the cycle and year to date will better 
serve that purpose. In addition, the proposed interest and fee total 
disclosure requirements would ensure that creditors must clearly 
disclose all costs; this should address concerns that eliminating the 
effective APR would remove disincentives for creditors to adopt fee-
intensive pricing on HELOC accounts.
7(a) Rules Affecting Home-Equity Plans
    In the January 2009 Regulation Z Rule, the Board provided in Sec.  
226.7(a) that at their option, creditors offering HELOCs subject to 
Sec.  226.5b may comply with the periodic statement requirements of 
Sec.  226.7(b) applicable to creditors offering open-end (not home-
secured) credit, instead of the requirements in Sec.  226.7(a). The 
Board provided this flexibility because some creditors may use a single 
processing system to generate periodic statements for all open-end 
products they offer, including HELOCs. These creditors would have the 
option to generate statements according to a single set of rules, until 
the Board completed its review of Regulation Z's disclosure rules for 
home-secured credit. In this proposal, the Board proposes to remove the 
option for creditors offering HELOCs to comply with the periodic 
statement requirements of Sec.  226.7(b) applicable to creditors 
offering open-end (not home-secured) credit. Instead, creditors 
offering HELOCs subject to Sec.  226.5b would have to comply with the 
requirements in Sec.  226.7(a). Nonetheless, the proposed periodic 
statement requirements in Sec.  226.7(a) applicable to

[[Page 43510]]

HELOC creditors are substantially similar to the requirements in Sec.  
226.7(b) applicable to open-end (not home-secured) plans, except for 
provisions related to the itemization of interest charges in Sec.  
226.7(a)(6), and certain late-payment disclosures, minimum payment 
disclosures and formatting requirements related to those disclosures, 
as discussed in more detail below. The Board requests comment on 
whether creditors that currently use a single processing system to 
generate periodic statements for all open-end products they offer would 
be able to continue to do so under the proposal.
7(a)(1) Previous Balance
    Section 226.7(a)(1), which implements TILA Section 127(b)(1), 
requires a creditor offering HELOCs subject to Sec.  226.5b to disclose 
on the periodic statement the account balance outstanding at the 
beginning of the billing cycle. 15 U.S.C. 1637(b)(1). The Board 
proposes no changes to these disclosure requirements.
7(a)(2) Identification of Transactions
    Section 226.7(a)(2), which implements TILA Section 127(b)(2), 
requires creditors offering HELOCs subject to Sec.  226.5b to identify 
on the periodic statement transactions according to the rules in Sec.  
226.8. 15 U.S.C. 1637(b)(2). Some HELOC plans involve different 
features, such as a variable-rate feature and optional fixed-rate 
features. Comment 7(a)(2)-1 currently provides that in identifying 
transactions under Sec.  226.7(a)(2) for multifeatured plans, creditors 
may, for example, choose to arrange transactions by feature or in some 
other clear manner, such as by arranging the transactions in 
chronological order. The Board proposes technical revisions to this 
comment, without substantive change, to conform this comment to a 
similar comment applicable to open-end (not home-secured) credit plans. 
See comment 7(b)(2)-1. Specifically, the Board proposes to revise 
comment 7(a)(2)-1 to specify that creditors may, but are not required 
to, arrange transactions by feature. Thus, creditors offering HELOCs 
subject to Sec.  226.5b would still be permitted to list transactions 
chronologically or organize transactions in any other way that would be 
clear to consumers. The Board also proposes to revise this comment to 
clarify, consistent with proposed Sec.  226.7(a)(6), that all fees and 
interest must be grouped together under separate headings and may not 
be interspersed with transactions.
7(a)(3) Credits
    Section 226.7(a)(3), which implements TILA Section 127(b)(3), 
requires creditors offering HELOCs subject to Sec.  226.5b to disclose 
any credits to the account during the billing cycle. 15 U.S.C. 
1637(b)(3). Creditors typically disclose credits among other 
transactions. The Board proposes to revise comment 7(a)(3)-1 to clarify 
that credits may be distinguished from transactions in any way that is 
clear and conspicuous; for example, by use of debit and credit columns 
or by use of plus signs for credits and minus signs for debits.
7(a)(4) Periodic Rates
    Rates that ``may be used.'' TILA Section 127(b)(5) requires 
creditors to disclose all periodic rates that may be used to compute 
the finance charge, and the APR that corresponds to the periodic rate 
multiplied by the number of periods in a year. See 15 U.S.C. 
1637(b)(5); Sec.  226.14(b). Prior to the January 2009 Regulation Z 
Rule, former comment 7(d)-1 interpreted the requirement to disclose all 
periodic rates that ``may be used'' to mean ``whether or not [the rate] 
is applied during the billing cycle.'' In the January 2009 Regulation Z 
Rule, the Board adopted for HELOCs a limited exception to TILA Section 
127(b)(5) regarding promotional rates that were offered but not 
actually applied, to effectuate the purposes of TILA to require 
disclosures that are meaningful and to facilitate compliance. 
Specifically, creditors offering HELOCs subject to Sec.  226.5b are 
required to disclose a promotional rate only if the rate actually 
applied during the billing period. See Sec.  226.7(a)(4)(ii) and 
comment 7(a)(4)-1. The Board noted that interpreting TILA to require 
the disclosure of all promotional rates would be operationally 
burdensome for creditors and result in information overload for 
consumers. This proposal retains the exception in Sec.  
226.7(a)(4)(ii).
    Periodic rates. In this proposal, the Board proposes to eliminate 
the requirement to disclose periodic rates on periodic statements for 
HELOCs subject to Sec.  226.5b. See proposed Sec.  226.7(a)(4) and 
accompanying commentary. Under the proposal, creditors would still be 
required to disclose an APR that corresponds to each periodic rate that 
may be used to compute the finance charge. For example, assume a 
monthly periodic rate of 1.5 percent applies to transactions on a HELOC 
account. The corresponding APR to this periodic rate would be 18 
percent. Under the proposal, creditors would be required to disclose 
the 18 percent corresponding APR, but would not be required to disclose 
the 1.5 percent periodic rate.
    The Board proposes to eliminate the requirement to disclose 
periodic rates on periodic statements, pursuant to the Board's 
exception and exemption authorities under TILA Section 105. Section 
105(a) authorizes the Board to make exceptions to TILA to effectuate 
the statute's purposes, which include facilitating consumers' ability 
to compare credit terms and helping consumers avoid the uninformed use 
of credit. See 15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes 
the Board to exempt any class of transactions from coverage under any 
part of TILA if the Board determines that coverage under that part does 
not provide a meaningful benefit to consumers in the form of useful 
information or protection. See 15 U.S.C. 1604(f)(1). The Board must 
make this determination in light of specific factors. See 15 U.S.C. 
1604(f)(2). These factors are (1) the amount of the loan and whether 
the disclosure provides a benefit to consumers who are parties to the 
transaction involving a loan of such amount; (2) the extent to which 
the requirement complicates, hinders, or makes more expensive the 
credit process; (3) the status of the borrower, including any related 
financial arrangements of the borrower, the financial sophistication of 
the borrower relative to the type of transaction, and the importance to 
the borrower of the credit, related supporting property, and coverage 
under TILA; (4) whether the loan is secured by the principal residence 
of the borrower; and (5) whether the exemption would undermine the goal 
of consumer protection.
    For this proposal, the Board considered each of these factors 
carefully, and based on that review, determined that the proposed 
exemption is appropriate. In consumer testing conducted for the Board 
on credit card disclosures in relation to the January 2009 Regulation Z 
Rule, consumers indicated they do not use periodic rates to verify 
interest charges. Based on this consumer testing, the Board believes 
consumers are not likely to use periodic rates to verify interest 
charges for HELOC accounts. Requiring periodic rates to be disclosed on 
periodic statements may detract from more important information on the 
statement, and contribute to information overload. Thus, eliminating 
periodic rates from the periodic statement has the potential to further 
the goals of consumer protection and the informed use of credit for 
HELOCs more effectively than if they are included.

[[Page 43511]]

The Board notes that under the proposal, creditors may continue to 
disclose the periodic rate, as long as the additional information is 
presented in a way that is consistent with creditors' duty to provide 
required disclosures clearly and conspicuously. See proposed comment 
app. G-15.
    Labeling APRs. Currently creditors offering HELOCs subject to Sec.  
226.5b are provided with considerable flexibility in identifying the 
APR that corresponds to the periodic rate. Comment 7(a)(4)-4 permits 
labels such as ``corresponding annual percentage rate,'' ``nominal 
annual percentage rate,'' or ``corresponding nominal annual percentage 
rate.'' This proposal would amend Sec.  226.7(a)(4) to require 
creditors offering HELOCs subject to Sec.  226.5b to label the APR 
disclosed under Sec.  226.7(a)(4) as the ``annual percentage rate.'' 
Comment 7(a)(4)-4 would be deleted. The proposal is intended to promote 
uniformity in how the ``interest only'' APR is described in HELOC 
disclosures. Under Sec. Sec.  226.5b and 226.6, creditors must use the 
term ``annual percentage rate'' to describe the ``interest only'' 
APR(s) that must be disclosed in the tabular disclosures described in 
proposed Sec.  226.5b(b) provided to a consumer within three business 
days after the consumer submits an application (but no later than 
account opening) and in the tabular disclosures described in proposed 
Sec.  226.6(a)(1) provided at account opening. See proposed Model Forms 
G-14(A) and G-15(A).
    Combining interest and other charges. Currently, creditors offering 
HELOCs subject to Sec.  226.5b must disclose finance charges 
attributable to periodic rates. These costs are typically interest 
charges but may include other costs such as premiums for required 
credit insurance. If applied to the same balance, creditors may 
disclose each rate, or a combined rate. See comment 7(a)(4)-3. As 
discussed below, consumer testing for the Board conducted on credit 
card disclosures in relation to the January 2009 Regulation Z Rule 
indicated that participants appeared to understand credit costs in 
terms of ``interest'' and ``fees.'' Because consumers tend to associate 
periodic rates with ``interest,'' it seems unhelpful to consumers' 
understanding to permit creditors to include periodic rate charges 
other than interest in the dollar cost disclosed for ``interest.'' 
Thus, the Board proposes to require creditors offering HELOCs subject 
to Sec.  226.5b that impose finance charges attributable to periodic 
rates (other than interest) to disclose the amount of those charges in 
dollars as a ``fee.'' See section-by-section analysis to Sec.  
226.7(a)(6) below. This proposal would delete current guidance in 
comment 7(a)(4)-3, which permits periodic rates attributable to 
interest and other finance charges to be combined.
    In addition, the Board proposes to add new comment 7(a)(4)-4 to 
provide guidance to creditors when a fee is imposed, remains unpaid, 
and interest accrues on the unpaid balance. The proposed comment 
provides that creditors disclosing fees in accordance with the format 
requirements of Sec.  226.7(a)(6) need not separately disclose which 
periodic rate applies to the unpaid fee balance. For example, assume a 
fee is imposed for a late payment in the previous cycle and that the 
fee, unpaid, would be included in the purchases balance and accrue 
interest at the rate for purchases. The creditor need not separately 
disclose that the purchase rate applies to the portion of the purchases 
balance attributable to the unpaid fee.
7(a)(5) Balance on Which Finance Charge Is Computed
    Section 226.7(a)(5), which implements TILA Section 127(b)(7), 
currently requires creditors offering HELOCs subject to Sec.  226.5b to 
disclose the amount of the balance to which a periodic rate was applied 
and an explanation of how the balance was determined. 15 U.S.C. 
127(b)(7) The Board provides model clauses that creditors may use to 
explain common balance computation methods. See Model Clauses G-1. The 
staff commentary to Sec.  226.7(a)(5) interprets how creditors may 
comply with TILA in disclosing the ``balance,'' which typically changes 
in amount throughout the cycle, on periodic statements.
    Explanation of how finance charges may be verified. In disclosing 
the amount of the balance to which a periodic rate was applied, 
creditors offering HELOCs subject to Sec.  226.5b that use a daily 
balance method are permitted to disclose an average daily balance for 
the period, so long as they explain that the amount of the finance 
charge can be verified by multiplying the average daily balance by the 
number of days in the statement period, and then applying the periodic 
rate. See comment 7(a)(5)-4. The Board proposes to revise comment 
7(a)(5)-4 to permit creditors offering HELOCs subject to Sec.  226.5b, 
at their option, not to include an explanation of how the finance 
charge may be verified for creditors that use a daily balance method. 
As a result, the Board proposes to retain the rule permitting creditors 
to disclose an average daily balance but eliminate the requirement to 
provide the explanation. Consumer testing conducted for the Board on 
credit card disclosures in relation to the January 2009 Regulation Z 
Rule suggested that the explanation may not be used by consumers as an 
aid to calculate their interest charges. Participants suggested that if 
they had questions about how the balances were calculated or wanted to 
verify interest charges based on information on the periodic statement, 
they would call the creditor for assistance. Based on this consumer 
testing, the Board believes that the explanation may not be useful to 
consumers with HELOC accounts.
    In addition, the Board proposes to require creditors offering 
HELOCs subject to Sec.  226.5b to refer to the balance as ``balances 
subject to interest rate,'' to complement proposed revisions intended 
to further consumer understanding of interest charges, as distinguished 
from fees. See section-by-section analysis to Sec.  226.7(b)(6). 
Proposed Samples G-24(B) and G-24(C) illustrate this format 
requirement.
    Explanation of balance computation method. As discussed above, 
creditors offering HELOCs subject to Sec.  226.5b currently must 
disclose the amount of the balance to which a periodic rate was applied 
and an explanation of how the balance was determined. This proposal 
contains an alternative to providing an explanation of how the balance 
was determined. Under proposed Sec.  226.7(a)(5), a creditor that uses 
a balance computation method identified in Sec.  226.5a(g) would have 
two options. The creditor could: (1) Provide an explanation, as the 
rule currently requires, or (2) identify the name of the balance 
computation method and provide a toll-free telephone number where 
consumers may obtain more information from the creditor about how the 
balance is computed and resulting interest charges are determined. If 
the creditor uses a balance computation method that is not identified 
in Sec.  226.5a(g), the creditor would be required to provide a brief 
explanation of the method. Under the proposal, comment 7(a)(5)-6, which 
refers creditors to guidance in comment 6(a)(1)(ii)-1 about disclosing 
balance computation methods, would be deleted as unnecessary. The 
Board's proposal is guided by the following factors.
    Calculating balances on open-end plans can be complex, and requires 
an understanding of how creditors allocate payments, assess fees, and 
record transactions as they occur during the cycle. Currently, neither 
TILA nor Regulation Z requires creditors to disclose on periodic 
statements all the information necessary to compute a

[[Page 43512]]

balance, and requiring that level of detail appears unwarranted. 
Although the Board's model clauses are intended to assist creditors in 
explaining common balance computation methods, consumers continue to 
find these explanations lengthy and complex. As stated earlier, 
consumer testing conducted on credit card disclosures in relation to 
the January 2009 Regulation Z Rule indicates that consumers call the 
creditor for assistance when they have questions on how to calculate 
balances and verify interest charges.
7(a)(6) Charges Imposed
    Section 227.7(a)(6)(i), which implements TILA Section 127(b)(4), 
requires creditors offering HELOC subject to Sec.  226.5b to disclose 
on the periodic statement the amount of any finance charge added to the 
account during the period, itemized to show amounts due to the 
application of periodic rates and the amount imposed as a fixed or 
minimum charge. 15 U.S.C. 1637(b)(4). In addition, Sec.  
226.7(a)(6)(ii) requires these creditors to disclose on the periodic 
statement the amount, itemized and identified by type, of any ``other 
charges'' debited to the account during the billing cycle. Some charges 
do not fall with the ``finance charge'' and ``other charges'' 
categories and thus are not required to be disclosed on the periodic 
statement even if they are imposed in a particular billing cycle. See 
current comment 6(a)(2)-2.
    As discussed in the section-by-section analysis to proposed Sec.  
226.6(a)(3), the Board proposes to create a single category of charges, 
namely ``charges imposed as part of home-equity plans.'' Consistent 
with proposed Sec.  226.6(a)(3), proposed Sec.  226.7(a)(6) requires 
creditors offering HELOCs subject to Sec.  226.5b to disclose on the 
periodic statement the amount of any charge imposed as part of a HELOC 
plan, as stated in proposed Sec.  226.6(a)(3), for the statement 
period. Charges imposed as part of a HELOC plan consist of two types of 
charges--interest and fees. Proposed Sec.  226.7(a)(6)(ii) establishes 
periodic statement disclosure requirements for interest charges. If 
different periodic rates apply to different types of transactions, 
creditors offering HELOCs subject to Sec.  226.5b would be required to 
itemize interest charges for the statement period by type of 
transaction or group of transactions subject to different periodic 
rates. The Board proposes that these itemized interest charges must be 
grouped together. In addition, the Board proposes to require a creditor 
to disclose a total of interest charges disclosed for the statement 
period and calendar year. See proposed Sec.  226.7(a)(6)(ii). Proposed 
Sec.  226.7(a)(iii) establishes periodic statement disclosure 
requirements for fees. The Board proposes that fee imposed during the 
statement period must be itemized and grouped together, and a total of 
fees disclosed for the statement period and calendar year to date. See 
proposed Sec.  226.7(a)(6)(iii). In addition, the Board proposes that 
these disclosures regarding interest and fees must be grouped together 
in proximity to the transactions identified under Sec.  226.7(a)(2), in 
a manner substantially similar to Sample G-24(A) in Appendix G to part 
226. See proposed Sec.  226.7(a)(6)(i).
    Charges imposed as part of the plan. As discussed above, under the 
proposal, creditors would be required to disclose on the periodic 
statement the amount of any charges imposed as part of a HELOC plan, as 
stated in proposed Sec.  226.6(a)(3), for the statement period. 
Guidance on which charges would be deemed to be imposed as part of the 
plan is in proposed Sec.  226.6(a)(3)(ii) and accompanying commentary. 
As discussed in the section-by-section analysis to proposed Sec.  
226.6(a)(3), coverage of charges is broader under the proposed standard 
of ``charges imposed as part of the plan'' than under current standards 
for finance charges and other charges. While the Board understands that 
some creditors offering HELOCs subject to Sec.  226.5b have been 
disclosing on the statement all charges debited to the account 
regardless of whether they are now defined as ``finance charges,'' 
``other charges,'' or charges that do not fall into either category, 
other creditors currently do not disclose on periodic statements the 
charges that fall outside the current ``finance charge'' and ``other 
charge'' categories. Nonetheless, the Board believes that requiring 
creditors to disclose on the periodic statement all charges imposed as 
part of the HELOC plan that are charged during a particular billing 
cycle would help ensure that consumers are informed of these charges
    Labeling costs imposed as part of the plan as interest or fees. For 
creditors offering HELOCs subject to Sec.  226.5b, the Board proposes 
to delete the requirement in Sec.  226.7(a)(6) to label finance charges 
as such. Consumer testing conducted for the Board on credit card 
disclosures in relation to the January 2009 Regulation Z Rule indicated 
that most participants reviewing mock credit card periodic statements 
could not correctly explain the term ``finance charge.'' Consumers 
generally understand interest as the cost of borrowing money over time 
and view other costs--regardless of their characterization under TILA 
and Regulation Z--as fees. Based on this consumer testing, the Board 
proposes to amend Sec.  226.7(a)(6) to label costs as either ``interest 
charge'' or ``fees'' rather than ``finance charge'' to align more 
closely with consumers' understanding.
    Interest charges. TILA Section 127(b)(4) requires creditors to 
disclose on periodic statements the amount of any finance charge added 
to the account during the period, itemized to show amounts due to the 
application of periodic rates and the amount imposed as a fixed or 
minimum charge. See 15 U.S.C. 1637(b)(4). This current requirement with 
respect to creditors offering HELOCs subject to Sec.  226.5b is 
implemented in Sec.  226.7(a)(6)(i), which gives considerable 
flexibility regarding totaling or subtotaling finance charges 
attributable to periodic rates and other fees. See current Sec.  
226.7(a)(6)(i) and comments 7(a)(6)(i)-1, -2, -3, and -4. As discussed 
in more detail below, the Board proposes to amend Sec.  226.7(a)(6) to 
require creditors offering HELOCs subject to Sec.  226.5b to disclose 
total interest charges, for the statement period and year to date, 
labeled as such. In addition, if different periodic rates apply to 
different types of transactions, creditors offering HELOCs subject to 
Sec.  226.5b would be required to itemize finance charges attributable 
to interest by type of transaction, or group of transactions subject to 
different periodic interest rates, labeled as such. Creditors offering 
HELOCs subject to Sec.  226.5b, at their option, would be allowed to 
itemize interest charges by transaction type, even if the same periodic 
interest rates apply to those transactions. A creditor would be 
required to group all itemized interest charges on an account together, 
regardless of whether the interest charges are attributable to 
different authorized users or sub-accounts. See proposed Sec.  
226.7(a)(6)(ii). Under this proposal, finance charges attributable to 
periodic rates other than interest charges, such as required credit 
insurance premiums, would be required to be identified as fees and 
would not be permitted to be combined with interest costs. See proposed 
comments 7(a)(4)-3 and 7(a)(6)-3.
    The Board understands that for most HELOCs subject to Sec.  226.5b, 
the same variable rate on the account applies to most transactions on 
the account, regardless of the type of transactions (e.g., purchases or 
cash advances) and regardless of whether these transactions are 
initiated by check, wire transfer or by a credit card device linked to 
the HELOC. In some cases, creditors may offer optional features on the 
HELOC at different periodic interest rates from the generally 
applicable variable rate

[[Page 43513]]

feature, such as fixed-rate features. Under the proposal, in this 
example, creditors offering HELOCs subject to Sec.  226.5b would be 
required to itemize the interest charges applicable to the general 
variable-rate feature separate from the interest charges applicable to 
other features (such as fixed rate optional features) that are subject 
to different periodic interest rates. Proposed Sample G-24(A) in 
Appendix G to part 226 illustrates the proposal.
    Although creditors offering HELOCs subject to Sec.  226.5b are not 
currently required to itemize interest charges, these creditors often 
do so. For example, creditors may separately disclose the dollar 
interest costs associated with advances under the general variable-rate 
feature and advances under fixed-rate optional features. The Board 
believes that the breakdown of interest charges by features subject to 
different periodic interest rates enables consumers to better 
understand the cost of using each feature.
    This proposal regarding itemization of interest charges differs 
from the provision for itemization of interest charges applicable to 
open-end (not home-secured) credit plans that the Board adopted in the 
January 2009 Regulation Z Rule. Specifically, creditors offering open-
end (not home-secured) credit plans must itemize interest charges by 
transaction type, regardless of whether the same rate applies to the 
types of transactions. Unlike for open-end (not home-secured) credit, 
the Board is not proposing for HELOC accounts to require an itemization 
of interest charges by transaction type in all cases, even if the same 
rates apply to those types of transactions (although creditors are 
permitted to do so). The distinction between types of transactions 
(such as purchases and cash advances) is generally more important for 
open-end (not home-secured) credit plans--particularly unsecured credit 
card accounts--than for HELOCs. For unsecured credit card accounts, 
different rates, fees and other account terms typically apply to 
purchases and cash advances. The Board believes that requiring a 
breakdown of interest charges by transactions type in all cases for 
unsecured credit cards, even if a particular unsecured credit card does 
not apply different rates to purchases and cash advances, provides for 
uniformity in periodic statements and allows consumers to compare more 
easily one unsecured credit card account with other unsecured credit 
card accounts the consumer may have. As discussed above, most HELOC 
accounts do not charge different rates on purchases and cash advances.
    Fees. For HELOC accounts, existing Sec.  226.7(a)(6)(ii) requires 
the disclosure of ``other charges'' parallel to the requirement in TILA 
Section 127(a)(5) and Sec.  226.6(b) to disclose such charges at 
account opening. See 15 U.S.C. 1637(a)(5). Consistent with current 
rules to disclose ``other charges,'' proposed Sec.  226.7(a)(6)(iii) 
requires that charges other than interest be identified consistent with 
the feature (e.g., cash advances or fixed-rate transactions) or type 
(e.g., late-payment or over-the-limit), and itemized. The proposal 
differs from current requirements in the following respect: Fees would 
be required to be grouped together and a total of all fees for the 
statement period and year to date would be required, as discussed in 
more detail below.
    In consumer testing conducted on credit card disclosures in 
relation to the January 2009 Regulation Z Rule, the Board tested in the 
fall of 2008 consumers' ability to identify fees (1) on periodic 
statements where fees were grouped together and (2) on periodic 
statements where fees were interspersed with transactions, and the fees 
and transactions were listed in chronological order. Testing evidence 
showed that the periodic statement with grouped fees performed better 
among participants with respect to identifying fees.
    Consumers' ability to match a transaction fee to the transaction 
giving rise to the fee was also tested. Among participants who 
correctly identified the transaction to which they were asked to find 
the corresponding fee, a larger percentage of consumers who saw a 
statement on which account activity was arranged chronologically were 
able to match the fee to the transaction than when the fees were 
grouped together; however, out of the participants who were able to 
identify the transaction to which they were asked to find the 
corresponding fee, the percentage of participants able to find the 
corresponding fee was very high for both types of listings.
    The Board believes that the ability to identify all fees is 
important for consumers to assess their cost of credit. As discussed 
above, the Board would expect that the vast majority of consumers with 
HELOC accounts would not comprehend the effective APR; thus, the Board 
believes that highlighting fees and interest for consumers would more 
effectively inform consumers of their costs of credit on HELOC 
accounts. As also discussed above, the results of consumer testing on 
credit card disclosures indicated that grouping fees together on 
periodic statements for unsecured credit cards helped consumers find 
fees more easily. Based on this consumer testing, the Board proposes 
under Sec.  226.7(a)(6)(iii) to require creditors offering HELOCs 
subject to Sec.  226.5b to group fees together. The Board proposes this 
rule pursuant to its authority in TILA Section 105(a) to make 
adjustments and exceptions to the requirements in TILA to effectuate 
the statute's purposes, which include facilitating consumers' ability 
to compare credit terms and helping consumers avoid the uniformed use 
of credit. See 15 U.S.C. 1601(a), 1604(a). Under the proposal, a 
creditor would be required to group all fees assessed on the account 
during the billing cycle together under one heading even if fees may be 
attributable to different users of the account or to different sub-
accounts.
    The Board solicits comment on this aspect of the proposal. 
Specifically, the Board solicits comment on whether grouping fees 
together (and not allowing them to be interspersed with transactions) 
is necessary to help consumer find fees more easily on HELOC accounts. 
The Board understands that consumers may use unsecured credit cards 
differently than HELOC accounts, even where the HELOC is linked to a 
credit card device. For example, consumers may use unsecured credit 
cards to engage in a significant number of smaller transactions per 
billing cycle. On the other hand, consumers appear to use their HELOC 
accounts for only a small number of larger transactions each billing 
cycle, even if those HELOCs are linked to credit card devices. 
Consumers may have more difficulty identifying fees on unsecured credit 
cards when the fees are interspersed with transactions because of the 
large number of transactions shown on the periodic statement. The Board 
solicits comment on the typical number of transactions and fees shown 
on periodic statements for HELOC accounts. The Board also solicits 
comment on the burden on creditors and the benefit to consumers of 
requiring fees to be grouped together on periodic statements for HELOC 
accounts.
    Cost totals for the statement period and year to date. Under this 
proposal, creditors offering HELOCs subject to Sec.  226.5b would be 
required to disclose the total amount of interest charges and fees for 
the statement period and calendar year to date. See proposed Sec.  
226.7(a)(6)(ii) and (iii). The Board believes that providing consumers 
with the total of interest and fee costs, expressed in dollars, for the 
statement period and year to date would be a

[[Page 43514]]

significant enhancement to consumers' ability to understand the overall 
cost of credit for the account. The Board's consumer testing on credit 
card disclosures in relation to the January 2009 Regulation Z Rule 
indicates that consumers notice and understand credit costs expressed 
in dollars. In addition, year-to-date cost information enables 
consumers to evaluate how the use of an account may impact the amount 
of interest and fees charged over the year and thus promotes the 
informed use of credit.
    Proposed comment 7(a)(6)-3 provides guidance on how creditors may 
disclose the year-to-date totals at the end of a calendar year on 
monthly and quarterly statements. Proposed comment 7(a)(6)-5 provides 
guidance on creditors' duty to reflect refunded fees or interest in 
year-to-date totals.
    Proposed comments 7(a)-6 and -7 clarify a creditor's obligations 
under Sec.  227.7(a)(6) when it acquires a HELOC account from another 
creditor or when a creditor replaces one HELOC account it has with a 
consumer with another HELOC account. The proposed comments would 
generally provide that the creditor must include the interest charges 
and fees incurred by the consumer prior to the account acquisition or 
replacement in the aggregate totals provided for the statement period 
and calendar year to date after the change. At the creditor's option, 
the creditor would be allowed to add the prior charges and fees to the 
disclosed totals following the change, or it may provide separate 
totals for each time period. Comment is requested regarding the 
operational issues associated with carrying over cost totals in the 
circumstances described in the proposed commentary.
    Format requirements. Under proposed Sec.  226.7(a)(6)(i), interest 
charges and fees must be grouped together and listed in proximity to 
transactions identified under Sec.  226.7(a)(2), in a manner 
substantially similar to proposed Sample G-24(A) in Appendix G to part 
226. In consumer testing conducted by the Board on credit card 
disclosures in relation to the January 2009 Regulation Z Rule, 
consumers consistently reviewed transactions identified on their 
periodic statements and noticed fees and interest charges when they 
were grouped together, and disclosed in proximity to the transactions 
on the statement. The Board believes that similar results would exist 
with respect to HELOC accounts. Some HELOC creditors also disclose 
these costs in account summaries or in a progression of figures 
associated with disclosing finance charges attributable to periodic 
interest rates. This proposal does not affect creditors' flexibility to 
provide this information in these summaries. See proposed Samples G-
24(B) and G-24(C), which illustrate, but do not require, these 
summaries. Nonetheless, creditors would be required to group interest 
charges and fees together and list them in proximity to transaction 
identified in Sec.  226.7(a)(2), regardless of whether these creditors 
also provide information about interest and fees in the account 
summaries. The Board believes that TILA's purpose to promote the 
informed use of credit would be furthered significantly if consumers 
are uniformly provided basic cost information--interest and fees--in a 
location they routinely review.
7(a)(7) Change-in-Terms and Increased Penalty Rate Summary
    For the reasons set forth in the section-by-section analysis to 
proposed Sec.  226.9(c) and (i), the Board proposes to require 
creditors that provide a change-in-terms notice required by proposed 
Sec.  226.9(c)(1), or a rate increase notice required by proposed Sec.  
226.9(i), on or with the periodic statement, to disclose the 
information in proposed Sec.  226.9(c)(1)(iii)(A) or proposed Sec.  
226.9(i)(3) on the periodic statement in accordance with the format 
requirements in proposed Sec.  226.9(c)(1)(iii)(B), and proposed Sec.  
226.9(i)(4).
7(a)(8) Grace Period
    Section 226.7(a)(8), which implements TILA Section 127(b)(9), 
requires a creditor offering HELOCs subject to 226.5b to disclose on 
the periodic statement the date by which or the time period within 
which the new balance or any portion of the new balance must be paid to 
avoid additional finance charges. 15 U.S.C. 1637(b)(9). If such a time 
period is provided, a creditor may, at its option and without 
disclosure, impose no finance charge if payment is received after the 
time period's expiration.
    Comment 7(a)(8)-1 provides that although the creditor is required 
under Sec.  226.7(a)(8) to indicate on the periodic statement any time 
period the consumer may have to pay the balance outstanding without 
incurring additional finance charges, no specific wording is required, 
so long as the language used is consistent with that used on the 
account-opening disclosure statement.
    The Board proposes to revise this comment to provide that in 
describing the grace period, the language used must be consistent with 
that used on the account-opening disclosure statement and to cross 
reference proposed Sec.  226.6(a)(2)(xxi) that contains required 
terminology that a creditor must use in describing a grace period 
beneath the account-opening table described in proposed Sec.  
226.6(a)(1). As discussed in the section-by-section analysis to 
proposed Sec.  226.6(a)(2)(xxi), the Board proposes to require that a 
creditor disclose below the account-opening table 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. In disclosing a 
grace period that applies to all features on the account, the Board 
proposes to require a creditor to use the phrase ``How to Avoid Paying 
Interest'' as the heading for the information below the table 
describing the grace period.
7(a)(9) Address for Notice of Billing Errors
    Consumers who allege billing errors must do so in writing. See 15 
U.S.C. 1666; Sec.  226.13(b). Section 226.7(a)(9), which implements 
TILA Section 127(b)(10), requires creditors offering HELOCs subject to 
Sec.  226.5b must provide on or with periodic statements an address for 
this purpose. 15 U.S.C. 1637(b)(10). Former comment 7(k)-1 provides 
that creditors may also provide a telephone number along with the 
mailing address as long as the creditor makes clear a telephone call to 
the creditor will not preserve consumers' billing error rights. In many 
cases, an inquiry or question can be resolved in a phone conversation, 
without requiring the consumer and creditor to engage in a formal error 
resolution procedure.
    In the January 2009 Regulation Z Rule, the Board moved this comment 
to 7(a)(9)-2 and updated it to address notification by e-mail or via a 
Web site. Specifically, this comment states that the address is deemed 
to be clear and conspicuous if a precautionary instruction is included 
that telephoning or notifying the creditor by e-mail or via a Web site 
will not preserve the consumer's billing rights, unless the creditor 
has agreed to treat billing error notices provided by electronic means 
as written notices, in which case the precautionary instruction is 
required only for telephoning. (See also comment 13(b)-2, which 
addresses circumstances under which electronic notices are deemed to 
satisfy the written billing error requirement.) This rule gives 
consumers flexibility to attempt to resolve inquiries or questions 
about billing statements informally, while advising them that if the 
matter is not resolved in a telephone call or via e-

[[Page 43515]]

mail, the consumer must submit a written inquiry to preserve billing 
error rights. Under this proposal, the revised comment would be 
retained in 7(a)(9)-2.
7(a)(10) Closing Date of Billing Cycle; New Balance
    Section 226.7(a)(10), which implements TILA Section 127(b)(8), 
requires creditors offering HELOCs subject to Sec.  226.5b to disclose 
the closing date of the billing cycle and the account balance 
outstanding on that date. 15 U.S.C. 1637(b)(8). The Board proposes no 
changes to these disclosure requirements.
Late-Payment Disclosures
    In 2005, the Bankruptcy Act amended TILA to add Section 127(b)(12), 
which required creditors that charge a late-payment fee to disclose on 
the periodic statement (1) the payment due date, or, if the due date 
differs from when a late-payment fee would be charged, the earliest 
date on which the late-payment fee may be charged, and (2) the amount 
of the late-payment fee. See 15 U.S.C. 1637(b)(12). In the January 2009 
Regulation Z Rule, the Board implemented this section of TILA for open-
end (not home-secured) plans. In addition, in the Supplementary 
Information to the January 2009 Regulation Z Rule, the Board stated its 
intention to implement this section of TILA for HELOC accounts subject 
to Sec.  226.5b as part of its review of rules affecting home-secured 
credit.
    The Credit Card Act (cited above) was enacted in May 2009. Section 
202 of the Credit Card Act amends TILA Section 127(b)(12) to provide 
that for a ``credit card account under an open-end consumer credit 
plan,'' a credit card issuer that charges a late-payment fee must 
disclose in a conspicuous location on the periodic statement (1) the 
payment due date, or, if the due date differs from when a late-payment 
fee would be charged, the earliest date on which the late-payment fee 
may be charged, and (2) the amount of the late-payment fee. In 
addition, if a late payment may result in an increase in the APR 
applicable to the account, a credit card issuer also must provide on 
the periodic statement a disclosure of this fact, along with the 
applicable penalty APR. The disclosure related to the penalty APR must 
be placed in close proximity to the due-date disclosure discussed 
above. Finally, if a credit card issuer is a financial institution 
which maintains branches or offices at which payments on a credit card 
account under an open-end consumer credit plan are accepted from a 
cardholder in person, the date on which the cardholder makes a payment 
on the account at the branch or office must be considered to be the 
date on which the payment is made for determining whether a late-
payment fee may be imposed due to the failure of the cardholder to make 
payment by the due date for such payment. These amendments to TILA 
Section 127(b)(12) become effective February 22, 2010. See Credit Card 
Act Sec.  3.
    The Board is interpreting the term ``credit card account under an 
open-end consumer credit plan,'' as that term is used in TILA Section 
127(b)(12), not to include HELOC accounts subject to Sec.  226.5b, even 
if those accounts may be accessed by a credit card device. Thus, the 
provisions in TILA Section 127(b)(12), as amended by the Credit Card 
Act, would not apply to HELOC accounts. The Board makes this 
interpretation pursuant to its authority in TILA Section 105(a) to 
prescribe regulations to carry out the statute's purposes, which 
include facilitating consumers' ability to compare credit terms and 
helping consumers avoid the uniformed use of credit. See 15 U.S.C. 
1601(a), 1604(a).
    In addition, the Board does not propose to use its authority in 
TILA Section 105(a) to make adjustments that are necessary to 
effectuate the purposes of TILA to apply newly-revised TILA Section 
127(b)(12) to HELOC accounts subject to Sec.  226.5b. 15 U.S.C. 
1604(a). The Board believes that the late-payment disclosures and the 
provision about crediting of payments made at a financial institution's 
branches or offices are not needed for HELOC accounts to effectuate the 
purposes of TILA. The consequences to a consumer of not making the 
minimum payment by the due date are less severe for HELOC accounts than 
for unsecured credit cards. As discussed in more detail below, unlike 
with unsecured credit cards, creditors offering HELOC accounts subject 
to Sec.  226.5b typically do not impose a late-payment fee until 10-15 
days after the payment is due. In addition, under the proposal, 
creditors offering HELOC accounts would be restricted from terminating 
and accelerating the account, permanently suspending the account or 
reducing the credit line, or imposing penalty rates or penalty fees 
(except for the contractual late-payment fee) for a consumer's failure 
to pay the minimum payment due on the account, unless the payment is 
more than 30 days late.
    Late-payment fee. For HELOC accounts, the Board does not believe 
that disclosure of the late-payment fee is needed on the periodic 
statement to effectuate the purposes of TILA. The Board understands 
that creditors offering HELOCs subject to Sec.  226.5b generally are 
restricted by state law, or the terms of the account agreement or both, 
from imposing a late-payment fee until a certain number of days have 
elapsed following a due date--typically 10-15 days after the due date. 
In contrast, most unsecured credit card issuers will impose a late-
payment fee if the payment is not received by the due date. Some 
unsecured credit card issuers may provide informal ``courtesy periods'' 
that are not part of the legal agreement where the card issuer will not 
impose a late-payment fee if a cardholder's payment is received after 
the due date but before the end of the ``courtesy period.'' 
Nonetheless, these ``courtesy periods'' are typically only one to three 
days, not 10-15 days long.
    In addition, some unsecured credit card issuers currently consider 
payment in person at their branches or offices to be non-conforming 
payments, and thus, under current Regulation Z, may delay crediting of 
these payments for up to five days after these payments are received at 
the branch or office. See current Sec.  226.10(b). Under the Credit 
Card Act, unsecured credit card issuers must consider the date on which 
a person makes payment in person at the issuer's branches or offices as 
the date on which the payment is made for determining whether a late-
payment fee may be imposed. By contrast, even if creditors offering 
HELOCs subject to Sec.  226.5b treat payments in person at branches or 
offices as non-conforming payments and delay crediting of these 
payments for up to five days after the payments are received, this 
delay in crediting typically will not result in late-payment fees 
because, as discussed above, creditors for HELOC accounts typically do 
not impose late-payment fees until the account is 10-15 days past due.
    Penalty rates and fees. Under the Credit Card Act, if a late 
payment may result in an increase in the APR applicable to the account, 
a credit card issuer offering an unsecured credit card account must 
provide on the periodic statement a disclosure that a late payment may 
result in a penalty APR, along with the applicable penalty APR. For 
unsecured credit card accounts, some credit card issuers currently 
increase the rates applicable to both existing balances and new 
transactions on a consumer's account to a penalty rate if a consumer 
does not pay by the due date just one time. Under Section 101 of the 
Credit Card Act, unsecured credit card issuers would be restricted from 
increasing a rate or fee during the

[[Page 43516]]

first year after an account is opened unless the consumer is more than 
60 days late in making the minimum payment, in which case the creditor 
could apply the increase rate or fee to existing balances and new 
transactions. See Credit Card Act Sec.  101(b). After the first year an 
account is opened, unsecured credit card issuers may increase rates or 
fees on new transactions for a late payment, even if the consumer is 
only one day late in making the minimum payment. If the consumer is 
more than 60 days late, an unsecured credit card issuer may increase 
the rates or fees on all transactions (including existing balances). 
Credit Card Act Sec.  101(d). These provisions become effective 
February 22, 2010. See Credit Card Act Sec.  3.
    The Board does not believe that a disclosure of the penalty APR on 
the periodic statement is needed for HELOC accounts to effectuate the 
purposes of TILA. In this proposal, the Board proposes strict limits on 
when penalty rates or penalty fees may be imposed for HELOCs subject to 
Sec.  226.5b. As discussed in the section-by-section analysis to Sec.  
226.5b(f), the Board proposes to restrict creditors offering HELOCs 
subject to Sec.  226.5b from imposing a penalty rate or penalty fees 
(except for a contractual late-payment fee) on the account for a 
consumer's failure to pay the account when due, unless the consumer is 
more than 30 days late in paying the account. As discussed above, under 
the Credit Card Act, after the first year an account is opened, 
unsecured credit card issuers may increase rates or fees on new 
transactions for a late payment, even if the consumer is only one day 
late in making the minimum payment. Unlike with unsecured credit cards, 
even after the first year that the account is open, creditors offering 
HELOC accounts subject to Sec.  226.5b could not impose penalty rates 
or penalty fees (except for a contractual late-payment fee) on new 
transactions for a consumer's failure to pay the minimum payment on the 
account, unless the consumer's payment is more than 30 days late.
    Other actions. Under the proposal, HELOC creditors would not be 
restricted from temporarily suspending the account or reducing the line 
if a consumer does not pay by the due date (assuming that failure to 
pay by the due date is considered a default of a material obligation 
under the HELOC contract). See Sec.  226.5b(f)(3)(vi)(C). Nonetheless, 
even though creditors may have the right under the HELOC contract to 
suspend temporarily the account or reduce the credit line if a consumer 
does not pay by the due date (i.e., one day delinquent on the account), 
the Board understands that creditors typically do not temporarily 
suspend the account or reduce the credit line until the consumer's 
payment is at least 10-15 days late on the account, and oftentimes 
later.
    For all the reasons discussed above, the Board does not propose to 
use its authority under TILA Section 105(a) to require creditors 
offering HELOC accounts subject to Sec.  226.5b to provide the late-
payment disclosures on periodic statements, or to comply with the 
provision about crediting of payments made at a financial institution's 
branches or offices, as set forth in the Credit Card Act. The Board 
solicits comment on this aspect of the proposal.
Minimum Payment Disclosures
    The Bankruptcy Act added TILA Section 127(b)(11) to require 
creditors that extend open-end credit to provide a disclosure on the 
front of each periodic statement in a prominent location about the 
effects of making only minimum payments. 15 U.S.C. 1637(b)(11). This 
disclosure included: (1) A ``warning'' statement indicating that making 
only the minimum payment will increase the interest the consumer pays 
and the time it takes to repay the consumer's balance; (2) a 
hypothetical example of how long it would take to pay off a specified 
balance if only minimum payments are made; and (3) a toll-free 
telephone number that the consumer may call to obtain an estimate of 
the time it would take to repay his or her actual account balance.
    In the January 2009 Regulation Z Rule, the Board implemented this 
section of TILA. In that rulemaking, the Board limited the minimum 
payment disclosures required by the Bankruptcy Act to credit card 
accounts, pursuant to the Board's authority under TILA Section 105(a) 
to make adjustments that are necessary to effectuate the purposes of 
TILA. 15 U.S.C. 1604(a). The Board exempted all HELOC accounts from the 
minimum payment disclosures required by the Bankruptcy Act, even where 
the HELOC account could be accessed by a credit card device. In the 
Supplementary Information to the January 2009 Regulation Z Rule, the 
Board explained that the minimum payment disclosures would not appear 
to provide additional information to consumers that is not already 
disclosed to them with the application under Sec.  226.5b(d)(5)(i) and 
at account opening under Sec.  226.6(a)(3)(ii). Specifically, Sec.  
226.5b(d)(5)(i) requires a creditor to disclose with the application 
the length of the draw period and any repayment period. A creditor is 
also required to provide this information at account opening under 
Sec.  226.6(a)(3)(ii). The Board stated that these disclosures appear 
to be sufficient for HELOC consumers because, unlike most unsecured 
credit card accounts, most HELOCs have a fixed repayment period 
determinable at the outset of the plan. In addition, the Board stated 
that the cost to creditors of providing this information a second time, 
including the costs to reprogram periodic statement systems and to 
establish and maintain a toll-free telephone number, appeared not to be 
justified by the limited benefit to consumers.
    The Credit Card Act substantially revised this section of TILA. 
Specifically, Section 201 of the Credit Card Act amends TILA Section 
127(b)(11) to provide that creditors that extend open-end credit must 
provide the following disclosures on each periodic statement: (1) A 
``warning'' statement indicating that making only the minimum payment 
will increase the interest the consumer pays and the time it takes to 
repay the consumer's balance; (2) the number of months that it would 
take to repay the outstanding balance if the consumer pays only the 
required minimum monthly payments and if no further advances are made; 
(3) the total cost to the consumer, including interest and principal 
payments, of paying that balance in full, if the consumer pays only the 
required minimum monthly payments and if no further advances are made; 
(4) the monthly payment amount that would be required for the consumer 
to eliminate the outstanding balance in 36 months, if no further 
advances are made, and the total cost to the consumer, including 
interest and principal payments, of paying that balance in full if the 
consumer pays the balance over 36 months; and (5) a toll-free telephone 
number at which the consumer may receive information about accessing 
credit counseling and debt management services. See Credit Card Act 
Sec.  201. These provisions become effective February 22, 2010. See 
Credit Card Act Sec.  3.
    The Board proposes that the minimum payment disclosures required by 
TILA Section 127(b)(11), as amended by the Credit Card Act, not apply 
to HELOC accounts, including HELOC accounts that can be accessed by a 
credit card device. The Board proposes this rule pursuant to its 
exception and exemption authorities under TILA Section 105. Section 
105(a) authorizes the Board to make exceptions to TILA to effectuate 
the statute's purposes, which include facilitating consumers'

[[Page 43517]]

ability to compare credit terms and helping consumers avoid the 
uniformed use of credit. See 15 U.S.C. 1601(a), 1604(a). Section 105(f) 
authorizes the Board to exempt any class of transactions from coverage 
under any part of TILA if the Board determines that coverage under that 
part does not provide a meaningful benefit to consumers in the form of 
useful information or protection. See 15 U.S.C. 1604(f)(1). The Board 
must make this determination in light of specific factors. See 15 
U.S.C. 1604(f)(2). These factors are (1) the amount of the loan and 
whether the disclosure provides a benefit to consumers who are parties 
to the transaction involving a loan of such amount; (2) the extent to 
which the requirement complicates, hinders, or makes more expensive the 
credit process; (3) the status of the borrower, including any related 
financial arrangements of the borrower, the financial sophistication of 
the borrower relative to the type of transaction, and the importance to 
the borrower of the credit, related supporting property, and coverage 
under TILA; (4) whether the loan is secured by the principal residence 
of the borrower; and (5) whether the exemption would undermine the goal 
of consumer protection.
    The Board has considered each of these factors carefully, and based 
on that review, believes that the proposed exemption is appropriate. 
The Board believes that the minimum payment disclosures in the Credit 
Card Act would be of limited benefit to consumers for HELOC accounts 
and are not necessary to effectuate the purposes of TILA. As discussed 
above, the Board understands that most HELOCs have a fixed repayment 
period. Under the proposal, creditors offering HELOCs subject to Sec.  
226.5b would be required to disclose the length of the plan, the length 
of the draw period and the length of any repayment period in the 
disclosures that must be given within three business days after 
application (but not later than account opening). See proposed Sec.  
226.5b(d)(9)(i). In addition, this information also must be disclosed 
at account opening under proposed Sec.  226.6(a)(2)(v)(A). Thus, for a 
HELOC account with a fixed repayment period, a consumer could learn 
from those disclosures the amount of time it would take to repay the 
HELOC account if the consumer only makes required minimum payments. The 
cost to creditors of providing this information a second time, 
including the costs to reprogram periodic statement systems, appears 
not to be justified by the limited benefit to consumers.
    In addition, the Board does not believe that the disclosure about 
total cost to the consumer of paying that balance in full (if the 
consumer pays only the required minimum monthly payments and if no 
further advances are made) would be useful to consumers for HELOC 
accounts. The Board understands that HELOC consumers intend to finance 
the transactions made on the HELOC account over a number of years, and 
often will not have the ability to repay the balances on the HELOC 
account at the end of each billing cycle, or even within a few years. 
By contrast, consumers tend to use unsecured credit cards to engage in 
a significant number of small dollar transactions per billing cycle, 
and may not intend to finance these transactions for many years. HELOC 
consumers, however, tend to use HELOC accounts for larger transactions 
that they can finance at a lower interest rate than is offered on 
unsecured credit cards, and intend to repay these transactions over the 
life of the HELOC account. To illustrate, the Board's 2007 Survey of 
Consumer Finances data indicates that the median balance on HELOCs (for 
families that had a balance at the time of the interview) was $24,000, 
while the median balance on credit cards (for families that had a 
balance at the time of the interview) was $3,000.\40\
---------------------------------------------------------------------------

    \40\ Brian Bucks, et al., Changes in U.S. Family Finances from 
2004 to 2007: Evidence from the Survey of Consumer Finances, Federal 
Reserve Bulletin (February 2009).
---------------------------------------------------------------------------

    The nature of consumers' use of HELOCs also underlie the Board's 
belief that periodic disclosure of the monthly payment amount required 
for the consumer to eliminate the outstanding balance in 36 months, and 
the total cost to the consumer of paying that balance in full if the 
consumer pays the balance over 36 months, would not provide useful 
information to consumers for HELOC accounts.
    For all these reasons, the Board proposes to exempt HELOC accounts 
(even when they are accessed by a credit card account) from the minimum 
payment disclosure requirements set forth in TILA Section 127(b)(11), 
as revised by the Credit Card Act.
Format Requirements Related to Late-Payment and Minimum Payment 
Disclosures
    Under the January 2009 Regulation Z Rule, creditors offering open-
end (not home-secured) plans are required to disclose the payment due 
date on the front side of the first page of the periodic statement. The 
amount of any late-payment fee and penalty APR that could be triggered 
by a late payment is required to be disclosed in close proximity to the 
due date. In addition, the ending balance and the minimum payment 
disclosures must be disclosed closely proximate to the minimum payment 
due. Also, the due date, late-payment fee, penalty APR, ending balance, 
minimum payment due, and the minimum payment disclosures must be 
grouped together. See Sec.  226.7(b)(13). In the Supplementary 
Information to the January 2009 Regulation Z Rule, the Board stated 
that these formatting requirements were intended to fulfill Congress' 
intent to have the new late payment and minimum payment disclosures 
enhance consumers' understanding of the consequences of paying late or 
making only minimum payments. Because the Board proposes not to require 
the late-payment disclosures (i.e., the due date, late-payment fee and 
penalty APR) and the minimum payment disclosures for HELOC accounts, 
the Board proposes not to require the format requirements described 
above for HELOC accounts.

Section 226.9 Subsequent Disclosure Requirements

    Section 226.9 sets forth a number of disclosure requirements that 
apply after a HELOC subject to Sec.  226.5b is opened, including a 
requirement to provide at least 15 days' advance notice whenever a term 
required to be disclosed in the account-opening disclosures is changed, 
and a requirement to provide notice of the action taken and specific 
reasons for the action when a HELOC creditor prohibits additional 
extensions of credit or reduces the credit limit pursuant to Sec.  
226.5b(f)(3)(i) or (f)(3)(vi).
9(c) Change in Terms
    Under Sec.  226.9(c) of Regulation Z, a creditor must notify a 
consumer of certain changes to the terms of an open-end plan. The 
general rule has been that a change-in-terms notice must be given 15 
days in advance of the effective date of the change, with some 
exceptions. Advance notice has not been required in all cases; for 
example, if an interest rate increases due to a consumer's default or 
delinquency, notice has been required, but not in advance of the rate 
increase. In addition, no notice (either advance or contemporaneous) 
has been required if the specific change is set forth in the account-
opening disclosures.
    In the January 2009 Regulation Z Rule, the Board adopted a number 
of revisions to the requirements for change-in-terms notices. The 
revisions are intended to improve consumers'

[[Page 43518]]

awareness about changes to their account terms or increased rates due 
to delinquency, default, or otherwise as a penalty, and to enhance 
consumers' ability to shop for alternative financing before the changes 
become effective. First, the revisions expand the circumstances in 
which consumers receive advance notice of changed terms, or of 
increased rates due to delinquency or default or otherwise as a 
penalty. Second, the revisions provide consumers with earlier notice. 
Third, the revisions introduce format requirements to make the 
disclosures about changes in terms, or of increased rates due to 
delinquency, default or otherwise as a penalty, more effective.
    The January 2009 revisions to the change-in-terms notice rules do 
not affect HELOCs subject to Sec.  226.5b; the revised rules for credit 
card and other open-end (not home-secured) credit appear in Sec.  
226.9(c)(2) and 226.9(g) (for increased rates due to delinquency, 
default or otherwise as a penalty), while the existing rules are 
preserved for HELOCs in Sec.  226.9(c)(1). In the January 2009 
Regulation Z Rule, the Board stated that the change-in-terms rules for 
HELOCs would be addressed in the review of open-end (home-secured) 
credit.
    The Board is proposing to revise the change-in-terms rules for 
HELOCs to parallel generally the revisions adopted for open-end (not 
home-secured) credit, including with regard to the circumstances 
covered, timing, and format, although with some differences. The Board 
believes that the purposes underlying the revisions to the change-in-
terms rules for open-end (not home-secured) credit--to improve 
consumers' awareness of changes in their account terms and to enhance 
consumers' ability to seek alternative sources of credit--are 
applicable to HELOC credit as well. The proposed revisions to Sec.  
226.9(c)(1) are explained in the section-by-section discussion below. 
The proposal regarding notice of increased rates due to delinquency, 
default or otherwise as a penalty would be set forth in new Sec.  
226.9(i) and is explained in the section-by-section discussion of that 
section. In addition to the substantive changes discussed below, other 
minor revisions would be made, such as to change cross-references as 
appropriate for new or renumbered provisions, substitute examples and 
other wording appropriate for HELOCs for wording appropriate for credit 
card accounts or other open-end (not home-secured) credit, or conform 
wording to the revised wording in Sec.  226.9(c)(2) for open-end (not 
home-secured) credit.
9(c)(1) Rules Affecting Home-Equity Plans
    Comment 9(c)(1)-1, which discusses changes that do not require 
notice because the specific change has been set forth in the account-
opening disclosures, would be revised. First, the phrase ``Except as 
provided in Sec.  226.9(i)'' would be added, referring to the fact that 
under proposed new Sec.  226.9(i), notice of increased rates due to 
delinquency, default or otherwise as a penalty would be required under 
Sec.  226.9(i) even though that change was set forth in the account-
opening disclosures. Second, language referring to a rate increase 
occurring because a preferential rate ends (such as because the 
consumer is no longer employed by the creditor or because the consumer 
no longer maintains a certain balance in a deposit account with the 
creditor) would be deleted because rate increases triggered by these 
events would require notice under proposed Sec.  226.9(i), discussed 
below, even though they would not require notice under Sec.  226.9(c).
    Comment 9(c)(1)-3 would be revised by deleting the phrase ``or 
increases the minimum payment'' as redundant, because the minimum 
payment is a required disclosure under Sec.  226.6(a); the comment 
already requires notice of changes affecting any term required to be 
disclosed under Sec.  226.6(a). This comment would also be revised to 
delete the example referring to a grace period because the Board 
understands that grace periods (in which interest does not accrue on an 
outstanding balance) are not typical in HELOCs.
9(c)(1)(i) Written Notice Required
    The requirement for notice 15 days in advance of the effective date 
of a change would be changed to require notice 45 days in advance, for 
the same reasons the Board adopted this requirement for open-end (not 
home-secured) credit. As discussed in the January 2009 Regulation Z 
Rule, the Board believes that the shorter notice periods suggested by 
some commenters on the June 2007 Regulation Z Proposal, such as 30 days 
or one billing cycle, would not provide consumers with sufficient time 
to shop for and possibly obtain alternative financing. The 45-day 
advance notice requirement refers to when the change-in-terms notice 
must be sent, but as discussed in the June 2007 Regulation Z Proposal, 
it may take several days for the consumer to receive the notice. As a 
result, as stated in the January 2009 Regulation Z Rule, the Board 
believes that the 45-day advance notice requirement will give 
consumers, in most cases, at least one calendar month after receiving a 
change-in-terms notice to seek alternative financing or otherwise to 
mitigate the impact of an unexpected change in terms.
    The Board solicits comment on whether 45 days is an appropriate 
period for the advance notice requirement for changes in terms of 
HELOCs. Commenters are asked to address, for example, whether it may be 
more difficult to seek alternative financing or otherwise mitigate the 
impact of a change in terms for HELOCs than for credit card accounts, 
as well as whether, because changes in terms are more narrowly 
restricted for HELOCs than for credit card accounts, the impact on 
consumers of term changes for HELOCs is likely to be less severe than 
for credit cards and thus the proposed time period is likely adequate.
    In other changes to this paragraph, the phrase ``or the required 
minimum periodic payment is increased'' would be deleted as redundant 
because the minimum payment is a required disclosure under current 
Sec.  226.6(a)(3) (redesignated as proposed Sec.  226.6(a)(2)(v)(B)); 
the rule already requires notice of changes affecting any term required 
to be disclosed under Sec.  226.6(a). A sentence would be added to 
clarify that an increase in the rate due to delinquency, default or 
otherwise as a penalty would require notice under proposed new Sec.  
226.9(i) rather than under Sec.  226.9(c)(1).
    Revisions would be made to comments 9(c)(1)(i)-1 through -4 to 
refer to the proposed requirement for notice 45 days in advance rather 
than 15 and to replace examples of changes appropriate for credit cards 
and other open-end (not home-secured) credit with examples more 
appropriate for HELOCs, or to replace examples that would not be 
permissible for HELOCs with examples that would be permissible. In 
comment 9(c)(1)(i)-3, language referring to a consumer's general 
acceptance of a creditor's contract reservation of the right to change 
terms, as well as other unilateral term changes, would be deleted, to 
avoid the possible inference that such changes in terms would be 
permissible under Sec.  226.5b(f). In comment 9(c)(1)(i)-4, language 
would be added to clarify that a complete set of account-opening 
disclosures containing the changed term does not qualify as a change-
in-terms notice if Sec.  226.9(c)(1)(iii) applies. (Section 
226.9(c)(1)(iii), as discussed below, would require that disclosures 
required to be in a tabular format in the account-opening disclosures 
also appear in a tabular format, and meet other formatting 
requirements, when the

[[Page 43519]]

disclosed terms change. However, changes in other disclosures, not 
required to be in a tabular format at account opening, would not be 
subject to these requirements.)
    Comment 9(c)(1)(i)-5, which discusses changes involving addition of 
a security interest or addition or substitution of collateral, would be 
deleted because the Board believes it unlikely that any of these events 
would occur in the case of an existing HELOC. However, the Board 
solicits comment on whether the comment should be retained to cover the 
possibility of such an event occurring.
    In comment 9(c)(1)(i)-6 (redesignated as proposed comment 
9(c)(1)(i)-5), the limitation to plans entered into on or after 
November 7, 1989, would be deleted; it appears unlikely that any HELOCs 
opened before that date are still in existence.
9(c)(1)(ii) Charges Not Covered by Tabular Format Requirements of Sec.  
226.6(a)(2)
    Current Sec.  226.9(c)(1)(ii) would be renumbered Sec.  
226.9(c)(1)(iv), as discussed below. The Board proposes to add, as new 
Sec.  226.9(c)(1)(ii), an exception to the requirement for written 
advance notice of changes in terms. The exception would apply to 
disclosures of charges not required to appear in a tabular format in 
the account-opening disclosures under Sec.  226.6(a)(2), and would 
parallel a similar exception for credit cards and other open-end (not 
home-secured) credit in Sec.  226.9(c)(2)(ii). Under the exception, if 
a creditor increases a charge, or introduces a new charge, required to 
be disclosed under Sec.  226.6(a)(3) but not required to appear in the 
summary account-opening table under Sec.  226.6(a)(2), the creditor may 
either provide advance written notice under Sec.  226.9(c)(1)(i), or 
provide oral or written notice of the amount of the charge at a 
relevant time before the consumer agrees to or becomes obligated to pay 
the charge. Comment 9(c)(1)(ii)-1 would discuss a fee for expedited 
delivery of a credit card as an example of how this exception would 
operate. Of course, any increase in a charge, or addition of a new 
charge, would have to be permissible under Sec.  226.5b(f).
9(c)(1)(iii) Disclosure Requirements
    Current Sec.  226.9(c)(1)(iii), regarding notices to restrict 
credit on HELOCs subject to Sec.  226.5b, would be renumbered as Sec.  
226.9(j) and revised, as discussed below. The Board proposes to add, as 
new Sec.  226.9(c)(1)(iii), a provision specifying the content and 
format of disclosures for certain changes in terms, similar to the new 
requirements for change-in-terms notices for open-end (not home-
secured) credit set forth in Sec.  226.9(c)(2)(iii). If any of the 
terms required to be provided at account opening in a tabular format 
under Sec.  226.6(a)(2) changes, the creditor would have to provide a 
summary of the changes (as set forth in proposed Sec.  
226.9(c)(1)(iii)(A)(1), similar to Sec.  226.9(c)(2)(iii)(A)(1) for 
open-end (not home-secured) credit), in a tabular format (as set forth 
in Sec.  226.9(c)(1)(iii)(B)(1), similar to Sec.  
226.9(c)(2)(iii)(B)(1) for open-end (not home-secured) credit), with 
headings and format substantially similar to any of the account-opening 
tables in G-15 in Appendix G.
    In addition, the notice would be required to contain a statement 
that changes are being made to the account, a statement indicating (if 
applicable) that the consumer has the right to opt out of the changes, 
the effective date of the changes, and a statement (if applicable) that 
the consumer may find additional information about the summarized 
changes, and other changes to the account, in the notice. These 
disclosures are in proposed Sec.  226.9(c)(1)(ii)(A)(2) through (5), 
similar to Sec.  226.9(c)(2)(iii)(A)(2) through (5) for open-end (not 
home-secured) credit.
    Two other disclosures required for open-end (not home-secured) 
credit, found in Sec.  226.9(c)(2)(iii)(A)(6) and (7), would not be 
required for HELOCs subject to Sec.  226.5b. Section 
226.9(c)(2)(iii)(A)(6) applies if a creditor is changing a rate on an 
account other than the penalty rate, and requires a disclosure that if 
the penalty rate currently applies to the account, the new rate 
described in the notice will not apply to the consumer's account until 
the consumer's account balances are no longer subject to the penalty 
rate. The Board believes that this situation is unlikely to occur for 
HELOCs subject to Sec.  226.5b because of the restrictions on rate 
increases for these HELOCs. Section Sec.  226.9(c)(2)(iii)(A)(7) 
applies if the change being disclosed is a rate increase, and requires 
a disclosure of the balances to which the increased rate will apply. 
Section 226.9(c)(1)(iii) is not an appropriate location for this 
disclosure, because in general rate increases for HELOCs subject to 
Sec.  226.5b, where permissible at all, must occur only as specified in 
the credit agreement and therefore the notice of such an increase would 
be provided under Sec.  226.9(i) rather than Sec.  226.9(c)(1). A 
similar disclosure of the balances to which the increased rate would 
apply is proposed under Sec.  226.9(i), as discussed below.
    Under proposed Sec.  226.9(c)(1)(iii)(B)(2) and (3), if the change-
in-terms notice is included on or with a periodic statement, the 
tabular summary required under Sec.  226.9(c)(1)(iii)(A)(1) must appear 
on the front of any page of the statement, immediately following the 
other items required to be disclosed (as specified in Sec.  
226.9(c)(1)(iii)(A)(2) through (5)). If the notice is not included on 
or with a periodic statement, the tabular summary must appear on the 
front of the first page of the notice or segregated on a separate page 
from other information given with the notice, immediately following the 
other items. These requirements would be similar to those applicable to 
open-end (not home-secured) credit, as set forth in Sec.  
226.9(c)(2)(iii)(B)(2) and (3).
    The Board is proposing these content and format rules for the same 
reasons as for the new open-end (not home-secured) credit rules adopted 
in the January 2009 Regulation Z Rule. As discussed in the January 2009 
Regulation Z Rule, consumer testing conducted on behalf of the Board 
suggests that consumers tend to set aside change-in-terms notices when 
they are presented as a separate pamphlet inserted in the periodic 
statement. In addition, testing prior to the June 2007 Regulation Z 
Proposal also revealed that consumers are more likely to identify the 
changes to their account correctly if the changes in terms are 
summarized in a tabular format. Quantitative consumer testing conducted 
in the fall of 2008 confirmed that disclosing a change in terms in a 
tabular summary on the statement (versus a disclosure on the statement 
indicating that changes were being made to the account and referring to 
a separate change-in-terms insert) led to a small increase in the 
percentage of consumers who were able to identify correctly the new 
rate that would apply to the account following the change. As stated in 
the January 2009 Regulation Z Rule, the Board believes that as 
consumers become more familiar with the new format for the change-in-
terms summary, which was new to all testing participants, they may 
become better able to recognize and understand the information 
presented. The same could be expected to apply to the change-in-terms 
summary for HELOCs.
    Although the Board has not yet conducted consumer testing of 
change-in-terms notices for HELOCs, consumer testing of disclosures 
provided at application and account-opening for HELOCs indicates, as 
discussed above, that consumers find disclosures

[[Page 43520]]

presented in a tabular format more useful and understandable than 
disclosures in the current format; thus the Board proposes to require 
such a format for the HELOC application and account-opening 
disclosures. A tabular format standard for change-in-terms notices for 
HELOCs would be consistent with this approach and could be expected to 
result in greater noticeability and consumer comprehension of HELOC 
change-in-terms notices. The Board intends to conduct consumer testing 
of tabular-format change-in-terms notices for HELOCs during the comment 
period on this proposal.
    Proposed comments 9(c)(1)(iii)(A)-1 through -10 provide guidance on 
the change-in-terms disclosures required under Sec.  
226.9(c)(1)(iii)(A), and parallel comments 9(c)(2)(iii)(A)-1 through 10 
applying to open-end (not home-secured) credit change-in-terms 
disclosures. The changes discussed in comments 9(c)(1)(iii)(A)-1 
through -7 might or might not be permissible under Sec.  226.5b(f) 
depending upon the circumstances; therefore, language would be included 
in each of these comments to refer to change in terms restrictions for 
HELOCs subject to Sec.  226.5b, to avoid implying that the changes 
discussed would be permissible in all cases.
9(c)(1)(iv) Notice Not Required
    Section 226.9(c)(1)(ii) in the current regulation (as modified by 
the January 2009 Regulation Z Rule) relates to changes for which a 
change-in-terms notice is not required (reduction of any component of a 
finance or other charge or when the change results from an agreement 
involving a court proceeding), and would be renumbered Sec.  
226.9(c)(1)(iv). Language would be added to clarify that suspension of 
credit privileges, reduction of a credit limit, or termination of an 
account would not require notice under Sec.  226.9(c)(1)(i), but must 
be disclosed pursuant to Sec.  226.9(j), discussed below.
    In comment 9(c)(1)(ii)-1 (renumbered comment 9(c)(1)(iv)-1), two 
examples of changes not requiring notice--paragraphs i. (change in the 
consumer's credit limit) and iv. (termination or suspension of credit 
privileges)--would be deleted, because such actions (assuming they were 
permissible under Sec.  226.5b(f)) would require notice, although 
notice under Sec.  226.9(j) rather than Sec.  226.9(c)(1)(i). A new 
paragraph iv. would be added to clarify that suspension of credit 
privileges, reduction of a credit limit, or termination of an account 
would not require notice under Sec.  226.9(c)(1)(i), but must be 
disclosed pursuant to Sec.  226.9(j). In paragraph v. (changes arising 
merely by operation of law; renumbered paragraph iii.), the example 
given (the creditor's security interest in a consumer's car 
automatically extending to the proceeds when the consumer sells the 
car) would be deleted as unlikely to apply to HELOC accounts.
    In comment 9(c)(1)(ii)-2 (renumbered comment 9(c)(1)(iv)-2), 
relating to skip features and temporary reductions in finance charges, 
language would be added to clarify that the actions discussed would be 
permissible as beneficial changes under Sec.  226.5b(f)(3)(iv), and 
that a creditor offering a temporary reduction in an interest rate must 
provide a notice complying with the timing, content, and format 
requirements of Sec.  226.9(c)(1) prior to resuming the original rate. 
The latter addition parallels a clarification to the comparable comment 
9(c)(2)(iv)-2, applying to open-end (not home-secured) credit, proposed 
for comment in the May 2009 Regulation Z Proposal.
    New comments 9(c)(1)(iv)-3 and -4, similar to comments 9(c)(2)(iv)-
3 and -4 for open-end (not home-secured) credit, would be added. These 
comments would clarify that if a creditor changes a rate from a 
variable rate to a non-variable rate, or vice versa (assuming such 
action is permissible under Sec.  226.5b(f)), a change-in-terms notice 
must be provided even if the immediate effect of the change is a lower 
rate.
9(i) Increase in Rates Due to Delinquency or Default or as a Penalty--
Rules Affecting Home-Equity Plans
    As discussed above under Sec.  226.9(c)(1)(i), an increase in the 
rate due to delinquency, default, or as a penalty, pursuant to the 
contractual terms of the consumer's account, would not require notice 
under Sec.  226.9(c)(1), but would require a notice under proposed new 
Sec.  226.9(i). Under the previous version of Regulation Z for credit 
cards and other open-end (not home-secured) credit (and the current 
version for HELOCs), if the agreement between the consumer and the 
creditor specifically sets forth a change that will take place upon the 
occurrence of a specific triggering event, a change-in-terms notice is 
not required when the change occurs. This rule was changed in the 
January 2009 Regulation Z Rule for open-end (not home-secured) credit 
by the addition of new Sec.  226.9(g).
    In discussing Sec.  226.9(g) in the June 2007 Regulation Z Proposal 
and the January 2009 Regulation Z Rule, the Board expressed concern 
that the imposition of penalty rates might come as a costly surprise to 
consumers who are not aware of, or do not understand, what behavior 
constitutes a default under the credit agreement, even though for 
credit card and other open-end (not home-secured) credit, the account-
opening disclosures are required to set forth the penalty rate. The 
Board also stated that it believed that consumers would be the most 
likely to notice and be motivated to act to avoid the imposition of the 
penalty rate if they receive a specific notice alerting them of an 
imminent rate increase, rather than a general disclosure stating the 
circumstances when a rate might increase.
    In the case of HELOCs subject to Sec.  226.5b, the same reasoning 
could be expected to apply. In addition, because the proposed account-
opening disclosures for HELOCs do not include a disclosure of the 
penalty rate, providing notice to a consumer at the time the penalty 
rate is imposed is even more important. Therefore, the Board proposes 
to add new Sec.  226.9(i) applying to HELOCs, which would generally 
parallel Sec.  226.9(g) applying to open-end (not home-secured) credit.
    Section 226.9(i)(1) would require that a creditor must provide 
written notice to each consumer who may be affected when a rate is 
increased due to the consumer's delinquency or default or otherwise as 
a penalty for one or more events specified in the account agreement. 
Rate increases could only occur, of course, as permitted under Sec.  
226.5b(f). Section 226.9(i)(2) would require that the notice be 
provided at least 45 days before the effective date of the increase, 
and after the occurrence of the events that trigger the imposition of 
the increase.
    Section 226.9(i)(3) would specify the content of the notice, which 
would include a statement that the delinquency or default rate, or 
other penalty rate, has been triggered (Sec.  226.9(i)(3)(i)); the date 
on which the increased rate will apply (Sec.  226.9(i)(3)(ii)); the 
circumstances under which the increased rate will cease to apply to the 
consumer's account, or that the increased rate will remain in effect 
for a potentially indefinite time period (Sec.  226.9(i)(3)(iii)); and 
a disclosure indicating to which balances the increased rate will apply 
(Sec.  226.9(i)(3)(iv)). These disclosures parallel disclosures under 
Sec.  226.9(g)(3)(i). One other disclosure under Sec.  226.9(g)(3)(i), 
however, would not be included in Sec.  226.9(i)(3): A description of 
any balances to which the current rate will continue to apply (Sec.  
226.9(g)(3)(i)(E)). For credit cards, under the Credit Card Act (cited 
above), in some circumstances increases in rates

[[Page 43521]]

may be permitted to apply only to future balances; in other cases rate 
increases may apply to all balances, including outstanding balances. 
See Credit Card Act Sec.  101(b) and (d). In contrast, rate increases 
for HELOCs subject to Sec.  226.5b, where permissible at all (i.e., for 
a reason that would permit termination and acceleration of the plan 
under Sec.  226.5b(f)(2)), would generally apply to all balances. Thus, 
the disclosure under Sec.  226.9(g)(3)(i)(E) would not appear 
appropriate for HELOCs. However, the disclosure under Sec.  
226.9(i)(3)(i)(D) may be useful to indicate, for example, whether a 
rate increase would apply to balances under the regular variable-rate 
feature of a HELOC, while not applying to balances under a fixed-rate 
option. The Board solicits comment on the appropriateness of this 
disclosure.
    Section 226.9(i)(4) would parallel Sec.  226.9(g)(3)(ii) and would 
address format requirements. Section 226.9(i)(4)(i) would provide that 
if the notice is included on or with a periodic statement, it must be 
in the form of a table and must appear on the front of any page of the 
periodic statement. Section 226.9(i)(4)(ii) would provide that if the 
notice is not included on or with a periodic statement, the disclosures 
must be appear on the front of the first page of the notice.
    Section 226.9(i)(5) would parallel Sec.  226.9(g)(4)(i) and would 
provide an exception for workout and temporary hardship arrangements, 
where the rate increases due to completion of the arrangement, or for 
failure to comply with the terms of the arrangement, provided that the 
increased rate does not exceed the rate that applied before the start 
of the arrangement. Two other exceptions in Sec.  226.9(g)(4) would not 
be included in Sec.  226.9(i)(5): A rate increase where the credit 
limit is exceeded, and a rate increase applicable to outstanding 
balances where a notice had already been provided of a rate increase on 
future balances. The first situation would not arise for HELOCs subject 
to Sec.  226.5b because, under Sec.  226.5b(f), a creditor may not 
increase an interest rate based on the credit limit being exceeded. The 
second situation also likely would not arise for HELOCs subject to 
Sec.  226.5b because, as discussed above, a rate increase for a HELOC, 
if permissible at all, would not apply to future balances differently 
than to outstanding balances.
    Comments 9(i)-1 through -5 would be added to the commentary and 
would provide general guidance regarding notices of rate increases 
under Sec.  226.9(i). The proposed comments would parallel comments 
9(g)-2 through -6 under Sec.  226.9(g). A comment would not be added to 
parallel comment 9(g)-1, because that comment addresses the 
relationship between the change-in-terms notice requirements (and 
notice of rate increase requirements) under Regulation Z and the 
requirements under Regulation AA (or similar law) regarding unfair or 
deceptive acts or practices in credit card accounts, which do not apply 
to HELOCs subject to Sec.  226.5b.
9(j) Notices of Action Taken for Home-Equity Plans
    As noted above, Sec.  226.9(c)(1)(iii), regarding notices to 
restrict credit for HELOCs subject to Sec.  226.5b, would be 
redesignated as Sec.  226.9(j)(1) and revised. Proposed Sec.  
226.9(j)(1) would retain the existing requirement that a creditor 
provide the consumer with notice of temporary account suspension or 
credit limit reduction under Sec.  226.5b(f)(3)(i) or (f)(3)(vi), but 
with certain clarifications and additions. The proposal also would 
eliminate the existing exemption from notice requirements for a 
creditor that suspends advances, reduces a credit limit, or terminates 
a plan under Sec.  226.5b(f)(3). See comment 9(c)(1)(iii)-2. Under 
proposed Sec.  226.9(j)(3), creditors taking action under Sec.  
226.5b(f)(2) would be required to provide the consumer with a notice of 
the action taken and specific reasons for the action. To facilitate 
compliance, model clauses are proposed to illustrate the requirements 
for these notices. See proposed Model Clauses G-23(A) and G-23(B) in 
Appendix G of part 226.
9(j)(1) Notice of Action Taken Under Sec.  226.5b(f)(3)(i) or 
(f)(3)(vi)
    Proposed Sec.  226.9(j)(1) would retain the existing requirement 
that require a creditor taking action under Sec.  226.5b(f)(3)(i) or 
(f)(3)(vi) must provide to any consumer who will be affected notice of 
the action taken and specific reasons for the action within three 
business days of the action. The proposed paragraph, however, would 
require the creditor to include a number of additional disclosures in 
the notice. The clarifications and additional disclosures discussed 
below are proposed in response to concerns expressed during outreach 
conducted by the Board that creditors are not certain how to comply 
with the current notice requirements and that notices provided often 
contain unclear or incomplete information about the reasons for the 
action taken and the consumer's reinstatement rights. The Board's 
independent review of notices of action taken currently used by 
creditors corroborated these concerns.
    First, proposed Sec.  226.9(j)(1)(i) and comment 9(j)(1)-1 clarify 
that, as part of the disclosure of the action taken, the creditor must 
include the following basic information that the HELOC consumer whose 
credit privileges have been restricted needs to make appropriate 
financial accommodations: (1) If the creditor reduced the credit limit, 
the new credit limit; and (2) the date as of which the account 
suspension or reduction took effect.
    Second, proposed Sec.  226.9(j)(1)(ii) requires disclosure of 
specific reasons for the action, and proposed comments 9(j)(1)-2, -3, -
4, and -5 would provide additional guidance regarding what the creditor 
must disclose to comply with this requirement. Proposed comment 
9(j)(1)-2 requires that a creditor provide the principal reasons for 
the action taken, and indicates that the principal reasons should 
include the reason permitting the action under Sec.  226.5b(f)(3)(i) or 
(vi), such as that the maximum APR has been reached or the value of 
property securing the plan has significantly declined.
    Proposed comment 9(j)(1)-3 sets forth information that, if 
disclosed, would constitute compliance with the requirement to disclose 
the specific reasons for the action taken when the reason for the 
action taken is a significant decline in the property value under Sec.  
226.5b(f)(3)(vi)(A). Specifically, compliance with the requirement 
would be met by disclosing the following information--
    (i) The value of the property obtained by the creditor.
    (ii) The type of valuation method used to obtain the property 
value.
    (iii) A statement that the consumer has a right to a copy of 
documentation supporting the property value on which the action was 
based.
    The Board believes that the property value on which the creditor 
relied to freeze or reduce a line, and access to information about the 
basis for that property value finding, are integral components of the 
``specific reasons'' disclosure required when a creditor freezes or 
reduces a line due to a significant decline in the property value. This 
information is also necessary for the consumer to assess whether and 
when to challenge the finding and request reinstatement.
    Proposed comment 9(j)(1)-4 sets forth information that, if 
disclosed, would constitute compliance with the requirement to disclose 
the specific reasons for the action taken when a creditor prohibits 
credit extensions or reduces a credit limit because the consumer's 
financial circumstances have materially changed such that the

[[Page 43522]]

creditor has a reasonable belief that the consumer will be unable to 
meet the repayment obligations of the plan under Sec.  
226.5b(f)(3)(vi)(B). Specifically, compliance with the provision would 
be met by disclosing the type of information concerning the consumer's 
financial circumstances on which the creditor relied, such as 
information about the consumer's income, credit report information, or 
some other indicia of the consumer's financial circumstances, as 
applicable.
    The Board believes that more information than simply the regulatory 
reason for the action taken is an appropriate element of the ``specific 
reasons'' disclosure requirement when action is taken due to a material 
change in the consumer's financial circumstances under Sec.  
226.5b(f)(vi)(B). First, the type of financial information relied on 
(i.e., income, credit report information) gives the consumer more 
``specific'' reasons for the action taken than a disclosure simply 
stating that the line was frozen or reduced because the consumer's 
financial circumstances have changed. Second, the consumer is thereby 
better able to assess whether to request reinstatement and to address 
problems that the consumer may be able to correct, such as errors in 
the consumer's credit report, credit performance deficiencies, or 
inadequate or outdated income information.
    Proposed comment 9(j)(1)-5 explains when a creditor takes action 
because the consumer defaulted on a material obligation under the 
agreement (see Sec.  226.5b(f)(3)(vi)(C)), the creditor would comply 
with this provision if it specified the material obligation on which 
the consumer defaulted. The Board believes that the material obligation 
on which the consumer defaulted is a key element of ``specific 
reasons'' disclosure requirement when action is based on a consumer's 
default of a material obligation. With this information, the consumer 
would have an opportunity to correct a default or to dispute the 
creditor's determination that a default occurred. Either way, the 
consumer would be in a better position to exercise his or her 
reinstatement right and to have credit privileges restored.
    Proposed comment 9(j)(1)-5 also addresses the specific reasons 
disclosure requirement for other reasons justifying temporary line 
suspension or reduction. This includes the following: (1) the creditor 
is precluded by government action from imposing the APR provided for in 
the agreement (Sec.  226.5b(f)(3)(vi)(D)); the priority of the 
creditor's security interest is adversely affected by government action 
to the extent that the value of the security interest is less than 120 
percent of the credit line (Sec.  226.5b(f)(3)(vi)(E)); the creditor is 
notified by its regulatory agency that continued advances constitute an 
unsafe and unsound practice (Sec.  226.5b(f)(3)(vi)(F)); and federal 
law prohibits the creditor from extending credit under a plan or 
requires that the creditor reduce the credit limit for a plan (Sec.  
226.5b(f)(3)(vi)(G)). For action based on these provisions, the Board 
believes that a statement of the regulatory reason for the action is 
sufficient to comply the ``specific reasons'' disclosure requirement. 
The principal reason for this proposed approach is that the consumer is 
not likely to be able to take any steps to change the circumstances 
justifying the suspension or reduction.
    The Board requests comment on whether more or less information than 
the information proposed would be appropriate to require to meet the 
``specific reasons'' disclosure requirement when action is taken for 
any of the reasons permitted under Sec.  226.5b(f)(3)(i) and 
(f)(3)(vi). The Board requests comment in particular on whether more or 
less information would be appropriate to require to meet the ``specific 
reasons'' disclosure requirement when action is taken due to a material 
change in the consumer's financial circumstances under Sec.  
226.5b(f)(3)(vi)(B).
    Disclosure of information regarding reinstatement. Proposed Sec.  
226.9(j)(1)(iii) requires the creditor to provide certain information 
when the creditor has opted to require that the consumer request 
reinstatement before the creditor will consider restoring credit 
privileges. As in the existing commentary, the proposal would require 
that the creditor disclose that the consumer must request 
reinstatement. Addressing concerns that creditors may provide 
inadequate information about reinstatement rights to consumers, the 
proposal would amplify existing requirements by requiring that the 
creditor inform the consumer of his or her right to request 
reinstatement of the account at any time, and that the creditor 
disclose the specific manner in which the consumer should request 
reinstatement, including the address or telephone number to which the 
creditor must submit requests. In addition, the creditor must disclose 
that the creditor will complete an investigation of the consumer's 
request within 30 days of receiving the request (as required under 
proposed Sec.  226.5b(g)(2)(ii)). The purpose of these disclosures is 
to ensure that consumers understand their rights regarding an 
investigation.
    The proposal also requires the creditor to disclose that, in 
accordance with proposed Sec.  226.5b(g)(2)(iii) and (iv), the creditor 
may not charge the consumer for costs associated with the investigation 
of the consumer's first reinstatement request made after the creditor 
has suspended advances or reduced the credit limit, but may charge the 
consumer bona fide and reasonable costs for property valuations or 
credit reports associated with investigations of any requests that the 
consumer makes after the first request. This provision is intended to 
put the consumer on notice of the potential for additional costs when 
requesting reinstatement. The reasons for proposing the above rules 
regarding when creditors may charge consumers fees for investigating a 
reinstatement request are discussed in the section-by-section analysis 
to proposed Sec.  226.5b(g)(2).
9(j)(2) Imposition of Fees
    Proposed Sec.  226.9(j)(2) provides that a creditor that reduces 
the credit limit on an account under Sec.  226.5b(f)(3)(i) or (vi) may 
not charge the consumer fees for exceeding the credit limit until after 
the consumer has received notice of the action under Sec.  226.9(j)(1). 
Similarly, after a creditor has suspended advances on an account, the 
creditor may not charge the consumer a fee for any advance that it 
denies until the consumer receives the Sec.  226.9(j)(1) notice. 
Proposed Sec.  226.9(j)(2) and comment 9(j)(2)-1 specify that in 
general only fees disclosed in the original agreement may be charged 
and that these would be subject to the notice waiting period. Imposing 
denied advance or over-the-limit fees not disclosed in the original 
agreement would be permitted only if an exception to the general 
limitations on changing home-equity plan terms under Sec.  226.5b(f) 
applies.
    The Board believes that imposition of denied advance or over-the-
limit fees before the consumer has notice of the suspension on advances 
or credit limit reduction is inappropriate for at least two reasons. 
First, consumers who did not yet receive the notice of action taken 
under Sec.  226.9(j)(1) presumably did not know of the credit limit 
reduction or suspension of advances and may have attempted to access 
their home-equity funds with the good faith expectation that these 
funds would be available to them. Second, in many cases, action taken 
under Sec.  226.5b(f)(3)(i) or (f)(3)(vi) is based on circumstances 
beyond the consumer's control, such as the maximum rate being reached 
or a significant decline in the value of the consumer's dwelling. 
Prohibiting

[[Page 43523]]

creditors from imposing over-the-limit or denied advance fees until 
consumers have appropriate notice of a suspension or credit limit 
reduction is intended to strengthen the protection of consumers facing 
the financial challenge of a HELOC freeze or reduction.
    Proposed comment 9(j)(2)-2 clarifies that, for purposes of 
determining when the consumer receives the notice, the more precise 
definition of business day (meaning all calendar days except Sundays 
and specified federal holidays) applies referred to in Sec.  
226.2(a)(6). See comment 2(a)(6)-2. For example, if the creditor were 
to place the disclosures in the mail on Thursday, June 4, under the 
proposal the disclosures would be considered received on Monday, June 
8. The Board proposes that the more precise definition apply to 
determining when Sec.  226.9(j)(1) notices are received by the consumer 
to conform to the Board's rules for determining receipt of disclosures 
for other dwelling-secured transactions under Sec. Sec.  
226.19(a)(1)(ii) and 226.31(c), as well as to the Board's recently 
adopted rules under Sec.  226.19(a)(2). See 74 FR 23289 (May 19, 2009).
    The Board requests comment on this proposed limitation on when 
denied advance and over-the-limit fees may be charged.
9(j)(3) Notice of Action Taken Under Sec.  226.5b(f)(2)
    Proposed Sec.  226.9(j)(2) would require creditors to provide a 
notice to each consumer affected by the creditor's termination and 
acceleration of the account, suspension of advances on the account, or 
reduction of the credit limit under circumstances permitting these 
actions pursuant to Sec.  226.5b(f)(2). This notice requirement is 
intended to remedy an inconsistency in the current rules--namely, that 
suspending or reducing lines under Sec.  226.5b(f)(3)(i) and (f)(3)(vi) 
is required under Sec.  226.9(c)(1)(iii) (redesignated and revised in 
the proposal as Sec.  226.9(j)(1)), but no notice is required for any 
action taken under Sec.  226.5b(f)(2). The Board believes that this new 
notice requirement for actions taken under Sec.  226.5b(f)(2) will 
enhance consumer protection and education by ensuring that affected 
consumers will know why the action was taken. As with the current and 
proposed notice requirement for credit restrictions under Sec.  
226.5b(f)(3)(i) and (f)(3)(vi), the proposed notice for actions taken 
under Sec.  226.5b(f)(2) is not required until three business days 
after the action is taken, rather than before the action is taken. The 
principal reason for this timing is that post-action notice protects 
creditors from the risk that consumer may immediately draw down the 
line once they receive advance notice of the action; concerns about 
this risk were confirmed through Board outreach in preparing this 
proposal. The Board's recognition of this risk is reflected in the 
longstanding policy of requiring notice for actions under Sec.  
226.5b(f)(3)(i) and (f)(3)(vi) three business days after the action 
taken.
    As indicated in proposed comment 5b(f)(2)-2, the specific reasons 
that a creditor must disclose when taking action under Sec.  
226.5b(f)(2) will vary, because Sec.  226.5b(f)(2) allows creditors to 
terminate and accelerate a home-equity plan or take a lesser action, 
such as suspending advances or reducing the credit limit, for four 
reasons: (1) ``Fraud or material misrepresentation on the part of the 
consumer in connection with the account'' (Sec.  226.5b(f)(2)(i)); (2) 
failure of the consumer ``to make a required minimum periodic payment 
within 30 days after the due date for that payment'' (proposed Sec.  
226.5b(f)(2)(ii)); (3) ``any other action or failure to act by the 
consumer which adversely affects the creditor's security for the 
account or any right of the creditor to such security'' (Sec.  
226.5b(f)(2)(iii)); or, (4) ``compliance with federal law requires the 
creditor to terminate and demand repayment of the entire outstanding 
balance in advance of the original term'' (in which case, lesser action 
would not be appropriate) (proposed Sec.  226.5b(f)(2)(iv)).
    Thus, proposed comment 9(j)(2)-2 explains that when a creditor 
takes action under Sec.  226.5b(f)(2)(i) for a consumer's fraud or 
misrepresentation related to the home-equity plan, the creditor need 
only disclose that the action was taken due to either, as applicable, 
fraud or misrepresentation by the consumer; the creditor is not 
required to specify in the notice the nature of the fraud or 
misrepresentation. During Board outreach, creditors expressed concerns 
that a requirement to disclose the specific nature of the fraud or 
misrepresentation could more readily expose them to claims of libel or 
slander, whether spurious or not, than a generic disclosure that the 
consumer's fraud or misrepresentation precipitated the creditor's 
action. Concerns were also expressed that, even if the consumer in fact 
committed fraud or misrepresentation, a court may penalize the creditor 
for the particular way in which it phrased the nature of the fraud or 
misrepresentation in the notice. The Board requests comment on whether 
the creditor should also be required to include on the notice a toll-
free telephone number that the consumer may call to receive additional 
information about the action taken and other information on the notice, 
particularly when the reason for the action is stated simply as fraud 
or material misrepresentation.
    Also under proposed comment 5b(f)(2)-2, when a creditor takes 
action under Sec.  226.5b(f)(2)(iii) for a consumer's action or 
inaction affecting the creditor's security interest, the creditor must 
include in the notice the consumer's action or inaction that threatens 
creditor's interest in the property securing the account, such as 
failing to pay property taxes or allowing a new superior lien on the 
property.
9(j)(3) Notices Required When Action Other Than Termination, 
Suspension, or Credit Limit Reduction Is Taken Under Sec.  226.5b(f)(2)
    Proposed Sec.  226.9(j)(3) would require a creditor that takes 
action other than account termination, suspension, or credit limit 
reduction under Sec.  226.5b(f)(2), such as a rate increase or fee, to 
disclose these changes according to the 45-day advance notice 
requirements of Sec.  226.9(c)(1) (for fee changes) or (i) (for rate 
changes), as applicable. The Board does not believe that advance notice 
for these actions jeopardizes the creditor's interest as in the case of 
account termination, suspension, or reduction, where a concern about 
the consumer drawing down the full line exists. By taking lesser action 
such as imposing a fee or rate increase, the creditor itself has 
determined that adequate risk management does not require taking away 
from the consumer full access to the account. The proposed provision is 
intended to enhance consumer protection and education for the reasons 
discussed in this section-by-section analysis under Sec.  226.9(c)(1) 
and (i).

Section 226.14 Determination of Annual Percentage Rate

    Section 226.14 contains rules for calculation of the APR for open-
end credit. Section 226.14(a) states general rules for determination of 
the APR, including rules on accuracy and good faith errors in 
disclosure. Section 226.14(b) contains rules for calculation of the APR 
for disclosure at the time of application for open-end (not home-
secured) credit under Sec.  226.5a or a HELOC under Sec.  226.5b, at 
account opening under Sec.  226.6, in change-in-terms notices under 
Sec.  226.9, in rescission notices under Sec.  226.15, in advertising 
under Sec.  226.16, and in oral disclosures under Sec.  226.26. The APR 
is calculated for purposes of these disclosures, as stated in Sec.  
226.14(b), by

[[Page 43524]]

multiplying each periodic rate by the number of periods in a year.
    Section 226.14(b) also states the rules for calculation of the APR 
for disclosure on periodic statements for open-end (not home-secured) 
plans under Sec.  226.7(b)(4), and for disclosure of the corresponding 
APR for HELOCs subject to Sec.  226.5b under Sec.  226.7(a)(4). The 
calculation rules for the Sec.  226.7(a)(4) and (b)(4) disclosures are 
the same as those stated above, i.e., multiply each periodic rate by 
the number of periods in a year. For HELOCs, creditors have the option 
of disclosing, in addition to the corresponding APR, the effective APR 
under Sec.  226.7(a)(7). The rules for calculation of the effective APR 
for optional disclosure for HELOCs are set forth in Sec.  226.14(c) and 
(d).
    As discussed above under Sec.  226.7, in the January 2009 
Regulation Z Rule, the Board eliminated the requirement to disclose the 
effective APR for open-end (not home-secured) credit, and made the 
disclosure of the effective APR optional for HELOCs subject to Sec.  
226.5b. As also discussed above under Sec.  226.7, the Board is now 
proposing to eliminate the disclosure of the effective APR for HELOCs 
subject to Sec.  226.5b. Accordingly, the Board proposes to delete 
Sec.  226.14(c) and (d) and the accompanying staff commentary.
    Section 226.14(b) would be revised by replacing a reference to 
disclosures under various sections of the regulation with a reference 
to disclosures under Subpart B, because with the elimination of the 
requirement to disclose the effective APR on periodic statements, Sec.  
226.14 would now provide rules for calculation of the APR for open-end 
disclosures generally. Comment 14(b)-1 would be revised similarly. 
Comment 14(b)-1 would also be revised by deleting a sentence referring 
to the ``corresponding annual percentage rate,'' because that term 
would now become obsolete; all disclosures of the annual percentage 
rate would use the term ``annual percentage rate'' or ``APR.''

Appendix F--Annual Percentage Rate Computations for Certain Open-End 
Credit Plans

    Appendix F contains guidance on calculation of the effective APR 
under Sec.  226.14(c)(3) when the finance charge imposed during the 
billing cycle includes a charge relating to a specific transaction. As 
discussed above under Sec. Sec.  226.7 and 226.14, the Board is 
proposing to eliminate the disclosure of the effective APR on periodic 
statements, and therefore is also proposing to delete Sec.  226.14(c) 
and (d), which contain the rules for calculation of the effective APR. 
If the effective APR disclosure is eliminated, Appendix F will have no 
further purpose. Accordingly, the Board proposes to remove and reserve 
Appendix F and the accompanying staff commentary.

Appendix G--Open-End Model Forms and Clauses

    Appendix G to part 226 sets forth model forms, model clauses and 
sample forms that creditors may use to comply with the requirements of 
Regulation Z for open-end credit. Although use of the model forms and 
clauses is not required, creditors using them properly will be deemed 
to be in compliance with the regulation with regard to those 
disclosures.
    As discussed in detail below, the Board proposes to modify the 
model clauses applicable to balance computation method disclosures, 
notices of liability for unauthorized use, and notices of billing-error 
rights; to add new model and sample forms for HELOC early disclosures 
and account-opening disclosures; to add new model clauses for notices 
of results of reinstatement investigations and for notices of actions 
taken on accounts in HELOCs; and to add new sample forms for HELOC 
periodic statements, change-in-terms notices, and notices of rate 
increases. In addition, as discussed below, the Board is proposing to 
adopt, for both open-end and closed-end credit, new samples and models 
for disclosures relating to credit insurance, debt cancellation or debt 
suspension; for a detailed discussion of these proposed disclosures and 
the related proposed models and samples, refer to the notice of the 
Board's proposal regarding closed-end mortgage lending requirements 
under Regulation Z, published today elsewhere in this Federal Register.
    The staff commentary to Appendices G and H contains comment App. G 
and H-1, which discusses permissible changes that creditors may make to 
the model forms and clauses without losing protection from liability 
for failure to comply with the regulation's disclosure requirements. 
Comment App. G and H-1 also lists the models to which formatting 
changes may not be made because the related disclosure requirements 
provide that the disclosures must be made in a form substantially 
similar to that in the models. The Board proposes to revise comment 
App. G and H-1 by adding a number of proposed new open-end and closed-
end models to this list.
    Model clauses for balance computation methods. Under various 
sections of the regulation, creditors are required to disclose the 
method of calculating the balance to which rates are applied. See 
Sec. Sec.  226.5a(b)(6), 226.6(b)(2)(vi), 226.6(b)(4)(i)(D), and 
226.7(b)(5), and proposed Sec. Sec.  226.6(a)(2)(xxii), 
226.6(a)(4)(i)(D), and 226.7(a)(5). Under some of these provisions, the 
creditor is permitted in some circumstances to identify the name of the 
balance calculation method, but under others the creditor must in 
either some or all cases provide an explanation of how the balance was 
calculated. Model Clauses that explain commonly used methods, such as 
the average daily balance method, are at Appendices G-1 and G-1(A) to 
part 226.
    In the January 2009 Regulation Z Rule, Appendix G-1(A) was added 
for open-end (not home-secured) plans. The clauses in Appendix G-1(A) 
refer to ``interest charges'' rather than ``finance charges'' to 
explain balance computation methods. The consumer testing conducted by 
the Board prior to the June 2007 Regulation Z Proposal indicated that 
consumers generally had a better understanding of ``interest charge'' 
than ``finance charge,'' which is reflected in the Board's use of 
``interest'' (rather than ``finance charge'') in account-opening 
samples and to describe costs other than fees on periodic statement 
samples and forms in the January 2009 Regulation Z Rule. For HELOCs 
subject to Sec.  226.5b, the January 2009 Regulation Z Rule permits 
creditors to use the model clauses in either Appendix G-1 or G-1(A).
    Consumer testing conducted for the Board during the development of 
this proposal for HELOCs confirms that consumers generally understand 
``interest charge'' better than ``finance charge.'' As discussed above 
under Sec. Sec.  226.5b, 226.6, and 226.7, the Board is accordingly 
proposing to require use of ``interest charge'' in HELOC disclosures. 
Therefore, the Board proposes to delete current Appendix G-1 and to 
redesignate Appendix G-1(A) as Appendix G-1 for use by all creditors 
offering open-end credit, both HELOCs and open-end (not home-secured) 
credit. In addition, the commentary would be revised to delete material 
that refers only to the existing version of Appendix G-1, or that 
indicates that HELOC creditors have the option to use either Appendix 
G-1 or G-1(A).
    Model clauses for notice of liability for unauthorized use and 
billing-error rights. Appendix G contains Model Clauses G-2 and G-2(A), 
which provide models for the notice of liability for unauthorized use 
of a credit card. In the January 2009 Regulation Z Rule, the Board 
adopted Model Clause G-2(A) for open-end (not home-secured) plans. 
Model Clause G-2(A) does not differ in

[[Page 43525]]

substance from Model Clause G-2, but was revised to improve 
readability. In addition, Appendix G includes Model Forms G-3 and G-
3(A), which contain models for the long-form billing-error rights 
statement (for use with the account-opening disclosures and as an 
annual disclosure or, at the creditor's option, with each periodic 
statement), and G-4 and G-4(A), which contain models for the 
alternative billing-error rights statement (for use with each periodic 
statement). As with Model Clause G-2, the Board adopted Model Forms G-
3(A) and G-4(A) for open-end (not home-secured) plans, with revisions 
to improve readability. For HELOCs subject to Sec.  226.5b, the January 
2009 Regulation Z rule permits a creditor to use either the current 
forms (G-2, G-3, and G-4) or the revised forms (G-2(A), G-3(A), and G-
4(A)), in order to avoid requiring HELOC creditors to make forms 
changes pending the completion of the Board's HELOC review.
    Revised Model clauses and forms G-2(A), G-3(A), and G-4(A) adopted 
in the January 2009 Regulation Z Rule are fully applicable to HELOCs, 
and represent improvements on models G-2, G-3, and G-4 in terms of 
readability. Therefore, the Board proposes to delete current G-2, G-3, 
and G-4, and to redesignate G-2(A), G-3(A), and G-4(A) as G-2, G-3, and 
G-4, respectively, for use by all creditors offering open-end credit, 
both HELOCs and open-end (not home-secured) credit. A technical 
correction would be made in the titles of Model Forms G-3 and G-4 in 
the table of contents to Appendix G. In addition, the commentary would 
be revised to delete material that refers to existing versions of G-2, 
G-3, or G-4, or that indicates that HELOC creditors have the option to 
use either the old or the new versions.
    Model and sample forms applicable to HELOC early disclosures and 
account-opening disclosures. Currently, Appendix G contains three 
sample and model forms and clauses related to the disclosures required 
by Sec.  226.5b at the time a consumer submits an application for a 
HELOC: G-14A and G-14B, which are sample application disclosures, and 
G-15, which contains model clauses that may be used as applicable in a 
creditor's HELOC application disclosure. Appendix G does not currently 
contain any model or sample forms or clauses related to the account-
opening disclosures required by Sec.  226.6(a) at the time a consumer 
opens a HELOC.
    As discussed above in the section-by-section analysis to Sec.  
226.5b, the Board is proposing to change disclosure timing so that the 
generic application disclosures required under the current regulation 
would be replaced with more transaction-specific disclosures to be 
provided within three business days after a consumer submits a HELOC 
application (the ``early disclosures''). In addition, as discussed 
above, the Board is proposing to substantially revise the format of the 
disclosures. The application disclosures currently required are subject 
to few formatting requirements and, in particular, are not required to 
be in a tabular format or in any minimum font size. Under the proposal, 
the early disclosures would have to be provided in a tabular format, in 
a minimum font size of 10 points, and would be subject to other format 
requirements.
    Accordingly, the Board proposes to replace current Samples G-14A 
and G-14B and Model G-15 with new model and sample forms reflecting the 
proposed new format requirements. Proposed Models G-14(A) and G-14(B) 
and Samples G-14(C), G-14(D), and G-14(E) would illustrate, in the 
tabular format, the early disclosures proposed to be required under 
Sec.  226.5b. Under proposed Sec.  226.5b, the early disclosures would 
have to be given in the form of a table with headings, content, and 
format substantially similar to any of the applicable models.
    Proposed Models G-14(A) and G-14(B) differ in that the former 
provides guidance for creditors that offer two or more HELOC plans, 
while the latter provides guidance for creditors that offer only one 
HELOC plan. Proposed Samples G-14(C), G-14(D), and G-14(E) differ in 
that they illustrate differing minimum payment terms, such as whether 
the HELOC has a repayment period, how the length of the repayment 
period is determined, whether a balloon payment will or may be due, and 
how the minimum payment amount is calculated during the draw and 
repayment periods. The proposed samples also differ in that Samples G-
14(C) and G-14(E) illustrate plans with discounted introductory APRs, 
while Sample G-14(D) illustrates a plan without a discounted 
introductory APR.
    As discussed above in the section-by-section analysis to Sec.  
226.6, the Board is also proposing to require that certain account-
opening disclosures be provided in a tabular format, a minimum font 
size of 10 points, and subject to other format requirements, similar to 
the proposed requirements for the early disclosures under proposed 
Sec.  226.5b. The disclosures that would be required to be provided in 
tabular format as set forth in proposed Sec.  226.6(a)(2); account-
opening disclosures set forth in proposed Sec.  226.6(a)(3), (4), and 
(5), if not listed in proposed Sec.  226.6(a)(2), would not have to be 
given in tabular format.
    As mentioned above, Appendix G does not currently contain any model 
or sample forms or clauses for the account-opening disclosures. To 
provide guidance on the proposed new account-opening disclosure tabular 
format requirements, the Board proposes to adopt new Model G-15(A) and 
Samples G-15(B), G-15(C), and G-15(D), reflecting those requirements. 
Under proposed Sec.  226.6(a)(1), specified account-opening disclosures 
would have to be given in the form of a table with headings, content, 
and format substantially similar to any of the applicable models.
    The Board is proposing only one model form for the account-opening 
disclosures, rather than two forms as in the case of the early 
disclosures. When the early disclosures are provided soon after 
application, the consumer may not have chosen a particular HELOC plan, 
and thus if the creditor offers more than one plan, showing more than 
one in the disclosures would be helpful to the consumer and accordingly 
one of the early disclosure models shows two plans, as discussed above. 
In contrast, at the time the HELOC account is opened, the consumer will 
have chosen a particular plan and therefore a second model form is not 
needed.
    Proposed Samples G-15(B), G-15(C), and G-15(D), similarly to 
proposed Samples G-14(C), G-14(D), and G-14(E), differ in that they 
illustrate differing minimum payment terms, such as whether the HELOC 
has a repayment period, how the length of the repayment period is 
determined, whether a balloon payment will or may be due, and how the 
minimum payment amount is calculated during the draw and repayment 
periods. The proposed samples also differ with regard to whether the 
illustrated plan has a discounted introductory APR.
    Currently, the staff commentary to Appendix G does not contain any 
comments addressing the model and sample forms and clauses related to 
the HELOC disclosures. The Board proposes to add staff commentary to 
provide guidance on the proposed new model and sample forms for the 
early HELOC disclosures required under proposed Sec.  226.5b(b), as 
well as on the proposed new model and sample forms for certain account-
opening disclosures under proposed Sec.  226.6(a)(2). The proposed 
commentary would provide guidance on how to use the model and sample 
forms and on how the various forms differ. In addition, the proposed 
commentary would provide details on the formatting

[[Page 43526]]

techniques used in presenting the information in the sample forms, such 
as on font style and size, spacing between lines of text, paragraphs, 
words, and characters, and sufficient contrast. The commentary would 
also state that, while the Board would not require creditors to use 
these formatting techniques (except for the font size requirements), 
the Board would encourage creditors to consider these techniques when 
deciding how to disclose information in the table, to ensure that the 
information is presented in a readable format. This portion of the 
proposed commentary would generally parallel the commentary to the 
model and sample forms and clauses for open-end (not home-secured) 
credit adopted in the January 2009 Regulation Z Rule.
    Model clauses for notice of results of reinstatement investigation. 
Model clauses in proposed Models G-22(A) and G-22(B) illustrate the 
disclosures required under Sec.  226.5b(g)(2)(v). They inform the 
consumer that the consumer's reinstatement request has been received 
and that the creditor has investigated the request. They contain sample 
language for explaining the results of a reinstatement investigation in 
which the creditor found that a reason for suspension of advances or 
reduction of the credit limit still exists. Clauses in Model G-22(A) 
illustrate how a notice may explain that the same reason or reasons 
originally supporting the suspension or reduction still exist. Clauses 
in Model G-22(B) illustrate how a creditor may explain that a new 
reason or reasons for account suspension or reduction exist.
    Models G-22(A) and G-22(B) do not contain sample clauses for all 
reasons in which a creditor may temporarily suspend or reduce a home-
equity plan; they illustrate only three of the reasons why a creditor 
may take these actions: (1) A significant decline in the value of the 
property securing the plan (Sec.  226.5b(f)(3)(vi)(A)); (2) a material 
change in the consumer's financial circumstances such that the creditor 
has a reasonable belief that the consumer will be unable to meet the 
repayment terms of the plan (Sec.  226.5b(f)(3)(vi)(B)); and (3) the 
consumer's default of a material obligation under the plan (Sec.  
226.5b(f)(3)(vi)(C)). The Board chose to feature these three reasons 
for temporary suspension or reduction because Board outreach and 
research indicated that creditors rely on these reasons to take action 
more often than the reasons found in Sec.  226.5b(f)(3)(vi)(D)-(F), and 
because they may present more challenges regarding the specificity 
required to comply with disclosure requirement.
    Proposed comment 12 to Appendix G of part 226 is intended to affirm 
that the creditor has flexibility in complying with the disclosure 
requirement of Sec.  226.5b(g)(2)(v). The creditor may comply by using 
language substantially similar to the language in the model clauses or 
by substituting applicable reasons for the action not represented in 
the model clauses, as long as the information required to be disclosed 
is clear and conspicuous.
    Model clauses for notice of action taken on account. These model 
clauses illustrate the disclosures required under Sec.  226.9(j)(1) and 
(j)(3). Clauses in Model G-23(A) contain information required under 
proposed Sec.  226.9(j)(1) regarding the nature of the action taken on 
the account under Sec.  226.5b(f)(3)(i) and (f)(3)(vi) and the specific 
reasons for the action taken. In particular, they illustrate language 
for a notice in which the creditor temporarily suspended advances or 
reduced a credit limit due to a significant decline in the value of the 
property securing the plan under Sec.  226.5b(f)(3)(vi)(A); a material 
change in the consumer's financial circumstances such that the creditor 
has a reasonable belief that the consumer will be unable to meet the 
repayment terms of the plan under Sec.  226.5b(f)(3)(vi)(B); and the 
consumer's default of a material obligation under the plan under Sec.  
226.5b(f)(3)(vi)(C). Again, the Board chose to feature these three 
reasons for temporary suspension or reduction because Board outreach 
and research indicated that creditors rely on these reasons to take 
action more often than the reasons found in Sec.  226.5b(f)(3)(vi)(D)-
(F), and because they may present more challenges regarding the 
specificity required to comply with the disclosure requirement. Model 
G-23(A) clauses also contain information regarding the consumer's 
rights when the creditor requires the consumer to request reinstatement 
under Sec.  226.5b(g)(1)(ii).
    Clauses in Model G-23(B) contain information required under 
proposed Sec.  226.9(j)(3) regarding the nature of the action taken on 
the account under Sec.  226.5b(f)(2) and the specific reasons for the 
action taken. In particular, they illustrate language for a notice in 
which the creditor takes action on an account due to the consumer's 
failure to make a required minimum periodic payment within 30 days of 
the due date under proposed Sec.  226.5b(f)(2)(ii) and the consumer's 
action or inaction that adversely affected the creditor's interest in 
the property securing the plan under Sec.  226.5b(f)(2)(iii). Model 
clauses for the notice when a creditor takes action due to a consumer's 
fraud or material misrepresentation under Sec.  226.5b(f)(2)(i) are not 
included because, under proposed comment 9(j)(3)-2.ii, a creditor need 
disclose only that the consumer's fraud or misrepresentation is the 
reason for the action.
    Proposed comment 13 to Appendix G is intended to affirm that a 
creditor has flexibility in complying with the disclosure requirements 
of Sec.  226.9(j)(1) and (j)(3). The creditor may comply by using 
language substantially similar to the language in the model clauses or 
by substituting applicable reasons for the action not represented in 
the model clauses, as long as the information required to be disclosed 
is clear and conspicuous.
    The Board developed the clauses in proposed Models G-22(A), G-
22(B), G-23(A) and G-23(B) in consultation with ICF Macro, a third-
party consumer research and testing firm contracted by the Board to 
assist with developing and testing disclosures for home-equity plans. 
The Board has not yet tested the clauses in proposed Models G-22(A), G-
22(B), G-23(A) and G-23(B) with consumers. The Board requests comment 
on whether consumer testing of these clauses is necessary, whether the 
Board should develop model forms rather than model clauses for the 
disclosure requirements of Sec.  226.5b(g)(2)(v) and Sec.  226.9(j)(1) 
and (j)(3), and whether the Board should consider modifying, deleting, 
or adding any proposed clauses for these models.
    Sample forms for periodic statements, change-in-terms notices, and 
notices of rate increases. As discussed above in the section-by-section 
analysis to proposed Sec.  226.7(a), the Board is proposing to revise 
the requirements for disclosures on periodic statements for HELOC 
accounts. Periodic statements would be subject to certain content and 
formatting requirements, including a requirement to disclose a total of 
interest and a total of fees charged, both for the statement period and 
for year to date, in proximity to the list of transactions on the 
statement. To provide guidance on the proposed periodic statement 
requirements, the Board proposes to adopt new Samples G-24(A), G-24(B), 
and G-24(C). Under proposed Sec.  226.7(a), the interest and fee 
disclosures would have to be made using a format substantially similar 
to the samples. Proposed Sample G-24(A) illustrates the disclosure of 
total interest and total fees for the period and year to date in 
proximity to transactions. Proposed Samples G-24(B) and G-24(C) show 
entire periodic statements, including the grouping shown in Sample G-
24(A) as well as other elements of the statements.

[[Page 43527]]

    As discussed above in the section-by-section analysis to proposed 
Sec.  226.9(c)(1) and (i), the Board is also proposing to revise the 
requirements for providing change-in-terms notices for HELOCs, and to 
adopt a new requirement to provide a notice of rate increase. The 
notice would be subject to certain formatting requirements including 
the use of a tabular format, and if the notice is given with a periodic 
statement, would have to be disclosed on the front of any page of the 
statement. If the notice is not given with a periodic statement, the 
notice would have to be disclosed, at the creditor's option, on the 
front of the first page or segregated on a separate page from other 
information. The Board proposes to adopt new Sample G-25, illustrating 
a change-in-terms notice using the tabular format, and Sample G-26, 
showing a notice of rate increase using the tabular format. Proposed 
Sample G-24(C) illustrates a change-in-terms notice given on the front 
of a periodic statement using the tabular format, and proposed Sample 
G-24(B) provides the same guidance with regard to a notice of rate 
increase.
    The Board also proposes to adopt staff commentary to provide 
guidance on the use of proposed Samples G-24(A), G-24(B), G-24(C), G-
25, and G-26. The proposed commentary would discuss how the forms may 
be used and how they differ from each other. In addition, the 
commentary would make clear that the samples contain information that 
is not required by Regulation Z, and that they present information in 
additional formats that are not required by Regulation Z.
    Model and sample forms for credit insurance, debt cancellation or 
debt suspension. As discussed in the notice of the Board's proposal 
regarding closed-end mortgage lending requirements under Regulation Z, 
published today elsewhere in this Federal Register, the Board is 
proposing certain additional disclosure requirements relating to credit 
insurance, debt cancellation or debt suspension. Generally, the 
proposed disclosures would enhance information provided to consumers 
about the optional nature of the insurance or coverage, the cost, and 
eligibility requirements. The Board is proposing to adopt new samples 
and models for these disclosures, designated G-16(C) and G-16(D) for 
open-end credit and H-17(C) and H-17(D) for closed-end credit. For the 
proposed text of the sample and model disclosures and for further 
discussion of them, refer to the Board's separate Federal Register 
notice published today elsewhere in this Federal Register.

VII. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the 
proposed rule under the authority delegated to the Board by the Office 
of Management and Budget (OMB). The collection of information that is 
required by this proposed rule is found in 12 CFR part 226. The Board 
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.). Since the Board 
does not collect any information, no issue of confidentiality arises. 
The respondents/recordkeepers are creditors and other entities subject 
to Regulation Z.
    TILA and Regulation Z are intended to ensure effective disclosure 
of the costs and terms of credit to consumers. For open-end credit, 
creditors are required to, among other things, disclose information 
about the initial costs and terms and to provide periodic statements of 
account activity, notice of changes in terms, and statements of rights 
concerning billing error procedures. Regulation Z requires specific 
types of disclosures for credit and charge card accounts and home 
equity plans. For closed-end loans, such as mortgage and installment 
loans, cost disclosures are required to be provided prior to 
consummation. Special disclosures are required in connection with 
certain products, such as reverse mortgages, certain variable-rate 
loans, and certain mortgages with rates and fees above specified 
thresholds. TILA and Regulation Z also contain rules concerning credit 
advertising. Creditors are required to retain evidence of compliance 
for twenty-four months, Sec.  226.25, for certain types of records.\41\
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    \41\ See comments 25(a)-3 and -4.
---------------------------------------------------------------------------

    Under the PRA, the Board accounts for the paperwork burden 
associated with Regulation Z for the state member banks and other 
creditors supervised by the Board that engage in consumer credit 
activities covered by Regulation Z and, therefore, are respondents 
under the PRA. Appendix I of Regulation Z defines the Federal Reserve-
regulated institutions as: State member banks, branches and agencies of 
foreign banks (other than federal branches, federal agencies, and 
insured state branches of foreign banks), commercial lending companies 
owned or controlled by foreign banks, and organizations operating under 
section 25 or 25A of the Federal Reserve Act. Other federal agencies 
account for the paperwork burden imposed on the entities for which they 
have administrative enforcement authority. 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 Reserve-regulated institutions that 
are deemed to be respondents for the purposes of the PRA. To ease the 
burden and cost of complying with Regulation Z (particularly for small 
entities), the Board provides model forms, which are appended to the 
regulation.
    As discussed in the preamble, the Board is proposing changes to 
format, timing, and content requirements for HELOC disclosures required 
by Regulation Z: (1) Educational information published by the Board 
provided at application; (2) transaction-specific disclosures provided 
within three days after application; (3) transaction-specific 
disclosures provided at account-opening; (4) periodic statements and 
notices of changes to the transaction's terms provided during the life 
of the plan; and (5) notices related to terminating, suspending, and 
reinstating accounts, and reducing the credit limit. The proposed rule 
would impose a one-time increase in the total annual burden under 
Regulation Z for all respondents regulated by the Federal Reserve by 
104,160 hours, from 734,127 to 838,287 hours. In addition, the Board 
estimates that, on a continuing basis, the proposed revisions to the 
rules would increase the total annual burden on a continuing basis from 
734,127 to 1,323,049 hours.
    The total estimated burden increase, as well as the estimates of 
the burden increase associated with each major section of the proposed 
rule as set forth below, represents averages for all respondents 
regulated by the Federal Reserve. The Board expects that the amount of 
time required to implement each of the proposed changes for a given 
institution may vary based on the size and complexity of the 
respondent. Furthermore, the burden estimate for this rulemaking does 
not include the burden of complying with proposed disclosure and timing 
requirements that apply to private educational lenders making private 
education loans as announced in a separate proposed rulemaking (Docket 
No. R-1353) or the proposed disclosure and timing requirements of the 
Board's separate

[[Page 43528]]

notice published simultaneously with this proposal for closed-end 
mortgages.
    The Board estimates that 651 respondents regulated by the Federal 
Reserve would take, on average, 160 hours (four business weeks) to 
update their systems, internal procedure manuals, and provide training 
for relevant staff to comply with the proposed disclosure requirements 
in Sec.  226.5b(b). This one-time revision would increase the burden by 
104,160 hours. On a continuing basis the Board estimates that 651 
respondents regulated by the Federal Reserve would take, on average, 64 
hours a month to comply with the all of the disclosure requirements for 
open-end credit plans secured by real property and would increase the 
ongoing burden from 15,532 hours to 500,294 hours. To ease the burden 
and cost of complying with the new and proposed requirements under 
Regulation Z the Board proposes to revise or add several model forms, 
model clauses and sample forms to Appendix G.
    The other federal financial agencies: Office of the Comptroller of 
the Currency (OCC), Office of Thrift Supervision (OTS), the Federal 
Deposit Insurance Corporation (FDIC), and the National Credit Union 
Administration (NCUA) are responsible for estimating and reporting to 
OMB the total paperwork burden for the domestically chartered 
commercial banks, thrifts, and federal credit unions and U.S. branches 
and agencies of foreign banks for which they have primary 
administrative enforcement jurisdiction under TILA Section 108(a), 15 
U.S.C. 1607(a). These agencies may, but are not required to, use the 
Board's burden estimation methodology. Using the Board's method, the 
total current estimated annual burden for the approximately 17,200 
domestically chartered commercial banks, thrifts, and federal credit 
unions and U.S. branches and agencies of foreign banks supervised by 
the Federal Reserve, OCC, OTS, FDIC, and NCUA under TILA would be 
approximately 13,568,725 hours. The proposed rule would impose a one-
time increase in the estimated annual burden for such institutions by 
2,752,000 hours to 16,320,725 hours. On a continuing basis the proposed 
rule would impose an increase in the estimated annual burden by 
13,209,600 to 26,778,325 hours. The above estimates represent an 
average across all respondents; the Board expects variations between 
institutions based on their size, complexity, and practices.
    Comments are invited on: (1) Whether the proposed collection of 
information is necessary for the proper performance of the Federal 
Reserve's functions; including whether the information has practical 
utility; (2) the accuracy of the Federal Reserve's estimate of the 
burden of the proposed information collection, including the cost of 
compliance; (3) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (4) ways to minimize the burden of 
information collection on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments on the collection of information should be sent to 
Cynthia Ayouch, Acting Federal Reserve Board Clearance Officer, 
Division of Research and Statistics, Mail Stop 95-A, Board of Governors 
of the Federal Reserve System, Washington, DC 20551, with copies of 
such comments sent to the Office of Management and Budget, Paperwork 
Reduction Project (7100-0199), Washington, DC 20503.

VIII. Initial Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(RFA), 5 U.S.C. 601-612, the Board is publishing an initial regulatory 
flexibility analysis for the proposed amendments to Regulation Z. The 
RFA requires an agency either to provide an initial regulatory 
flexibility analysis with a proposed rule or to certify that the 
proposed rule will not have a significant economic impact on a 
substantial number of small entities. Under regulations issued by the 
Small Business Administration, an entity is considered ``small'' if it 
has $175 million or less in assets for banks and other depository 
institutions; and $7 million or less in revenues for non-depository 
lenders and loan originators.\42\
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    \42\ 13 CFR 121.201.
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    Based on its analysis and for the reasons stated below, the Board 
believes that the proposed rule will have a significant economic impact 
on a substantial number of small entities. A final regulatory 
flexibility analysis will be conducted after consideration of comments 
received during the public comment period. The Board requests public 
comment in the following areas.

A. Reasons for the Proposed Rule

    Congress enacted TILA based on findings that economic stability 
would be enhanced and competition among consumer credit providers would 
be strengthened by the informed use of credit resulting from consumers' 
awareness of the cost of credit. One of the stated purposes of TILA is 
to provide a meaningful disclosure of credit terms to enable consumers 
to compare credit terms available in the marketplace more readily and 
avoid the uninformed use of credit. In this regard, the goal of the 
proposed amendments to Regulation Z is to improve the effectiveness of 
the disclosures that creditors provide to consumers beginning before 
application and throughout the life of a HELOC plan. Accordingly, the 
Board is proposing changes to format, timing, and content requirements 
for HELOC disclosures required by Regulation Z: (1) Educational 
information published by the Board provided with the application; (2) 
transaction-specific disclosures provided shortly after application; 
(3) transaction-specific disclosures provided at account-opening; (4) 
periodic statements and notices of changes to the transaction's terms 
provided during the life of the plan; and (5) notices related to 
terminating, suspending, and reinstating accounts, and reducing the 
credit limit.
    Specifically, the proposed regulations would revise and enhance the 
content of HELOC disclosures currently required at application and 
account-opening, as well as periodic statements and change-in-terms 
notices. The Board's proposal also would require creditors to provide 
transaction-specific disclosures early enough in the process (i.e., 
within three business days after application rather than at account-
opening, as currently required) to enable consumers to make decisions 
based on credit terms that would be offered to them and not on general 
information that may not apply to a particular consumer. The Board's 
proposal also would revise notice of action taken requirements for 
accounts that are temporarily suspended or reduced; require a notice of 
action taken when a creditor takes any action for reasons that would 
allow the creditor to terminate the account; and require a notice of 
the results of a creditor's investigation of a consumer's request for 
reinstatement of credit privileges on accounts that have been 
temporarily suspended or reduced. These amendments are proposed in 
furtherance of the Board's responsibility to prescribe regulations to 
carry out the purposes of TILA, including promoting consumers' 
awareness of the cost of credit and their informed use of credit.

B. Statement of Objectives and Legal Basis

    The SUPPLEMENTARY INFORMATION contains information about objectives 
of and legal basis for the proposed rule. In summary, the proposed 
amendments to Regulation Z are designed to achieve

[[Page 43529]]

two goals: (1) Revise content, timing and format of disclosures 
required for HELOCs at application, account-opening, and after the 
HELOC is opened; and (2) clarify and strengthen certain substantive 
restrictions on when creditors may change the terms of a HELOC plan, 
including when a creditor may terminate, suspend, or reduce a HELOC.
    The legal basis for the proposed rule is in Sections 105(a), 
105(f), 127(a)(8), 127A(a)(14) and 127A(e) of TILA. 15 U.S.C. 1604(a), 
1604(f), 1637(a)(8), 1637a(a)(14), and 1637a(e). A more detailed 
discussion of the Board's rulemaking authority is set forth in part IV 
of the SUPPLEMENTARY INFORMATION.

C. Description of Small Entities to Which the Proposed Rule Would Apply

    The proposed regulations would apply to all institutions and 
entities that engage in originating or extending HELOCs. The Board is 
not aware of a reliable source for the total number of small entities 
likely to be affected by the proposal; and the credit provisions of 
TILA and Regulation Z have broad applicability to individuals and 
businesses that originate, extend and service even small numbers of 
home-secured credit. See Sec.  226.1(c)(1).\43\ Thus, all small 
entities that originate, extend, or service HELOCs potentially could be 
subject to at least some aspects of the proposed rule.
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    \43\ Regulation Z generally applies to ``each individual or 
business that offers or extends credit when four conditions are met: 
(i) The credit is offered or extended to consumers; (ii) the 
offering or extension of credit is done regularly, (iii) the credit 
is subject to a finance charge or is payable by a written agreement 
in more than four installments, and (iv) the credit is primarily for 
personal, family, or household purposes.'' Sec.  226.1(c)(1).
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    The Board can, however, identify through data from Reports of 
Condition and Income (``call reports'') approximate numbers of small 
depository institutions that would be subject to the proposed rules if 
they originate or extend HELOCs. Based on December 2008 call report 
data, approximately 7,557 small institutions would be subject to the 
proposed rule. Approximately 16,345 depository institutions in the 
United States filed call report data, approximately 11,907 of which had 
total domestic assets of $175 million or less and thus were considered 
small entities for purposes of the Regulatory Flexibility Act. Of 4,231 
banks, 565 thrifts and 7,111 credit unions that filed call report data 
and were considered small entities, 2,397 banks, 363 thrifts, and 4,797 
credit unions, totaling 7,557 institutions, extended HELOCs. For 
purposes of this analysis, thrifts include savings banks, savings and 
loan entities, co-operative banks and industrial banks.
    The Board cannot identify with certainty the number of small non-
depository institutions that would be subject to the proposed rule. 
Home Mortgage Disclosure Act (HMDA) \44\ data indicate that 1,752 non-
depository institutions filed HMDA reports in 2007.\45\ Based on the 
small volume of lending activity reported by these institutions in 
general, most are likely to be small.\46\
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    \44\ The 8,610 lenders (both depository institutions and 
mortgage companies) covered by HMDA in 2007 accounted for an 
estimated 80% of all home lending in the United States (2008 HMDA 
data are not yet available). Under HMDA, lenders use a ``loan/
application register'' (HMDA/LAR) to report information annually to 
their federal supervisory agencies for each application and loan 
acted on during the calendar year. Lenders must make their HMDA/LARs 
available to the public by March 31 following the year to which the 
data relate, and they must remove the two date-related fields to 
help preserve applicants' privacy. Only lenders that have offices 
(or, for non-depository institutions, are deemed to have offices) in 
metropolitan areas are required to report under HMDA. However, if a 
lender is required to report, it must report information on all of 
its home loan applications and loans in all locations, including 
non-metropolitan areas.
    \45\ The 2007 HMDA Data, http://www.federalreserve.gov/pubs/bulletin/2008/articles/hmda/default.htm.
    \46\ The Board recognizes that reporting HELOC originations 
under HMDA is optional, so HMDA reporting is not an exact gauge of 
small non-depositories engaging in HELOC lending.
---------------------------------------------------------------------------

    Another aspect of the Board's proposal that would affect 
individuals and small entities that are non-depositories is the 
requirement that creditors disclose as part of the early HELOC 
disclosure the identity of the creditor making the disclosures and the 
loan originator's unique identifier, as defined by the Secure and Fair 
Enforcement for Mortgage Licensing Act of 2008 (``SAFE Act'') Sections 
1503(3) and (12), 12 U.S.C. 5102(3) and (12). 15 U.S.C. 1637a(a)(14). 
Currently, a creditor is not required to disclose identification 
information about the creditor and the borrower as part of the 
application disclosures. Loan originators other than brokers that would 
be affected by the proposal are employees of creditors (or of brokers) 
and, as such, are not business entities in their own right. In its 2008 
proposed rule under HOEPA, 73 FR 1672, 1720 (Jan. 9, 2008), the Board 
noted that, according to the National Association of Mortgage Brokers 
(NAMB), in 2004 there were 53,000 brokerage companies that employed an 
estimated 418,700 people.\47\ The Board estimated that most of these 
companies are small entities. In addition, a comment letter received 
from the U.S. Small Business Administration under the Board's 2008 
HOEPA proposal cited the U.S. Census Bureau's 2002 Economic Census in 
stating that there were 15,195 small broker entities.
---------------------------------------------------------------------------

    \47\ http://www.namb.org/namb/Industry_Facts.asp?SnID=719224934. The cited page of the NAMB Web site, 
however, no longer provides an estimate of the number of mortgage 
brokerage companies.
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D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The compliance requirements of the proposed rules are described in 
parts II, V and VI of the SUPPLEMENTARY INFORMATION. The exact effect 
of the proposed revisions to Regulation Z on small entities is unknown. 
Some small entities would be required, among other things, to modify 
their HELOC disclosures and disclosure delivery process to comply with 
the revised rules. The precise costs to small entities of updating 
their systems and disclosures are difficult to predict. These costs 
will depend on a number of unknown factors, including, among other 
things, the specifications of the current systems used by such entities 
to prepare and provide disclosures and to administer and maintain 
accounts, the complexity of the terms of HELOCs that they offer, and 
the range of their HELOC product offerings.

E. Identification of Duplicative, Overlapping, or Conflicting Federal 
Rules

Other Federal Rules
    The Board has not identified any federal rules that conflict with 
the proposed revisions to Regulation Z.
Overlap With SAFE Act
    The proposed rule's required disclosure contents for HELOCs would 
overlap with the SAFE Act by requiring that the disclosure include the 
loan originator's unique identifier, as defined by SAFE Act, if 
applicable.

F. Identification of Duplicative, Overlapping, or Conflicting State 
Laws

State Laws Requiring Loan Originator's Unique Identifier
    The Board is aware that many states regulate loan originators, 
especially brokers. Under TILA Section 111, the proposed rule would not 
preempt such state laws except to the extent they are inconsistent with 
the proposal's requirements. 15 U.S.C. 1610.
State TILA Equivalents
    Many states regulate consumer credit through statutory disclosure 
schemes similar to TILA (``TILA equivalents''). Similarly to state laws 
regulating loan originators, such state TILA equivalents

[[Page 43530]]

would be preempted only to the extent they are inconsistent with the 
proposal's requirements. Id.
    The Board seeks comment regarding any state or local statutes or 
regulations that would duplicate, overlap, or conflict with the 
proposed rule.

G. Discussion of Significant Alternatives

    The Board welcomes comments on any significant alternatives, 
consistent with the requirements of TILA, that would minimize the 
impact of the proposed rule on small entities.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
revisions. New language is shown inside arrows while language that 
would be deleted is set off with brackets. In certain cases deemed 
appropriate by the Board to aid understanding, redesignated text, such 
as text moved from the commentary into the regulation or from one 
paragraph to another, reflects changes to the original text, with 
arrows and brackets.

List of Subjects in 12 CFR Part 226

    Advertising, Consumer protection, Federal Reserve System, 
Mortgages, Reporting and recordkeeping requirements, Truth in lending.

    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation Z, 12 CFR part 226, as set forth below:

PART 226--TRUTH IN LENDING (REGULATION Z)

    1. The authority citation for part 226 continues to read as 
follows:

    Authority:  12 U.S.C. 3806; 15 U.S.C. 1604, and 1637(c)(5).

Subpart A--General

    2. Section 226.2 is amended by revising paragraph (a)(6) to read as 
follows:


Sec.  226.2  Definitions and rules of construction.

    (a) * * *
    (6) Business Day means a day on which the creditor's offices are 
open to the public for carrying on substantially all of its business 
functions. However, for purposes of rescission under Sec. Sec.  226.15 
and 226.23, and for purposes of [rtrif]Sec.  226.5b(e), Sec.  
226.9(j)(2),[ltrif] Sec.  226.19(a)(1)(ii), Sec.  226.19(a)(2), and 
Sec.  226.31, the term means all calendar days except Sundays and the 
legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's 
Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, 
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, 
Thanksgiving Day, and Christmas Day.
* * * * *

Subpart B--Open-End Credit

    3. Section 226.5 is amended by revising paragraphs (a)(1), (a)(2), 
(a)(3), (b)(1), (b)(4), and (c), and by re-publishing paragraph (d) to 
read as follows:


Sec.  226.5  General disclosure requirements.

    (a) Form of disclosures--(1) General. (i) The creditor shall make 
the disclosures required by this subpart clearly and conspicuously.
    (ii) The creditor shall make the disclosures required by this 
subpart in writing,\7\ in a form that the consumer may keep,\8\ except 
that:
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    \7\ [Reserved].
    \8\ [Reserved].
---------------------------------------------------------------------------

    (A) The following disclosures need not be written:
    [rtrif](1) Disclosures under Sec.  226.6(a)(3) of charges that are 
imposed as part of a home-equity plan that are not required to be 
disclosed under Sec.  226.6(a)(2) and related disclosures under Sec.  
226.9(c)(1)(ii)(B) of charges;
    (2)[ltrif] Disclosures under Sec.  226.6(b)(3) of charges that are 
imposed as part of an open-end (not home-secured) plan that are not 
required to be disclosed under Sec.  226.6(b)(2) and related 
disclosures under Sec.  226.9(c)(2)(ii)(B) of charges;
    [rtrif](3) Disclosures[ltrif] [disclosures] under Sec.  
226.9(c)(2)(v); and
    [rtrif](4) Disclosures[ltrif] [disclosures] under Sec.  226.9(d) 
when a finance charge is imposed at the time of the transaction.
    (B) The following disclosures need not be in a retainable form:
    [rtrif](1)[ltrif] Disclosures that need not be written under 
paragraph (a)(1)(ii)(A) of this section;
    [rtrif](2) Disclosures[ltrif] [disclosures] for credit and charge 
card applications and solicitations under Sec.  226.5a; [home-equity 
disclosures under Sec.  226.5b(d)];
    [rtrif](3) The[ltrif] [the] alternative summary billing-rights 
statement under Sec.  226.9(a)(2);
    [rtrif](4) The[ltrif] [the] credit and charge card renewal 
disclosures required under Sec.  226.9(e); and
    [rtrif](5) The[ltrif] [the] payment requirements under Sec.  
226.10(b), except as provided in Sec.  226.7(b)(13).
    (iii) The disclosures required by this subpart may be provided to 
the consumer in electronic form, subject to compliance with the 
consumer consent and other applicable provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 
7001 et seq.). The disclosures required by Sec. Sec.  226.5a, 
226.5b[rtrif](a)[ltrif], and 226.16 may be provided to the consumer in 
electronic form without regard to the consumer consent or other 
provisions of the E-Sign Act in the circumstances set forth in those 
sections.
    (2) Terminology. (i) Terminology used in providing the disclosures 
required by this subpart shall be consistent.
    (ii) [rtrif]If disclosures are required to be presented in a 
tabular format pursuant to paragraph (a)(3)(ii) of this section, the 
terms borrowing period (in reference to the draw period), repayment 
period, and balloon payment shall be used, as applicable. If credit 
insurance or debt cancellation or debt suspension coverage is required 
as part of the plan, the term required shall be used and the program 
shall be identified by its name.[ltrif] [For home-equity plans subject 
to Sec.  226.5b, the terms finance charge and annual percentage rate, 
when required to be disclosed with a corresponding amount or percentage 
rate, shall be more conspicuous than any other required disclosure.\9\ 
The terms need not be more conspicuous when used for periodic statement 
disclosures under Sec.  226.7(a)(4) and for advertisements under Sec.  
226.16.]
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    \9\ [Reserved].
---------------------------------------------------------------------------

    (iii) If disclosures are required to be presented in a tabular 
format pursuant to paragraph (a)(3)[rtrif](except for paragraph 
(a)(3)(ii) and the disclosures required under Sec.  226.6(a)(2) that 
must be presented in a tabular format pursuant to paragraph 
(a)(3)(iii))[ltrif] of this section, the term penalty APR shall be 
used, as applicable. The term penalty APR need not be used in reference 
to the annual percentage rate that applies with the loss of a 
promotional rate, assuming the annual percentage rate that applies is 
not greater than the annual percentage rate that would have applied at 
the end of the promotional period; or if the annual percentage rate 
that applies with the loss of a promotional rate is a variable rate, 
the annual percentage rate is calculated using the same index and 
margin as would have been used to calculate the annual percentage rate 
that would have applied at the end of the promotional period. If credit 
insurance or debt cancellation or debt suspension coverage is required 
as part of the plan, the term required shall be used and the program 
shall be identified by its name. If an annual percentage rate is 
required to be presented in a tabular format pursuant to paragraph 
(a)(3)(i) or (a)(3)(iii) (except for the disclosures required under 
Sec.  226.6(a)(2) that must be presented in a tabular format

[[Page 43531]]

pursuant to paragraph (a)(3)(iii)) of this section), the term fixed, or 
a similar term, may not be used to describe such rate unless the 
creditor also specifies a time period that the rate will be fixed and 
the rate will not increase during that period, or if no such time 
period is provided, the rate will not increase while the plan is open.
    (3) Specific formats. (i) Certain disclosures for credit and charge 
card applications and solicitations must be provided in a tabular 
format in accordance with the requirements of Sec.  226.5a(a)(2).
    (ii) Certain disclosures for home-equity plans [must precede other 
disclosures and] must be [given] [rtrif]provided in a tabular 
format[ltrif] in accordance with the requirements of Sec.  
226.5b[(a)][rtrif](b)(2)[ltrif].
    (iii) Certain account-opening disclosures must be provided in a 
tabular format in accordance with the requirements of Sec.  
226.6[rtrif](a)(1) and[ltrif] (b)(1).
    (iv) Certain disclosures provided on periodic statements must be 
grouped together in accordance with the requirements of Sec.  
226.7[rtrif](a)(6),[ltrif] (b)(6) and (b)(13).
    (v) Certain disclosures accompanying checks that access a credit 
card account must be provided in a tabular format in accordance with 
the requirements of Sec.  226.9(b)(3).
    (vi) Certain disclosures provided in a change-in-terms notice must 
be provided in a tabular format in accordance with the requirements of 
Sec.  226.9(c)[rtrif](1)(iii)(B) and (c)[ltrif](2)(iii)(B).
    (vii) Certain disclosures provided when a rate is increased due to 
delinquency, default or as a penalty must be provided in a tabular 
format in accordance with the requirements of Sec.  
226.9(g)(3)(ii)[rtrif]and (i)(4)[ltrif].
* * * * *
    (b) Time of disclosures--(1) Account-opening disclosures--(i) 
General rule. The creditor shall furnish account-opening disclosures 
required by Sec.  226.6 before the first transaction is made under the 
plan.
    (ii) Charges imposed as part of an open-end [(not home-secured)] 
plan. Charges that are imposed as part of an open-end [(not home-
secured)] plan and are not required to be disclosed under Sec.  
226.6[rtrif](a)(2) or[ltrif] (b)(2) may be disclosed after account 
opening but before the consumer agrees to pay or becomes obligated to 
pay for the charge, provided they are disclosed at a time and in a 
manner [rtrif]such[ltrif] that a consumer would be likely to notice 
them. [This provision does not apply to charges imposed as part of a 
home-equity plan subject to the requirements of Sec.  226.5b.]
    (iii) Telephone purchases. Disclosures required by Sec.  226.6 may 
be provided as soon as reasonably practicable after the first 
transaction if:
    (A) The first transaction occurs when a consumer contacts a 
merchant by telephone to purchase goods and at the same time the 
consumer accepts an offer to finance the purchase by establishing an 
open-end plan with the merchant or third-party creditor;
    (B) The merchant or third-party creditor permits consumers to 
return any goods financed under the plan and provides consumers with a 
sufficient time to reject the plan and return the goods free of cost 
after the merchant or third-party creditor has provided the written 
disclosures required by Sec.  226.6; and
    (C) The consumer's right to reject the plan and return the goods is 
disclosed to the consumer as a part of the offer to finance the 
purchase.
    (iv) Membership fees--(A) General. In general, a creditor may not 
collect any fee before account-opening disclosures are provided. A 
creditor may collect, or obtain the consumer's agreement to pay, 
membership fees, including application fees excludable from the finance 
charge under Sec.  226.4(c)(1), before providing account-opening 
disclosures if, after receiving the disclosures, the consumer may 
reject the plan and have no obligation to pay these fees (including 
application fees) or any other fee or charge. A membership fee for 
purposes of this paragraph has the same meaning as a fee for the 
issuance or availability of credit described in Sec.  226.5a(b)(2). If 
the consumer rejects the plan, the creditor must promptly refund the 
membership fee if it has been paid, or take other action necessary to 
ensure the consumer is not obligated to pay that fee or any other fee 
or charge.
    (B) Home-equity plans. Creditors offering home-equity plans subject 
to the requirements of Sec.  226.5b are not subject to the requirements 
of paragraph (b)(1)(iv)(A) of this section. [rtrif](See Sec. Sec.  
226.5b(d), 226.5b(e), and 226.15 regarding requirements for refunds of 
fees applicable to creditors offering home-equity plans.)[ltrif]
    (v) Application fees. [rtrif](A) General. In general, a[ltrif] [A] 
creditor may collect an application fee excludable from the finance 
charge under Sec.  226.4(c)(1) before providing account-opening 
disclosures. However, if a consumer rejects the plan after receiving 
account-opening disclosures, the consumer must have no obligation to 
pay such an application fee, or if the fee was paid, it must be 
refunded. See Sec.  226.5(b)(1)(iv).
    [rtrif](B) Home-equity plans. Creditors offering home-equity plans 
subject to the requirements of Sec.  226.5b are not subject to the 
requirements of paragraph (b)(1)(v)(A) of this section. (See Sec. Sec.  
226.5b(d), 226.5b(e), and 226.15 regarding requirements for refunds of 
fees applicable to creditors offering home-equity plans.)[ltrif]
* * * * *
    (4) Home-equity plan[s][rtrif]application and three days after 
application disclosures[ltrif]. Disclosures for home-equity plans shall 
be made in accordance with the timing requirements of Sec.  
226.5b[rtrif](a)(1) and[ltrif] (b)[rtrif](1)[ltrif].
    (c) Basis of disclosures and use of estimates. Disclosures shall 
reflect the terms of the legal obligation between the parties. If any 
information necessary for accurate disclosure is unknown to the 
creditor, [rtrif]the creditor[ltrif][it] shall make the disclosure 
based on the best information reasonably available and shall state 
clearly that the disclosure is an estimate.
    (d) Multiple creditors; multiple consumers. If the credit plan 
involves more than one creditor, only one set of disclosures shall be 
given, and the creditors shall agree among themselves which creditor 
must comply with the requirements that this regulation imposes on any 
or all of them. If there is more than one consumer, the disclosures may 
be made to any consumer who is primarily liable on the account. If the 
right of rescission under Sec.  226.15 is applicable, however, the 
disclosures required by Sec. Sec.  226.6 and 226.15(b) shall be made to 
each consumer having the right to rescind.
* * * * *
    4. Section 226.5b is amended by revising paragraphs (a) through 
(e), (f)(2)(ii), (f)(2)(iv), and (f)(3)(vi)(A), adding new paragraphs 
(f)(3)(vi)(G), and (g), and revising and redesignating current 
paragraph (g) as paragraph (d) and current paragraph (h) as paragraph 
(e) as follows:


Sec.  226.5b  Requirements for home-equity plans.

    The requirements of this section apply to open-end credit plans 
secured by the consumer's dwelling. [For purposes of this section, an 
annual percentage rate is the annual percentage rate corresponding to 
the periodic rate as determined under section 226.14(b).]
    [rtrif](a) Home-equity document provided on or with the 
application--(1) In general. (i) Except as provided in paragraph 
(a)(1)(ii) of this section, the home-equity document ``Key Questions

[[Page 43532]]

to Ask about Home Equity Lines of Credit'' published by the Board shall 
be provided at the time an application is provided to the consumer. The 
document must be provided in a prominent location on or with an 
application.
    (ii) For telephone applications or applications received through an 
intermediary agent or broker, the document required by paragraph 
(a)(1)(i) of this section must be delivered or mailed not later than 
account opening or three business days following receipt of a 
consumer's application by the creditor, whichever is earlier, with the 
disclosures required by paragraph (b) of this section.
    (2) Electronic disclosure. For an application that is accessed by 
the consumer in electronic form, the document required by paragraph 
(a)(1) of this section may be provided to the consumer in electronic 
form on or with the application.
    (3) Duties of third parties. Persons other than the creditor who 
provide applications to consumers for home-equity plans must comply 
with paragraphs (a)(1) and (a)(2) of this section, except that these 
third parties are not required to deliver or mail the document required 
by paragraph (a)(1)(i) of this section for telephone applications as 
discussed in paragraph (a)(1)(ii) of this section.\10a\
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    \10a\ [Reserved].
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    (b) Home-equity disclosures provided no later than account opening 
or three business days after application, whichever is earlier--(1) 
Timing. The disclosures required by paragraph (c) of this section shall 
be delivered or mailed not later than account opening, or three 
business days following receipt of a consumer's application by the 
creditor, whichever is earlier.
    (2) Form of disclosures; tabular format. (i) The disclosures 
required by paragraphs (c)(4)(ii) through (c)(19) of this section 
generally shall be in the form of a table with headings, content, and 
format substantially similar to any of the applicable tables found in 
G-14 in Appendix G to this part.
    (ii) The table described in paragraph (b)(2)(i) of this section 
shall contain only the information required or permitted by paragraphs 
(c)(4)(ii) through (c)(19).
    (iii) Disclosures required by paragraph (c)(1) and (c)(3) of this 
section must be placed directly above the table described in paragraph 
(b)(2)(i) of this section, in a format substantially similar to any of 
the applicable tables found in G-14 in Appendix G to this part.
    (iv) The disclosures required by paragraphs (c)(2), (c)(4)(i), 
(c)(20) through (c)(22) of this section must be disclosed directly 
below the table described in paragraph (b)(2)(i) of this section, in a 
format substantially similar to any of the applicable tables found in 
G-14 in Appendix G to this part.
    (v) Other information may be presented with the table described in 
paragraph (b)(2)(i) of this section, provided that such information 
appears outside of the required table.
    (vi) The following disclosures must be disclosed in bold text:
    (A) Disclosures required by paragraphs (c)(2), (c)(4)(i), (c)(20), 
(c)(21), and (c)(22)(i) of this section.
    (B) Any annual percentage rates required to be disclosed under 
paragraph (c)(10) of this section.
    (C) Total account opening fees disclosed under paragraph (c)(11) of 
this section.
    (D) Any percentage or dollar amount required to be disclosed under 
paragraphs (c)(12), (c)(13), (c)(16), (c)(17) and (c)(19) of this 
section, except the amount of any periodic fee disclosed pursuant to 
paragraph (c)(12) of this section that is not an annualized amount.
    (E) If a creditor is required under paragraph (c)(9) of this 
section to provide a disclosure in a format substantially similar to 
the format used in any of the applicable tables found in Samples G-
14(C), 14(D) and 14(E) in Appendix G to this part, the creditor must 
provide in bold text any terms and phrases that are shown in bold text 
for that disclosure in the applicable tables.
    (3) Disclosures based on a percentage. Except for disclosing fees 
under paragraph (c)(11) of this section, if the amount of any fee 
required to be disclosed under paragraph (c) of this section or if the 
amount of any transaction requirement required to be disclosed under 
paragraph (c)(16) of this section is determined on the basis of a 
percentage of another amount, the percentage used and the 
identification of the amount against which the percentage is applied 
may be disclosed instead of the amount of the fee or transaction 
amount, as applicable.[ltrif]
    [(a) Form of disclosures--(1) General. The disclosures required by 
paragraph (d) of this section shall be made clearly and conspicuously 
and shall be grouped together and segregated from all unrelated 
information. The disclosures may be provided on the application form or 
on a separate form. The disclosure described in paragraph (d)(4)(iii), 
the itemization of third-party fees described in paragraph (d)(8), and 
the variable-rate information described in paragraph (d)(12) of this 
section may be provided separately from the other required disclosures.
    (2) Precedence of certain disclosures. The disclosures described in 
paragraph (d)(1) through (4)(ii) of this section shall precede the 
other required disclosures.
    (3) For an application that is accessed by the consumer in 
electronic form, the disclosures required under this section may be 
provided to the consumer in electronic form on or with the application.
    (b) Time of disclosures. The disclosures and brochure required by 
paragraphs (d) and (e) of this section shall be provided at the time an 
application is provided to the consumer.10a
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    \10a\ [The disclosures and the brochure may be delivered or 
placed in the mail not later than three business days following 
receipt of a consumer's application in the case of applications 
contained in magazines or other publications, or when the 
application is received by telephone or through an intermediary 
agent or broker.]
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    (c) Duties of third parties--Persons other than the creditor who 
provide applications to consumers for home-equity plans must provide 
the brochure required under paragraph (e) of this section at the time 
an application is provided. If such persons have the disclosures 
required under paragraph (d) of this section for a creditor's home-
equity plan, they also shall provide the disclosures at such 
time.10a]
    [(d)][rtrif](c)[ltrif] Content of disclosures. The creditor shall 
provide the following disclosures [rtrif]in the manner prescribed by 
paragraph (b) of this section[ltrif], as applicable. [rtrif]In making 
the disclosures required by this paragraph (except under paragraph 
(c)(18) of this section), a creditor must not disclose in the table 
described in paragraph (b)(2)(i) of this section any terms applicable 
to fixed-rate and -term payment plans offered during the draw period of 
the plan, unless fixed-rate and -term payment plans are the only 
payment plans offered during the draw period of the plan.
    (1) Identification information.
    (i) The consumer's name and address.
    (ii) The identity of the creditor making the disclosures.
    (iii) The date the disclosure was prepared.
    (iv) The loan originator's unique identifier, as defined by the 
Secure and Fair Enforcement for Mortgage Licensing Act of 2008 Sections 
1503(3) and (12), 12 U.S.C. 5102(3) and (12).[ltrif] [(1) Retention of 
information. A statement that the consumer should make or otherwise 
retain a copy of the disclosures.]
    [rtrif](2) No obligation statement. A statement that the consumer 
has no

[[Page 43533]]

obligation to accept the terms disclosed in the table. If the creditor 
has a provision for the consumer's signature, a statement that a 
signature by the consumer only confirms receipt of the disclosure 
statement.
    (3) Identification of plan as a home-equity line of credit. A 
statement that the consumer has applied for a home-equity line of 
credit. [ltrif]
    [rtrif](4)[ltrif][(2)] Conditions for disclosed terms. (i) [A 
statement of the time by which the consumer must submit an application 
to obtain specific terms disclosed and an identification] 
[rtrif]Identification[ltrif] of any disclosed term that is subject to 
change prior to opening the plan.
    (ii) A statement that, if a disclosed term changes (other than a 
change due to fluctuations in the index in a variable-rate plan) prior 
to opening the plan and the consumer [therefore] elects not to open the 
plan, the consumer may receive a refund of all fees paid [rtrif]by the 
consumer[ltrif][in connection with the application].
    [rtrif](5) Refund of fees under paragraph (e) of this section. A 
statement that the consumer may receive a refund of all fees paid by 
the consumer, if the consumer notifies the creditor within three 
business days of receiving the disclosures given pursuant to paragraph 
(b) of this section that the consumer does not want to open the 
plan.[ltrif]
    [rtrif](6)[ltrif][(3)] Security interest and risk to home. A 
statement that the creditor will acquire a security interest in the 
consumer's dwelling and that loss of the dwelling may occur in the 
event of default.
    [rtrif](7)[ltrif][(4)] Possible actions by creditor. (i) A 
statement that, under certain conditions, the creditor may terminate 
the plan and require payment of the outstanding balance in full in a 
single payment and impose fees upon termination; prohibit additional 
extensions of credit or reduce the credit limit; and [, as specified in 
the initial agreement,] implement [certain] changes in the plan.
    (ii) [rtrif]As applicable, either (A) a[ltrif] [A] statement that 
the consumer may receive, upon request, information about the 
conditions under which such actions may occur[rtrif], or (B) if the 
information about the conditions is provided with the table described 
in paragraph (b)(2)(i) of this section, a reference to the location of 
the information.[ltrif]
    [(iii) In lieu of the disclosure required under paragraph 
(d)(4)(ii) of this section, a statement of such conditions.]
    [rtrif](8) Tax implications. A statement that the interest on the 
portion of the credit extension that is greater than the fair market 
value of the dwelling may not be tax deductible for Federal income tax 
purposes. A statement that the consumer should consult a tax adviser 
for further information regarding the deductibility of interest and 
charges.[ltrif]
    [rtrif](9)[ltrif][(5)] Payment terms. The payment terms of the 
plan, [rtrif]as follows.[ltrif][including:] [rtrif] A creditor must 
distinguish payment terms applicable to the draw period and the 
repayment period, by using the heading ``Borrowing Period'' for the 
draw period and ``Repayment Period'' for the repayment period, in a 
format substantially similar to the format used in any of the 
applicable tables found in Samples G-14(C) and G-14(E) in Appendix G to 
this part.[ltrif]
    (i) The length of the [rtrif]plan, the length of the[ltrif] draw 
period and [rtrif]the length of[ltrif] any repayment period. 
[rtrif]When the length of the plan is definite, a creditor must 
disclose the length of the plan, the length of the draw period and the 
length of any repayment period in a format substantially similar to the 
format used in any of the applicable tables found in Samples G-14(C) 
and G-14(D) in Appendix G to this part. If there is no repayment period 
on the plan, a statement that after the draw period ends, the consumer 
must repay the remaining balance in full. [ltrif]
    (ii) [rtrif](A) If a creditor offers to the consumer only one 
payment plan option, an[ltrif] [An] explanation of how the minimum 
periodic payment will be determined and the timing of the payments. If 
paying only the minimum periodic payments may not repay any of the 
principal or may repay less than the outstanding balance [rtrif]by the 
end of the plan[ltrif], a statement of this fact, as well as a 
statement that a balloon payment may result [rtrif]or will result, as 
applicable[ltrif].\10b\ [rtrif]If a balloon payment will not result 
under the payment plan, a creditor must not disclose in the table 
required by paragraph (b)(2)(i) of this section the fact that a balloon 
payment will not result for the plan.[ltrif]
---------------------------------------------------------------------------

    \10b\ [rtrif]Reserved.[ltrif] [A balloon payment results if 
paying the minimum periodic payments does not fully amortize the 
outstanding balance by a specified date or time, and the consumer 
must repay the entire outstanding balance at such time.]
---------------------------------------------------------------------------

    [rtrif](B) If a creditor offers to the consumer more than one 
payment plan option, the creditor must disclose only two payment plan 
options in the table described in paragraph (b)(2)(i) of this section. 
If under one or more payment plans offered by the creditor a consumer 
would repay all of the principal by the end of the plan if the consumer 
makes only the minimum payments, the creditor must describe one of 
these payment plans in the table required by paragraph (b)(2)(i) of 
this section. A creditor must include a statement indicating that the 
table shows how the creditor determines minimum required payments for 
two plans offered by the creditor. If a creditor offers more than the 
two payment plans described in the table described in paragraph 
(b)(2)(i) of this section (other than fixed-rate and -term payment 
plans unless those are the only plans offered on the HELOC plan during 
the draw period), the creditor also must disclose that other payment 
plans are available, and that the consumer should ask the creditor for 
additional details about these other payment plans. The creditor must 
provide the following information:
    (1) If under at least one of the payment plans disclosed in the 
table required by paragraph (b)(2)(i) of this section, paying only the 
minimum periodic payments may not repay any of the principal or may 
repay less than the outstanding balance by the end of the plan, a 
statement of this fact, as well as a statement that a balloon payment 
may result or will result, as applicable. If a balloon payment would 
result under one payment plan but not both payment plans, the creditor 
must disclose that a balloon payment may result depending on the terms 
of the payment plan. If a balloon payment would result under both 
payment plans, the creditor must disclose that a balloon payment will 
result. If a balloon payment would not result under both payment plans, 
a creditor must not disclose in the table required by paragraph 
(b)(2)(i) of this section the fact that a balloon payment would not 
result for both plans.
    (2) An explanation of how the minimum periodic payments will be 
determined and the timing of the payments for each plan.
    (3) For each payment plan described in the table required under 
paragraph (b)(2)(i) of this section, if paying only the minimum 
periodic payments may not repay any of the principal or may repay less 
than the outstanding balance by the end of the plan, a statement that a 
balloon payment may result or will result under that plan, as 
applicable. If one of the plans has a balloon payment and the other 
does not, a creditor must disclose that a balloon payment will not 
result for the plan in which no balloon payment would occur. If neither 
payment plan has a balloon payment, a creditor must not disclose the 
fact that a balloon payment will not result for the plan.
    (iii)(A) For the payment plan(s) described in paragraph (c)(9)(ii) 
of this section, sample payments showing the first minimum periodic 
payment for the

[[Page 43534]]

draw period and any repayment period, and the balance outstanding at 
the beginning of any repayment period, based on the following 
assumptions:
    (1) The consumer borrows the full credit line (as disclosed in 
paragraph (c)(17) of this section) at account opening, and does not 
obtain any additional extensions of credit.
    (2) The consumer makes only minimum periodic payments during the 
draw period and any repayment period.
    (3) The annual percentage rates used to calculate the sample 
payments, as described in paragraph (c)(9)(iii)(B) of this section, 
will remain the same during the draw period and any repayment period.
    (B) A creditor must provide the information described in paragraph 
(c)(9)(iii)(A) of this section for the following two annual percentage 
rates:
    (1) The current annual percentage rate for the plan, as disclosed 
under paragraph (c)(10) of this section, except that if an introductory 
annual percentage rate applies, the creditor must use the rate that 
would otherwise apply to the plan after the introductory rate expires, 
as described in paragraph (c)(10)(ii) of this section.
    (2) The maximum annual percentage rate that may apply under the 
payment option, as described in paragraph (c)(10)(i)(A)(5).
    (C) In disclosing the payment samples as required by paragraph 
(c)(9)(iii)(A) of this section, a creditor also must include the 
following information:
    (1) A statement that the sample payments show the first periodic 
payments at the current and maximum annual percentage rates if the 
consumer borrows the maximum credit available when the account is 
opened and does not borrow any more money.
    (2) A statement that the sample payments are not the consumer's 
actual payments. A statement that the actual payments each period will 
depend on the amount that the consumer has borrowed and the interest 
rate that period.
    (3) If a creditor is disclosing two payment plans under paragraph 
(c)(9)(ii) of this section, the creditor must identify which plan 
results in the least amount of interest, and which plan results in the 
most amount of interest, based on the assumptions described in 
paragraphs (c)(9)(iii)(A) and (B) of this section.
    (4) For each payment plan disclosed under paragraph (c)(9)(ii) of 
this section, if a consumer may pay a balloon payment under that plan, 
the creditor must disclose that fact, and the amount of the balloon 
payment based on the assumptions described in paragraphs (c)(9)(iii)(A) 
and (B) of this section. If a creditor is disclosing only one payment 
plan under paragraph (c)(9)(ii), and a balloon payment will not occur 
for that plan, the creditor must not disclose that a balloon payment 
will not result for the plan. If a creditor is disclosing two payment 
plans under paragraph (c)(9)(ii) of this section, one in which a 
balloon payment would occur and one in which it would not, a creditor 
must disclose that a balloon payment will not result for the plan in 
which no balloon payment would occur. If neither payment plan has a 
balloon payment, a creditor must not disclose the fact that a balloon 
payment will not result for the plan.
    (D) A creditor must provide the information described in paragraph 
(c)(9)(iii) of this section in a format that is substantially similar 
to the format used in any of the applicable tables found in Samples G-
14(C), G-14(D) and G-14(E) in Appendix G to this part.[ltrif]
    [(iii) An example, based on a $10,000 outstanding balance and a 
recent annual percentage rate,\10c\ showing the minimum periodic 
payment, any balloon payment, and the time it would take to repay the 
$10,000 outstanding balance if the consumer made only those payments 
and obtained no additional extensions of credit. If different payment 
terms may apply to the draw and any repayment period, or if different 
payment terms may apply within either period, the disclosures shall 
reflect the different payment terms.]
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    \10c\ [rtrif]Reserved.[ltrif][For fixed-rate plans, a recent 
annual percentage rate is a rate that has been in effect under the 
plan within the twelve months preceding the date the disclosures are 
provided to the consumer. For variable-rate plans, a recent annual 
percentage rate is the most recent rate provided in the historical 
example described in paragraph (d)(12)(xi) of this section or a rate 
that has been in effect under the plan since the date of the most 
recent rate in the table.]
---------------------------------------------------------------------------

    [rtrif](iv) A statement that the consumer can borrow money during 
the draw period. If a repayment period is provided, a statement that 
the consumer cannot borrow money during the repayment period.
    (v) A statement indicating whether minimum payments are due in the 
draw period and any repayment period.[ltrif]
    [rtrif](10)[ltrif][(6)] Annual percentage rate. [rtrif]Each 
periodic interest rate applicable to any payment plan disclosed under 
paragraph (c)(9)(ii) of this section that may be used to compute the 
finance charge on an outstanding balance, expressed as an annual 
percentage rate (as determined by Sec.  226.14(b)), except a creditor 
must not disclose any penalty rate set forth in the initial agreement 
that may be imposed in lieu of termination of the plan. The annual 
percentage rates disclosed pursuant to this paragraph shall be in at 
least 16-point type, except for the following: Any minimum or maximum 
annual percentage rates that may apply; and any disclosure of rate 
changes set forth in the initial agreement except for rates that would 
apply after the expiration of an introductory rate.[ltrif] [For fixed-
rate plans, a recent annual percentage rate \10c\ imposed under the 
plan and a statement that the rate does not include costs other than 
interest.]
---------------------------------------------------------------------------

    \10c\ [rtrif]Reserved.[ltrif][For fixed-rate plans, a recent 
annual percentage rate is a rate that has been in effect under the 
plan within the twelve months preceding the date the disclosures are 
provided to the consumer. For variable-rate plans, a recent annual 
percentage rate is the most recent rate provided in the historical 
example described in paragraph (d)(12)(xi) of this section or a rate 
that has been in effect under the plan since the date of the most 
recent rate in the table.]
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    [rtrif](i) Disclosures for variable-rate plans. (A) If a rate 
disclosed under paragraph (c)(10) of this section is a variable rate, 
the following disclosures, as applicable:
    (1) The fact that the annual percentage rate may change due to the 
variable-rate feature, using the term ``variable rate'' in underlined 
text as shown in any of the applicable tables found in Samples G-14(C), 
G-14(D) and G-14(E) in Appendix G to this part.
    (2) An explanation of how the annual percentage rate will be 
determined. Except as provided in paragraph (c)(10)(A)(6) of this 
section, in providing this disclosure, a creditor must only identify 
the index used and the amount of any margin.
    (3) The frequency of changes in the annual percentage rate.
    (4) Any rules relating to changes in the index value and the annual 
percentage rate and resulting changes in the payment amount, including, 
for example, an explanation of payment limitations and rate carryover.
    (5) A statement of any limitations on changes in the annual 
percentage rate, including the minimum and maximum annual percentage 
rate that may be imposed under each payment plan disclosed under 
paragraph (c)(9)(ii) of this section. If no annual or other periodic 
limitations apply to changes in the annual percentage rate, a statement 
that no annual limitation exists.
    (6) The lowest and highest value of the index in the past 15 years.
    (B) A variable rate is accurate if it is a rate as of a specified 
date and this rate was in effect within the last 30 days before the 
disclosures are provided.
    (ii) Introductory initial rate. If the initial rate is an 
introductory rate, the creditor must also disclose the rate that

[[Page 43535]]

would otherwise apply to the plan pursuant to paragraph (c)(10) of this 
section. Where the rate is fixed, the creditor must disclose the rate 
that will apply after the introductory rate expires. Where the rate is 
variable, the creditor must disclose the rate based on the applicable 
index or formula. A creditor must disclose in the table described in 
paragraph (b)(2)(i) of this section the introductory rate along with 
the rate that would otherwise apply to the plan, and use the term 
``introductory'' or ``intro'' in immediate proximity to the 
introductory rate. The creditor must also disclose the time period 
during which the introductory rate will remain in effect.[ltrif]
    [rtrif](11)[ltrif][(7)] Fees imposed by the creditor[rtrif] and 
third parties to open the plan[ltrif]. [rtrif]The total of all one-time 
fees imposed by the creditor and any third parties to open the plan, 
stated as a dollar amount.[ltrif] An itemization of [any] [rtrif]all 
one-time[ltrif] fees imposed by the creditor [rtrif]and any third 
parties[ltrif] to open [, use, or maintain] the plan, stated as a 
dollar amount [or percentage], and when such fees are payable.[rtrif] 
If the exact total of one-time fees for account opening is not known at 
the time the disclosures under paragraph (b) of this section are 
delivered or mailed, a creditor must provide the highest total of one-
time account opening fees possible for the plan terms described in the 
table required under paragraph (b)(2)(i) of this section with a 
indication that the one-time account opening costs may be ``up to'' 
that amount. If the dollar amount of an itemized fee is not known at 
the time the disclosures under paragraph (b) of this section are 
delivered or mailed, a creditor must provide a range for such fee. A 
creditor must not disclose the amount of any property insurance 
premiums under this paragraph, even if the creditor requires property 
insurance.
    (12) Fees imposed by the creditor for availability of the plan. All 
annual or other periodic fees that may be imposed by the creditor for 
the availability of the plan, including any fee based on account 
activity or inactivity; how frequently the fee will be imposed; and the 
annualized amount of the fee. A creditor must not disclose the amount 
of any property insurance premiums under this paragraph, even if the 
creditor requires property insurance.
    (13) Fees imposed by the creditor for early termination of the plan 
by the consumer. Any fee that may be imposed by the creditor if a 
consumer terminates the plan prior to its scheduled maturity.
    (14) Statement about other fees. A statement that other fees will 
apply and a reference to penalty fees and transaction fees as examples 
of those fees, as applicable. As applicable, either (i) a statement 
that the consumer may receive, upon request, additional information 
about fees applicable to the plan, or (ii) if the additional 
information about fees is provided with the table described in 
paragraph (b)(2)(i) of this section, a reference to the location of the 
information.[ltrif]
    [(8) Fees imposed by third parties to open a plan. A good faith 
estimate, stated as a single dollar amount or range, of any fees that 
may be imposed by persons other than the creditor to open the plan, as 
well as a statement that the consumer may receive, upon request, a good 
faith itemization of such fees. In lieu of the statement, the 
itemization of such fees may be provided.]
    [rtrif](15)[ltrif][(9)] Negative amortization. [rtrif]If 
applicable, a[ltrif] [A] statement that negative amortization may occur 
and that negative amortization increases the principal balance and 
reduces the consumer's equity in the dwelling.
    [rtrif](16)[ltrif][(10)] Transaction requirements. Any limitations 
on the number of extensions of credit and the amount of credit that may 
be obtained during any time period, as well as any minimum outstanding 
balance and minimum draw requirements [, stated as dollar amounts or 
percentages].
    [(11) Tax implications. A statement that the consumer should 
consult a tax advisor regarding the deductibility of interest and 
charges under the plan.]
    [rtrif](17) Credit limit. The credit limit applicable to the plan.
    (18) Statements about fixed-rate and -term payment plans. (i) 
Except as provided in paragraph (c)(18)(ii) of this section, if a 
creditor offers a fixed-rate and -term payment plan under the plan, the 
following information:
    (A) A statement that the consumer has the option during the draw 
period to borrow at a fixed interest rate.
    (B) The amount of the credit line that the consumer may borrow at a 
fixed interest rate for a fixed term.
    (C) As applicable, either (1) a statement that the consumer may 
receive, upon request, further details about the fixed-rate and -term 
payment plan, or (2) if information about the fixed-rate and -term 
payment plan is provided with the table described in paragraph 
(b)(2)(i) of this section, a reference to the location of the 
information.
    (ii) A creditor must not make the disclosures required by paragraph 
(c)(18)(i) of this section if fixed-rate and -term payment plans are 
the only payment plans offered during the draw period.
    (19) Required insurance, debt cancellation or debt suspension 
coverage. (i) A fee for insurance described in Sec.  226.4(b)(7) or 
debt cancellation or suspension coverage described in Sec.  
226.4(b)(10), if the insurance or debt cancellation or suspension 
coverage is required as part of the plan; and
    (ii) A cross reference to any additional information provided with 
the table described in paragraph (b)(2)(i) of this section about the 
insurance or coverage, as applicable.
    (20) Statement about asking questions. A statement that if the 
consumer does not understand any disclosure in the table the consumer 
should ask questions.
    (21) Statement about Board's Web site. A statement that the 
consumer may obtain additional information at the Web site of the 
Federal Reserve Board, and a reference to that Web site.
    (22) Statement about refundability of fees. (i) A statement that 
the consumer may be entitled to a refund of all fees paid if the 
consumer decides not to open the plan; and
    (ii) A cross reference to the ``Fees'' section in the table 
described in paragraph (b)(2)(i) of this section.[ltrif]
    [(12) Disclosures for variable-rate plans. For a plan in which the 
annual percentage rate is variable, the following disclosures, as 
applicable:
    (i) The fact that the annual percentage rate, payment, or term may 
change due to the variable-rate feature.
    (ii) A statement that the annual percentage rate does not include 
costs other than interest.
    (iii) The index used in making rate adjustments and a source of 
information about the index.
    (iv) An explanation of how the annual percentage rate will be 
determined, including an explanation of how the index is adjusted, such 
as by the addition of a margin.
    (v) A statement that the consumer should ask about the current 
index value, margin, discount or premium, and annual percentage rate.
    (vi) A statement that the initial annual percentage rate is not 
based on the index and margin used to make later rate adjustments, and 
the period of time such initial rate will be in effect.
    (vii) The frequency of changes in the annual percentage rate.
    (viii) Any rules relating to changes in the index value and the 
annual percentage rate and resulting changes in the payment amount, 
including, for example, an explanation of payment limitations and rate 
carryover.
    (ix) A statement of any annual or more frequent periodic 
limitations on

[[Page 43536]]

changes in the annual percentage rate (or a statement that no annual 
limitation exists), as well as a statement of the maximum annual 
percentage rate that may be imposed under each payment option.
    (x) The minimum periodic payment required when the maximum annual 
percentage rate for each payment option is in effect for a $10,000 
outstanding balance, and a statement of the earliest date or time the 
maximum rate may be imposed.
    (xi) An historical example, based on a $10,000 extension of credit, 
illustrating how annual percentage rates and payments would have been 
affected by index value changes implemented according to the terms of 
the plan. The historical example shall be based on the most recent 15 
years of index values (selected for the same time period each year) and 
shall reflect all significant plan terms, such as negative 
amortization, rate carryover, rate discounts, and rate and payment 
limitations, that would have been affected by the index movement during 
the period.
    (xii) A statement that rate information will be provided on or with 
each periodic statement.
    (e) Brochure. The home-equity brochure published by the Board or a 
suitable substitute shall be provided.]
    [(g)][rtrif](d)[ltrif] Refund of fees. A creditor shall refund all 
fees paid by the consumer [to anyone in connection with an application] 
if any term required to be disclosed under paragraph [(d)] 
[rtrif](b)[ltrif] of this section changes (other than a change due to 
fluctuations in the index in a variable-rate plan) before the plan is 
opened and [, as a result,] the consumer elects not to open the plan.
    [(h)][rtrif](e)[ltrif] Imposition of nonrefundable fees. Neither a 
creditor nor any other person may impose a nonrefundable fee [in 
connection with an application] until three business days after the 
consumer receives the disclosures [and brochure] required under 
[rtrif]paragraph (b) of[ltrif] this section.\10d\ If the disclosures 
required under this section are mailed to the consumer, the consumer is 
considered to have received them three business days after they are 
mailed.
---------------------------------------------------------------------------

    \10d\ [rtrif]Reserved[ltrif] [If the disclosures and brochure 
are mailed to the consumer, the consumer is considered to have 
received them three business days after they are mailed.]
---------------------------------------------------------------------------

    (f) Limitations on home-equity plans. No creditor may, by contract 
or otherwise--
* * * * *
    (2) terminate a plan and demand repayment of the entire outstanding 
balance in advance of the original term (except for reverse-mortgage 
transactions that are subject to paragraph (f)(4) of this section) 
unless--
    (i) there is fraud or material misrepresentation by the consumer in 
connection with the plan;
    (ii) the consumer fails to [rtrif]make a required minimum periodic 
payment within 30 days after the due date for that payment[ltrif] [meet 
the repayment terms of the agreement for any outstanding balance];
    (iii) any action or inaction by the consumer adversely affects the 
creditor's security for the plan, or any right of the creditor in such 
security; or
    (iv) federal law [rtrif]requires the creditor to terminate the plan 
and demand repayment of the entire outstanding balance in advance of 
the original term[ltrif] [dealing with credit extended by a depository 
institution to its executive officers specifically requires that as a 
condition of the plan the credit shall become due and payable on 
demand], provided that the creditor includes such a provision in the 
initial agreement.
    (3) change any term, except that a creditor may--
    (i) provide in the initial agreement that it may prohibit 
additional extensions of credit or reduce the credit limit during any 
period in which the maximum annual percentage rate is reached. A 
creditor also may provide in the initial agreement that specified 
changes will occur if a specified event takes place (for example, that 
the annual percentage rate will increase a specified amount if the 
consumer leaves the creditor's employment).
    (ii) change the index and margin used under the plan if the 
original index is no longer available, the new index has an historical 
movement substantially similar to that of the original index, and the 
new index and margin would have resulted in an annual percentage rate 
substantially similar to the rate in effect at the time the original 
index became unavailable.
    (iii) make a specified change if the consumer specifically agrees 
to it in writing at that time.
    (iii) make a specified change if the consumer specifically agrees 
to it in writing at that time.
    (v) make an insignificant change to terms.
    (vi) prohibit additional extensions of credit or reduce the credit 
limit applicable to an agreement during any period in which--
    (A) the value of the dwelling that secures the plan declines 
significantly below the dwelling's [appraised] value for purposes of 
the plan;
    (B) the creditor reasonably believes that the consumer will be 
unable to fulfill the repayment obligations under the plan because of a 
material change in the consumer's financial circumstances;
    (C) the consumer is in default of any material obligation under the 
agreement;
    (D) the creditor is precluded by government action from imposing 
the annual percentage rate provided for in the agreement;
    (E) the priority of the creditor's security interest is adversely 
affected by government action to the extent that the value of the 
security interest is less than 120 percent of the credit line; or
    (F) the creditor is notified by its regulatory agency that 
continued advances constitute an unsafe and unsound practice.
    [rtrif](G) federal law prohibits the creditor from extending credit 
under a plan or requires that the creditor reduce the credit limit for 
a plan.[ltrif]
    (g) [rtrif]Reinstatement of credit privileges. If a creditor 
prohibits additional extensions of credit or reduces the credit limit 
applicable to a home-equity plan pursuant to Sec.  226.5b(f)(3)(i) or 
(f)(3)(vi), the creditor must reinstate credit privileges as soon as 
reasonably possible after the condition that permitted the creditor's 
action ceases to exist, assuming that no other circumstance permitting 
such action exists at that time.
    (1) The creditor shall meet the obligation of this paragraph by 
either--
    (i) monitoring the line on an ongoing basis to determine when no 
condition permitting the action exists; or
    (ii) requiring the consumer to request reinstatement of credit 
privileges.
    (2) If the creditor requires the consumer to request reinstatement 
of credit privileges under Sec.  226.5b(g)(1)(ii), the creditor--
    (i) shall disclose that the consumer must request reinstatement of 
credit privileges in accordance with Sec.  226.9(j)(1)(iii)(A);
    (ii) upon receipt of a reinstatement request from a consumer, shall 
complete an investigation of whether a condition allowing the 
suspension of credit extensions or credit limit reduction exists within 
30 days of receiving the consumer's request;
    (iii) may not charge the consumer any fees associated with 
investigating the consumer's first reinstatement request after a 
suspension of advances or credit limit reduction;
    (iv) if not prohibited by state law, may charge the consumer bona 
fide and reasonable property valuation and credit report fees actually 
incurred in investigating the consumer's

[[Page 43537]]

reinstatement requests after the first request; and
    (v) if investigation of the consumer's reinstatement request shows 
that a condition permitting continued suspension of advances or 
reduction of the credit limit exists and that therefore credit 
privileges will not be restored, shall, within 30 days of receiving the 
consumer's request, mail or deliver to the consumer a written notice 
with the following information (see Model Clauses G-22(A) and G-22(B) 
in Appendix G to this part):
    (A) the results of any investigation by the creditor conducted in 
response to the consumer's first request; and
    (B) the information required by Sec.  226.9(j)(1).
    (3) If a creditor prohibits additional extensions of credit or 
reduces the credit limit applicable to a home-equity plan for a 
significant decline in the property value pursuant to Sec.  
226.5b(f)(vi)(A), or continues an existing suspension of credit 
extensions or reduction of the credit limit pursuant to Sec.  
2265b(f)(vi)(A), the creditor must provide, upon the consumer's 
request, a copy of the documentation supporting the property value on 
which the creditor based the action.
    (4) When conditions permitting termination and acceleration exist 
under Sec.  226.5b(f)(2), but the creditor opts to suspend advances or 
reduce the credit limit, the creditor has no obligation to reinstate 
the account.[ltrif]
    [(g)] [rtrif](d)[ltrif]
* * * * *
    [(h)] [rtrif](e)[ltrif]
* * * * *
    5. Section 226.6 is amended by revising paragraph (a) as follows:


Sec.  226.6  Account-opening disclosures.

    (a) Rules affecting home-equity plans. The requirements of 
paragraph (a) of this section apply only to home-equity plans subject 
to the requirements of Sec.  226.5b. [A creditor shall disclose the 
items in this section, to the extent applicable:]
    [rtrif](1) Form of disclosures; tabular format--(i) In general. A 
creditor must provide the account-opening disclosures specified in 
paragraphs (a)(2)(ii) through (a)(2)(xx) of this section in the form of 
a table with headings, content, and format substantially similar to any 
of the applicable tables found in G-15 in Appendix G to this part.
    (ii) Location. Only the information required or permitted by 
paragraphs (a)(2)(ii) through (a)(2)(xx) of this section shall be in 
the table required under paragraph (a)(1)(i) of this section. 
Disclosures required by paragraph (a)(2)(i) of this section must be 
placed directly above the table, in a format substantially similar to 
any of the applicable tables found in G-15 in Appendix G to this part. 
Disclosures required by paragraphs (a)(2)(xxi) through (a)(2)(xxvi) of 
this section must be placed directly below the table, in a format 
substantially similar to any of the applicable tables found in G-15 in 
Appendix G to this part. Disclosures required by paragraphs (a)(3) 
through (a)(5) of this section that are not otherwise required to be in 
the table (or directly above or below the table) and other information 
may be presented with the account agreement or account-opening 
disclosure statement, provided such information appears outside the 
required table.
    (iii) Highlighting. The following disclosures must be disclosed in 
bold text:
    (A) Any annual percentage rates required to be disclosed under 
paragraph (a)(2)(vi) of this section.
    (B) Any percentage or dollar amount required to be disclosed under 
paragraphs (a)(2)(vii) through (a)(2)(xiv), (a)(2)(xvii), (a)(2)(xviii) 
and (a)(2)(xx) of this section, except the amount of any periodic fee 
disclosed pursuant to paragraph (a)(2)(viii) of this section that is 
not an annualized amount.
    (C) If a creditor is required under paragraph (a)(2)(v) of this 
section to provide a disclosure in a format substantially similar to 
the format used in any of the applicable tables found in Samples G-
15(B), G-15(C) and G-15(D) in Appendix G to this part, the creditor 
must provide in bold text any terms and phrases that are shown in bold 
text for that disclosure in the applicable tables.
    (D) Disclosures required by paragraphs (a)(2)(xxiv)(A), 
(a)(2)(xxiv)(C) and (a)(2)(xxv) through (a)(2)(xxvi) of this section.
    (iv) Fees based on a percentage. Except for disclosing fees under 
paragraph (a)(2)(vii) of this section, if the amount of any fee 
required to be disclosed under paragraph (a)(2) of this section or if 
the amount of any transaction requirement required to be disclosed 
under paragraph (a)(2)(xvii) of this section is determined on the basis 
of a percentage of another amount, the percentage used and the 
identification of the amount against which the percentage is applied 
may be disclosed instead of the amount of the fee or transaction 
amount, as applicable.
    (2) Required disclosures for account-opening table for home-equity 
plans. The creditor shall disclose the items in paragraph (a)(2) of 
this section to the extent applicable. In making the disclosures 
required by paragraph (a)(2) of this section (except under paragraph 
(a)(2)(xix) of this section), a creditor must not disclose in the table 
described in paragraph (a)(1) of this section any terms applicable to 
fixed-rate and -term payment plans offered during the draw period of 
the plan, unless fixed-rate and -term payment plans are the only 
payment plans offered during the draw period of the plan.
    (i) Identification information. The following information:
    (A) The consumer's name, address, and account number.
    (B) The identity of the creditor making the disclosures.
    (C) The date the disclosure was prepared.
    (D) The loan originator's unique identifier, as defined by the 
Secure and Fair Enforcement for Mortgage Licensing Act of 2008 Sections 
1503(3) and (12), 12 U.S.C. 5102(3) and (12).
    (ii) Security interest and risk to home. A statement that the 
creditor will acquire a security interest in the consumer's dwelling 
and that loss of the dwelling may occur in the event of default.
    (iii) Possible actions by creditor. (A) A statement that, under 
certain conditions, the creditor may terminate the plan and require 
payment of the outstanding balance in full in a single payment and 
impose fees upon termination; prohibit additional extensions of credit 
or reduce the credit limit; and implement changes in the plan.
    (B) A statement that information about the conditions under which 
the creditor may take the actions described in paragraph (a)(2)(iii)(A) 
of this section is included in the account-opening disclosures or 
agreement, as applicable.
    (iv) Tax implications. A statement that the interest on the portion 
of the credit extension that is greater than the fair market value of 
the dwelling may not be tax deductible for Federal income tax purposes. 
A statement that the consumer should consult a tax adviser for further 
information regarding the deductibility of interest and charges.
    (v) Payment terms. The payment terms of the plan that will apply to 
the consumer at account opening, as follows. The creditor must 
distinguish payment terms applicable to the draw period and the 
repayment period, by using the applicable heading ``Borrowing Period'' 
for the draw period and ``Repayment Period'' for the repayment period, 
in a format substantially similar to the format used in any of the 
applicable tables found in Samples G-15(B) and G-15(D) in Appendix G to 
this part.
    (A) The length of the plan, the length of the draw period and the 
length of any

[[Page 43538]]

repayment period. When the length of the plan is definite, a creditor 
must disclose the length of the plan, the length of the draw period and 
the length of any repayment period in a format substantially similar to 
the format used in any of the applicable tables found in Samples G-
15(B) and G-15(C) in Appendix G to this part. If there is no repayment 
period on the plan, a statement that after the draw period ends, the 
consumer must repay the remaining balance in full.
    (B) An explanation of how the minimum periodic payment will be 
determined and the timing of the payments. If paying only the minimum 
periodic payments may not repay any of the principal or may repay less 
than the outstanding balance by the end of the plan, a statement of 
this fact, as well as a statement that a balloon payment may result or 
will result, as applicable. If a balloon payment will not result under 
the payment plan, a creditor must not disclose in the table required by 
paragraph (a)(1) of this section the fact that a balloon payment will 
not result for the plan.
    (C)(1) For the payment plan described in paragraph (a)(2)(v) of 
this section, sample payments showing the first minimum periodic 
payment for the draw period and any repayment period, and the balance 
outstanding at the beginning of any repayment period, based on the 
following assumptions:
    (i) The consumer borrows the full credit line (as disclosed in 
paragraph (a)(2)(xviii) of this section) at account opening, and does 
not obtain any additional extensions of credit.
    (ii) The consumer makes only minimum periodic payments during the 
draw period and any repayment period.
    (iii) The annual percentage rate used to calculate the sample 
payments, as described in paragraph (a)(2)(v)(C)(2) of this section, 
will remain the same during the draw period and any repayment period.
    (2) A creditor must provide the information described in paragraph 
(a)(2)(v)(C)(1) of this section for the following two annual percentage 
rates:
    (i) The current annual percentage rate for the plan, as disclosed 
under paragraph (a)(2)(vi) of this section, except that if an 
introductory annual percentage rate applies, the creditor must use the 
rate that would otherwise apply to the plan after the introductory rate 
expires, as described in paragraph (a)(2)(vi)(B) of this section.
    (ii) The maximum annual percentage rate that may apply under the 
payment plan as described in paragraph (a)(2)(vi)(A)(1)(v).
    (3) In disclosing the payment samples as required by paragraph 
(a)(2)(v)(C) of this section, a creditor also must include the 
following information:
    (i) A statement that the sample payments show the first periodic 
payments at the current and maximum annual percentage rates if the 
consumer borrows the maximum credit available when the account is 
opened and does not borrow any more money.
    (ii) A statement that the sample payments are not the consumer's 
actual payments. A statement that the actual payments each period will 
depend on the amount that the consumer has borrowed and the interest 
rate that period.
    (iii) If a creditor is disclosing a payment plan under paragraph 
(a)(2)(v)(B) of this section under which a consumer may pay a balloon 
payment, the creditor must disclose that fact, and the amount of the 
balloon payment based on the assumptions described in paragraphs 
(a)(2)(v)(C)(1) and (a)(2)(v)(C)(2) of this section. If a balloon 
payment will not result under the payment plan, a creditor must not 
disclose in the table required by paragraph (a)(1) of this section the 
fact that a balloon payment will not result for the plan.
    (4) A creditor must provide the information described in paragraph 
(a)(2)(v)(C) of this section in a format that is substantially similar 
to the format used in any of the applicable tables found in Samples G-
15(B), G-15(C) and G-15(D) in Appendix G to this part.
    (D) A statement that the consumer can borrow money during the draw 
period. If a repayment period is provided, a statement that the 
consumer cannot borrow money during the repayment period.
    (E) A statement indicating whether minimum payments are due in the 
draw period and any repayment period.
    (vi) Annual percentage rate. Each periodic interest rate applicable 
to the payment plan disclosed under paragraph (a)(2)(v) of this section 
that may be used to compute the finance charge on an outstanding 
balance, expressed as an annual percentage rate (as determined by Sec.  
226.14(b)), except a creditor must not disclose any penalty rate set 
forth in the initial agreement that may be imposed in lieu of 
termination of the plan. The annual percentage rates disclosed pursuant 
to this paragraph shall be in at least 16-point type, except for the 
following: Any minimum or maximum annual percentage rates that may 
apply; and any disclosure of rate changes set forth in the initial 
agreement except for rates that would apply after the expiration of an 
introductory rate.
    (A) Disclosures for variable rate plans. (1) If a rate disclosed 
under paragraph (a)(2)(vi) of this section is a variable rate, the 
following disclosures, as applicable:
    (i) The fact that the annual percentage rate may change due to the 
variable-rate feature, using the term ``variable rate'' in underlined 
text as shown in any of the applicable tables found in Samples G-15(B), 
G-15(C) and G-15(D) in Appendix G of this part.
    (ii) An explanation of how the annual percentage rate will be 
determined. Except as provided in paragraph (a)(2)(vi)(A)(1)(vi) of 
this section, in providing this disclosure, a creditor must only 
identify the type of index used and the amount of any margin.
    (iii) The frequency of changes in the annual percentage rate.
    (iv) Any rules relating to changes in the index value and the 
annual percentage rate and resulting changes in the payment amount, 
including, for example, an explanation of payment limitations and rate 
carryover.
    (v) A statement of any limitations on changes in the annual 
percentage rate, including the minimum and maximum annual percentage 
rate that may be imposed under the payment plan disclosed under 
paragraph (a)(2)(v) of this section. If no annual or other periodic 
limitations apply to changes in the annual percentage rate, a statement 
that no annual limitation exists.
    (vi) The lowest and highest value of the index in the past 15 
years.
    (2) A variable rate is accurate if it is a rate as of a specified 
date and this rate was in effect within the last 30 days before the 
disclosures are provided.
    (B) Introductory initial rate. If the initial rate is an 
introductory rate, the creditor must disclose the rate that would 
otherwise apply to the plan pursuant to paragraph (a)(2)(vi) of this 
section. Where the rate is fixed, the creditor must disclose the rate 
that will apply after the introductory rate expires. Where the rate is 
variable, the creditor must disclose the rate based on the applicable 
index or formula. A creditor must disclose in the table described in 
paragraph (a)(1) of this section the introductory rate along with the 
rate that would otherwise apply to the plan, and use the term 
``introductory'' or ``intro'' in immediate proximity to the 
introductory rate. The creditor must also disclose the time period 
during which the introductory rate will remain in effect.
    (vii) Fees imposed by the creditor and third parties to open the 
plan. The total of all one-time fees imposed by the

[[Page 43539]]

creditor and any third parties to open the plan, stated as a dollar 
amount. An itemization of all one-time fees imposed by the creditor and 
any third parties to open the plan, stated as a dollar amount, and when 
such fees are payable. A cross-reference from the disclosure of the 
total of one-time fees, indicating that the itemization of the fees is 
located elsewhere in the table. A creditor must not disclose the amount 
of any property insurance premiums under this paragraph, even if the 
creditor requires property insurance.
    (viii) Fees imposed by the creditor for availability of the plan. 
Any annual or other periodic fees that may be imposed by the creditor 
for the availability of the plan, including any fee based on account 
activity or inactivity; how frequently the fee will be imposed; and the 
annualized amount of the fee. A creditor must not disclose the amount 
of any property insurance premiums under this paragraph, even if the 
creditor requires property insurance.
    (ix) Fees imposed by the creditor for early termination of the plan 
by the consumer. Any fee that may be imposed by the creditor if a 
consumer terminates the plan prior to its scheduled maturity.
    (x) Late-payment fee. Any fee imposed for a late payment.
    (xi) Over-the-limit fee. Any fee imposed for exceeding a credit 
limit.
    (xii) Transaction charges. Any transaction charge imposed by the 
creditor for use of the home-equity plan.
    (xiii) Returned-payment fee. Any fee imposed by the creditor for a 
returned payment.
    (xiv) Fees for failure to comply with transaction limitations. Any 
fee imposed by the creditor for a consumer's failure to comply with:
    (A) Any limitations on the number of extensions of credit or the 
amount of credit that may be obtained during any time period.
    (B) Any minimum outstanding balance requirements.
    (C) Any minimum draw requirements.
    (xv) Statement about other fees. A cross-reference indicating that 
other fees are located elsewhere in the table. A statement that other 
fees may apply. A statement that information about other fees is 
included in the account-opening disclosures or agreement, as 
applicable.
    (xvi) Negative amortization. If applicable, a statement that 
negative amortization may occur and that negative amortization 
increases the principal balance and reduces the consumer's equity in 
the dwelling.
    (xvii) Transaction requirements. Any limitations on the number of 
extensions of credit and the amount of credit that may be obtained 
during any time period, as well as any minimum outstanding balance and 
minimum draw requirements.
    (xviii) Credit limit. The credit limit applicable to the plan.
    (xix) Statements about fixed-rate and -term payment plans. (A) 
Except as provided in paragraph (a)(2)(xix)(B) of this section, if a 
creditor offers a fixed-rate and -term payment plan under the plan, the 
following information:
    (1) A statement that the consumer has the option during the draw 
period to borrow at a fixed interest rate.
    (2) The amount of the credit line that the consumer may borrow at a 
fixed interest rate for a fixed term.
    (3) A statement that information about the fixed-rate and -term 
payment plan is included in the account-opening disclosures or 
agreement, as applicable.
    (B) A creditor must not make the disclosures required by paragraph 
(a)(2)(xix)(A) of this section if fixed-rate and -term payment plans 
are the only payment plans offered during the draw period.
    (xx) Required insurance, debt cancellation or debt suspension 
coverage. (A) A fee for insurance described in Sec.  226.4(b)(7) or 
debt cancellation or suspension coverage described in Sec.  
226.4(b)(10), if the insurance or debt cancellation or suspension 
coverage is required as part of the plan; and
    (B) A cross reference to any additional information provided with 
the table described in paragraph (a)(1) of this section about the 
insurance or coverage, as applicable.
    (xxi) 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. If no grace period is provided, that fact must be 
disclosed. If the length of the grace period varies, the creditor may 
disclose the range of days, the minimum number of days, or the average 
number of the days in the grace period, if the disclosure is identified 
as a range, minimum, or average. In disclosing a grace period that 
applies to all features on the account, the phrase ``How to Avoid 
Paying Interest'' shall be used as the heading for the information 
below the table describing the grace period. If a grace period is not 
offered on all features of the account, in disclosing this fact below 
the table, the phrase ``Paying Interest'' shall be used as the heading 
for this information.
    (xxii) Balance computation method. The name of the balance 
computation method listed in Sec.  226.5a(g) that is used to determine 
the balance on which the finance charge is computed for each feature, 
or an explanation of the method used if it is not listed, along with a 
statement that an explanation of the method(s) required by paragraph 
(a)(4)(i)(D) of this section is provided with the account-opening 
disclosures. In determining which balance computation method to 
disclose, the creditor shall assume that credit extended will not be 
repaid within any grace period, if any.
    (xxiii) Billing error rights reference. A statement that 
information about consumers' right to dispute transactions is included 
in the account-opening disclosures.
    (xxiv) No obligation statement.
    (A) A statement that the consumer has no obligation to accept the 
terms disclosed in the table.
    (B) A statement that the consumer should confirm that the terms 
disclosed in the table are the same terms for which the consumer 
applied.
    (C) If the creditor has a provision for the consumer's signature, a 
statement that a signature by the consumer only confirms receipt of the 
disclosure statement.
    (xxv) Statement about asking questions. A statement that if the 
consumer does not understand any disclosure in the table the consumer 
should ask questions.
    (xxvi) Statement about Board's Web site. A statement that the 
consumer may obtain additional information at the Web site of the 
Federal Reserve Board, and a reference to this Web site.
    (3) Disclosure of charges imposed as part of home-equity plans. A 
creditor shall disclose, to the extent applicable:[ltrif]
    [ (1) Finance charge. The circumstances under which a finance 
charge will be imposed and an explanation of how it will be determined, 
as follows.]
    [rtrif](i) For charges imposed as part of a home-equity plan 
subject to the requirements of Sec.  226.5b, the circumstances under 
which the charge may be imposed, including the amount of the charge or 
an explanation of how the charge is determined.\11\ For finance 
charges, a[ltrif] [(i) A] statement of when [rtrif]the charge[ltrif] 
[finance charges] begin[rtrif]s[ltrif] to accrue [, including] 
[rtrif]and[ltrif] an explanation of whether or not any time period 
exists within which any credit [rtrif]that has been [ltrif] extended 
may be repaid without incurring [rtrif]the[ltrif] [a finance] charge. 
If such a time period is provided, a creditor may, at its option and 
without disclosure, [rtrif]elect not to[ltrif] impose [no] 
[rtrif]a[ltrif]

[[Page 43540]]

finance charge when payment is received after the time period 
[rtrif]expires.[ltrif] ['s expiration.]
---------------------------------------------------------------------------

    \11\ [Reserved].
---------------------------------------------------------------------------

    [rtrif](ii) Charges imposed as part of the plan are:
    (A) Finance charges identified under Sec.  226.4(a) and Sec.  
226.4(b).
    (B) Charges resulting from the consumer's failure to use the plan 
as agreed, except amounts payable for collection activity after 
default; costs for protection of the creditor's interest in the 
collateral for the plan due to default; attorney's fees whether or not 
automatically imposed; foreclosure costs; and post-judgment interest 
rates imposed by law.
    (C) Taxes imposed on the credit transaction by a state or other 
governmental body, such as documentary stamp taxes on cash advances.
    (D) Charges for which the payment, or nonpayment, affect the 
consumer's access to the plan, the duration of the plan, the amount of 
credit extended, the period for which credit is extended, or the timing 
or method of billing or payment.
    (E) Charges imposed for terminating a plan.
    (F) Charges for voluntary credit insurance, debt cancellation or 
debt suspension.
    (iii) Charges that are not imposed as part of the plan include:
    (A) Charges imposed on a cardholder by an institution other than 
the card issuer for the use of the other institution's ATM in a shared 
or interchange system.
    (B) A charge for a package of services that includes an open-end 
credit feature, if the fee is required whether or not the open-end 
credit feature is included and the non-credit services are not merely 
incidental to the credit feature.
    (C) Charges under Sec.  226.4(e) disclosed as specified.
    (4) Disclosure of rates for home-equity plans. A creditor shall 
disclose, to the extent applicable:
    (i) For each periodic rate that may be used to calculate interest:
    (A) Rates. The rate, expressed as a periodic rate and a 
corresponding annual percentage rate.\12\
---------------------------------------------------------------------------

    \12\ [Reserved].
---------------------------------------------------------------------------

    (B) Range of balances. The range of balances to which the rate is 
applicable; however, a creditor is not required to adjust the range of 
balances disclosure to reflect the balance below which only a minimum 
charge applies.\13\
---------------------------------------------------------------------------

    \13\ [Reserved].
---------------------------------------------------------------------------

    (C) Type of transaction. The type of transaction to which the rate 
applies, if different rates apply to different types of transactions.
    (D) Balance computation method. An explanation of the method used 
to determine the balance to which the rate is applied.
    (ii) Variable-rate accounts. For interest rate changes that are 
tied to increases in an index or formula (variable-rate accounts) 
specifically set forth in the account agreement:
    (A) The fact that the annual percentage rate may increase.
    (B) How the rate is determined, including the margin.
    (C) The circumstances under which the rate may increase.
    (D) The frequency with which the rate may increase.
    (E) Any limitation on the amount the rate may change.
    (F) The effect(s) of an increase.
    (G) A rate is accurate if it is a rate as of a specified date and 
this rate was in effect within the last 30 days before the disclosures 
are provided.
    (iii) Rate changes not due to index or formula. For interest rate 
changes that are specifically set forth in the account agreement and 
not tied to increases in an index or formula:
    (A) The initial rate (expressed as a periodic rate and a 
corresponding annual percentage rate) required under paragraph 
(a)(4)(i)(A) of this section.
    (B) How long the initial rate will remain in effect and the 
specific events that cause the initial rate to change.
    (C) The rate (expressed as a periodic rate and a corresponding 
annual percentage rate) that will apply when the initial rate is no 
longer in effect and any limitation on the time period the new rate 
will remain in effect.
    (D) The balances to which the new rate will apply.
    (E) The balances to which the current rate at the time of the 
change will apply.[ltrif]
    [(ii) A disclosure of each periodic rate that may be used to 
compute the finance charge, the range of balances to which it is 
applicable, and the corresponding annual percentage rate. If a creditor 
offers a variable-rate plan, the creditor shall also disclose: the 
circumstances under which the rate(s) may increase; any limitations on 
the increase; and the effect(s) of an increase. When different periodic 
rates apply to different types of transactions, the types of 
transactions to which the periodic rates shall apply shall also be 
disclosed. A creditor is not required to adjust the range of balances 
disclosure to reflect the balance below which only a minimum charge 
applies.
    (iii) An explanation of the method used to determine the balance on 
which the finance charge may be computed.
    (iv) An explanation of how the amount of any finance charge will be 
determined, including a description of how any finance charge other 
than the periodic rate will be determined.
    (2) Other charges. The amount of any charge other than a finance 
charge that may be imposed as part of the plan, or an explanation of 
how the charge will be determined.
    (3) Home-equity plan information. The following disclosures 
described in Sec.  226.5b(d), as applicable:
    (i) A statement of the conditions under which the creditor may take 
certain action, as described in Sec.  226.5b(d)(4)(i), such as 
terminating the plan or changing the terms.
    (ii) The payment information described in Sec.  226.5b(d)(5)(i) and 
(ii) for both the draw period and any repayment period.
    (iii) A statement that negative amortization may occur as described 
in Sec.  226.5b(d)(9).
    (iv) A statement of any transaction requirements as described in 
Sec.  226.5b(d)(10).
    (v) A statement regarding the tax implications as described in 
Sec.  226.5b(d)(11).
    (vi) A statement that the annual percentage rate imposed under the 
plan does not include costs other than interest as described in Sec.  
226.5b(d)(6) and (d)(12)(ii).
    (vii) The variable-rate disclosures described in Sec.  
226.5b(d)(12)(viii), (d)(12)(x), (d)(12)(xi), and (d)(12)(xii), as well 
as the disclosure described in Sec.  226.5b(d)(5)(iii), unless the 
disclosures provided with the application were in a form the consumer 
could keep and included a representative payment example for the 
category of payment option chosen by the consumer.]
    [rtrif](5) Additional disclosures for home-equity plans. A creditor 
shall disclose, to the extent applicable:
    (i) Voluntary credit insurance, debt cancellation or debt 
suspension. The disclosures in Sec. Sec.  226.4(d)(1)(i) and (d)(1)(ii) 
and (d)(3)(i) through (d)(3)(iii) if the creditor offers optional 
credit insurance or debt cancellation or debt suspension coverage that 
is identified in Sec.  226.4(b)(7) or (b)(10).[ltrif]
    [rtrif](ii)[ltrif][(4)] Security interests. The fact that the 
creditor has or will acquire a security interest in the property 
purchased under the plan, or in other property identified by item or 
type.
    [rtrif](iii)[ltrif][(5)] Statement of billing rights. A statement 
that outlines the consumer's rights and the creditor's responsibilities 
under Sec. Sec.  226.12(c) and 226.13 and that is substantially similar 
to the statement found in Model Form G-3 [or, at the creditor's option 
G-3(A),] in Appendix G to this part.

[[Page 43541]]

    [rtrif](iv) Possible creditor actions. A statement of the 
conditions under which the creditor may take certain actions, as 
described in Sec.  226.5b(c)(7)(i), such as terminating the plan or 
changing the terms.
    (v) Additional information on fixed-rate and -term payment plans. 
Information related to any fixed-rate and -term payment plans, as 
follows.
    (A) The period during which the plan can be selected.
    (B) The length of time over which repayment can occur.
    (C) An explanation of how the minimum periodic payment will be 
determined for the payment plan.
    (D) Any limitations on the number of extensions of credit or the 
amount of credit that may be obtained under the payment plan. Any 
minimum outstanding balance requirements or any minimum draw 
requirements applicable to the payment plan.[ltrif]
* * * * *
    6. Section 226.7, as amended on January 29, 2009 (74 FR 5409) is 
amended by republishing the introductory text and by revising paragraph 
(a), as follows:


Sec.  226.7  Periodic Statement.

    The creditor shall furnish the consumer with a periodic statement 
that discloses the following items, to the extent applicable:
    (a) Rules affecting home-equity plans. The requirements of 
paragraph (a) of this section apply only to home-equity plans subject 
to the requirements of Sec.  226.5b. [Alternatively, a creditor subject 
to this paragraph may, at its option, comply with any of the 
requirements of paragraph (b) of this section; however, any creditor 
that chooses not to provide a disclosure under paragraph (a)(7) of this 
section must comply with paragraph (b)(6) of this section.]
    (1) Previous balance. The account balance outstanding at the 
beginning of the billing cycle.
    (2) Identification of transactions. An identification of each 
credit transaction in accordance with Sec.  226.8.
    (3) Credits. Any credit to the account during the billing cycle, 
including the amount and the date of crediting. The date need not be 
provided if a delay in [accounting] [rtrif]crediting[ltrif] does not 
result in any finance or other charge.
    (4) Periodic rates. (i) Except as provided in paragraph (a)(4)(ii) 
of this section, each periodic rate that may be used to compute the 
[finance charge,] [rtrif]interest charge expressed as an annual 
percentage rate and using the term, Annual Percentage Rate,\14\ along 
with[ltrif] the range of balances to which it is applicable [, and the 
corresponding annual percentage rate].\15\ If no [finance] 
[rtrif]interest[ltrif] charge is imposed when the outstanding balance 
is less than a certain amount, the creditor is not required to disclose 
that fact, or the balance below which no [finance] 
[rtrif]interest[ltrif] charge will be imposed. If different periodic 
rates apply to different types of transactions, the types of 
transactions to which the periodic rates apply shall also be disclosed. 
For variable-rate plans, the fact that the [periodic rate(s)] 
[rtrif]annual percentage rate[ltrif] may vary.
---------------------------------------------------------------------------

    \14\ [Reserved].
    \15\ [Reserved].
---------------------------------------------------------------------------

    (ii) Exception. An annual percentage rate that differs from the 
rate that would otherwise apply and is offered only for a promotional 
period need not be disclosed except in periods in which the offered 
rate is actually applied.
    (5) Balance on which finance charge computed. The amount of the 
balance to which a periodic rate was applied and an explanation of how 
that balance was determined [rtrif]using the term Balance Subject to 
Interest Rate[ltrif]. When a balance is determined without first 
deducting all credits and payments made during the billing cycle, the 
fact and the amount of the credits and payments shall be disclosed. 
[rtrif]As an alternative to providing an explanation of how the balance 
was determined, a creditor that uses a balance computation method 
identified in Sec.  226.5a(g) may, at the creditor's option, identify 
the name of the balance computation method and provide a toll-free 
telephone number where consumers may obtain from the creditor more 
information about the balance computation method and how resulting 
interest charges were determined. If the method used is not identified 
in Sec.  226.5a(g), the creditor shall provide a brief explanation of 
the method used.[ltrif]
    [rtrif](6) Charges imposed. (i) The amounts of any charges imposed 
as part of a plan as stated in Sec.  226.6(a)(3) grouped together, in 
proximity to transactions identified under paragraph (a)(2) of this 
section, substantially similar to Sample G-24(A) in Appendix G to this 
part.
    (ii) Interest. A total of finance charges attributable to periodic 
interest rates, using the term Total Interest, must be disclosed for 
the statement period and calendar year to date. If different periodic 
rates apply to different types of transactions, finance charges 
attributable to periodic interest rates, using the term Interest 
Charge, must be grouped together under the heading Interest Charged, 
itemized and totaled by type of transaction or group of transactions 
subject to different periodic rates. The disclosures made pursuant to 
this paragraph must be provided using a format substantially similar to 
Sample G-24(A) in Appendix G to this part.
    (iii) Fees. Charges imposed as part of the plan other than charges 
attributable to periodic interest rates must be grouped together under 
the heading Fees, identified consistent with the feature or type, and 
itemized, and a total of charges, using the term Fees, must be 
disclosed for the statement period and calendar year to date, using a 
format substantially similar to Sample G-24(A) in Appendix G.
    (7) Change-in-terms and increased penalty rate summary for home-
equity loans. Creditors that provide a change-in-terms notice required 
by Sec.  226.9(c)(1), or a rate increase notice required by Sec.  
226.9(i), on or with the periodic statement, must disclose the 
information in Sec.  226.9(c)(1)(iii)(A) or Sec.  226.9(i)(3) on the 
periodic statement in accordance with the format requirements in Sec.  
226.9(c)(1)(iii)(B), and Sec.  226.9(i)(4). See Samples G-25 and G-26 
in Appendix G to this part.[ltrif]
    [(6) Amount of finance charge and other charges. Creditors may 
comply with paragraphs (a)(6) of this section, or with paragraph (b)(6) 
of this section, at their option.
    (i) Finance charges. The amount of any finance charge debited or 
added to the account during the billing cycle, using the term finance 
charge. The components of the finance charge shall be individually 
itemized and identified to show the amount(s) due to the application of 
any periodic rates and the amount(s) of any other type of finance 
charge. If there is more than one periodic rate, the amount of the 
finance charge attributable to each rate need not be separately 
itemized and identified.
    (ii) Other charges. The amounts, itemized and identified by type, 
of any charges other than finance charges debited to the account during 
the billing cycle.
    (7) Annual percentage rate. At a creditor's option, when a finance 
charge is imposed during the billing cycle, the annual percentage 
rate(s) determined under Sec.  226.14(c) using the term annual 
percentage rate.]
    (8) Grace period. The date by which or the time period within which 
the new balance or any portion of the new balance must be paid to avoid 
additional finance charges. If such a time period is provided, a 
creditor may, at its option and without disclosure, impose no finance 
charge if payment is

[[Page 43542]]

received after the time period's expiration.
    (9) Address for notice of billing errors. The address to be used 
for notice of billing errors. Alternatively, the address may be 
provided on the billing rights statement permitted by Sec.  
226.9(a)(2).
    (10) Closing date of billing cycle; new balance. The closing date 
of the billing cycle and the account balance outstanding on that date.
    7. Section 226.9, as amended on January 29, 2009 (74 FR 5412), is 
amended by revising paragraph (c)(1), and adding new paragraphs (i) and 
(j), as follows


Sec.  226.9  Subsequent disclosure requirements.

* * * * *
    (c) Change in terms--(1) Rules affecting home-equity plans--(i) 
Written notice required. For home-equity plans subject to the 
requirements of Sec.  226.5b, [rtrif]except as provided in paragraphs 
(c)(1)(ii) and (c)(1)(iv) of this section,[ltrif] whenever any term 
required to be disclosed under Sec.  226.6(a) is changed [or the 
required minimum periodic payment is increased], [rtrif]a[ltrif][the] 
creditor [rtrif]must provide a[ltrif][shall mail or deliver] written 
notice of the change [rtrif]at least 45 days prior to the effective 
date of the change[ltrif] 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 [rtrif]45-day[ltrif][15-day] timing 
requirement does not apply if the [rtrif]consumer has agreed to a 
particular[ltrif] change [has been agreed to by the consumer]; the 
notice shall be given, however, before the effective date of the 
change. [rtrif]Increases in the rate applicable to a consumer's account 
due to delinquency, default or as a penalty described in paragraph (i) 
of this section must be disclosed pursuant to paragraph (i) of this 
section.[ltrif]
    [rtrif](ii) Charges not covered by Sec.  226.6(a)(1) and (a)(2). 
Except as provided in paragraph (c)(1)(iv) of this section, if a 
creditor increases any component of a charge or introduces a new charge 
required to be disclosed under Sec.  226.6(a)(3) that is not required 
to be disclosed in a tabular format under Sec.  226.6(a)(2), a creditor 
may either, at its option:
    (A) Comply with the requirements of paragraph (c)(1)(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.
    (iii) Disclosure requirements--(A) Changes to terms described in 
account-opening table. If a creditor changes a term required to be 
disclosed in a tabular format pursuant to Sec.  226.6(a)(1) and (a)(2), 
the creditor must provide the following information on the notice 
provided pursuant to paragraph (c)(1)(i) of this section:
    (1) A summary of the changes made to terms required by Sec.  
226.6(a)(1) and (2);
    (2) A statement that changes are being made to the account;
    (3) A statement indicating the consumer has the right to opt out of 
these changes, if applicable, and a reference to additional information 
describing the opt-out right provided in the notice, if applicable;
    (4) The date the changes will become effective; and
    (5) If applicable, a statement that the consumer may find 
additional information about the summarized changes, and other changes 
to the account, in the notice.
    (B) Format requirements--(1) Tabular format. The summary of changes 
described in paragraph (c)(1)(iii)(A)(1) of this section must be in a 
tabular format, with headings and format substantially similar to any 
of the account-opening tables found in G-15 in Appendix G to this part. 
The table must disclose the changed term(s) and information relevant to 
the change(s), if that relevant information is required by Sec.  
226.6(a)(1) and (a)(2). The new terms must be described with the same 
level of detail as required when disclosing the terms under Sec.  
226.6(a)(2).
    (2) Notice included with periodic statement. If a notice required 
by paragraph (c)(1)(i) of this section is included on or with a 
periodic statement, the information described in paragraph 
(c)(1)(iii)(A)(1) of this section must be disclosed on the front of any 
page of the statement. The summary of changes described in paragraph 
(c)(1)(iii)(A)(1) of this section must immediately follow the 
information described in paragraph (c)(1)(iii)(A)(2) through 
(c)(1)(iii)(A)(5) of this section, and be substantially similar to the 
format shown in Sample G-25 in Appendix G to this part.
    (3) Notice provided separately from periodic statement. If a notice 
required by paragraph (c)(1)(i) of this section is not included on or 
with a periodic statement, the information described in paragraph 
(c)(1)(iii)(A)(1) of this section must, at the creditor's option, be 
disclosed on the front of the first page of the notice or segregated on 
a separate page from other information given with the notice. The 
summary of changes required to be in a table pursuant to paragraph 
(c)(1)(iii)(A)(1) of this section may be on more than one page, and may 
use both the front and reverse sides, so long as the table begins on 
the front of the first page of the notice and there is a reference on 
the first page indicating that the table continues on the following 
page. The summary of changes described in paragraph (c)(1)(iii)(A)(1) 
of this section must immediately follow the information described in 
paragraph (c)(1)(iii)(A)(2) through (c)(1)(iii)(A)(5) of this section, 
substantially similar to the format shown in Sample G-25 in Appendix G 
to this part.[ltrif]
    [rtrif](iv)[ltrif][(ii)] Notice not required. For home-equity plans 
subject to the requirements of Sec.  226.5b, a creditor is not required 
to provide notice under this section when the change involves a 
reduction of any component of a finance or other charge or when the 
change results from an agreement involving a court proceeding. 
[rtrif]Suspension of credit privileges, reduction of a credit limit, or 
termination of an account do not require notice under paragraph 
(c)(1)(i) of this section, but must be disclosed pursuant to paragraph 
(j) of this section.[ltrif]
    [(iii) Notice to restrict credit. For home-equity plans subject to 
the requirements of Sec.  226.5b, if the creditor prohibits additional 
extensions of credit or reduces the credit limit pursuant to Sec.  
226.5b(f)(3)(i) or (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.]
* * * * *
    (g) Increase in rates due to delinquency or default or as a penalty 
[rtrif]--rules affecting open-end (not home-secured) plans[ltrif].
* * * * *
    [rtrif](i) Increase in rates due to delinquency or default or as a 
penalty--rules affecting home-equity plans--(1) Increases subject to 
this section. For home-equity plans subject to the requirements of 
Sec.  226.5b, except as provided in paragraph (i)(5) 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 as specified in the account agreement; or
    (ii) A rate is increased as a penalty for one or more events, other 
than a

[[Page 43543]]

consumer's default or delinquency, as specified in the account 
agreement.
    (2) Timing of written notice. Whenever any notice is required to be 
given pursuant to paragraph (i)(1) of this section, the creditor shall 
provide written notice of the increase in rates 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 (i)(1)(i) 
and (i)(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 (i)(1) of this section:
    (i) A statement that the delinquency, default, or penalty rate, as 
applicable, has been triggered;
    (ii) The date on which the delinquency, default, or penalty rate 
will apply;
    (iii) The circumstances under which the delinquency, default, or 
penalty rate, as applicable, will cease to apply to the consumer's 
account, or that the delinquency, default, or penalty rate will remain 
in effect for a potentially indefinite time period; and
    (iv) A statement indicating to which balances the delinquency or 
default rate or penalty rate will be applied.
    (4) Format requirements. (i) If a notice required by paragraph 
(i)(1) of this section is included on or with a periodic statement, the 
information described in paragraph (i)(3) of this section must be in 
the form of a table and provided on the front of any page of the 
periodic statement, above the notice described in paragraph 
(c)(1)(iii)(A) of this section if that notice is provided on the same 
statement.
    (ii) If a notice required by paragraph (i)(1) of this section is 
not included on or with a periodic statement, the information described 
in paragraph (i)(3) of this section must be disclosed on the front of 
the first page of the notice. Only information related to the increase 
in the rate to a penalty rate may be included with the notice, except 
that this notice may be combined with a notice described in paragraph 
(c)(1)(iii)(A) of this section.
    (5) Exception for workout and temporary hardship arrangements. A 
creditor is not required to provide a notice pursuant to paragraph 
(i)(1) of this section if a rate applicable to a category of 
transactions is increased due to the consumer's completion of a workout 
or temporary hardship arrangement or as a result of the consumer's 
failure to comply with the terms of a workout or temporary hardship 
arrangement between the creditor and the consumer, provided that:
    (i) 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
    (ii) 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.[ltrif]
    [rtrif](j) Notices of action taken for home-equity plans.
    (1) For home-equity plans subject to the requirements of Sec.  
226.5b, if the creditor prohibits additional extensions of credit or 
reduces the credit limit pursuant to Sec.  226.5b(f)(3)(i) or 
226.5b(f)(3)(vi), the creditor shall mail or deliver written notice of 
the action to any 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 shall state that fact.] the following information (see Model 
Clauses G-23(A) in Appendix G of this part):
    (i) a statement of the action taken, including the date on which 
the action was effective and, if the credit limit was reduced, the 
amount of the new credit limit;
    (ii) a statement of specific reasons for the action taken;
    (iii) if the creditor requires the consumer to request 
reinstatement of credit privileges under Sec.  226.5b(g)(1)(ii)--
    (A) a statement that the consumer has a right to request 
reinstatement of the account at any time and the method with which the 
consumer may request reinstatement, including specific contact 
information for submitting reinstatement requests to the creditor;
    (B) a statement that, upon receiving a reinstatement request, the 
creditor will complete an investigation of whether a reason for 
continuing the suspension or reduction exists within 30 days of 
receiving the request, and that if no reason is found to exist, the 
creditor will restore the consumer's credit privileges; and
    (C) a statement that, to investigate the consumer's first 
reinstatement request after advances have been suspended or the credit 
limit reduced, the creditor may not charge the consumer any fees, but 
that for subsequent reinstatement requests by the consumer, the 
creditor has a right to charge the consumer bona fide and reasonable 
property valuation or credit report fees associated with the 
investigation.
    (2) For home-equity plans subject to the requirements of Sec.  
226.5b, if a creditor suspends advances or decreases the credit limit 
on an account under Sec.  226.5b(f)(3)(i) or (f)(3)(vi), the creditor 
may not charge a fee for denied advances or exceeding the credit limit 
provided for in the original agreement until the consumer has received 
the notice of action taken required by Sec.  226.9(j)(1).
    (3) For home-equity plans subject to the requirements of Sec.  
226.5b, if, pursuant to Sec.  226.5b(f)(2), a creditor terminates a 
plan and demands repayment of the entire outstanding balance in advance 
of the original term or temporarily or permanently suspends further 
advances or reduces the credit limit applicable to a home-equity plan, 
the creditor shall mail or deliver written notice of the action to any 
consumer who will be affected. The notice must be provided not later 
than three business days after the action is taken and shall contain 
the following information (see Model Clauses G-23(B) in Appendix G of 
this part):
    (i) a statement of the action taken; and
    (ii) a statement of specific reasons for the action taken.
    (4) If, pursuant to Sec.  226.5b(f)(2), a creditor takes any action 
other than terminating a plan and demanding repayment of the entire 
outstanding balance in advance of the original term, or temporarily or 
permanently suspending further advances or reducing the credit limit 
for a home-equity plan, the creditor must comply with the notice 
requirements of Sec.  226.9(c)(1) or (i), as applicable.[ltrif]
    8. Section 226.14 is revised to read as follows:


Sec.  226.14  Determination of annual percentage rate.

    (a) General rule. The annual percentage rate is a measure of the 
cost of credit, expressed as a yearly rate. An annual percentage rate 
shall be considered accurate if it is not more than \1/8\th of 1 
percentage point above or below the annual percentage rate determined 
in accordance with this section.\31a\ An error in disclosure of the 
annual percentage rate or finance charge

[[Page 43544]]

shall not, in itself, be considered a violation of this regulation if:
---------------------------------------------------------------------------

    \31a\ [Reserved].
---------------------------------------------------------------------------

    (1) The error resulted from a corresponding error in a calculation 
tool used in good faith by the creditor; and
    (2) Upon discovery of the error, the creditor promptly discontinues 
use of that calculation tool for disclosure purposes, and notifies the 
Board in writing of the error in the calculation tool.
    (b) Annual percentage rate--in general. Where one or more periodic 
rates may be used to compute the finance charge, the annual percentage 
rate(s) to be disclosed for purposes of [rtrif]subpart B of this 
regulation[ltrif] [Sec. Sec.  226.5a, 226.5b, 226.6, 226.7(a)(4) or 
(b)(4), 226.9, 226.15, 226.16, and 226.26] shall be computed by 
multiplying each periodic rate by the number of periods in a year.
    [(c) Optional effective annual percentage rate for periodic 
statements for creditors offering open-end plans subject to the 
requirements of Sec.  226.5b. A creditor offering an open-end plan 
subject to the requirements of Sec.  226.5b need not disclose an 
effective annual percentage rate. Such a creditor may, at its option, 
disclose an effective annual percentage rate(s) pursuant to Sec.  
226.7(a)(7) and compute the effective annual percentage rate as 
follows:
    (1) Solely periodic rates imposed. If the finance charge is 
determined solely by applying one or more periodic rates, at the 
creditor's option, either:
    (i) By multiplying each periodic rate by the number of periods in a 
year; or
    (ii) By dividing the total finance charge for the billing cycle by 
the sum of the balances to which the periodic rates were applied and 
multiplying the quotient (expressed as a percentage) by the number of 
billing cycles in a year.
    (2) Minimum or fixed charge, but not transaction charge, imposed. 
If the finance charge imposed during the billing cycle is or includes a 
minimum, fixed, or other charge not due to the application of a 
periodic rate, other than a charge with respect to any specific 
transaction during the billing cycle, by dividing the total finance 
charge for the billing cycle by the amount of the balance(s) to which 
it is applicable \32\ and multiplying the quotient (expressed as a 
percentage) by the number of billing cycles in a year.\33\ If there is 
no balance to which the finance charge is applicable, an annual 
percentage rate cannot be determined under this section. Where the 
finance charge imposed during the billing cycle is or includes a loan 
fee, points, or similar charge that relates to opening, renewing, or 
continuing an account, the amount of such charge shall not be included 
in the calculation of the annual percentage rate.
---------------------------------------------------------------------------

    \32\ [Reserved].
    \33\ [Reserved].
---------------------------------------------------------------------------

    (3) Transaction charge imposed. If the finance charge imposed 
during the billing cycle is or includes a charge relating to a specific 
transaction during the billing cycle (even if the total finance charge 
also includes any other minimum, fixed, or other charge not due to the 
application of a periodic rate), by dividing the total finance charge 
imposed during the billing cycle by the total of all balances and other 
amounts on which a finance charge was imposed during the billing cycle 
without duplication, and multiplying the quotient (expressed as a 
percentage) by the number of billing cycles in a year,\34\ except that 
the annual percentage rate shall not be less than the largest rate 
determined by multiplying each periodic rate imposed during the billing 
cycle by the number of periods in a year.\35\ Where the finance charge 
imposed during the billing cycle is or includes a loan fee, points, or 
similar charge that relates to the opening, renewing, or continuing an 
account, the amount of such charge shall not be included in the 
calculation of the annual percentage rate. See Appendix F to this part 
regarding determination of the denominator of the fraction under this 
paragraph.
---------------------------------------------------------------------------

    \34\ [Reserved].
    \35\ [Reserved].
---------------------------------------------------------------------------

    (4) If the finance charge imposed during the billing cycle is or 
includes a minimum, fixed, or other charge not due to the application 
of a periodic rate and the total finance charge imposed during the 
billing cycle does not exceed 50 cents for a monthly or longer billing 
cycle, or the pro rata part of 50 cents for a billing cycle shorter 
than monthly, at the creditor's option, by multiplying each applicable 
periodic rate by the number of periods in a year, notwithstanding the 
provisions of paragraphs (c)(2) and (c)(3) of this section.
    (d) Calculations where daily periodic rate applied. If the 
provisions of paragraph (c)(1)(ii) or (c)(2) of this section apply and 
all or a portion of the finance charge is determined by the application 
of one or more daily periodic rates, the annual percentage rate may be 
determined either:
    (1) By dividing the total finance charge by the average of the 
daily balances and multiplying the quotient by the number of billing 
cycles in a year; or
    (2) By dividing the total finance charge by the sum of the daily 
balances and multiplying the quotient by 365.]
    9. Appendix F is removed and reserved as follows:

Appendix F to Part 226 [--Optional Annual Percentage Rate Computations 
for Creditors Offering Open-End Plans Subject to the Requirements of 
Sec.  226.5b] [rtrif][Reserved][ltrif]

    [In determining the denominator of the fraction under Sec.  
226.14(c)(3), no amount will be used more than once when adding the 
sum of the balances \1\ subject to periodic rates to the sum of the 
amounts subject to specific transaction charges. (Where a portion of 
the finance charge is determined by application of one or more daily 
periodic rates, the phrase ``sum of the balances'' shall also mean 
the ``average of daily balances.'') In every case, the full amount 
of transactions subject to specific transaction charges shall be 
included in the denominator. Other balances or parts of balances 
shall be included according to the manner of determining the balance 
subject to a periodic rate, as illustrated in the following examples 
of accounts on monthly billing cycles:
---------------------------------------------------------------------------

    \1\ [Reserved].
---------------------------------------------------------------------------

    1. Previous balance--none. A specific transaction of $100 occurs 
on the first day of the billing cycle. The average daily balance is 
$100. A specific transaction charge of 3 percent is applicable to 
the specific transaction. The periodic rate is 1\1/2\ percent 
applicable to the average daily balance. The numerator is the amount 
of the finance charge, which is $4.50. The denominator is the amount 
of the transaction (which is $100), plus the amount by which the 
balance subject to the periodic rate exceeds the amount of the 
specific transactions (such excess in this case is 0), totaling 
$100.
    The annual percentage rate is the quotient (which is 4\1/2\ 
percent) multiplied by 12 (the number of months in a year), i.e., 54 
percent.
    2. Previous balance--$100. A specific transaction of $100 occurs 
at the midpoint of the billing cycle. The average daily balance is 
$150. A specific transaction charge of 3 percent is applicable to 
the specific transaction. The periodic rate is 1\1/2\ percent 
applicable to the average daily balance. The numerator is the amount 
of the finance charge which is $5.25. The denominator is the amount 
of the transaction (which is $100), plus the amount by which the 
balance subject to the periodic rate exceeds the amount of the 
specific transaction (such excess in this case is $50), totaling 
$150. As explained in example 1, the annual percentage rate is 3\1/
2\ percent x 12 = 42 percent.
    3. If, in example 2, the periodic rate applies only to the 
previous balance, the numerator is $4.50 and the denominator is $200 
(the amount of the transaction, $100, plus the balance subject only 
to the periodic rate, the $100 previous balance). As explained in 
example 1, the annual percentage rate is 2\1/4\ percent x 12 = 27 
percent.
    4. If, in example 2, the periodic rate applies only to an 
adjusted balance (previous balance

[[Page 43545]]

less payments and credits) and the consumer made a payment of $50 at 
the midpoint of the billing cycle, the numerator is $3.75 and the 
denominator is $150 (the amount of the transaction, $100, plus the 
balance subject to the periodic rate, the $50 adjusted balance). As 
explained in example 1, the annual percentage rate is 2\1/2\ percent 
x 12 = 30 percent.
    5. Previous balance--$100. A specific transaction (check) of 
$100 occurs at the midpoint of the billing cycle. The average daily 
balance is $150. The specific transaction charge is $.25 per check. 
The periodic rate is 1\1/2\ percent applied to the average daily 
balance. The numerator is the amount of the finance charge, which is 
$2.50 and includes the $.25 check charge and the $2.25 resulting 
from the application of the periodic rate. The denominator is the 
full amount of the specific transaction (which is $100) plus the 
amount by which the average daily balance exceeds the amount of the 
specific transaction (which in this case is $50), totaling $150. As 
explained in example 1, the annual percentage rate would be 1\2/3\ 
percent x 12 = 20 percent.
    6. Previous balance--none. A specific transaction of $100 occurs 
at the midpoint of the billing cycle. The average daily balance is 
$50. The specific transaction charge is 3 percent of the transaction 
amount or $3.00. The periodic rate is 1\1/2\ percent per month 
applied to the average daily balance. The numerator is the amount of 
the finance charge, which is $3.75, including the $3.00 transaction 
charge and $.75 resulting from application of the periodic rate. The 
denominator is the full amount of the specific transaction ($100) 
plus the amount by which the balance subject to the periodic rate 
exceeds the amount of the transaction ($0). Where the specific 
transaction amount exceeds the balance subject to the periodic rate, 
the resulting number is considered to be zero rather than a negative 
number ($50 - $100 = -$50). The denominator, in this case, is $100. 
As explained in example 1, the annual percentage rate is 3\3/4\ 
percent x 12 = 45 percent.]

    10. Appendix G to Part 226 is amended by:
    A. Revising the table of contents at the beginning of the appendix;
    B. Removing Model Clauses and Forms G-1, G-2, G-3, and G-4;
    C. Redesignating Model Clauses and Forms G-1(A), G-2(A), G-3(A), 
and G-4(A) as Model Clauses and Forms G-1, G-2, G-3, and G-4, 
respectively;
    D. Removing Sample Forms and Model Clauses G-14A, G-14B, and G-15; 
and
    E. Adding new Model and Sample Forms and Clauses G-14(A) through G-
14(E), G-15(A) through G-15(D), G-22(A), G-22(B), G-23(A), G-23(B), G-
24(A) through G-24(C), G-25, and G-26, in numerical order, to read as 
follows:

Appendix G to Part 226--Open-End Model Forms and Clauses

G-1 Balance Computation Methods Model Clauses [(Home-equity Plans)] 
(Sec. Sec.  226.6 and 226.7)
[G-1(A) Balance Computation Methods Model Clauses (Plans other than 
Home-equity Plans) (Sec. Sec.  226.6 and 226.7)]
G-2 Liability for Unauthorized Use Model Clause [(Home-equity 
Plans)] (Sec.  226.12)
[G-2(A) Liability for Unauthorized Use Model Clause (Plans other 
than Home-equity Plans) (Sec.  226.12)]
G-3 Long-Form Billing-Error Rights Model Form [(Home-equity Plans)] 
(Sec. Sec.  226.6 and [rtrif]226.7[ltrif] [226.9])
[G-3(A) Long-Form Billing-Error Rights Model Form (Plans other than 
Home-equity Plans) (Sec. Sec.  226.6 and 226.9)]
G-4 Alternative Billing-Error Rights Model Form [(Home-equity 
Plans)] (Sec.  [rtrif]226.7[ltrif] [226.9)])
[G-4(A) Alternative Billing-Error Rights Model Form (Plans other 
than Home-equity Plans) (Sec.  226.9)]
G-5 Rescission Model Form (When Opening an Account) (Sec.  226.15)
G-6 Rescission Model Form (For Each Transaction) (Sec.  226.15)
G-7 Rescission Model Form (When Increasing the Credit Limit) (Sec.  
226.15)
G-8 Rescission Model Form (When Adding a Security Interest) (Sec.  
226.15)
G-9 Rescission Model Form (When Increasing the Security) (Sec.  
226.15)
G-10(A) Applications and Solicitations Model Form (Credit Cards) 
(Sec.  226.5a(b))
G-10(B) Applications and Solicitations Sample (Credit Cards) (Sec.  
226.5a(b))
G-10(C) Applications and Solicitations Sample (Credit Cards) (Sec.  
226.5a(b))
G-10(D) Applications and Solicitations Model Form (Charge Cards) 
(Sec.  226.5a(b))
G-10(E) Applications and Solicitations Sample (Charge Cards) (Sec.  
226.5a(b))
G-11 Applications and Solicitations Made Available to General Public 
Model Clauses (Sec.  226.5a(e))
G-12 Reserved
G-13(A) Change in Insurance Provider Model Form (Combined Notice) 
(Sec.  226.9(f))
G-13(B) Change in Insurance Provider Model Form (Sec.  226.9(f)(2))
[G-14A Home-equity Sample
G-14B Home-equity Sample
G-15 Home-equity Model Clauses]
[rtrif]G-14(A) Early Disclosure Model Form (Home-equity Plans) 
(Sec.  226.5b(c))
G-14(B) Early Disclosure Model Form (Home-equity Plans) (Sec.  
226.5b(c))
G-14(C) Early Disclosure Sample (Home-equity Plans) (Sec.  
226.5b(c))
G-14(D) Early Disclosure Sample (Home-equity Plans) (Sec.  
226.5b(c))
G-14(E) Early Disclosure Sample (Home-equity Plans) (Sec.  
226.5b(c))
G-15(A) Account-Opening Disclosure Model Form (Home-equity Plans) 
(Sec.  226.6(a)(2))
G-15(B) Account-Opening Disclosure Sample (Home-equity Plans) (Sec.  
226.6(a)(2))
G-15(C) Account-Opening Disclosure Sample (Home-equity Plans) (Sec.  
226.6(a)(2))
G-15(D) Account-Opening Disclosure Sample (Home-equity Plans) (Sec.  
226.6(a)(2))[ltrif]
G-16(A) Debt Suspension Model Clause (Sec.  226.4(d)(3))
G-16(B) Debt Suspension Sample (Sec.  226.4(d)(3))
G-17(A) Account-opening Model Form (Sec.  226.6(b)(2))
G-17(B) Account-opening Sample (Sec.  226.6(b)(2))
G-17(C) Account-opening Sample (Sec.  226.6(b)(2))
G-17(D) Account-opening Sample (Sec.  226.6(b)(2))
G-18(A) Transactions; Interest Charges; Fees Sample (Sec.  226.7(b))
G-18(B) Late Payment Fee Sample (Sec.  226.7(b))
G-18(C) Actual Repayment Period Sample Disclosure on Periodic 
Statement (Sec.  226.7(b))
G-18(D) New Balance, Due Date, Late Payment and Minimum Payment 
Sample (Credit cards) (Sec.  226.7(b))
G-18(E) New Balance, Due Date, and Late Payment Sample (Open-end 
Plans (Non-credit-card Accounts)) (Sec.  226.7(b))
G-18(F) Periodic Statement Form
G-18(G) Periodic Statement Form
G-19 Checks Accessing a Credit Card Account Sample (Sec.  
226.9(b)(3))
G-20 Change-in-Terms Sample (Sec.  226.9(c)(2))
G-21 Penalty Rate Increase Sample (Sec.  226.9(g)(3))
[rtrif]G-22(A) Home-equity Notice of Reinstatement Investigation 
Results Model Clauses (Sec.  226.5b(g)(2)(v))
G-22(B) Home-equity Notice of Reinstatement Investigation Results 
Model Clauses (Sec.  226.5b(g)(2)(v))
G-23(A) Home-equity Notice of Action Taken Model Clauses (Sec.  
226.9(j)(1))
G-23(B) Home-equity Notice of Action Taken Model Clauses (Sec.  
226.9(j)(2))
G-24(A) Periodic Statement Transactions; Interest Charges; Fees 
Sample (Home-equity Plans) (Sec.  226.7(a))
G-24(B) Periodic Statement Sample (Home-equity Plans) (Sec.  
226.7(a))
G-24(C) Periodic Statement Sample (Home-equity Plans) (Sec.  
226.7(a))
G-25 Change-in-Terms Sample (Home-equity Plans) (Sec.  226.9(c)(1))
G-26 Rate Increase Sample (Home-equity Plans) (Sec.  
226.9(i)(3))[ltrif]

[G-1--Balance Computation Methods Model Clauses (Home-equity Plans)

(a) Adjusted balance method

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``adjusted balance'' of your 
account. We get the ``adjusted balance'' by taking the balance you 
owed at the end of the previous billing cycle and subtracting [any 
unpaid finance charges and] any payments and credits received during 
the present billing cycle.

(b) Previous balance method

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the amount you owe at the beginning of 
each billing cycle [minus any unpaid finance

[[Page 43546]]

charges]. We do not subtract any payments or credits received during 
the billing cycle. [The amount of payments and credits to your 
account this billing cycle was $ ------.]

(c) Average daily balance method (excluding current transactions)

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``average daily balance'' of your 
account (excluding current transactions). To get the ``average daily 
balance'' we take the beginning balance of your account each day and 
subtract any payments or credits [and any unpaid finance charges]. 
We do not add in any new [purchases/advances/loans]. This gives us 
the daily balance. Then, we add all the daily balances for the 
billing cycle together and divide the total by the number of days in 
the billing cycle. This gives us the ``average daily balance.''

(d) Average daily balance method (including current transactions)

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``average daily balance'' of your 
account (including current transactions). To get the ``average daily 
balance'' we take the beginning balance of your account each day, 
add any new [purchases/advances/loans], and subtract any payments or 
credits, [and unpaid finance charges]. This gives us the daily 
balance. Then, we add up all the daily balances for the billing 
cycle and divide the total by the number of days in the billing 
cycle. This gives us the ``average daily balance.''

(e) Ending balance method

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the amount you owe at the end of each 
billing cycle (including new purchases and deducting payments and 
credits made during the billing cycle).

(f) Daily balance method (including current transactions)

    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``daily balance'' of your account 
for each day in the billing cycle. To get the ``daily balance'' we 
take the beginning balance of your account each day, add any new 
[purchases/advances/fees], and subtract [any unpaid finance charges 
and] any payments or credits. This gives us the daily balance.]

G-1[(A)]--Balance Computation Methods Model Clauses [(Plans Other Than 
Home-Equity Plans)]

(a) Adjusted balance method

    We figure the interest charge on your account by applying the 
periodic rate to the ``adjusted balance'' of your account. We get 
the ``adjusted balance'' by taking the balance you owed at the end 
of the previous billing cycle and subtracting [any unpaid interest 
or other finance charges and] any payments and credits received 
during the present billing cycle.

(b) Previous balance method

    We figure the interest charge on your account by applying the 
periodic rate to the amount you owe at the beginning of each billing 
cycle. We do not subtract any payments or credits received during 
the billing cycle.

(c) Average daily balance method (excluding current transactions)

    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To 
get the ``average daily balance'' we take the beginning balance of 
your account each day and subtract [any unpaid interest or other 
finance charges and] any payments or credits. We do not add in any 
new [purchases/advances/fees]. This gives us the daily balance. 
Then, we add all the daily balances for the billing cycle together 
and divide the total by the number of days in the billing cycle. 
This gives us the ``average daily balance.''

(d) Average daily balance method (including current transactions)

    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To 
get the ``average daily balance'' we take the beginning balance of 
your account each day, add any new [purchases/advances/fees], and 
subtract [any unpaid interest or other finance charges and] any 
payments or credits. This gives us the daily balance. Then, we add 
up all the daily balances for the billing cycle and divide the total 
by the number of days in the billing cycle. This gives us the 
``average daily balance.''

(e) Ending balance method

    We figure the interest charge on your account by applying the 
periodic rate to the amount you owe at the end of each billing cycle 
(including new [purchases/advances/fees] and deducting payments and 
credits made during the billing cycle).

(f) Daily balance method (including current transactions)

    We figure the interest charge on your account by applying the 
periodic rate to the ``daily balance'' of your account for each day 
in the billing cycle. To get the ``daily balance'' we take the 
beginning balance of your account each day, add any new [purchases/
advances/fees], and subtract [any unpaid interest or other finance 
charges and] any payments or credits. This gives us the daily 
balance.

[G-2--Liability for Unauthorized Use Model Clause (Home-Equity Plans)

    You may be liable for the unauthorized use of your credit card 
[or other term that describes the credit card]. You will not be 
liable for unauthorized use that occurs after you notify [name of 
card issuer or its designee] at [address], orally or in writing, of 
the loss, theft, or possible unauthorized use. [You may also contact 
us on the Web: [Creditor Web or e-mail address]] In any case, your 
liability will not exceed [insert $50 or any lesser amount under 
agreement with the cardholder].]

G-2[(A)]--Liability for Unauthorized Use Model Clause [(Plans Other 
Than Home-equity Plans)]

    If you notice the loss or theft of your credit card or a 
possible unauthorized use of your card, you should write to us 
immediately at:
    [address] [address listed on your bill],
    or call us at [telephone number].
    [You may also contact us on the Web: [Creditor Web or e-mail 
address]]
    You will not be liable for any unauthorized use that occurs 
after you notify us. You may, however, be liable for unauthorized 
use that occurs before your notice to us. In any case, your 
liability will not exceed [insert $50 or any lesser amount under 
agreement with the cardholder].

[G-3--Long-Form Billing-Error Rights Model Form (Home-Equity Plans)

YOUR BILLING RIGHTS

KEEP THIS NOTICE FOR FUTURE USE

    This notice contains important information about your rights and 
our responsibilities under the Fair Credit Billing Act.

Notify Us in Case of Errors or Questions About Your Bill

    If you think your bill is wrong, or if you need more information 
about a transaction on your bill, write us [on a separate sheet] at 
[address] [the address listed on your bill]. Write to us as soon as 
possible. We must hear from you no later than 60 days after we sent 
you the first bill on which the error or problem appeared. [You may 
also contact us on the Web: [Creditor Web or e-mail address]] You 
can telephone us, but doing so will not preserve your rights.
    In your letter, give us the following information:
     Your name and account number.
     The dollar amount of the suspected error.
     Describe the error and explain, if you can, why you 
believe there is an error. If you need more information, describe 
the item you are not sure about.
    If you have authorized us to pay your credit card bill 
automatically from your savings or checking account, you can stop 
the payment on any amount you think is wrong. To stop the payment 
your letter must reach us three business days before the automatic 
payment is scheduled to occur.

Your Rights and Our Responsibilities After We Receive Your Written 
Notice

    We must acknowledge your letter within 30 days, unless we have 
corrected the error by then. Within 90 days, we must either correct 
the error or explain why we believe the bill was correct.
    After we receive your letter, we cannot try to collect any 
amount you question, or report you as delinquent. We can continue to 
bill you for the amount you question, including finance charges, and 
we can apply any unpaid amount against your credit limit. You do not 
have to pay any questioned amount while we are investigating, but 
you are still obligated to pay the parts of your bill that are not 
in question.
    If we find that we made a mistake on your bill, you will not 
have to pay any finance charges related to any questioned amount. If 
we didn't make a mistake, you may have to pay finance charges, and 
you will have to make up any missed payments on the questioned 
amount. In either case, we will send you a statement of the amount 
you owe and the date that it is due.

[[Page 43547]]

    If you fail to pay the amount that we think you owe, we may 
report you as delinquent. However, if our explanation does not 
satisfy you and you write to us within ten days telling us that you 
still refuse to pay, we must tell anyone we report you to that you 
have a question about your bill. And, we must tell you the name of 
anyone we reported you to. We must tell anyone we report you to that 
the matter has been settled between us when it finally is.
    If we don't follow these rules, we can't collect the first $50 
of the questioned amount, even if your bill was correct.

Special Rule for Credit Card Purchases

    If you have a problem with the quality of property or services 
that you purchased with a credit card, and you have tried in good 
faith to correct the problem with the merchant, you may have the 
right not to pay the remaining amount due on the property or 
services.
    There are two limitations on this right:
    (a) You must have made the purchase in your home state or, if 
not within your home state within 100 miles of your current mailing 
address; and
    (b) The purchase price must have been more than $50.
    These limitations do not apply if we own or operate the 
merchant, or if we mailed you the advertisement for the property or 
services.]

G-3[(A)]--Long-Form Billing-Error Rights Model Form [(Plans Other Than 
Home-equity Plans)]

Your Billing Rights: Keep this Document for Future Use

    This notice tells you about your rights and our responsibilities 
under the Fair Credit Billing Act.

What To Do If You Find a Mistake on Your Statement

    If you think there is an error on your statement, write to us 
at:
    [Creditor Name]
    [Creditor Address]
    [You may also contact us on the Web: [Creditor Web or e-mail 
address]]
    In your letter, give us the following information:
     Account information: Your name and account number.
     Dollar amount: The dollar amount of the suspected 
error.
     Description of problem: If you think there is an error 
on your bill, describe what you believe is wrong and why you believe 
it is a mistake.
    You must contact us:
     Within 60 days after the error appeared on your 
statement.
     At least 3 business days before an automated payment is 
scheduled, if you want to stop payment on the amount you think is 
wrong.
    You must notify us of any potential errors in writing [or 
electronically]. You may call us, but if you do we are not required 
to investigate any potential errors and you may have to pay the 
amount in question.

What Will Happen After We Receive Your Letter

    When we receive your letter, we must do two things:
    1. Within 30 days of receiving your letter, we must tell you 
that we received your letter. We will also tell you if we have 
already corrected the error.
    2. Within 90 days of receiving your letter, we must either 
correct the error or explain to you why we believe the bill is 
correct.
    While we investigate whether or not there has been an error:
     We cannot try to collect the amount in question, or 
report you as delinquent on that amount.
     The charge in question may remain on your statement, 
and we may continue to charge you interest on that amount.
     While you do not have to pay the amount in question, 
you are responsible for the remainder of your balance.
     We can apply any unpaid amount against your credit 
limit.
    After we finish our investigation, one of two things will 
happen:
     If we made a mistake: You will not have to pay the 
amount in question or any interest or other fees related to that 
amount.
     If we do not believe there was a mistake: You will have 
to pay the amount in question, along with applicable interest and 
fees. We will send you a statement of the amount you owe and the 
date payment is due. We may then report you as delinquent if you do 
not pay the amount we think you owe.
    If you receive our explanation but still believe your bill is 
wrong, you must write to us within 10 days telling us that you still 
refuse to pay. If you do so, we cannot report you as delinquent 
without also reporting that you are questioning your bill. We must 
tell you the name of anyone to whom we reported you as delinquent, 
and we must let those organizations know when the matter has been 
settled between us.
    If we do not follow all of the rules above, you do not have to 
pay the first $50 of the amount you question even if your bill is 
correct.

Your Rights If You Are Dissatisfied With Your Credit Card Purchases

    If you are dissatisfied with the goods or services that you have 
purchased with your credit card, and you have tried in good faith to 
correct the problem with the merchant, you may have the right not to 
pay the remaining amount due on the purchase.
    To use this right, all of the following must be true:
    1. The purchase must have been made in your home state or within 
100 miles of your current mailing address, and the purchase price 
must have been more than $50. (Note: Neither of these are necessary 
if your purchase was based on an advertisement we mailed to you, or 
if we own the company that sold you the goods or services.)
    2. You must have used your credit card for the purchase. 
Purchases made with cash advances from an ATM or with a check that 
accesses your credit card account do not qualify.
    3. You must not yet have fully paid for the purchase.
    If all of the criteria above are met and you are still 
dissatisfied with the purchase, contact us in writing [or 
electronically] at:
    [Creditor Name]
    [Creditor Address]
    [[Creditor Web or e-mail address]]
    While we investigate, the same rules apply to the disputed 
amount as discussed above. After we finish our investigation, we 
will tell you our decision. At that point, if we think you owe an 
amount and you do not pay, we may report you as delinquent.

[G-4--Alternative Billing-Error Rights Model Form (Home-equity Plans)

BILLING RIGHTS SUMMARY

In Case of Errors or Questions About Your Bill

    If you think your bill is wrong, or if you need more information 
about a transaction on your bill, write us [on a separate sheet] at 
[address] [the address shown on your bill] as soon as possible. [You 
may also contact us on the Web: [Creditor Web or e-mail address]] We 
must hear from you no later than 60 days after we sent you the first 
bill on which the error or problem appeared. You can telephone us, 
but doing so will not preserve your rights.
    In your letter, give us the following information:
     Your name and account number.
     The dollar amount of the suspected error.
     Describe the error and explain, if you can, why you 
believe there is an error. If you need more information, describe 
the item you are unsure about.
    You do not have to pay any amount in question while we are 
investigating, but you are still obligated to pay the parts of your 
bill that are not in question. While we investigate your question, 
we cannot report you as delinquent or take any action to collect the 
amount you question.

Special Rule for Credit Card Purchases

    If you have a problem with the quality of goods or services that 
you purchased with a credit card, and you have tried in good faith 
to correct the problem with the merchant, you may not have to pay 
the remaining amount due on the goods or services. You have this 
protection only when the purchase price was more than $50 and the 
purchase was made in your home state or within 100 miles of your 
mailing address. (If we own or operate the merchant, or if we mailed 
you the advertisement for the property or services, all purchases 
are covered regardless of amount or location of purchase.)]
    G-4[(A)]--Alternative Billing-Error Rights Model Form [(Plans 
Other Than Home-equity Plans)]

What To Do If You Think You Find a Mistake on Your Statement

    If you think there is an error on your statement, write to us 
at:
    [Creditor Name]
    [Creditor Address]
    [You may also contact us on the Web: [Creditor Web or e-mail 
address]]
    In your letter, give us the following information:

[[Page 43548]]

     Account information: Your name and account number.
     Dollar amount: The dollar amount of the suspected 
error.
     Description of Problem: If you think there is an error 
on your bill, describe what you believe is wrong and why you believe 
it is a mistake.
    You must contact us within 60 days after the error appeared on 
your statement.
    You must notify us of any potential errors in writing [or 
electronically]. You may call us, but if you do we are not required 
to investigate any potential errors and you may have to pay the 
amount in question.
    While we investigate whether or not there has been an error, the 
following are true:
     We cannot try to collect the amount in question, or 
report you as delinquent on that amount.
     The charge in question may remain on your statement, 
and we may continue to charge you interest on that amount. But, if 
we determine that we made a mistake, you will not have to pay the 
amount in question or any interest or other fees related to that 
amount.
     While you do not have to pay the amount in question, 
you are responsible for the remainder of your balance.
     We can apply any unpaid amount against your credit 
limit.

Your Rights If You Are Dissatisfied With Your Credit Card Purchases

    If you are dissatisfied with the goods or services that you have 
purchased with your credit card, and you have tried in good faith to 
correct the problem with the merchant, you may have the right not to 
pay the remaining amount due on the purchase.
    To use this right, all of the following must be true:
    1. The purchase must have been made in your home state or within 
100 miles of your current mailing address, and the purchase price 
must have been more than $50. (Note: Neither of these are necessary 
if your purchase was based on an advertisement we mailed to you, or 
if we own the company that sold you the goods or services.)
    2. You must have used your credit card for the purchase. 
Purchases made with cash advances from an ATM or with a check that 
accesses your credit card account do not qualify.
    3. You must not yet have fully paid for the purchase.
    If all of the criteria above are met and you are still 
dissatisfied with the purchase, contact us in writing [or 
electronically] at:
    [Creditor Name]
    [Creditor Address]
    [Creditor Web address]
    While we investigate, the same rules apply to the disputed 
amount as discussed above. After we finish our investigation, we 
will tell you our decision. At that point, if we think you owe an 
amount and you do not pay we may report you as delinquent.
BILLING CODE 6210-01-P

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BILLING CODE 6210-01-C

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* * * * *

[rtrif]G-22(A)--Home-equity Notice of Reinstatement Investigation 
Results Model Clauses (Sec.  226.5b(g)(2)(v)) (The Same Reason 
Originally Permitting Action Still Exists)

    We received your request to have your credit privileges on your 
account reinstated and have investigated this matter. Based on the 
results of our investigation, we are not able to reinstate your 
credit privileges at this time.
    Our investigation showed that

[your property value as of [date] is [property value], which still 
shows a significant decline in value. To determine the value of your 
home, we relied on [property valuation type, such as a tax record, 
automated valuation model, appraisal]. You have a right to receive a 
copy of information supporting this property value. You may send 
your request to the following [mail/e-mail address or telephone 
number: ]].
    [your financial circumstances have not [improved] [improved 
enough to reinstate your credit privileges]. To review your 
financial circumstances, we relied on [information about your 
income] [credit report information] [other].

    You have the right to ask us to reinstate your credit privileges 
at any time [by sending a request for reinstatement in writing to: 
[mail/e-mail address]] [other method of requesting reinstatement and 
corresponding contact information designated by the creditor, such 
as by telephone].
    We will complete an investigation within 30 days of receiving 
your request. If no reason for [suspending your credit privileges] 
[reducing your credit limit] is found, we will restore your credit 
privileges.
    If you ask us again to reinstate your account, we may charge you 
fees for credit report information and property valuation reports to 
investigate your request.

G-22(B)--Home-equity Notice of Reinstatement Investigation Results 
Model Clauses (Sec.  226.5b(g)(2)(v)) (A different reason than the 
original reason permitting action exists)

    Our investigation showed that [your property value as of [date] 
is [property value]]. However, our investigation also showed that 
[your financial circumstances have materially changed.] As a result, 
we will not be able to reinstate your credit privileges at this 
time. To review your financial circumstances, we relied on 
[information about your income] [credit report information] [other].
    You have the right to ask us to reinstate your credit privileges 
at any time [by sending a request for reinstatement in writing to: 
[mail/e-mail address]] [other method of requesting reinstatement and 
corresponding contact information designated by the creditor, such 
as by telephone].
    We will complete an investigation within 30 days of receiving 
your request. If no reason for [suspending your credit privileges] 
[reducing your credit limit] is found, we will restore your credit 
privileges.
    If you ask us again to reinstate your account, we may charge you 
fees for credit information and property valuation reports to 
investigate your request.

G-23(A) Home-equity Notice of Action Taken Model Clauses (Sec.  
226.9(j)(1))

(a) Action Based on a Significant Decline in the Property Value

    As of [month/day/year], your [line of credit has been suspended] 
[credit limit has been reduced] to [new credit limit] because the 
value of the property securing your loan has declined significantly. 
The value of your property as of [month/day/year] has declined to 
[property value obtained].
    The property valuation method used to obtain your updated 
property value was [property valuation type, such as a tax record, 
automated valuation model, appraisal]. You have a right to receive a 
copy of information supporting this property value. You may send 
your request to the following [mail/e-mail address or telephone 
number:].

(b) Action Based on a Material Change in the Consumer's Financial 
Circumstances

    As of [date], [your line of credit has been suspended] [credit 
limit has been reduced] because your financial circumstances have 
materially changed. To review your financial circumstances, we 
relied on [information about your income] [credit report 
information] [other].

(c) Action Taken Based on the Consumer's Default of a Material 
Obligation

    As of [month/day/year], [your line of credit has been suspended] 
[credit limit has been reduced] because you defaulted on your 
obligation under your HELOC agreement to [material obligation].
    You have the right to ask us to reinstate your credit privileges 
at any time [by sending a request for reinstatement in writing to: 
[mail/e-mail address]] [other method of requesting reinstatement and 
corresponding contact information designated by the creditor, such 
as by telephone].
    We will complete an investigation within 30 days of receiving 
your request. If no reason for [suspending your credit privileges] 
[reducing your credit limit] is found, we will restore your credit 
privileges.
    We do not charge you any fees to investigate the first time you 
ask us to reinstate your credit privileges after your [line of 
credit has been suspended] [credit limit has been reduced]. If you 
ask us to reinstate your account after the first request, we may 
charge you a fee for a credit report or property valuation needed to 
investigate your request.

G-23(B) Home-equity Notice of Action Taken Model Clauses (Sec.  
226.9(j)(2))

    As of [month/day/year], your
    [line of credit has been terminated. The outstanding balance on 
your account is due on [month/day/year]]
    [line of credit has been suspended]
    [credit limit has been reduced to [new credit limit]].
    The specific reason[s] for the action on your account [is][are] 
the following:
    [your payment is [more than 30 days overdue.]
    [Our interest in the property securing your HELOC has been 
adversely affected because [you transferred title to the property 
without our permission.] [you failed to maintain property insurance 
on the property.] [you did not pay required taxes on the property.]]
    [We have reason to believe that fraud or material 
misrepresentation regarding your account has occurred.]
BILLING CODE 6210-01-P

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BILLING CODE 6210-01-C

    11. In Supplement I to Part 226:
    A. Under Section 226.2--Definitions and Rules of Construction, 
2(a)(6) Business day, paragraph 2 is revised.
    B. Section 226.5--General Disclosure Requirements is revised.
    C. Under Section 226.5b--Requirements for Home-equity Plans:
    i. Paragraph 1 is republished; paragraph 2 is revised; paragraphs 3 
and 4 are removed; and paragraphs 5 and 6 are redesignated as 
paragraphs 3 and 4, respectively.
    ii. 5b(a) Form of disclosures and 5b(b) Time of disclosures are 
removed.
    iii. New 5b(a) Home-equity document provided on or with the 
application and 5b(b) Home-equity disclosures provided no later than 
account opening or three business days after application, whichever is 
earlier are added.
    iv. 5b(c) Duties of third parties is removed.
    v. 5b(d) Content of disclosures is redesignated 5b(c) Content of 
disclosures and revised.
    vi. 5b(g) Refund of fees is redesignated 5b(d) Refund of fees and 
revised.
    vii. 5b(e) Brochure is removed.
    viii. 5b(h) Imposition of nonrefundable fees is redesignated 5b(e) 
Imposition of nonrefundable fees and revised.
    ix. Under 5b(f) Limitations on home-equity plans, Paragraph 
5b(f)(2)(ii) is revised; new Paragraph 5b(f)(2)(iv) is added; and 
Paragraphs 5b(f)(3), 5b(f)(3)(i), 5b(f)(3)(iv), 5b(f)(3)(v) and 
5b(f)(3)(vi) are revised.
    x. New 5b(g) Reinstatement of Credit Privileges is added.
    D. Under Section 226.6--Account-opening Disclosures, 6(a) Rules 
affecting home-equity plans is revised.
    E. Under Section 226.7--Periodic Statement, 7(a) Rules affecting 
home-equity plans is revised.
    F. Under Section 226.9--Subsequent Disclosure Requirements, 9(c) 
Change in terms, 9(c)(1) Rules affecting home-equity plans is revised; 
9(g) Increase in rates due to delinquency or default or as a penalty, 
the heading is revised; and new 9(i) Increase in rates due to 
delinquency or default or as a penalty--rules affecting home-equity 
plans and (9)(j) Notices of action taken for home-equity plans are 
added.
    G. Section 226.14--Determination of Annual Percentage Rate is 
revised.
    H. Appendix F--Optional Annual Percentage Rate Computations for 
Creditors Offering Open-end Plans Subject to the Requirements of Sec.  
226.5b is removed and reserved.
    I. Under Appendices G and H--Open-end and Closed-end Model Forms 
and Clauses, paragraph 1 is revised.
    J. Under Appendix G--Open-end Model Forms and Clauses, paragraphs 
1, 2, and 3 are revised and new paragraphs 12, 13, 14, and 15 are 
added.

Supplement I to Part 226--Official Staff Interpretations

* * * * *

Subpart A--General

* * * * *
    Sec.  226.2--Definitions and Rules of Construction.
    2(a) Definitions.
* * * * *
    2(a)(6) Business day.
* * * * *
    2. Rule for rescission and disclosures for certain mortgage 
[rtrif]and home-equity line of credit[ltrif] transactions. A more 
precise rule for what is a business day (all calendar days except 
Sundays and the federal legal holidays specified in 5 U.S.C. 6103(a)) 
applies when the right of rescission or the receipt of disclosures for 
certain dwelling-secured mortgage transactions [rtrif]for purposes 
of[ltrif] [under] Sec. Sec.  [rtrif]226.5b(e), 226.9(j)(2),[ltrif] 
226.19(a)(1)(ii), 226.19(a)(2), or 226.31(c) is involved. Four federal 
legal holidays are identified in 5 U.S.C. 6103(a) by a specific date: 
New Year's Day, January 1; Independence Day, July 4; Veterans Day, 
November 11; and Christmas Day, December 25. When one of these holidays 
(July 4, for example) falls on a Saturday, federal offices and other 
entities might observe the holiday on the preceding Friday (July 3). In 
cases where the more precise rule applies, the observed holiday (in the 
example, July 3) is a business day.
* * * * *

Subpart B--Open-end Credit

Sec.  226.5--General Disclosure Requirements

    [rtrif]1. Guidance on compliance with rules for open-end (not home-
secured) credit versus rules for home-equity

[[Page 43576]]

plans. In some cases creditors offering open-end credit plans secured 
by residential property may not know whether the property is, or 
remains, the consumer's principal residence, second or vacation home, 
or rental or investment property. If the property is the consumer's 
principal residence or a second or vacation home (and not rental 
property), the credit plan is subject to Sec.  226.5b and the 
associated rules for home-equity plans elsewhere in Regulation Z such 
as those in Sec. Sec.  226.6(a), 226.7(a), 226.9(c)(1), 226.9(i), and 
226.9(j). If the property is the consumer's rental or investment 
property, and the credit plan is used primarily for personal, family, 
or household purposes, the credit plan is subject to the rules for 
open-end (not home-secured) credit set forth in Sec. Sec.  226.6(b), 
226.7(b), 226.9(c)(2), and 226.9(g). (In this case, if the credit plan 
is accessible by credit card, the creditor must also comply with the 
rules applicable to open-end credit card plans under Sec.  226.5a.) If 
the credit plan is used primarily for business purposes rather than 
personal, family, or household purposes, the credit plan is not subject 
to Regulation Z. (See Sec.  226.3(a) and the related staff commentary 
provisions for guidance in determining whether credit is considered to 
be used primarily for business purposes.) In determining which rules 
apply, creditors may rely on the following guidance:
    i. For existing credit plans, if the creditor does not know whether 
the property is or remains the consumer's principal residence or second 
or vacation home, and the creditor has been complying with the rules 
under Sec.  226.5b and associated other rules, the creditor may 
continue to do so.
    ii. Alternatively, the creditor in these circumstances may 
investigate the use of the property. If the creditor ascertains that 
the property is not used as the consumer's principal residence or as a 
second or vacation home, but the credit plan is nonetheless used for 
personal, family, or household purposes, the creditor may begin 
complying with the rules applicable to open-end (not home-secured) 
credit under Regulation Z. In this case, if the credit plan is 
accessible by credit card, the creditor must comply with the rules for 
open-end (not home-secured) credit card plans under Sec.  226.5a and 
associated sections in the regulation, in addition to the rules 
applicable to open-end credit generally.
    iii. When a new open-end credit plan is opened, the creditor may 
attempt to ascertain the status of the property securing the plan, and 
comply accordingly with the appropriate set of rules. However, if the 
creditor is not able, or chooses not, to determine the status of the 
property, the creditor may comply with the rules for home-equity plans 
under Sec.  226.5b and associated sections of the regulation.[ltrif]
    5(a) Form of disclosures.
    5(a)(1) General.
    1. Clear and conspicuous standard. The ``clear and conspicuous'' 
standard generally requires that disclosures be in a reasonably 
understandable form. Disclosures for credit card applications and 
solicitations under Sec.  226.5a, [rtrif]disclosures for home-equity 
plans required three business days after application under Sec.  
226.5b(b),[ltrif] highlighted account-opening disclosures under 
[rtrif]Sec.  226.6(a)(1) and[ltrif] Sec.  226.6(b)(1), highlighted 
disclosure on checks that access a credit card under Sec.  226.9(b)(3), 
highlighted change-in-terms disclosures under [rtrif]Sec.  
226.9(c)(1)(iii)(B) and[ltrif] Sec.  226.9(c)(2)(iii)(B), and 
highlighted disclosures when a rate is increased due to delinquency, 
default or [rtrif]otherwise as[ltrif] [for] a penalty under Sec.  
226.9(g)(3)(ii) [rtrif]and Sec.  226.9(i)(4)[ltrif] must also be 
readily noticeable to the consumer [rtrif]to meet the ``clear and 
conspicuous'' standard[ltrif].
    2. Clear and conspicuous--reasonably understandable form. Except 
where otherwise provided, the reasonably understandable form 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. For 
disclosures that are given orally, the standard requires that they be 
given at a speed and volume sufficient for a consumer to hear and 
comprehend them. (See comment 5(b)(1)(ii)-1.) Except where otherwise 
provided, the standard does not prohibit:
    i. Pluralizing required terminology (``finance charge'' and 
``annual percentage rate'').
    ii. Adding to the required disclosures such items as contractual 
provisions, explanations of contract terms, state disclosures, and 
translations.
    iii. Sending promotional material with the required disclosures.
    iv. Using commonly accepted or readily understandable abbreviations 
(such as ``mo.'' for ``month'' or ``Tx.'' for ``Texas'') in making any 
required disclosures.
    v. Using codes or symbols such as ``APR'' (for annual percentage 
rate), ``FC'' (for finance charge), or ``Cr'' (for credit balance), so 
long as a legend or description of the code or symbol is provided on 
the disclosure statement.
    3. Clear and conspicuous--readily noticeable standard. To meet the 
readily noticeable standard, disclosures for credit card applications 
and solicitations under Sec.  226.5a, [rtrif]disclosures for home-
equity plans required three business days after application under Sec.  
226.5b(b),[ltrif] highlighted account-opening disclosures under 
[rtrif]Sec.  226.6(a)(1) and[ltrif] Sec.  226.6(b)(1), highlighted 
disclosures on checks that access a credit card account under Sec.  
226.9(b)(3), highlighted change-in-terms disclosures under [rtrif]Sec.  
226.9(c)(1)(iii)(B) and[ltrif] Sec.  226.9(c)(2)(iii)(B), and 
highlighted disclosures when a rate is increased due to delinquency, 
default or penalty pricing under Sec.  226.9(g)(3)(ii) [rtrif]and Sec.  
226.9(i)(4)[ltrif] must be given in a minimum of 10-point font. (See 
special rule for font size requirements for the annual percentage rate 
for purchases [rtrif]in an open-end (not home-secured) plan[ltrif] 
under Sec. Sec.  226.5a(b)(1) and 226.6(b)(2)(i)[rtrif], and for the 
annual percentage rate in a home-equity plan under Sec. Sec.  
226.5b(c)(10) and 226.6(a)(2)(vi)[ltrif].)
    4. Integrated document. The creditor may make both the account-
opening disclosures (Sec.  226.6) and the periodic-statement 
disclosures (Sec.  226.7) on more than one page, and use both the front 
and the reverse sides, except where otherwise indicated, so long as the 
pages constitute an integrated document. An integrated document would 
not include disclosure pages provided to the consumer at different 
times or disclosures interspersed on the same page with promotional 
material. An integrated document would include, for example:
    i. Multiple pages provided in the same envelope that cover related 
material and are folded together, numbered consecutively, or clearly 
labeled to show that they relate to one another; or
    ii. A brochure that contains disclosures and explanatory material 
about a range of services the creditor offers, such as credit, checking 
account, and electronic fund transfer features.
    5. Disclosures covered. Disclosures that must meet the ``clear and 
conspicuous'' standard include all required communications under this 
subpart. For example, disclosures made by a person other than the card 
issuer, such as disclosures of finance charges imposed at the time of 
honoring a consumer's credit card under Sec.  226.9(d), and notices, 
such as the correction notice required to be sent to the consumer under 
Sec.  226.13(e), must also be clear and conspicuous.
    Paragraph 5(a)(1)(ii)(A).

[[Page 43577]]

    1. Electronic disclosures. Disclosures that need not be provided in 
writing under Sec.  226.5(a)(1)(ii)(A) may be provided in writing, 
orally, or in electronic form. If the consumer requests the service in 
electronic form, such as on the creditor's Web site, the specified 
disclosures may be provided in electronic form without regard to the 
consumer consent or other provisions of the Electronic Signatures in 
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
    Paragraph 5(a)(1)(iii).
    1. Disclosures not subject to E-Sign Act. See the commentary to 
Sec.  226.5(a)(1)(ii)(A) regarding disclosures (in addition to those 
specified under Sec.  226.5(a)(1)(iii)) that may be provided in 
electronic form without regard to the consumer consent or other 
provisions of the E-Sign Act.
    5(a)(2) Terminology.
    [1. When disclosures must be more conspicuous. For home-equity 
plans subject to Sec.  226.5b, the terms finance charge and annual 
percentage rate, when required to be used with a number, must be 
disclosed more conspicuously than other required disclosures, except in 
the cases provided in Sec.  226.5(a)(2)(ii). At the creditor's option, 
finance charge and annual percentage rate may also be disclosed more 
conspicuously than the other required disclosures even when the 
regulation does not so require. The following examples illustrate these 
rules:
    i. In disclosing the annual percentage rate as required by Sec.  
226.6(a)(1)(ii), the term annual percentage rate is subject to the more 
conspicuous rule.
    ii. In disclosing the amount of the finance charge, required by 
Sec.  226.7(a)(6)(i), the term finance charge is subject to the more 
conspicuous rule.
    iii. Although neither finance charge nor annual percentage rate 
need be emphasized when used as part of general informational material 
or in textual descriptions of other terms, emphasis is permissible in 
such cases. For example, when the terms appear as part of the 
explanations required under Sec.  226.6(a)(1)(iii) and (a)(1)(iv), they 
may be equally conspicuous as the disclosures required under Sec. Sec.  
226.6(a)(1)(ii) and 226.7(a)(7).
    2. Making disclosures more conspicuous. In disclosing the terms 
finance charge and annual percentage rate more conspicuously for home-
equity plans subject to Sec.  226.5b, only the words finance charge and 
annual percentage rate should be accentuated. For example, if the term 
total finance charge is used, only finance charge should be emphasized. 
The disclosures may be made more conspicuous by, for example:
    i. Capitalizing the words when other disclosures are printed in 
lower case.
    ii. Putting them in bold print or a contrasting color.
    iii. Underlining them.
    iv. Setting them off with asterisks.
    v. Printing them in larger type.
    3. Disclosure of figures--exception to more conspicuous rule. For 
home-equity plans subject to Sec.  226.5b, the terms annual percentage 
rate and finance charge need not be more conspicuous than figures 
(including, for example, numbers, percentages, and dollar signs).]
    [rtrif]1.[ltrif][4.] Consistent terminology. Language used in 
disclosures required in this subpart must be close enough in meaning to 
enable the consumer to relate the different disclosures; however, the 
language need not be identical.
    5(b) Time of disclosures.
    5(b)(1) Account-opening disclosures.
    5(b)(1)(i) General rule.
    1. Disclosure before the first transaction. When disclosures must 
be furnished ``before the first transaction,'' account-opening 
disclosures must be delivered before the consumer becomes obligated on 
the plan. Examples include:
    i. Purchases. The consumer makes the first purchase, such as when a 
consumer opens a credit plan and makes purchases contemporaneously at a 
retail store, except when the consumer places a telephone call to make 
the purchase and opens the plan contemporaneously (see commentary to 
Sec.  226.5(b)(1)(iii) below).
    ii. Advances. The consumer receives the first advance. If the 
consumer receives a cash advance check at the same time the account-
opening disclosures are provided, disclosures are still timely if the 
consumer can, after receiving the disclosures, return the cash advance 
check to the creditor without obligation (for example, without paying 
finance charges).
    2. Reactivation of suspended account. If an account is temporarily 
suspended (for example, [rtrif]for open-end (not home-secured) 
plans,[ltrif] because the consumer has exceeded a credit limit, or 
because a credit card is reported lost or stolen) and then is 
reactivated, no new account-opening disclosures are required.
    3. Reopening closed account. If an account has been closed (for 
example, [rtrif]for open-end (not home-secured) plans,[ltrif] due to 
inactivity, cancellation, or expiration) and then is reopened, new 
account-opening disclosures are required. No new account-opening 
disclosures are required, however, when the account is closed merely to 
assign it a new number (for example, when a credit card is reported 
lost or stolen) and the ``new'' account then continues on the same 
terms.
    4. Converting closed-end to open-end credit. If a closed-end credit 
transaction is converted to an open-end credit account under a written 
agreement with the consumer, account-opening disclosures under Sec.  
226.6 must be given before the consumer becomes obligated on the open-
end credit plan. (See the commentary to Sec.  226.17 on converting 
open-end credit to closed-end credit.)
    5. Balance transfers. A creditor that solicits the transfer by a 
consumer of outstanding balances from an existing account to a new 
open-end plan must furnish the disclosures required by Sec.  226.6 so 
that the consumer has an opportunity, after receiving the disclosures, 
to contact the creditor before the balance is transferred and decline 
the transfer. For example, assume a consumer responds to a card 
issuer's solicitation for a credit card account subject to Sec.  226.5a 
that offers a range of balance transfer annual percentage rates, based 
on the consumer's creditworthiness. If the creditor opens an account 
for the consumer, the creditor would comply with the timing rules of 
this section by providing the consumer with the annual percentage rate 
(along with the fees and other required disclosures) that would apply 
to the balance transfer in time for the consumer to contact the 
creditor and withdraw the request. A creditor that permits consumers to 
withdraw the request by telephone has met this timing standard if the 
creditor does not affect the balance transfer until 10 days after the 
creditor has sent account-opening disclosures to the consumer, assuming 
the consumer has not contacted the creditor to withdraw the request. 
Card issuers that are subject to the requirements of Sec.  226.5a may 
establish procedures that comply with both Sec. Sec.  226.5a and 226.6 
in a single disclosure statement.
    5(b)(1)(ii) Charges imposed as part of an open-end [(not home-
secured)] plan.
    1. Disclosing charges before the fee is imposed. Creditors may 
disclose charges imposed as part of an open-end [(not home-secured)] 
plan orally or in writing at any time before a consumer agrees to pay 
the fee or becomes obligated for the charge, unless the charge is 
specified under [rtrif]Sec.  226.6(a)(2) or[ltrif] Sec.  226.6(b)(2). 
(Charges imposed as part of an open-end [(not home-secured plan)] that 
are not specified under [rtrif]Sec.  226.6(a)(2) or[ltrif] Sec.  
226.6(b)(2) may alternatively be disclosed in electronic form; see the 
commentary to Sec.  226.5(a)(1)(ii)(A).)

[[Page 43578]]

Creditors must provide such disclosures at a time and in a manner 
[rtrif]such[ltrif] that a consumer would be likely to notice them. For 
example, if a consumer telephones a [rtrif]creditor[ltrif] [card 
issuer] to discuss a particular service, a creditor would meet the 
standard if the creditor clearly and conspicuously discloses the fee 
associated with the service that is the topic of the telephone call 
orally to the consumer. Similarly, a creditor providing marketing 
materials in writing to a consumer about a particular service would 
meet the standard if the creditor provided a clear and conspicuous 
written disclosure of the fee for that service in those same materials. 
A creditor that provides written materials to a consumer about a 
particular service but provides a fee disclosure for another service 
not promoted in such materials would not meet the standard. For 
example, if a creditor provided marketing materials promoting payment 
by Internet, but included the fee for a replacement card on such 
materials with no explanation, the creditor would not be disclosing the 
fee at a time and in a manner that the consumer would be likely to 
notice the fee.
    [rtrif]2. Relationship to rule prohibiting changes in home-equity 
plans. Creditors offering home-equity plans subject to Sec.  226.5b are 
subject to the rules under Sec.  226.5b(f) restricting changes in 
terms. Therefore, even though the rule in Sec.  226.5(b)(1)(ii) permits 
certain charges to be disclosed at a time later than account opening, a 
home-equity plan creditor would not be permitted to impose a charge for 
a feature or service previously not subject to a charge, or to increase 
a charge for a feature or service previously subject to a lower charge, 
even if the absence of a charge, or the lower charge, had not been 
previously disclosed to the consumer.[ltrif]
    5(b)(1)(iii) Telephone purchases.
    1. Return policies. In order for creditors to provide disclosures 
in accordance with the timing requirements of this paragraph, consumers 
must be permitted to return merchandise purchased at the time the plan 
was established without paying mailing or return-shipment costs. 
Creditors may impose costs to return subsequent purchases of 
merchandise under the plan, or to return merchandise purchased by other 
means such as a credit card issued by another creditor. A reasonable 
return policy would be of sufficient duration that the consumer is 
likely to have received the disclosures and had sufficient time to make 
a decision about the financing plan before his or her right to return 
the goods expires. Return policies need not provide a right to return 
goods if the consumer consumes or damages the goods, or for installed 
appliances or fixtures, provided there is a reasonable repair or 
replacement policy to cover defective goods or installations. If the 
consumer chooses to reject the financing plan, creditors comply with 
the requirements of this paragraph by permitting the consumer to pay 
for the goods with another reasonable form of payment acceptable to the 
merchant and keep the goods although the creditor cannot require the 
consumer to do so.
    5(b)(1)(iv) Membership fees.
    1. Membership fees. See Sec.  226.5a(b)(2) and related commentary 
for guidance on fees for issuance or availability of a credit or charge 
card.
    2. Rejecting the plan. If a consumer has paid or promised to pay a 
membership fee including an application fee excludable from the finance 
charge under Sec.  226.4(c)(1) before receiving account-opening 
disclosures, the consumer may, after receiving the disclosures, reject 
the plan and not be obligated for the membership fee, application fee, 
or any other fee or charge. A consumer who has received the disclosures 
and uses the account, or makes a payment on the account after receiving 
a billing statement, is deemed not to have rejected the plan.
    3. Using the account. A consumer uses an account by obtaining an 
extension of credit after receiving the account-opening disclosures, 
such as by making a purchase or obtaining an advance. A consumer does 
not ``use'' the account by activating the account. A consumer also does 
not ``use'' the account when the creditor assesses fees on the account 
(such as start-up fees or fees associated with credit insurance or debt 
cancellation or suspension programs agreed to as a part of the 
application and before the consumer receives account-opening 
disclosures). For example, the consumer does not ``use'' the account 
when a creditor sends a billing statement with start-up fees, there is 
no other activity on the account, the consumer does not pay the fees, 
and the creditor subsequently assesses a late fee or interest on the 
unpaid fee balances. A consumer also does not ``use'' the account by 
paying an application fee excludable from the finance charge under 
Sec.  226.4(c)(1) prior to receiving the account-opening disclosures.
    4. Home-equity plans. Creditors offering home-equity plans subject 
to the requirements of Sec.  226.5b are subject to the requirements of 
Sec.  226.5b[(g)][rtrif](d) and (e)[ltrif] regarding the collection 
[rtrif]and refundability[ltrif] of fees.
    5(b)(2) Periodic statements.
    Paragraph 5(b)(2)(i).
    1. Periodic statements not required. Periodic statements need not 
be sent in the following cases:
    i. If the creditor adjusts an account balance so that at the end of 
the cycle the balance is less than $1--so long as no finance charge has 
been imposed on the account for that cycle.
    ii. If a statement was returned as undeliverable. If a new address 
is provided, however, within a reasonable time before the creditor must 
send a statement, the creditor must resume sending statements. 
Receiving the address at least 20 days before the end of a cycle would 
be a reasonable amount of time to prepare the statement for that cycle. 
For example, if an address is received 22 days before the end of the 
June cycle, the creditor must send the periodic statement for the June 
cycle. (See Sec.  226.13(a)(7).)
    2. Termination of draw privileges. When a consumer's ability to 
draw on an open-end account is terminated without being converted to 
closed-end credit under a written agreement, the creditor must continue 
to provide periodic statements to those consumers entitled to receive 
them under Sec.  226.5(b)(2)(i), for example, when the draw period of 
an open-end credit plan ends and consumers are paying off outstanding 
balances according to the account agreement or under the terms of a 
workout agreement that is not converted to a closed-end transaction. In 
addition, creditors must continue to follow all of the other open-end 
credit requirements and procedures in subpart B.
    3. Uncollectible accounts. An account is deemed uncollectible for 
purposes of Sec.  226.5(b)(2)(i) when a creditor has ceased collection 
efforts, either directly or through a third party.
    4. Instituting collection proceedings. Creditors institute a 
delinquency collection proceeding by filing a court action or 
initiating an adjudicatory process with a third party. Assigning a debt 
to a debt collector or other third party would not constitute 
instituting a collection proceeding.
    Paragraph 5(b)(2)(ii).
    1. 14-day rule. The 14-day rule for mailing or delivering periodic 
statements does not apply if charges (for example, transaction or 
activity charges) are imposed regardless of the timing of a periodic 
statement. The 14-day rule does apply, for example:
    i. If current debits retroactively become subject to finance 
charges when the balance is not paid in full by a specified date.
    ii. For open-end plans not subject to 12 CFR part 227, subpart C; 
12 CFR part

[[Page 43579]]

535, subpart C; or 12 CFR part 706, subpart C, if charges other than 
finance charges will accrue when the consumer does not make timely 
payments (for example, late payment charges or charges for exceeding a 
credit limit). (For consumer credit card accounts subject to 12 CFR 
part 227, subpart C; 12 CFR part 535, subpart C; or 12 CFR part 706, 
subpart C, see 12 CFR 227.22, 12 CFR 535.22, or 12 CFR 706.22, as 
applicable.)
    2. Deferred interest transactions. See comment 7(b)-1.iv.
    Paragraph 5(b)(2)(iii).
    1. Computer malfunction. The exceptions identified in Sec.  
226.5(b)(2)(iii) of this section do not extend to the failure to 
provide a periodic statement because of computer malfunction.
    2. Calling for periodic statements. When the consumer initiates a 
request, the creditor may permit, but may not require, consumers to 
pick up their periodic statements. If the consumer wishes to pick up 
the statement and the plan has a grace period, the statement must be 
made available in accordance with the 14-day rule.
    5(c) Basis of disclosures and use of estimates.
    1. Legal obligation. The disclosures should reflect the credit 
terms to which the parties are legally bound at the time of giving the 
disclosures.
    i. The legal obligation is determined by applicable state or other 
law.
    ii. The fact that a term or contract may later be deemed 
unenforceable by a court on the basis of equity or other grounds does 
not, by itself, mean that disclosures based on that term or contract 
did not reflect the legal obligation.
    iii. The legal obligation normally is presumed to be contained in 
the contract that evidences the agreement. But this may be rebutted if 
another agreement between the parties legally modifies that contract.
    2. Estimates--obtaining information. Disclosures may be estimated 
when the exact information is unknown at the time disclosures are made. 
Information is unknown if it is not reasonably available to the 
creditor at the time disclosures are made. The reasonably available 
standard requires that the creditor, acting in good faith, exercise due 
diligence in obtaining information. In using estimates, the creditor is 
not required to disclose the basis for the estimated figures, but may 
include such explanations as additional information. The creditor 
normally may rely on the representations of other parties in obtaining 
information. For example, the creditor might look to insurance 
companies for the cost of insurance.
    3. Estimates--redisclosure. If the creditor makes estimated 
disclosures, redisclosure is not required for that consumer, even 
though more accurate information becomes available before the first 
transaction. For example, in an open-end plan to be secured by real 
estate, the creditor may estimate the appraisal fees to be charged; 
such an estimate might reasonably be based on the prevailing market 
rates for similar appraisals. If the exact appraisal fee is 
determinable after the estimate is furnished but before the consumer 
receives the first advance under the plan, no new disclosure is 
necessary.
    5(d) Multiple creditors; multiple consumers.
    1. Multiple creditors. Under Sec.  226.5(d):
    i. Creditors must choose which [rtrif]creditor[ltrif][of them] will 
make the disclosures.
    ii. A single, complete set of disclosures must be provided, rather 
than partial disclosures from several creditors.
    iii. All disclosures for the open-end credit plan must be given, 
even if the disclosing creditor would not otherwise have been obligated 
to make a particular disclosure.
    2. Multiple consumers. Disclosures may be made to either obligor on 
a joint account. Disclosure responsibilities are not satisfied by 
giving disclosures to only a surety or guarantor for a principal 
obligor or to an authorized user. In rescindable transactions, however, 
separate disclosures must be given to each consumer who has the right 
to rescind under Sec.  226.15.
    3. Card issuer and person extending credit not the same person. 
Section 127(c)(4)(D) of the Truth in Lending Act (15 U.S.C. 
1637(c)(4)(D)) contains rules pertaining to charge card issuers with 
plans that allow access to an open-end credit plan that is maintained 
by a person other than the charge card issuer. These rules are not 
implemented in Regulation Z (although they were formerly implemented in 
Sec.  226.5a(f)). However, the statutory provisions remain in effect 
and may be used by charge card issuers with plans meeting the specified 
criteria.
    5(e) Effect of subsequent events.
    1. Events causing inaccuracies. Inaccuracies in disclosures are not 
violations if attributable to events occurring after disclosures are 
made. For example, when the consumer fails to fulfill a prior 
commitment to keep the collateral insured and the creditor then 
provides the coverage and charges the consumer for it, such a change 
does not make the original disclosures inaccurate. The creditor may, 
however, be required to provide a new disclosure(s) under Sec.  
226.9(c).
    2. Use of inserts. When changes in a creditor's plan affect 
required disclosures, the creditor may use inserts with outdated 
disclosure forms. Any insert:
    i. Should clearly refer to the disclosure provision it replaces.
    ii. Need not be physically attached or affixed to the basic 
disclosure statement.
    iii. May be used only until the supply of outdated forms is 
exhausted.
* * * * *
    Sec.  226.5b--Requirements for Home-equity Plans.
    1. Coverage. This section applies to all open-end credit plans 
secured by the consumer's ``dwelling,'' as defined in Sec.  
226.2(a)(19), and is not limited to plans secured by the consumer's 
principal dwelling. (See the commentary to Sec.  226.3(a), which 
discusses whether transactions are consumer or business-purpose credit, 
for guidance on whether a home-equity plan is subject to Regulation Z.)
    2. Changes to home-equity plans [entered into on or after November 
7, 1989]. Section 226.9(c) applies if, by written agreement under Sec.  
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 different 
terms. A new plan results, however, if the plan is renewed (with or 
without changes to the terms) after the scheduled expiration. The new 
plan is subject to all open-end credit rules, including Sec. Sec.  
226.5b, 226.6, and 226.15.
    [3. Transition rules and renewals of preexisting plans. The 
requirements of this section do not apply to home-equity plans entered 
into before November 7, 1989. The requirements of this section also do 
not apply if the original consumer, on or after November 7, 1989, 
renews a plan entered into prior to that date (with or without changes 
to the terms). If, on or after November 7, 1989, a security interest in 
the consumer's dwelling is added to a line of credit entered into 
before that date, the substantive restrictions of this section apply 
for the remainder of the plan, but no new disclosures are required 
under this section.
    4. Disclosure of repayment phase--applicability of requirements. 
Some plans provide in the initial agreement for a period during which 
no further draws may be taken and repayment of the amount borrowed is 
made. All of the applicable disclosures in this section must be given 
for the repayment phase. Thus, for example, a creditor must

[[Page 43580]]

provide payment information about the repayment phase as well as about 
the draw period, as required by Sec.  226.5b(d)(5). If the rate that 
will apply during the repayment phase is fixed at a known amount, the 
creditor must provide an annual percentage rate under Sec.  
226.5b(d)(6) for that phase. If, however, a creditor uses an index to 
determine the rate that will apply at the time of conversion to the 
repayment phase--even if the rate will thereafter be fixed--the 
creditor must provide the information in Sec.  226.5b(d)(12), as 
applicable.]
    [rtrif]3.[ltrif][5.] Payment terms--applicability of closed-end 
provisions and substantive rules. All payment terms that are provided 
for in the initial agreement are subject to the requirements of subpart 
B and not subpart C of the regulation. Payment terms that are 
subsequently added to the agreement may be subject to subpart B or to 
subpart C, depending on the circumstances. The following examples apply 
these general rules to different situations:
    (i) If the initial agreement provides for a repayment phase or for 
other payment terms such as options permitting conversion of part or 
all of the balance to a fixed rate during the draw period, these terms 
must be disclosed pursuant to Sec. Sec.  226.5b and 226.6, and not 
under subpart C. Furthermore, the creditor must continue to provide 
periodic statements under Sec.  226.7 and comply with other provisions 
of subpart B (such as the substantive requirements of Sec.  226.5b(f)) 
throughout the plan, including the repayment phase.
    (ii) If the consumer and the creditor enter into an agreement 
during the draw period to repay all or part of the principal balance on 
different terms (for example, with a fixed rate of interest) and the 
amount of available credit will be replenished as the principal balance 
is repaid, the creditor must continue to comply with subpart B. For 
example, the creditor must continue to provide periodic statements and 
comply with the substantive requirements of Sec.  226.5b(f) throughout 
the plan.
    (iii) If the consumer and creditor enter into an agreement during 
the draw period to repay all or part of the principal balance and the 
amount of available credit will not be replenished as the principal 
balance is repaid, the creditor must give closed-end credit disclosures 
pursuant to subpart C for that new agreement. In such cases, subpart B, 
including the substantive rules, does not apply to the closed-end 
credit transaction, although it will continue to apply to any remaining 
open-end credit available under the plan.
    [rtrif]4.[ltrif][6.] Spreader clause. When a creditor holds a 
mortgage or deed of trust on the consumer's dwelling and that mortgage 
or deed of trust contains a spreader clause (also known as a dragnet or 
cross-collateralization clause), subsequent occurrences such as the 
opening of an open-end plan are subject to the rules applicable to 
home-equity plans to the same degree as if a security interest were 
taken directly to secure the plan, unless the creditor effectively 
waives its security interest under the spreader clause with respect to 
the subsequent open-end credit extensions.
    [rtrif]5b(a) Home-equity Document Provided on or with the 
Application.
    5b(a)(1) In General.
    1. Mail and telephone applications. If an application is sent 
through the mail, the document required by Sec.  226.5b(a) must 
accompany the application. If an application is taken over the 
telephone, the document must be delivered or mailed not later than 
account opening or three business days following receipt of a 
consumer's application by the creditor, whichever is earlier. If an 
application is mailed to the consumer following a telephone request, 
however, the document must be sent along with the application.
    2. General purpose applications. The document required by Sec.  
226.5b(a) need not be provided when a general purpose application is 
given to a consumer unless (1) the application or materials 
accompanying it indicate that it can be used to apply for a home-equity 
plan or (2) the application is provided in response to a consumer's 
specific inquiry about a home-equity plan. On the other hand, if a 
general purpose application is provided in response to a consumer's 
specific inquiry only about credit other than a home-equity plan, the 
document need not be provided even if the application indicates it can 
be used for a home-equity plan, unless it is accompanied by promotional 
information about home-equity plans.
    3. Publicly-available applications. Some creditors make 
applications for home-equity plans, such as take-ones, available 
without the need for a consumer to request them. These applications 
must be accompanied by the document required by Sec.  226.5b(a), such 
as by attaching the document to the application form.
    4. Response cards. A creditor may solicit consumers for its home-
equity plan by mailing a response card which the consumer returns to 
the creditor to indicate interest in the plan. If the only action taken 
by the creditor upon receipt of the response card is to send the 
consumer an application form or to telephone the consumer to discuss 
the plan, the creditor need not send the document required by Sec.  
226.5b(a) with the response card. See comment 5b(a)(1)-1 discussing 
mail and telephone applications.
    5. Denial or withdrawal of application. Section 226.5b(a)(1)(ii) 
provides that for telephone applications and applications received 
through an intermediary agent or broker, creditors must deliver or mail 
the document required by Sec.  226.5b(a)(1)(i) to the consumer not 
later than account opening or three business days following receipt of 
a consumer's application by the creditor, whichever is earlier. If the 
creditor determines within that three-day period that an application 
will not be approved, the creditor need not provide the document. 
Similarly, if the consumer withdraws the application within this three-
day period, the creditor need not provide the document.
    6. Prominent location. i. When document not given in electronic 
form. The document required by Sec.  226.5b(a)(1) must be prominently 
located on or with the application. The document is deemed to be 
prominently located, for example, if the document is on the same page 
as an application. If the document appears elsewhere, it is deemed to 
be prominently located if the application contains a clear and 
conspicuous reference to the location of the document and indicates 
that the document provides information about home-equity lines of 
credit.
    ii. Form of electronic document provided on or with electronic 
applications. Generally, creditors must provide the document required 
by Sec.  226.5b(a)(1) in a prominent location on or with a blank 
application that is made available to the consumer in electronic form, 
such as on a creditor's Internet Web site. (See comment 5b(a)(2)-1) 
Creditors have flexibility in satisfying this requirement. Methods 
creditors could use to satisfy the requirement include, but are not 
limited to, the following examples:
    A. The document could automatically appear on the screen when the 
application appears;
    B. The document could be located on the same Web page as the 
application (whether or not they appear on the initial screen), if the 
application contains a clear and conspicuous reference to the location 
of the document and indicates the document provides information about 
home-equity lines of credit.
    C. Creditors could provide a link to the electronic document on or 
with the

[[Page 43581]]

application as long as consumers cannot bypass the document before 
submitting the application. The link would take the consumer to the 
document, but the consumer need not be required to scroll completely 
through the document; or
    D. The document could be located on the same web page as the 
application without necessarily appearing on the initial screen, 
immediately preceding the button that the consumer will click to submit 
the application.
    Whatever method is used, a creditor need not confirm that the 
consumer has read the document.
    7. Intermediary agent or broker. In determining whether or not an 
application involves an intermediary agent or broker as discussed in 
Sec.  226.5b(a)(1)(ii), creditors should consult the provisions in 
comment 19(d)(3)-3.
    8. Definition of ``business day''. The general definition of 
``business day'' in Sec.  226.2(a)(6)--a day on which the creditor's 
offices are open to the public for carrying on substantially all of its 
business functions--is used for purposes of Sec.  226.5b(a)(1)(ii). See 
comment 2(a)(6)-1.
    9. As published. The document required by Sec.  226.5b(a)(1) must 
be provided as published by the Board. A creditor may not revise the 
document required by Sec.  226.5b(a)(1).
    5b(a)(2) Electronic Disclosures.
    1. When electronic disclosure must be given. Whether the document 
required by Sec.  226.5b(a)(1) must be in electronic form depends upon 
the following:
    i. If a consumer accesses a home-equity credit line application 
electronically (other than as described under ii. below), such as 
online at a home computer, the creditor must provide the disclosure 
required by Sec.  226.5b(a)(1) in electronic form (such as with the 
application form on its Web site) in order to meet the requirement to 
provide the disclosure in a timely manner on or with the application. 
If the creditor instead mailed a paper disclosure to the consumer, this 
requirement would not be met.
    ii. In contrast, if a consumer is physically present in the 
creditor's office, and accesses a home-equity credit line application 
electronically, such as via a terminal or kiosk (or if the consumer 
uses a terminal or kiosk located on the premises of an affiliate or 
third party that has arranged with the creditor to provide applications 
to consumers), the creditor may provide the disclosure in either 
electronic or paper form, provided the creditor complies with the 
timing, delivery, and retainability requirements of the regulation.
    5b(a)(3) Duties of Third Parties.
    1. Duties of third parties. The duties under Sec.  226.5b(a)(3) are 
those of the third party; the creditor is not responsible for ensuring 
that a third party complies with those obligations.
    2. Effect of third party delivery of document required by Sec.  
226.5b(a)(1). If a creditor determines that a third party has provided 
a consumer with the document required by Sec.  226.5b(a)(1), the 
creditor need not give the consumer a second copy of the document.
    3. Telephone applications taken by third party. For telephone 
applications taken by a third party, the third party is not required to 
provide the document required by Sec.  226.5b(a)(1). The document 
required by Sec.  226.5b(a)(1) must be provided by the creditor not 
later than account opening or three business days following receipt of 
the consumer's application by the creditor, whichever is earlier, along 
with the disclosures required by Sec.  226.5b(b).
5b(b) Home-Equity Disclosures Provided No Later Than Account Opening or 
Three Business Days After Application, Whichever is Earlier
    5b(b)(1) Timing.
    1. Denial or withdrawal of application. Section 226.5b(b)(1) 
provides that creditors must deliver or mail disclosures required by 
Sec.  226.5b(b) to the consumer not later than account opening or three 
business days following receipt of a consumer's application by the 
creditor, whichever is earlier. If the creditor determines within the 
three-day period that an application will not be approved, the creditor 
need not provide the disclosures. Similarly, if the consumer withdraws 
the application within this three-day period, the creditor need not 
provide the disclosures.
    2. Definition of ``business day''. The general definition of 
``business day'' in Sec.  226.2(a)(6)--a day on which the creditor's 
offices are open to the public for carrying on substantially all of its 
business functions--is used for purposes of Sec.  226.5b(b)(1). See 
comment 2(a)(6)-1.
    5b(b)(2) Form of disclosures; tabular format.
    1. Terminology. Section 226.5b(b)(2)(i) generally requires that the 
headings, content and format of the tabular disclosures be 
substantially similar, but need not be identical, to the applicable 
tables in Appendix G-14 to part 226. See Sec.  226.5(a)(2) for 
terminology requirements applicable to disclosures provided pursuant to 
Sec.  226.5b(b).
    2. Other format requirements. See Sec.  226.5b(c)(9) for formatting 
requirements applicable to disclosure of certain payment terms in the 
table required by Sec.  226.5b(b). See Sec.  226.5b(c)(10)(i)(A)(1) for 
formatting requirements applicable to disclosure of variable rates in 
the table required by Sec.  226.5b(b). See comments 5b(c)(7)(ii)-1, 
5b(c)(9)(ii)-5, 5b(c)(14)-1 and 5b(c)(18)-2 for format requirements 
that apply to information that a creditor provides to a consumer upon 
request.
    3. Highlighting of disclosures. i. In general. See Samples G-14(C), 
G-14(D) and G-14(E) for guidance on providing the disclosures described 
in Sec.  226.5b(b)(2)(vi) in bold text.
    ii. Periodic fees. Section 226.5b(b)(2)(vi)(D) provides that any 
periodic fee disclosed pursuant to Sec.  226.5b(c)(12) that is not an 
annualized amount must not be disclosed in bold. For example, if a 
creditor imposes a $10 monthly maintenance fee for a HELOC account, the 
creditor must disclose in the table that there is a $10 monthly 
maintenance fee, and that the fee is $120 on an annual basis. In this 
example, the $10 fee disclosure would not be disclosed in bold, but the 
$120 annualized amount must be disclosed in bold. In addition, if a 
creditor must disclose any annual fee in the table, the amount of the 
annual fee must be disclosed in bold.
    iii. Format requirements under Sec.  226.5b(c)(9). Section 
226.5b(b)(2)(vi)(E) provides that if a creditor is required under Sec.  
226.5b(c)(9) to provide a disclosure in a format substantially similar 
to the format used in any of the applicable tables found in Samples G-
14(C), 14(D) or 14(E), the creditor in making that disclosure must 
provide in bold text any terms and phrases that are shown in bold text 
with regard to that disclosure in the applicable tables. For example, 
Sec.  226.5b(c)(9) provides that a creditor must distinguish payment 
terms applicable to the draw period from payment terms applicable to 
the repayment period, by using the applicable heading ``Borrowing 
Period'' for the draw period and ``Repayment Period'' for the repayment 
period in a format substantially similar to the format used in any of 
the applicable tables found in Samples G-14(C) and G-14(E). Because the 
tables found in Samples G-14(C) and G-14(E) show the heading 
``Borrowing Period'' and ``Repayment Period'' in bold text, a creditor 
must disclose these headings in bold text. See Sec.  226.5b(c)(9)(i) 
and (c)(9)(iii)(D) for other instances in which a creditor may be 
required to provide disclosures in a format substantially similar to 
the format used in any of the

[[Page 43582]]

applicable tables found in Samples G-14(C), G-14(D) and G-14(E).
    iv. Itemized list of fees to open the plan. The total amount of 
account-opening fees disclosed under Sec.  226.5b(c)(11) must be 
disclosed in bold text. The itemization of those fees also required to 
be disclosed under Sec.  226.5b(c)(11) must not be disclosed in bold 
text.
    4. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to Sec.  226.5b(b) 
disclosures.
    5b(b)(3) Disclosures Based on a Percentage.
    1. Transaction requirements. Section 226.5b(c)(16) requires a 
creditor to disclose in the table required under Sec.  226.5b(b) any 
limitations on the number of extensions of credit and the amount of 
credit that may be obtained during any time period, as well as any 
minimum outstanding balance and minimum draw requirements. If any 
amount that must be disclosed under Sec.  226.5b(c)(16) is determined 
on the basis of a percentage of another amount, the percentage used and 
the identification of the amount against which the percentage is 
applied may be disclosed instead of the transaction amount.
[5b(a) Form of Disclosures
    5b(a)(1) General.
    1. Written disclosures. The disclosures required under this section 
must be clear and conspicuous and in writing, but need not be in a form 
the consumer can keep. (See the commentary to Sec.  226.6(a)(3) for 
special rules when disclosures required under Sec.  226.5b(d) are given 
in a retainable form.)
    2. Disclosure of annual percentage rate--more conspicuous 
requirement. As provided in Sec.  226.5(a)(2), when the term annual 
percentage rate is required to be disclosed with a number, it must be 
more conspicuous than other required disclosures.
    3. Segregation of disclosures. While most of the disclosures must 
be grouped together and segregated from all unrelated information, the 
creditor is permitted to include information that explains or expands 
on the required disclosures, including, for example:
     Any prepayment penalty
     How a substitute index may be chosen
     Actions the creditor may take short of terminating and 
accelerating an outstanding balance
     Renewal terms
     Rebate of fees
    An example of information that does not explain or expand on the 
required disclosures and thus cannot be included is the creditor's 
underwriting criteria, although the creditor could provide such 
information separately from the required disclosures.
    4. Method of providing disclosures. A creditor may provide a single 
disclosure form for all of its home-equity plans, as long as the 
disclosure describes all aspects of the plans. For example, if the 
creditor offers several payment options, all such options must be 
disclosed. (See, however, the commentary to Sec.  226.5b(d)(5)(iii) and 
(d)(12)(x) and (xi) for disclosure requirements relating to these 
provisions.) If any aspects of a plan are linked together, the creditor 
must disclose clearly the relationship of the terms to each other. For 
example, if the consumer can only obtain a particular payment option in 
conjunction with a certain variable-rate feature, this fact must be 
disclosed. A creditor has the option of providing separate disclosure 
forms for multiple options or variations in features. For example, a 
creditor that offers different payment options for the draw period may 
prepare separate disclosure forms for the two payment options. A 
creditor using this alternative, however, must include a statement on 
each disclosure form that the consumer should ask about the creditor's 
other home-equity programs. (This disclosure is required only for those 
programs available generally to the public. Thus, if the only other 
programs available are employee preferred-rate plans, for example, the 
creditor would not have to provide this statement.) A creditor that 
receives a request for information about other available programs must 
provide the additional disclosures as soon as reasonably possible.
    5. Form of electronic disclosures provided on or with electronic 
applications. Creditors must provide the disclosures required by this 
section (including the brochure) on or with a blank application that is 
made available to the consumer in electronic form, such as on a 
creditor's Internet Web site. Creditors have flexibility in satisfying 
this requirement. Methods creditors could use to satisfy the 
requirement include, but are not limited to, the following examples:
    i. The disclosures could automatically appear on the screen when 
the application appears;
    ii. The disclosures could be located on the same web page as the 
application (whether or not they appear on the initial screen), if the 
application contains a clear and conspicuous reference to the location 
of the disclosures and indicates that the disclosures contain rate, 
fee, and other cost information, as applicable;
    iii. Creditors could provide a link to the electronic disclosures 
on or with the application as long as consumers cannot bypass the 
disclosures before submitting the application. The link would take the 
consumer to the disclosures, but the consumer need not be required to 
scroll completely through the disclosures; or
    iv. The disclosures could be located on the same web page as the 
application without necessarily appearing on the initial screen, 
immediately preceding the button that the consumer will click to submit 
the application.
    Whatever method is used, a creditor need not confirm that the 
consumer has read the disclosures.
    5b(a)(2) Precedence of Certain Disclosures.
    1. Precedence rule. The list of conditions provided at the 
creditor's option under Sec.  226.5b(d)(4)(iii) need not precede the 
other disclosures.
    Paragraph 5b(a)(3).
    1. Form of disclosures. Whether disclosures must be in electronic 
form depends upon the following:
    i. If a consumer accesses a home-equity credit line application 
electronically (other than as described under ii. below), such as 
online at a home computer, the creditor must provide the disclosures in 
electronic form (such as with the application form on its Web site) in 
order to meet the requirement to provide disclosures in a timely manner 
on or with the application. If the creditor instead mailed paper 
disclosures to the consumer, this requirement would not be met.
    ii. In contrast, if a consumer is physically present in the 
creditor's office, and accesses a home-equity credit line application 
electronically, such as via a terminal or kiosk (or if the consumer 
uses a terminal or kiosk located on the premises of an affiliate or 
third party that has arranged with the creditor to provide applications 
to consumers), the creditor may provide disclosures in either 
electronic or paper form, provided the creditor complies with the 
timing, delivery, and retainability requirements of the regulation.
5b(b) Time of Disclosures
    1. Mail and telephone applications. If the creditor sends 
applications through the mail, the disclosures and a brochure must 
accompany the application. If an application is taken over the 
telephone, the disclosures and brochure may be delivered or mailed 
within three business days of taking the application. If an application 
is mailed to the

[[Page 43583]]

consumer following a telephone request, however, the creditor also must 
send the disclosures and a brochure along with the application.
    2. General purpose applications. The disclosures and a brochure 
need not be provided when a general purpose application is given to a 
consumer unless (1) the application or materials accompanying it 
indicate that it can be used to apply for a home-equity plan or (2) the 
application is provided in response to a consumer's specific inquiry 
about a home-equity plan. On the other hand, if a general purpose 
application is provided in response to a consumer's specific inquiry 
only about credit other than a home-equity plan, the disclosures and 
brochure need not be provided even if the application indicates it can 
be used for a home-equity plan, unless it is accompanied by promotional 
information about home-equity plans.
    3. Publicly-available applications. Some creditors make 
applications for home-equity plans, such as take-ones, available 
without the need for a consumer to request them. These applications 
must be accompanied by the disclosures and a brochure, such as by 
attaching the disclosures and brochure to the application form.
    4. Response cards. A creditor may solicit consumers for its home-
equity plan by mailing a response card which the consumer returns to 
the creditor to indicate interest in the plan. If the only action taken 
by the creditor upon receipt of the response card is to send the 
consumer an application form or to telephone the consumer to discuss 
the plan, the creditor need not send the disclosures and brochure with 
the response card.
    5. Denial or withdrawal of application. In situations where 
footnote 10a permits the creditor a three-day delay in providing 
disclosures and the brochure, if the creditor determines within that 
period that an application will not be approved, the creditor need not 
provide the consumer with the disclosures or brochure. Similarly, if 
the consumer withdraws the application within this three-day period, 
the creditor need not provide the disclosures or brochure.
    6. Intermediary agent or broker. In determining whether or not an 
application involves an intermediary agent or broker as discussed in 
footnote 10a, creditors should consult the provisions in comment 19(b)-
3.
5b(c) Duties of Third Parties
    1. Disclosure requirements. Although third parties who give 
applications to consumers for home-equity plans must provide the 
brochure required under Sec.  226.5b(e) in all cases, such persons need 
provide the disclosures required under Sec.  226.5b(d) only in certain 
instances. A third party has no duty to obtain disclosures about a 
creditor's home-equity plan or to create a set of disclosures based on 
what it knows about a creditor's plan. If, however, a creditor provides 
the third party with disclosures along with its application form, the 
third party must give the disclosures to the consumer with the 
application form. The duties under this section are those of the third 
party; the creditor is not responsible for ensuring that a third party 
complies with those obligations. If an intermediary agent or broker 
takes an application over the telephone or receives an application 
contained in a magazine or other publication, footnote 10a permits that 
person to mail the disclosures and brochure within three business days 
of receipt of the application. (See the commentary to Sec.  226.5b(h) 
about imposition of nonrefundable fees.)]
5b[(d)][rtrif](c)[ltrif] Content of Disclosures
    1. Disclosures given as applicable. The disclosures required under 
this section generally need be made only as applicable. Thus, for 
example, if negative amortization cannot occur in a home-equity plan, a 
reference to it need not be made. Nonetheless, there are exceptions to 
this general rule. Specifically, in certain circumstances, a creditor 
must state that a balloon payment will not result for payment plans in 
which no balloon payment would occur, as set forth in Sec.  
226.5b(c)(9)(ii)(B)(3) and (c)(9)(iii)(C)(4). In addition, if there are 
no annual or other periodic limitations on changes in the annual 
percentage rate, a creditor must state that no annual limitation 
exists, as set forth in Sec.  226.5b(c)(10)(i)(A)(5).
    2. Duty to respond to requests for information. If the consumer, 
prior to the opening of a plan, requests information 
[rtrif]described[ltrif][as suggested] in the disclosures (such as 
[rtrif]additional information about fees applicable to the plan or the 
conditions under which the creditor may make take certain actions with 
respect to the plan[ltrif][the current index value or margin]), the 
creditor must provide this information as soon as reasonably possible 
after the request. [rtrif]See comments 5b(c)(7)(ii)-1, 5b(c)(9)(ii)-5, 
5b(c)(14)-1 and 5b(c)(18)-2 for format requirements that apply to 
information that a creditor provides to a consumer upon request.[ltrif]
    [rtrif]3. Disclosure of repayment phase--applicability of 
requirements. Some plans provide in the initial agreement for a period 
during which the consumer may make no further draws and must repay all 
or a portion of the amount borrowed. All of the applicable disclosures 
in this section must be given for the repayment phase. Thus, for 
example, a creditor must provide payment information about the 
repayment phase as well as about the draw period, as required by Sec.  
226.5b(c)(9). To the extent required disclosures are the same for the 
draw and repayment phase, the creditor need not repeat such 
information, as long as it is clear that the information applies to 
both phases.
    4. Fixed-rate and -term payment plans during draw period. Home-
equity plans typically offer a variable-rate feature during the draw 
period. Specifically, withdrawals on a home-equity plan typically will 
access a general-revolving feature to which a variable rate applies. 
Nonetheless, some home-equity plans also offer a fixed-rate and -term 
payment feature, where a consumer is permitted to repay all or part of 
the balance during the draw period at a fixed rate (rather than a 
variable rate) and over a specified time period. If a home-equity plan 
offers a variable-rate feature and a fixed-rate and -term feature 
during the draw period, a creditor generally may not disclose in the 
table the terms applicable to the fixed-rate and -term feature in 
making the disclosures under Sec.  226.5b(c), except as required under 
Sec.  226.5b(c)(18). For example, the creditor would not be allowed to 
disclose in the table information about the payment terms and the 
annual percentage rate applicable to the fixed-rate and -term payment 
feature, under Sec.  226.5b(c)(9) and (c)(10), respectively. In this 
case, the creditor would only be allowed to disclose this information 
for the variable-rate feature; for the fixed-rate and -term feature, 
the creditor would be allowed to disclose in the table only information 
specified in Sec.  226.5b(c)(18). The creditor may, however, disclose 
additional information relating to the fixed-rate and -term feature 
outside of the table. See Sec.  226.5b(b)(2)(v). If a home-equity plan 
does not offer a variable-rate feature during the draw period, but only 
offers fixed-rate and -term payment features during the draw period, a 
creditor must disclose in the table information for the fixed-rate and 
-term features when making the disclosures required by Sec.  226.5b(c).
    5b(c)(1) Identification Information.
    1. Identification of creditor. The creditor making the disclosures 
must be identified. Use of the creditor's name is sufficient, but the 
creditor may also

[[Page 43584]]

include an address and/or telephone number. In transactions with 
multiple creditors, any one of them may make the disclosures; the one 
doing so must be identified.
    2. Multiple loan originators. In transactions with multiple loan 
originators, each loan originator's unique identifier must be 
disclosed. For example, in a transaction where a mortgage broker meets 
the definition of a loan originator under the Secure and Fair 
Enforcement for Mortgage Licensing Act of 2008, Section 1503(3), 12 
U.S.C. 5102(3), the identifiers for the broker and for its employee 
originator meeting that definition must be disclosed.[ltrif]
    [5b(d)(1) Retention of Information.
    1. When disclosure not required. The creditor need not disclose 
that the consumer should make or otherwise retain a copy of the 
disclosures if they are retainable--for example, if the disclosures are 
not part of an application that must be returned to the creditor to 
apply for the plan.]
    [rtrif]5b(c)(4)[ltrif][5b(d)(2)] Conditions for Disclosed Terms.
Paragraph [rtrif]5b(c)(4)(i)[ltrif] [5b(d)(2)(i)]
    1. Guaranteed terms. [The requirement that the creditor disclose 
the time by which an application must be submitted to obtain the 
disclosed terms does not require the creditor to guarantee any terms.] 
If a creditor chooses not to guarantee any terms, it must disclose that 
all of the terms are subject to change prior to opening the plan. The 
creditor also is permitted to guarantee some terms and not others, but 
must indicate which terms are subject to change.
    [2. Date for obtaining disclosed terms. The creditor may disclose 
either a specific date or a time period for obtaining the disclosed 
terms. If the creditor discloses a time period, the consumer must be 
able to determine from the disclosure the specific date by which an 
application must be submitted to obtain any guaranteed terms. For 
example, the disclosure might read, ``To obtain the following terms, 
you must submit your application within 60 days after the date 
appearing on this disclosure,'' provided the disclosure form also shows 
the date.]
    Paragraph [rtrif]5b(c)(4)(ii)[ltrif][5b(d)(2)(ii)].
    1. Relation to other provisions. Creditors should consult the rules 
in [rtrif]Sec.  226.5b(d)[ltrif] [Sec.  226.5b(g)] regarding refund of 
fees [rtrif]when terms change[ltrif].
    [rtrif]5b(c)(5) Refund of Fees Under Sec.  226.5b(e).
    1. Relation to other provisions. Creditors should consult the rules 
in Sec.  226.5b(e) regarding refund of fees if the consumer rejects the 
plan within three business days of receiving the disclosures required 
by Sec.  226.5b(b).
    [rtrif]5b(c)(7)[ltrif][5b(d)(4)] Possible Actions by Creditor.
    Paragraph [rtrif]5b(c)(7)(i)[ltrif][5b(d)(4)(i)].
    1. Fees imposed upon termination. This disclosure applies only to 
fees (such as penalty or prepayment fees) that the creditor imposes if 
it terminates the plan prior to normal expiration. The disclosure does 
not apply to fees that are imposed either when the plan expires in 
accordance with the agreement or if the consumer terminates the plan 
prior to its scheduled maturity. In addition, the disclosure does not 
apply to fees associated with collection of the debt, such as 
attorneys' fees and court costs, or to increases in the annual 
percentage rate linked to the consumer's failure to make payments. The 
actual amount of the fee need not be disclosed.
    2. Changes [rtrif]to the plan[ltrif] [specified in the initial 
agreement]. If changes may occur pursuant to Sec.  
226.5b(f)(3)(i)[rtrif]-(v)[ltrif], a creditor must state that 
[rtrif]the creditor can make changes to the plan.[ltrif][certain 
changes will be implemented as specified in the initial agreement].
    [rtrif]Paragraph 5b(c)(7)(ii)[ltrif] [Paragraph 5b(d)(4)(iii)].
    1. Disclosure of conditions. [rtrif]A creditor may disclose the 
conditions under which a creditor may take certain actions as specified 
in Sec.  226.5b(c)(7) either upon the consumer's request (prior to 
account opening) or with the disclosures required by Sec.  
226.5b(b).[ltrif] In making this disclosure, the creditor may provide a 
highlighted copy of the document that contains such information, such 
as the contract or security agreement. The relevant items must be 
distinguished from the other information contained in the document. For 
example, the creditor may provide a cover sheet that specifically 
points out which contract provisions contain the information, or may 
mark the relevant items on the document itself. As an alternative to 
disclosing the conditions in this manner, the creditor may simply 
describe the conditions using the language in Sec.  [Sec.  ] 
226.5b(f)(2)(i)-[(iii)][rtrif](iv)[ltrif], [226.5b](f)(3)(i) (regarding 
freezing the line when the maximum annual percentage rate is reached), 
and [226.5b](f)(3)(vi) or language that is substantially similar. [The 
condition contained in Sec.  226.5b(f)(2)(iv) need not be stated.] In 
describing [specified] changes that may be implemented during the plan 
[rtrif]under Sec.  226.5b(f)(3)(i)-(v)[ltrif], the creditor may provide 
a disclosure such as, ``[rtrif]We are allowed to make certain changes 
in the terms of the line, such as[ltrif] [Our agreement permits us to 
make certain] changes [to the terms of the line] at specified times or 
upon the occurrence of specified events [rtrif]as set forth in the 
initial agreement[ltrif].'' [rtrif]See comment 5b(c)-2 regarding how 
soon after the consumer's request the creditor must disclose this 
information to the consumer.[ltrif]
    [2. Form of disclosure. The list of conditions under Sec.  
226.5b(d)(4)(iii) may appear with the segregated disclosures or apart 
from them. If the creditor elects to provide the list of conditions 
with the segregated disclosures, the list need not comply with the 
precedence rule in Sec.  226.5b(a)(2).]
    [rtrif]5b(c)(9)[ltrif][5b(d)(5)] Payment Terms.
    [rtrif]1. Balloon payments. i. In general. Section 226.5b(c)(9)(ii) 
and (iii) require disclosures of balloon payments. A balloon payment 
results if paying the minimum periodic payments does not fully amortize 
the outstanding balance by a specified date or time, and the consumer 
must repay the entire outstanding balance at such time. The creditor 
must not make a disclosure about balloon payments if the final payment 
could not be more than twice the amount of other minimum payments under 
the plan. The balloon payment disclosures in Sec.  226.5b(c)(9)(ii) and 
(iii) do not apply in cases where repayment of the entire outstanding 
balance would occur only as a result of termination and acceleration.
    ii. Terminology. In disclosing a balloon payment under Sec.  
226.5b(c)(9)(ii) and (iii), a creditor must disclose that a balloon 
payment ``may'' result if a balloon payment under a payment plan is 
possible, even if such a payment is uncertain or unlikely; a creditor 
must disclose that a balloon payment ``will'' result if a balloon 
payment will occur under a payment plan, such as a payment plan with 
interest-only payments during the draw period and no repayment period.
    [rtrif]2. Disclosing balloon payment when one payment plan is 
disclosed. If under the payment plan, paying only the minimum periodic 
payments may not repay any of the principal or may repay less than the 
outstanding balance by the end of the plan, the creditor must disclose 
information about the balloon payment twice in the table--under Sec.  
226.5b(c)(9)(ii)(A) and (c)(9)(iii)(C)(4). See the row ``Balloon 
Payment'' in the ``Borrowing and Repayment Terms'' section of Sample G-
14(D) for guidance on how to comply with the requirements in Sec.  
226.5b(c)(9)(ii)(A). See the first paragraph in the ``Sample Payments 
on a $80,000 Balance'' section

[[Page 43585]]

of Sample G-14(D) for guidance on how to comply with the requirements 
in Sec.  226.5b(c)(9)(iii)(C)(4).
    3. Disclosing balloon payments when two payment plans are 
disclosed. If under at least one of the payment plans, paying only the 
minimum periodic payments may not repay any of the principal or may 
repay less than the outstanding balance by the end of the plan, the 
creditor must disclose information about the balloon payment three 
times in the table--under Sec.  226.5b(c)(9)(ii)(B)(1), 
(c)(9)(ii)(B)(3), and (c)(9)(iii)(C)(4). See the row ``Balloon 
Payment'' in the ``Borrowing and Repayment Terms'' section of Sample G-
14(C) for guidance on how to comply with the requirements in Sec.  
226.5b(c)(9)(ii)(B)(1). See the rows ``Plan A'' and ``Plan B'' in the 
``Payment Plans'' section of Sample G-14(C) for guidance on how to 
comply with the requirements in Sec.  226.5b(c)(9)(ii)(B)(3). See the 
``Plan A vs. Plan B'' part of the ``Plan Comparison: Sample Payments on 
an $80,000 Balance'' section of Sample G-14(C) for guidance on how to 
comply with the requirements in Sec.  226.5b(c)(9)(iii)(C)(4).[ltrif]
    Paragraph [rtrif]5b(c)(9)(i)[ltrif][5b(d)(5)(i)].
    1. Length of the plan. [The combined length of the draw period and 
any repayment period need not be stated. If the length of the repayment 
phase cannot be determined because, for example, it depends on the 
balance outstanding at the beginning of the repayment period, the 
creditor must state that the length are determined by the size of the 
balance. If the length of the plan is indefinite (for example, because 
there is no time limit on the period during which the consumer can take 
advances), the creditor must state that fact.] [rtrif]i. If a maturity 
date is set forth for the plan, the length of the plan, the length of 
the draw period and the length of any repayment period are definite. 
The length of the plan must be based on the maturity date of the plan, 
regardless of whether the outstanding balance will be paid off before 
or after the maturity date. For example, assume that a plan has a draw 
period of 10 years and a maturity date of 20 years. If the outstanding 
balance on the plan is not paid off by the maturity date, the creditor 
will extend the maturity date of the plan and require the consumer to 
make minimum payments until the outstanding balance is repaid. In this 
example, the creditor must disclose the length of the plan as 20 years, 
the draw period as 10 years and the repayment period as 10 years, even 
though in some cases the maturity date of the plan may be extended in 
the future.
    ii. If the plan does not have a maturity date and the length of the 
repayment period cannot be determined at the time the disclosures 
required by Sec.  226.5b(b) must be given because the length of the 
plan and the length of the repayment period depend on the balance 
outstanding at the beginning of the repayment period or the balance at 
the time of the last advance during the draw period, the creditor must 
state that the length of the plan and the length of the repayment 
period is determined by the size of the balance outstanding at the 
beginning of the repayment period or the balance at the time of the 
last advance during the draw period, as applicable. The following 
examples illustrate this rule:
    A. Assume the plan has no maturity date, the draw period is 10 
years, and the minimum payment during the repayment period is 1.5 
percent of the outstanding balance at the time of the last advance 
during the draw period. In this example, the creditor would disclose 
that the lengths of the plan and the repayment period are determined by 
the size of the outstanding balance at the time of the last advance 
during the draw period.
    B. Assume the length of the draw period is 10 years and the length 
of the repayment period will be 15 years if the balance at the 
beginning of the repayment period is less than $20,000 and 30 years if 
the balance is $20,000 or more. In this example, the creditor must 
disclose that the length of the plan will be 25 or 40 years depending 
on the outstanding balance at the beginning of the repayment period. In 
addition, the creditor must disclose that the repayment period will be 
15 years if the balance is less than $20,000 and 30 years if the 
balance is $20,000 or more. The creditor may not simply disclose that 
the repayment period is determined by the size of the balance. See 
Sample G-14(E) for guidance on how to disclose this information.
    iii. If the length of the plan is indefinite (for example, because 
there is no time limit on the period during which the consumer can take 
advances), the creditor must state that fact.[ltrif]
    2. Renewal provisions. If, under the credit agreement, a creditor 
retains the right to review a line at the end of the specified draw 
period and determine whether to renew or extend the draw period of the 
plan, the possibility of renewal or extension--regardless of its 
likelihood--should be ignored for purposes of the disclosures. For 
example, if an agreement provides that the draw period is five years 
and that the creditor may renew the draw period for an additional five 
years, the possibility of renewal should be ignored and the draw period 
should be considered five years.
    [rtrif]3. Format. Under Sec.  226.5b(c)(9)(i), if the length of the 
plan is definite, a creditor must disclose the length of the plan, the 
length of the draw period and the length of any repayment period in a 
format substantially similar to the format used in any of the 
applicable tables found in Samples G-14(C) and G-14(D) . (See comment 
5b(c)(9)(i)-1 for guidance on determining whether the length of the 
plan is definite.) Sample G-14(D) shows the format a creditor must use 
for plans that have a definite length and have a draw period but no 
repayment period. Sample G-14(C) shows the format a creditor must use 
for plans that have a definite length and have a draw period and a 
repayment period. For example, in Sample G-14(C), the length of a plan 
is 20 years, and the length of the draw period and repayment period are 
10 years each. As shown in Sample G-14(C), the length of the plan must 
be disclosed as 20 years, along with a statement indicating that this 
period is divided into two periods. In this example, the length of the 
draw period must be disclosed as ``Years (1-10)'' and the length of the 
repayment period must be disclosed as ``Years (11-20).'' The length of 
the draw period and repayment period must be included with the headings 
``Borrowing Period'' (for the draw period) and ``Repayment Period'' 
(for the repayment period), respectively, each time these headings are 
used. See Sec.  226.5b(c)(9) for when the headings must be used.
    4. Length of the plan and the length of the draw period are the 
same. If the length of the plan and the length of the draw period are 
the same, a creditor will be deemed to satisfy the requirement to 
disclose the length of plan by disclosing the length of the draw 
period.[ltrif]
    Paragraph [rtrif]5b(c)(9)(ii)[ltrif][5b(d)(5)(ii)].
    1. Determination of the minimum periodic payment. This disclosure 
[must reflect][rtrif]of[ltrif] how the minimum periodic payment is 
determined [, but] [rtrif]must[ltrif] [need only] describe 
[rtrif]only[ltrif] the principal and interest components of the 
payment. Other charges that may be part of the payment (as well as the 
balance computation method) [rtrif]must not be[ltrif] [may, but need 
not, be] described under this provision. [rtrif]In addition, this 
disclosure must not include a description of any floor payment amount, 
where the payment will not go below this amount.[ltrif]
    [rtrif]2. Multiple payment plans. If a creditor only offers two 
payment plans (other than fixed-rate and -term

[[Page 43586]]

payment plans unless those are the only payment plans offered during 
the draw period), both of those payment options must be disclosed in 
the table required by Sec.  226.5b(b). If a creditor offers more than 
two payment options (other than fixed-rate and -term payment plans 
unless those are the only payment plans offered during the draw 
period), the creditor pursuant to Sec.  226.5b(c)(9)(ii)(B) must only 
disclose two of the payment plans in the table required by Sec.  
226.5b(b). The following would be considered two payment plans: The 
draw period is 10 years and the consumer has the choice between two 
repayment periods--10 and 20 years. The two payment plans would be (1) 
a 10 year draw period and a 10 year repayment period, and (2) a 10 year 
draw period and a 20 year repayment period.
    3. Statement about additional payment plans not disclosed in table. 
Section 226.5b(c)(9)(ii)(B) provides that if a creditor offers more 
than the two payment plans described in the table required by Sec.  
226.5b(b)(2)(i) (other than fixed-rate and -term payment plans unless 
those are the only payment plans offered during the draw period), the 
creditor must disclose that other payment plans are available, and the 
consumer should ask the creditor for additional details about these 
other payment plans. This disclosure is required only if the creditor 
offers additional payment plans available to that consumer. If the only 
other payment plans available are employee preferred-rate plans, for 
example, the creditor must provide this statement only if the consumer 
would qualify for the employee preferred-rate plans.[ltrif]
    [2. Fixed rate and term payment options during draw period. If the 
home-equity plan permits the consumer to repay all or part of the 
balance during the draw period at a fixed rate (rather than a variable 
rate) and over a specified time period, this feature must be disclosed. 
To illustrate, a variable-rate plan may permit a consumer to elect 
during a ten-year draw period to repay all or a portion of the balance 
over a three-year period at a fixed rate. The creditor must disclose 
the rules relating to this feature including the period during which 
the option can be selected, the length of time over which repayment can 
occur, any fees imposed for such a feature, and the specific rate or a 
description of the index and margin that will apply upon exercise of 
this choice. For example, the index and margin disclosure might state: 
``If you choose to convert any portion of your balance to a fixed rate, 
the rate will be the highest prime rate published in the `Wall Street 
Journal' that is in effect at the date of conversion plus a margin.'' 
If the fixed rate is to be determined according to an index, it must be 
one that is outside the creditor's control and is publicly available in 
accordance with Sec.  226.5b(f)(1). The effect of exercising the option 
should not be reflected elsewhere in the disclosures, such as in the 
historical example required in Sec.  226.5b(d)(12)(xi).]
    [3] [rtrif]4[ltrif]. Balloon payments. [rtrif]See comments 
5b(c)(9)-1 through -3 for guidance on disclosing balloon payments under 
Sec.  226.5b(c)(9)(ii).[ltrif] [In programs where the occurrence of a 
balloon payment is possible, the creditor must disclose the possibility 
of a balloon payment even if such a payment is uncertain or unlikely. 
In such cases, the disclosure might read, ``Your minimum payments may 
not be sufficient to fully repay the principal that is outstanding on 
your line. If they are not, you will be required to pay the entire 
outstanding balance in a single payment.'' In programs where a balloon 
payment will occur, such as programs with interest-only payments during 
the draw period and no repayment period, the disclosures must state 
that fact. For example, the disclosure might read, ``Your minimum 
payments will not repay the principal that is outstanding on your line. 
You will be required to pay the entire outstanding balance in a single 
payment.'' In making this disclosure, the creditor is not required to 
use the term ``balloon payment.'' The creditor also is not required to 
disclose the amount of the balloon payment. (See, however, the 
requirement under Sec.  226.5b(d)(5)(iii).) The balloon payment 
disclosure does not apply in cases where repayment of the entire 
outstanding balance would occur only as a result of termination and 
acceleration. The creditor also need not make a disclosure about 
balloon payments if the final payment could not be more than twice the 
amount of other minimum payments under the plan.]
    [rtrif]5. Consumer's request for additional information on other 
payment plans. If the creditor offers any other payment plans than the 
two payment plans disclosed in the table required under Sec.  226.5b(b) 
(except for fixed-rate and -term payment plans unless those are the 
only payment plans offered during the draw period), and a consumer 
requests additional information about this other plan prior to account 
opening, the creditor must disclose an additional table under Sec.  
226.5b(b) to the consumer with the terms of the other payment plan 
described in the table. If the creditor offers multiple payment plans 
that were not disclosed in the table required under Sec.  226.5b(b), 
only one payment plan may be disclosed on each additional table given 
to the consumer. For example, if a creditor offers two payment plans 
that were not disclosed in the table required under Sec.  226.5b(b), 
the creditor must provide the consumer, upon request, two additional 
tables--one table for each payment plan. See comment 5b(c)-2 regarding 
how soon after the consumer's request the creditor must disclose this 
information to the consumer.
    6. Reverse mortgages. Reverse mortgages, also known as reverse 
annuity or home-equity conversion mortgages, in addition to permitting 
the consumer to obtain advances, may involve the disbursement of 
monthly advances to the consumer for a fixed period or until the 
occurrence of an event such as the consumer's death. Repayment of the 
reverse mortgage (generally a single payment of principal and accrued 
interest) may be required to be made at the end of the disbursements 
or, for example, upon the death of the consumer. In disclosing these 
plans, creditors must apply the following rules, as applicable:
    i. If the reverse mortgage has a specified period for advances and 
disbursements but repayment is due only upon occurrence of a future 
event such as the death of the consumer, the creditor must assume that 
disbursements will be made until they are scheduled to end. The 
creditor must assume repayment will occur when disbursements end (or 
within a period following the final disbursement which is not longer 
than the regular interval between disbursements). This assumption 
should be used even though repayment may occur before or after the 
disbursements are scheduled to end. In such cases, the creditor may 
include a statement such as ``The disclosures assume that you will 
repay the line at the time the borrowing period and our payments to you 
end. As provided in your agreement, your repayment may be required at a 
different time.'' The single payment should be considered the ``minimum 
periodic payment'' and consequently would not be treated as a balloon 
payment. The examples of the minimum payment under Sec.  
226.5b(c)(9)(iii) should assume the consumer borrows the full credit 
line (as disclosed in Sec.  226.5b(c)(17)) at the beginning of the draw 
period.
    ii. If the reverse mortgage has neither a specified period for 
advances or disbursements nor a specified repayment date and these 
terms will be determined solely by reference to future events, 
including the consumer's death,

[[Page 43587]]

the creditor may assume that the draws and disbursements will end upon 
the consumer's death (estimated by using actuarial tables, for example) 
and that repayment will be required at the same time (or within a 
period following the date of the final disbursement which is not longer 
than the regular interval for disbursements). Alternatively, the 
creditor may base the disclosures upon another future event it 
estimates will be most likely to occur first. (If terms will be 
determined by reference to future events which do not include the 
consumer's death, the creditor must base the disclosures upon the 
occurrence of the event estimated to be most likely to occur first.)
    iii. In making the disclosures, the creditor must assume that all 
draws and disbursements and accrued interest will be paid by the 
consumer. For example, if the note has a non-recourse provision 
providing that the consumer is not obligated for an amount greater than 
the value of the house, the creditor must nonetheless assume that the 
full amount to be drawn or disbursed will be repaid. In this case, 
however, the creditor may include a statement such as ``The disclosures 
assume full repayment of the amount advanced plus accrued interest, 
although the amount you may be required to pay is limited by your 
agreement.''
    iv. Some reverse mortgages provide that some or all of the 
appreciation in the value of the property will be shared between the 
consumer and the creditor. The creditor must disclose the appreciation 
feature, including describing how the creditor's share will be 
determined, any limitations, and when the feature may be exercised. 
[ltrif]
    Paragraph [rtrif]5b(c)(9)(iii)[ltrif][5b(d)(5)(iii)].
    1. Minimum periodic payment examples. [rtrif]A creditor must 
provide examples for each payment option disclosed in the table 
pursuant to Sec.  226.5b(c)(9)(ii). In calculating the payment 
examples, a creditor must take into account any significant terms 
related to each payment option, such as any payment caps or payment 
floor amounts. (A creditor must take payment floor amounts into account 
when calculating the payment examples even though the creditor may not 
disclose that payment floor in the table when describing how minimum 
payments will be calculated. See comment 5b(c)(9)(ii)-1.) For example, 
assume that under a payment plan, the monthly payment for the draw 
period will be calculated as the interest accrued during that month, or 
$50, whichever is greater. In the table described in Sec.  226.5b(b), a 
creditor must disclose that the minimum monthly payment during the draw 
period only covers interest. The creditor must not disclose in the 
table the payment floor of $50. Nonetheless, the creditor must take 
into account this $50 payment floor in calculating the disclosures 
shown as part of the payment examples.[ltrif] In disclosing the payment 
example[rtrif]s[ltrif], the creditor [rtrif]must assume that the 
consumer borrows the full credit line (as disclosed in Sec.  
226.5b(c)(17)) at the beginning of the draw period and that this 
advance is reduced according to the terms of the plan. The creditor 
must not assume that an additional advance is taken at any time, 
including at the beginning of any repayment period. A creditor must 
assume that the annual percentage rate used to calculate each payment 
example required by Sec.  226.5b(c)(9)(iii) will remain the same during 
the draw period and any repayment period as specified in Sec.  
226.5b(c)(9)(iii)(A)(3) even if that annual percentage rate is a 
variable rate under the plan. [ltrif] [ may assume that the credit 
limit as well as the outstanding balance is $10,000 if such an 
assumption is relevant to calculating payments. (If the creditor only 
offers lines of credit for less than $10,000, the creditor may assume 
an outstanding balance of $5,000 instead of $10,000 in making this 
disclosure.)] The example[rtrif]s[ltrif] should reflect the payment 
comprised only of principal and interest. [rtrif]The sample payments in 
the table showing the first minimum periodic payment for the draw 
period and any repayment period, and the balance outstanding at the 
beginning of any repayment period, must be rounded to the nearest whole 
dollar.[ltrif][Creditors may provide an additional example reflecting 
other charges that may be included in the payment, such as credit 
insurance premiums.] Creditors may assume that all months have an equal 
number of days, that payments are collected in whole cents, and that 
payments will fall on a business day even though they may be due on a 
non-business day. [For variable-rate plans, the example must be based 
on the last rate in the historical example required in Sec.  
226.5b(d)(12)(xi), or a more recent rate. In cases where the last rate 
shown in the historical example is different from the index value and 
margin (for example, due to a rate cap), creditors should calculate the 
rate by using the index value and margin. A discounted rate may not be 
considered a more recent rate in calculating this payment example for 
either variable- or fixed-rate plans.]
    [2. Representative examples. In plans with multiple payment options 
within the draw period or within any repayment period, the creditor may 
provide representative examples as an alternative to providing examples 
for each payment option. The creditor may elect to provide 
representative payment examples based on three categories of payment 
options. The first category consists of plans that permit minimum 
payment of only accrued finance charges (interest only plans). The 
second category includes plans in which a fixed percentage or a fixed 
fraction of the outstanding balance or credit limit (for example, 2% of 
the balance or 1/180th of the balance) is used to determine the minimum 
payment. The third category includes all other types of minimum payment 
options, such as a specified dollar amount plus any accrued finance 
charges. Creditors may classify their minimum payment arrangements 
within one of these three categories even if other features exist, such 
as varying lengths of a draw or repayment period, required payment of 
past due amounts, late charges, and minimum dollar amounts. The 
creditor may use a single example within each category to represent the 
payment options in that category. For example, if a creditor permits 
minimum payments of 1%, 2%, 3% or 4% of the outstanding balance, it may 
pick one of these four options and provide the example required under 
Sec.  226.5b(d)(5)(iii) for that option alone.
    The example used to represent a category must be an option commonly 
chosen by consumers, or a typical or representative example. (See the 
commentary to Sec.  226.5b(d)(12) (x) and (xi) for a discussion of the 
use of representative examples for making those disclosures. Creditors 
using a representative example within each category must use the same 
example for purposes of the disclosures under Sec.  226.5b(d)(5)(iii) 
and (d)(12)(x) and (xi).) Creditors may use representative examples 
under Sec.  226.5b(d)(5) only with respect to the payment example 
required under paragraph (d)(5)(iii). Creditors must provide a full 
narrative description of all payment options under Sec.  
226.5b(d)(5)(i) and (ii).
    3. Examples for draw and repayment periods. Separate examples must 
be given for the draw and repayment periods unless the payments are 
determined the same way during both periods. In setting forth payment 
examples for any repayment period under this section (and the 
historical example under Sec.  226.5b(d)(12)(xi)), creditors should 
assume a $10,000 advance is taken at the beginning of the draw period 
and is reduced according to the terms of the plan. Creditors should

[[Page 43588]]

not assume an additional advance is taken at any time, including at the 
beginning of any repayment period.]
    [rtrif]2. Balloon payments. See comments 5b(c)(9)-1 through -3 for 
guidance on disclosing balloon payments under Sec.  
226.5b(c)(9)(iii)(D).
    3. [ltrif][4.] Reverse mortgages. [rtrif]See comment 5b(c)(9)(ii)-6 
for guidance on providing the payment examples required under Sec.  
226.5b(c)(9)(iii) for reverse mortgages.[ltrif] [Reverse mortgages, 
also known as reverse annuity or home-equity conversion mortgages, in 
addition to permitting the consumer to obtain advances, may involve the 
disbursement of monthly advances to the consumer for a fixed period or 
until the occurrence of an event such as the consumer's death. 
Repayment of the reverse mortgage (generally a single payment of 
principal and accrued interest) may be required to be made at the end 
of the disbursements or, for example, upon the death of the consumer. 
In disclosing these plans, creditors must apply the following rules, as 
applicable:
    i. If the reverse mortgage has a specified period for advances and 
disbursements but repayment is due only upon occurrence of a future 
event such as the death of the consumer, the creditor must assume that 
disbursements will be made until they are scheduled to end. The 
creditor must assume repayment will occur when disbursements end (or 
within a period following the final disbursement which is not longer 
than the regular interval between disbursements). This assumption 
should be used even though repayment may occur before or after the 
disbursements are scheduled to end. In such cases, the creditor may 
include a statement such as ``The disclosures assume that you will 
repay the line at the time the draw period and our payments to you end. 
As provided in your agreement, your repayment may be required at a 
different time.'' The single payment should be considered the ``minimum 
periodic payment'' and consequently would not be treated as a balloon 
payment. The example of the minimum payment under Sec.  
226.5b(d)(5)(iii) should assume a single $10,000 draw.
    ii. If the reverse mortgage has neither a specified period for 
advances or disbursements nor a specified repayment date and these 
terms will be determined solely by reference to future events, 
including the consumer's death, the creditor may assume that the draws 
and disbursements will end upon the consumer's death (estimated by 
using actuarial tables, for example) and that repayment will be 
required at the same time (or within a period following the date of the 
final disbursement which is not longer than the regular interval for 
disbursements). Alternatively, the creditor may base the disclosures 
upon another future event it estimates will be most likely to occur 
first. (If terms will be determined by reference to future events which 
do not include the consumer's death, the creditor must base the 
disclosures upon the occurrence of the event estimated to be most 
likely to occur first.)
    iii. In making the disclosures, the creditor must assume that all 
draws and disbursements and accrued interest will be paid by the 
consumer. For example, if the note has a non-recourse provision 
providing that the consumer is not obligated for an amount greater than 
the value of the house, the creditor must nonetheless assume that the 
full amount to be drawn or disbursed will be repaid. In this case, 
however, the creditor may include a statement such as ``The disclosures 
assume full repayment of the amount advanced plus accrued interest, 
although the amount you may be required to pay is limited by your 
agreement.''
    iv. Some reverse mortgages provide that some or all of the 
appreciation in the value of the property will be shared between the 
consumer and the creditor. The creditor must disclose the appreciation 
feature, including describing how the creditor's share will be 
determined, any limitations, and when the feature may be exercised.]
    [rtrif]5b(c)(10)[ltrif][5b(d)(6)] Annual Percentage Rate.
    [rtrif]1. Rates disclosed. The only rates that may be disclosed in 
the table required by Sec.  226.5b(b) are annual percentage rates 
determined under Sec.  226.14(b). Periodic rates must not be disclosed 
in the table.
    2. Rate changes set forth in initial agreement. This paragraph 
requires disclosure of the rate changes set forth in the initial 
agreement, as discussed in Sec.  226.5b(f)(3)(i), that are applicable 
to the payment plans disclosed pursuant to Sec.  226.5b(c)(9). For 
example, this paragraph requires disclosure of preferred-rate 
provisions, where the rate will increase upon the occurrence of some 
event, such as the borrower-employee leaving the creditor's employ or 
the consumer closing an existing deposit account with the creditor. The 
creditor must disclose the preferred rate that applies to the plan, and 
the rate that would apply if the event is triggered, such as the 
borrower-employee leaving the creditor's employ or the consumer closing 
an existing deposit account with the creditor. If the preferred rate 
and the rate that would apply if the event is triggered are variable 
rates, the creditor must disclose those rates based on the applicable 
index or formula, and disclose other information required by Sec.  
226.5b(c)(10)(i).
    3. Rates applicable to payment plans disclosed. A creditor is only 
required to disclose the rates applicable to the payment plans that are 
disclosed in Sec.  226.5b(c)(9). If the creditor offers other payment 
plans than the ones disclosed in the table required under Sec.  
226.5b(b), and a consumer requests additional information about those 
other plans, the creditor must disclose the annual percentage rates 
applicable to those other plans (as well as other information) when 
disclosing those other payment plans to the consumer. See comment 
5b(c)(9)(ii)-5 and comment 5b(c)(18)-2 for the information a creditor 
must provide to a consumer that requests additional information about 
other payment plans offered by the creditor.[ltrif]
    [1. Preferred-rate plans. If a creditor offers a preferential 
fixed-rate plan in which the rate will increase a specified amount upon 
the occurrence of a specified event, the creditor must disclose the 
specific amount the rate will increase.]
    [rtrif]Paragraph 5b(c)(10)(i) Disclosures for Variable-rate Plans.
    1. Variable-rate accounts--definition. For purposes of Sec.  
226.5b(c)(10)(i), a variable-rate account exists when rate changes are 
part of the plan and are tied to an index or formula. (See the 
commentary to Sec.  226.6(a)(4)(ii)-1 for examples of variable-rate 
plans.)
    2. Variable-rate accounts--fact that the rate varies and how the 
rate will be determined. In describing how the applicable rate will be 
determined, the creditor must identify in the table described in Sec.  
226.5b(b) the type of index used and the amount of any margin. In 
describing the index, a creditor may not include in the table details 
about the index. For example, if a creditor uses a prime rate, the 
creditor must disclose the rate as a ``prime rate'' and may not 
disclose in the table other details about the prime rate, such as the 
fact that it is the highest prime rate published in the Wall Street 
Journal two business days before the closing date of the statement for 
each billing period. Except as permitted by Sec.  
226.5b(c)(10)(i)(A)(6), a creditor may not disclose in the table the 
current value of the index (such as that the prime rate is currently 
7.5 percent). See Samples G-14(C), G-14(D) and G-14(E) for guidance on 
how to disclose the fact that the applicable rate varies and how it is 
determined.

[[Page 43589]]

    3. Rate during any repayment period. If a creditor uses an index to 
determine the rate that will apply at the time of conversion to the 
repayment phase--even if the rate will thereafter be fixed--the 
creditor must provide the information in Sec.  226.5b(c)(10)(i), as 
applicable.
    4. Limitations on increases in rates. The creditor must disclose in 
the table required by Sec.  226.5b(b) any limitations on increases in 
the annual percentage rate, including the minimum and maximum annual 
percentage rate that may be imposed under each payment plan disclosed 
under Sec.  226.5b(c)(9)(ii). For example, a creditor must disclose any 
rate limitations that occur every two years, annually or on less than 
an annual basis. If the creditor bases its rate limitation on 12 
monthly billing cycles, such a limitation must be treated as an annual 
cap. Rate limitations imposed on more or less than an annual basis must 
be stated in terms of a specific amount of time. For example, if the 
creditor imposes rate limitations on only a semiannual basis, this must 
be expressed as a rate limitation for a six-month time period. If the 
creditor does not impose annual or other periodic limitations on rate 
increases, the fact must be stated in the table described in Sec.  
226.5b(b).
    5. Maximum limitations on increases in rates. The maximum annual 
percentage rate that may be imposed under each payment option disclosed 
under Sec.  226.5b(c)(9)(ii) over the term of the plan (including the 
draw period and any repayment period provided for in the initial 
agreement) must be provided in the table described in Sec.  226.5b(b). 
If separate overall limitations apply to rate increases resulting from 
events such as leaving the creditor's employ, those limitations also 
must be stated. Limitations do not include legal limits in the nature 
of usury or rate ceilings under state or federal statutes or 
regulations.
    6. Sample forms. Samples G-14(C), G-14(D) and G-14(E) provide 
illustrative guidance on the variable-rate rules.
    Paragraph 5b(c)(10)(ii) Introductory Initial Rate.
    1. Preferred rates. If a creditor offers a preferred rate that will 
increase a specified amount upon the occurrence of a specified event 
other than the expiration of a specific time period, such as the 
borrower-employee leaving the creditor's employ, the preferred rate is 
not an introductory rate under Sec.  226.5b(C)(10)(ii), but must be 
disclosed in accordance with Sec.  226.5b(C)(10). See comment 
5b(C)(10)-2.
    2. Immediate proximity. i. In general. If the term ``introductory'' 
is in the same phrase as the introductory rate, it will be deemed to be 
in immediate proximity of the listing. For example, a creditor that 
uses the phrase ``introductory APR X percent'' has used the word 
``introductory'' within the same phrase as the rate. (See Samples G-
14(C) and G-14(E) for guidance on how to disclose clearly and 
conspicuously the expiration date of the introductory rate and the rate 
that will apply after the introductory rate expires, if an introductory 
rate is disclosed in the table.)
    ii. More than one introductory rate. If more than one introductory 
rate may apply to a particular balance in succeeding periods, the term 
``introductory'' need only be used to describe the first introductory 
rate. For example, if a creditor offers an introductory rate of 8.99% 
on the plan for six months, and an introductory rate of 10.99% for the 
following six months, the term ``introductory'' need only be used to 
describe the 8.99% rate.
    3. Rate that applies after introductory rate expires. If the 
initial rate is an introductory rate, the creditor must disclose the 
introductory rate, how long the introductory rate will remain in 
effect, and the rate that would otherwise apply to the plan. Where the 
rate that would otherwise apply is fixed, the creditor must disclose 
the rate that will apply after the introductory rate expires. Where the 
rate that would otherwise apply is variable, the creditor must disclose 
the rate based on the applicable index or formula, and disclose the 
other variable-rate disclosures required under Sec.  
226.5b(c)(10)(i).[ltrif]
    [rtrif]5b(c)(11)[ltrif][5b(d)(7)] Fees Imposed by Creditor 
[rtrif]and Third Parties to Open the Plan[ltrif].
    1. Applicability. [rtrif]Section 226.5b(c)(11) applies only to one-
time fees imposed by the creditor or third parties to open the plan. 
The fees referred to in Sec.  226.5b(c)(11) include items such as 
application fees, points, appraisal or other property valuation fees, 
credit report fees, government agency fees, and attorneys' fees. Annual 
fees or other periodic fees that may be imposed for the availability of 
the plan would not be disclosed under Sec.  226.5b(c)(11), but must be 
disclosed under Sec.  226.5b(c)(12). A creditor must not state the 
amount of any property insurance premiums in the table, even in cases 
where property insurance is required by the creditor.[ltrif] [The fees 
referred to in section 226.5b(d)(7) include items such as application 
fees, points, annual fees, transaction fees, fees to obtain checks to 
access the plan, and fees imposed for converting to a repayment phase 
that is provided for in the original agreement. This disclosure 
includes any fees that are imposed by the creditor to use or maintain 
the plan, whether the fees are kept by the creditor or a third party. 
For example, if a creditor requires an annual credit report on the 
consumer and requires the consumer to pay this fee to the creditor or 
directly to the third party, the fee must be specifically stated. Third 
party fees to open the plan that are initially paid by the consumer to 
the creditor may be included in this disclosure or in the disclosure 
under Sec.  226.5b(d)(8).]
    2. Manner of describing itemized fees. [rtrif]Section 226.5b(d)(11) 
provides that if the dollar amount of a one-time account opening fee is 
not known at the time the disclosures under Sec.  226.5b(b) are 
delivered or mailed, a creditor must provide a range for such fee. If a 
range is shown, the highest amount of the fee in that range must assume 
that the consumer will borrow the full credit line at account opening. 
The lowest amount of the fee in the range must be the lowest amount of 
the fee that may be imposed.[ltrif] [Charges may be stated as an 
estimated dollar amount for each fee, or as a percentage of a typical 
or representative amount of credit. The creditor may provide a stepped 
fee schedule in which a fee will increase a specified amount at a 
specified date. (See the discussion contained in the commentary to 
Sec.  226.5b(f)(3)(i).)]
    3. Fees not required to be disclosed. Fees that are not imposed to 
open [, use, or maintain] a plan, such as fees for researching an 
account, photocopying, paying late, stopping payment, having a check 
returned, exceeding the credit limit, or closing out an account, do not 
have to be disclosed under this section. Credit report and 
[rtrif]property valuation[ltrif] [appraisal] fees imposed to 
investigate whether a condition permitting a freeze continues to 
exist--as discussed in [rtrif]226.5b(g)(3)(iv) and accompanying 
commentary[ltrif] [the commentary to Sec.  226.5b(f)(3)(vi)]--are not 
required to be disclosed under this section [or Sec.  226.5b(d)(8)].
    4. Rebates of [rtrif]account opening fees[ltrif][closing costs]. If 
[rtrif] one-time fees for account opening [ltrif] [closing costs] are 
imposed they must be disclosed, regardless of whether such costs may be 
rebated later (for example, rebated to the extent of any interest paid 
during the first year of the plan).
    [5. Terms used in disclosure. Creditors need not use the terms 
finance charge or other charge in describing the fees imposed by the 
creditor under this section or those imposed by third

[[Page 43590]]

parties, as applicable, under section 226.5b(d)(8).]
    [rtrif]5. Disclosure of itemized list of fees to open a plan. A 
creditor will be deemed to provide the itemization of the account-
opening fees clearly and conspicuously if the creditor provides this 
information in a bullet format as shown in Samples G-14(C), G-14(D) and 
G-14(E).[ltrif]
    [rtrif]5(b)(c)(12) Fees Imposed by the Creditor for Availability of 
the Plan.
    1. Fee to obtain access devices. The fees referred to in Sec.  
226.5b(c)(12) include fees to obtain access devices, such as fees to 
obtain checks or credit cards to access the plan. For example, a fee to 
obtain checks or a credit card on the account must be disclosed in the 
table as a fee for issuance or availability under Sec.  226.5b(c)(12). 
This fee must be disclosed even if the fee is optional; that is, if the 
fee is charged only if the consumer requests checks or a credit card.
    2. Fees kept by third party. The fees referred to in Sec.  
226.5b(c)(12) include any fees that are imposed by the creditor for the 
availability of the plan, whether the fees are kept by the creditor or 
a third party. For example, if a creditor requires an annual credit 
report on the consumer and requires the consumer to pay this fee to the 
creditor or directly to the third party, the fee must be disclosed 
under Sec.  226.5b(c)(12).
    3. Waived or reduced fees. If fees required to be disclosed under 
Sec.  226.5b(c)(12) are waived or reduced for a limited time, the 
introductory fees or the fact of fee waivers may be provided in the 
table in addition to the required fees if the creditor also discloses 
how long the reduced fees or waivers will remain in effect.
    5b(c)(13) Fees Imposed by the Creditor for Early Termination of the 
Plan by the Consumer.
    1. Applicability. This disclosure applies to fees (such as penalty 
or prepayment fees) that the creditor imposes if the consumer 
terminates the plan prior to its scheduled maturity. This disclosure 
includes waived account-opening fees for the plan, if the creditor will 
impose those costs on the consumer if the consumer terminates the plan 
within a certain amount of time after account opening. The disclosure 
does not apply to fees that the creditor may impose in lieu of 
termination under comment 5b(f)(2)-2. The disclosure also does not 
apply to fees that are imposed when the plan expires in accordance with 
the agreement or that are associated with collection of the debt if the 
creditor terminates the plan, such as attorneys' fees and court costs.
    5b(c)(14) Statement about Other Fees.
    1. Disclosure of additional information upon request. A creditor 
generally must include in the table required by Sec.  226.5b(b) a 
statement that the consumer may receive, upon request, additional 
information about fees applicable to the plan. Alternatively, a 
creditor may provide additional information about fees applicable to 
the plan along with the table required by Sec.  226.5b(b). In that 
case, the creditor must disclose in the table that is required by Sec.  
226.5b(b) that additional information about fees applicable to the plan 
is enclosed with the table. In providing additional information about 
fees to a consumer upon the consumer's request prior to account opening 
(or along with the table required under Sec.  226.5b(b)), a creditor 
must disclose the penalty and transaction fees that are required to be 
disclosed under Sec.  226.6(a)(2)(x) through (xiv) and a statement that 
other fees may apply. A creditor must use a tabular format to disclose 
the additional information about fees that is provided upon request or 
provided with the table required by Sec.  226.5b(b). See comment 5b(c)-
2 regarding how soon after the consumer's request the creditor must 
disclose this information to the consumer.[ltrif]
    [5b(d)(8) Fees Imposed by Third Parties to Open a Plan.
    1. Applicability. Section 226.5b(d)(8) applies only to fees imposed 
by third parties to open the plan. Thus, for example, this section does 
not require disclosure of a fee imposed by a government agency at the 
end of a plan to release a security interest. Fees to be disclosed 
include appraisal, credit report, government agency, and attorneys' 
fees. In cases where property insurance is required by the creditor, 
the creditor either may disclose the amount of the premium or may state 
that property insurance is required. For example, the disclosure might 
state, ``You must carry insurance on the property that secures this 
plan.''
    2. Itemization of third-party fees. In all cases creditors must 
state the total of third-party fees as a single dollar amount or a 
range except that the total need not include costs for property 
insurance if the creditor discloses that such insurance is required. A 
creditor has two options with regard to providing the more detailed 
information about third party fees. Creditors may provide a statement 
that the consumer may request more specific cost information about 
third party fees from the creditor. As an alternative to including this 
statement, creditors may provide an itemization of such fees (by type 
and amount) with the early disclosures. Any itemization provided upon 
the consumer's request need not include a disclosure about property 
insurance.
    3. Manner of describing fees. A good faith estimate of the amount 
of fees must be provided. Creditors may provide, based on a typical or 
representative amount of credit, a range for such fees or state the 
dollar amount of such fees. Fees may be expressed on a unit cost basis, 
for example, $5 per $1,000 of credit.
    4. Rebates of third party fees. Even if fees imposed by third 
parties may be rebated, they must be disclosed. (See the commentary to 
Sec.  226.5b(d)(7).)]
    [rtrif]5b(c)(15)[ltrif][5b(d)(9)] Negative Amortization.
    1. Disclosure required. In transactions where the minimum payment 
will not or may not be sufficient to cover the interest that accrues on 
the outstanding balance, the creditor must disclose that negative 
amortization will or may occur. This disclosure is required whether or 
not the unpaid interest is added to the outstanding balance upon which 
interest is computed. A disclosure is not required merely because a 
loan calls for non-amortizing or partially amortizing payments. 
[rtrif]A creditor will be deemed to meet the requirements of Sec.  
226.5b(c)(15) by providing the following disclosure, as applicable: 
``Your minimum payment may cover/covers only part of the interest you 
owe each month and none of the principal. The unpaid interest will be 
added to your loan amount, which over time will increase the total 
amount you are borrowing and cause you to lose equity in your 
home.''[ltrif]
    [rtrif]5b(c)(16)[ltrif] [5b(d)(10)] Transaction Requirements.
    1. Applicability. A limitation on automated teller machine usage 
need not be disclosed under this paragraph unless that is the only 
means by which the consumer can obtain funds.
    [rtrif]5b(c)(18) Statements About Fixed-Rate and -Term Payment 
Plans.
    1. Disclosure of fixed-rate and -term payment plans in the table. 
See comment 5b(c)-4 regarding disclosure of terms relating to fixed-
rate and -term payment plans during the draw period in the table 
required by Sec.  226.5b(b).
    2. Disclosure of additional information upon request. A creditor 
generally must disclose in the table required by Sec.  226.5b(b) a 
statement that the consumer may receive, upon request, further details 
about the fixed-rate and -term payment plans. Alternatively, a creditor 
may provide additional detail about the fixed-rate and -term payment 
plans with the table required by Sec.  226.5b(b). In that case, the

[[Page 43591]]

creditor must state that information about the fixed-rate and -term 
payment plans are provided along with the table required by Sec.  
226.5b(b). In disclosing additional information about the fixed-rate 
and -term payment plans upon a consumer's request prior to account 
opening (or along with the table required by Sec.  226.5b(b)), a 
creditor must disclose in the form of a table (1) the information 
described by Sec.  226.5b(c) applicable to the fixed-rate and -term 
payment plans, and (2) any fees imposed related to the use of the 
fixed-rate and -term payment plans, such as fees to exercise the fixed-
rate and -term payment plans or to convert a balance under a fixed-rate 
and -term payment feature to a variable-rate feature under the HELOC 
plan. See comment 5b(c)-2 regarding how soon after the consumer's 
request the creditor must disclose this information to the consumer.
    5b(c)(19) Required Insurance, Debt Cancellation, or Debt Suspension 
Coverage.
    1. Content. See Samples G-14(D) and G-14(E) for guidance on how to 
comply with the requirements in Sec.  226.5b(c)(19).[ltrif]
    [5b(d)(12) Disclosures for Variable-Rate Plans.
    1. Variable-rate provisions. Sample forms in appendix G-14 provide 
illustrative guidance on the variable-rate rules.
    Paragraph 5b(d)(12)(iv).
    1. Determination of annual percentage rate. If the creditor adjusts 
its index through the addition of a margin, the disclosure might read, 
``Your annual percentage rate is based on the index plus a margin.'' 
The creditor is not required to disclose a specific value for the 
margin.
    Paragraph 5b(d)(12)(viii).
    1. Preferred-rate provisions. This paragraph requires disclosure of 
preferred-rate provisions, where the rate will increase upon the 
occurrence of some event, such as the borrower-employee leaving the 
creditor's employ or the consumer closing an existing deposit account 
with the creditor.
    2. Provisions on conversion to fixed rates. The commentary to Sec.  
226.5b(d)(5)(ii) discusses the disclosure requirements for options 
permitting the consumer to convert from a variable rate to a fixed 
rate.
    Paragraph 5b(d)(12)(ix).
    1. Periodic limitations on increases in rates. The creditor must 
disclose any annual limitations on increases in the annual percentage 
rate. If the creditor bases its rate limitation on 12 monthly billing 
cycles, such a limitation should be treated as an annual cap. Rate 
limitations imposed on less than an annual basis must be stated in 
terms of a specific amount of time. For example, if the creditor 
imposes rate limitations on only a semiannual basis, this must be 
expressed as a rate limitation for a six-month time period. If the 
creditor does not impose periodic limitations (annual or shorter) on 
rate increases, the fact that there are no annual rate limitations must 
be stated.
    2. Maximum limitations on increases in rates. The maximum annual 
percentage rate that may be imposed under each payment option over the 
term of the plan (including the draw period and any repayment period 
provided for in the initial agreement) must be provided. The creditor 
may disclose this rate as a specific number (for example, 18%) or as a 
specific amount above the initial rate. For example, this disclosure 
might read, ``The maximum annual percentage rate that can apply to your 
line will be 5 percentage points above your initial rate.'' If the 
creditor states the maximum rate as a specific amount above the initial 
rate, the creditor must include a statement that the consumer should 
inquire about the rate limitations that are currently available. If an 
initial discount is not taken into account in applying maximum rate 
limitations, that fact must be disclosed. If separate overall 
limitations apply to rate increases resulting from events such as the 
exercise of a fixed-rate conversion option or leaving the creditor's 
employ, those limitations also must be stated. Limitations do not 
include legal limits in the nature of usury or rate ceilings under 
state or federal statutes or regulations.
    3. Form of disclosures. The creditor need not disclose each 
periodic or maximum rate limitation that is currently available. 
Instead, the creditor may disclose the range of the lowest and highest 
periodic and maximum rate limitations that may be applicable to the 
creditor's home-equity plans. Creditors using this alternative must 
include a statement that the consumer should inquire about the rate 
limitations that are currently available.
    Paragraph 5b(d)(12)(x).
    1. Maximum rate payment example. In calculating the payment 
creditors should assume the maximum rate is in effect. Any discounted 
or premium initial rates or periodic rate limitations should be ignored 
for purposes of this disclosure. If a range is used to disclose the 
maximum cap under Sec.  226.5b(d)(12)(ix), the highest rate in the 
range must be used for the disclosure under this paragraph. As an 
alternative to making disclosures based on each payment option, the 
creditor may choose a representative example within the three 
categories of payment options upon which to base this disclosure. (See 
the commentary to Sec.  226.5b(d)(5).) However, separate examples must 
be provided for the draw period and for any repayment period unless the 
payment is determined the same way in both periods. Creditors should 
calculate the example for the repayment period based on an assumed 
$10,000 balance. (See the commentary to Sec.  226.5b(d)(5) for a 
discussion of the circumstances in which a creditor may use a lower 
outstanding balance.)
    2. Time the maximum rate could be reached. In stating the date or 
time when the maximum rate could be reached, creditors should assume 
the rate increases as rapidly as possible under the plan. In 
calculating the date or time, creditors should factor in any discounted 
or premium initial rates and periodic rate limitations. This disclosure 
must be provided for the draw phase and any repayment phase. Creditors 
should assume the index and margin shown in the last year of the 
historical example (or a more recent rate) is in effect at the 
beginning of each phase.
    Paragraph 5b(d)(12)(xi).
    1. Index movement. Index values and annual percentage rates must be 
shown for the entire 15 years of the historical example and must be 
based on the most recent 15 years. The example must be updated annually 
to reflect the most recent 15 years of index values as soon as 
reasonably possible after the new index value becomes available. If the 
values for an index have not been available for 15 years, a creditor 
need only go back as far as the values have been available and may 
start the historical example at the year for which values are first 
available.
    2. Selection of index values. The historical example must reflect 
the method of choosing index values for the plan. For example, if an 
average of index values is used in the plan, averages must be used in 
the example, but if an index value as of a particular date is used, a 
single index value must be shown. The creditor is required to assume 
one date (or one period, if an average is used) within a year on which 
to base the history of index values. The creditor may choose to use 
index values as of any date or period as long as the index value as of 
this date or period is used for each year in the example. Only one 
index value per year need be shown, even if the plan provides for 
adjustments to the annual percentage rate or payment more than once in 
a year. In such cases, the creditor can assume that the index rate 
remained

[[Page 43592]]

constant for the full year for the purpose of calculating the annual 
percentage rate and payment.
    3. Selection of margin. A value for the margin must be assumed in 
order to prepare the example. A creditor may select a representative 
margin that it has used with the index during the six months preceding 
preparation of the disclosures and state that the margin is one that it 
has used recently. The margin selected may be used until the creditor 
annually updates the disclosure form to reflect the most recent 15 
years of index values.
    4. Amount of discount or premium. In reflecting any discounted or 
premium initial rate, the creditor may select a discount or premium 
that it has used during the six months preceding preparation of the 
disclosures, and should disclose that the discount or premium is one 
that the creditor has used recently. The discount or premium should be 
reflected in the example for as long as it is in effect. The creditor 
may assume that a discount or premium that would have been in effect 
for any part of a year was in effect for the full year for purposes of 
reflecting it in the historical example.
    5. Rate limitations. Limitations on both periodic and maximum rates 
must be reflected in the historical example. If ranges of rate 
limitations are provided under Sec.  226.5b(d)(12)(ix), the highest 
rates provided in those ranges must be used in the example. Rate 
limitations that may apply more often than annually should be treated 
as if they were annual limitations. For example, if a creditor imposes 
a 1% cap every six months, this should be reflected in the example as 
if it were a 2% annual cap.
    6. Assumed advances. The creditor should assume that the $10,000 
balance is an advance taken at the beginning of the first billing cycle 
and is reduced according to the terms of the plan, and that the 
consumer takes no subsequent draws. As discussed in the commentary to 
Sec.  226.5b(d)(5), creditors should not assume an additional advance 
is taken at the beginning of any repayment period. If applicable, the 
creditor may assume the $10,000 is both the advance and the credit 
limit. (See the commentary to Sec.  226.5b(d)(5) for a discussion of 
the circumstances in which a creditor may use a lower outstanding 
balance.)
    7. Representative payment options. The creditor need not provide an 
historical example for all of its various payment options, but may 
select a representative payment option within each of the three 
categories of payments upon which to base its disclosure. (See the 
commentary to Sec.  226.5b(d)(5).)
    8. Payment information. The payment figures in the historical 
example must reflect all significant program terms. For example, 
features such as rate and payment caps, a discounted initial rate, 
negative amortization, and rate carryover must be taken into account in 
calculating the payment figures if these would have applied to the 
plan. The historical example should include payments for as much of the 
length of the plan as would occur during a 15-year period. For example:
     If the draw period is 10 years and the repayment period is 
15 years, the example should illustrate the entire 10-year draw period 
and the first 5 years of the repayment period.
     If the length of the draw period is 15 years and there is 
a 15-year repayment phase, the historical example must reflect the 
payments for the 15-year draw period and would not show any of the 
repayment period. No additional historical example would be required to 
reflect payments for the repayment period.
     If the length of the plan is less than 15 years, payments 
in the historical example need only be shown for the number of years in 
the term. In such cases, however, the creditor must show the index 
values, margin and annual percentage rates and continue to reflect all 
significant plan terms such as rate limitations for the entire 15 
years.
    A creditor need show only a single payment per year in the example, 
even though payments may vary during a year. The calculations should be 
based on the actual payment computation formula, although the creditor 
may assume that all months have an equal number of days. The creditor 
may assume that payments are made on the last day of the billing cycle, 
the billing date or the payment due date, but must be consistent in the 
manner in which the period used to illustrate payment information is 
selected. Information about balloon payments and remaining balance may, 
but need not, be reflected in the example.
    9. Disclosures for repayment period. The historical example must 
reflect all features of the repayment period, including the appropriate 
index values, margin, rate limitations, length of the repayment period, 
and payments. For example, if different indices are used during the 
draw and repayment periods, the index values for that portion of the 15 
years that reflect the repayment period must be the values for the 
appropriate index.
    10. Reverse mortgages. The historical example for reverse mortgages 
should reflect 15 years of index values and annual percentage rates, 
but the payment column should be blank until the year that the single 
payment will be made, assuming that payment is estimated to occur 
within 15 years. (See the commentary to Sec.  226.5b(d)(5) for a 
discussion of reverse mortgages.)
5b(e) Brochure
    1. Substitutes. A brochure is a suitable substitute for the Board's 
home-equity brochure if it is, at a minimum, comparable to the Board's 
brochure in substance and comprehensiveness. Creditors are permitted to 
provide more detailed information than is contained in the Board's 
brochure.
    2. Effect of third-party delivery of brochure. If a creditor 
determines that a third party has provided a consumer with the required 
brochure pursuant to section 226.5b(c), the creditor need not give the 
consumer a second brochure.]
5b[(g)][rtrif](d)[ltrif] Refund of Fees
    1. Refund of fees required. If any disclosed term, including any 
term provided upon request pursuant to section 
226.5b[rtrif](c)[ltrif][(d)], changes between the time the early 
disclosures are provided to the consumer and the time the plan is 
opened, and the consumer [as a result] decides to not enter into the 
plan, a creditor must refund all fees paid by the consumer [in 
connection with the application]. All fees, including credit-report 
fees and appraisal fees, must be refunded whether such fees are paid to 
the creditor or directly to third parties. A consumer is entitled to a 
refund of fees under these circumstances whether or not terms are 
guaranteed by the creditor under section 
226.5b[rtrif](c)(4)(i)[ltrif][(d)(2)(i)].
    2. Variable-rate plans. The right to a refund of fees does not 
apply to changes in the annual percentage rate resulting from 
fluctuations in the index value in a variable-rate plan. Also, if the 
maximum annual percentage rate is [expressed as] an amount over the 
initial rate, the right to refund of fees would not apply to changes in 
the cap resulting from fluctuations in the index value.
    3. Changes in terms. If a term, such as [rtrif]a fee[ltrif] [the 
maximum rate], is stated as a range in the early disclosures 
[rtrif]required under Sec.  226.5b(b)[ltrif], and the term ultimately 
applicable to the plan falls within that range, a change does not occur 
for purposes of this section. If, however, no range is used and the 
term is changed (for example, a rate cap of 6 rather than 5 percentage 
points over the initial rate), the change would permit the consumer to 
obtain a refund of fees. If a fee imposed by the creditor is stated in 
the early disclosures as an estimate and the fee changes, the consumer 
could

[[Page 43593]]

elect to not enter into the agreement and would be entitled to a refund 
of fees. [On the other hand, if fees imposed by third parties are 
disclosed as estimates and those fees change, the consumer is not 
entitled to a refund of fees paid in connection with the application. 
Creditors must, however, use the best information reasonably available 
in providing disclosures about such fees.]
    4. Timing of refunds and relation to other provisions. The refund 
of fees must be made as soon as reasonably possible after the creditor 
is notified[rtrif], after a term has changed,[ltrif] that the consumer 
is not entering into the plan [because of the changed term,] or that 
the consumer wants a refund of fees. The fact that an application fee 
may be refunded to some applicants under this provision does not render 
such fees finance charges under section 226.4(c)(1) of the regulation.
5b[(h)] [rtrif](e)[ltrif] Imposition of Nonrefundable Fees
    1. Collection of fees after consumer receives disclosures. A fee 
may be collected after the consumer receives the disclosures 
[rtrif]required under this section[ltrif] [and brochure] and before the 
expiration of three [rtrif]business[ltrif] days, although the fee must 
be refunded if, within three [rtrif]business[ltrif] days of receiving 
the required information, the consumer decides not to enter into the 
agreement. In such a case, the consumer must be notified that the fee 
is refundable for three [rtrif]business[ltrif] days. The notice must be 
clear and conspicuous and in writing, and [rtrif]must [ltrif] [may] be 
included with the disclosures required under Sec.  
226.5b[(d)][rtrif](b)[ltrif] [or as an attachment to them]. If 
disclosures [rtrif]required under Sec.  226.5b(b)[ltrif] [and brochure] 
are mailed to the consumer, [rtrif]Sec.  226.5b(e)[ltrif] [footnote 
10d] of the regulation provides that a nonrefundable fee may not be 
imposed until six business days after the mailing.
    2. Collection of fees before consumer receives disclosures. An 
application fee may be collected before the consumer receives the 
disclosures [rtrif]required under Sec.  226.5b(b)[ltrif] [and brochure] 
(for example, when an application contained in a magazine is mailed in 
with an application fee) provided that [it] [rtrif]the fee[ltrif] 
remains refundable until three business days after the consumer 
receives the section 226.5b[rtrif](b)[ltrif] disclosures. No other fees 
except a refundable membership fee may be collected until after the 
consumer receives the disclosures required under section 
226.5b[rtrif](b)[ltrif].
    3. Relation to other provisions. A fee collected before disclosures 
[rtrif]required under Sec.  226.5b(b)[ltrif] are provided may become 
nonrefundable except that, under section 226.5b[(g)][rtrif](d)[ltrif], 
it must be refunded if [rtrif]a term changes and[ltrif] the consumer 
elects not to enter into the plan [because of a change in terms]. (Of 
course, all fees must be refunded if the consumer later rescinds under 
section 226.15.)
    [rtrif]4. Definition of ``Business Day''. For purposes Sec.  
226.5b(e), the more precise definition of business day (meaning all 
calendar days except Sundays and specified federal holidays) under 
Sec.  226.2(a)(6) applies. See comment 2(a)(6)-2.[ltrif]
    5b(f) Limitations on home-equity plans.
    Paragraph 5b(f)(2)(ii).
    [rtrif]1. Under this paragraph, a creditor may not terminate and 
accelerate a home-equity plan, or take the lesser actions of 
permanently suspending advances or reducing the credit limit, imposing 
a penalty rate of interest, or adding or increasing a fee (as permitted 
under comment 5b(f)(2)-2, unless the consumer's required minimum 
payment is not received by the creditor within 30 days after the due 
date for that payment. This paragraph does not prohibit a creditor from 
imposing a late-payment fee disclosed in the agreement, or from 
temporarily suspending advances or reducing the credit limit for a 
``default of any material obligation'' (as permitted under Sec.  
226.5b(f)(3)(vi)(C)), for a delinquency of 30 days or fewer.
    2. A creditor may not take any action under this paragraph unless 
the creditor complies with notice requirements under Sec.  226.9(j)(3), 
which requires notice of the action taken and the reasons for the 
action and, if applicable, notice of an increased annual percentage 
rate (under Sec.  226.9(i)(1)) or notice of any other change in terms, 
such as the addition or increase of a fee (under Sec.  226.9(c)(1)). 
This section does not override any state or other law that requires a 
right to cure notice, or otherwise places a duty on the creditor before 
it can terminate a plan and accelerate the balance.[ltrif]
    [1. Failure to meet repayment terms. A creditor may terminate a 
plan and accelerate the balance when the consumer fails to meet the 
repayment terms provided for in the agreement. However, a creditor may 
terminate and accelerate under this provision only if the consumer 
actually fails to make payments. For example, a creditor may not 
terminate and accelerate if the consumer, in error, sends a payment to 
the wrong location, such as a branch rather than the main office of the 
creditor. If a consumer files for or is placed in bankruptcy, the 
creditor may terminate and accelerate under this provision if the 
consumer fails to meet the repayment terms of the agreement. This 
section does not override any state or other law that requires a right 
to cure notice, or otherwise places a duty on the creditor before it 
can terminate a plan and accelerate the balance.]
* * * * *
    [rtrif]Paragraph 5b(f)(2)(iv)
    1. ``Federal law'' under this provision is limited to any federal 
statute, its implementing regulation, and official interpretations 
issued by the regulatory agency with authority to implement the statute 
or regulation.[ltrif]
* * * * *
    Paragraph 5b(f)(3).
    1. Scope of provision. In general, a creditor may not change the 
terms of a plan after it is opened. For example, a creditor may not 
increase any fee or impose a new fee once the plan has been opened, 
even if the fee is charged by a third party, such as a credit reporting 
agency, for a service. The change-of-terms prohibition applies to all 
features of a plan, not only those required to be disclosed under this 
section. [For example, this provision applies to charges imposed for 
late payment, although this fee is not required to be disclosed under 
Sec.  226.5b(d)(7).]
    2. [Charges not covered] [rtrif]Certain tax and insurance 
charges.[ltrif] [There are three charges not covered by this 
provision.] A creditor may pass on increases in taxes since such 
charges are imposed by a governmental body and are beyond the control 
of the creditor. In addition, a creditor may pass on increases in 
premiums for property insurance that are excluded from the finance 
charge under Sec.  226.4(d)(2), since such insurance provides a benefit 
to the consumer independent of the use of the line and is often 
maintained notwithstanding the line. A creditor also may pass on 
increases in premiums for credit insurance that are excluded from the 
finance charge under Sec.  226.4(d)(1), since the insurance is 
voluntary and provides a benefit to the consumer.
    [rtrif]3. Certain default-related charges. This provision does not 
prohibit a creditor from passing on to the consumer bona fide and 
reasonable costs incurred by the creditor for collection activity after 
default, to protect the creditor's interest in the property securing 
the plan, or to foreclose on the securing property. These costs might 
include, among others, attorneys' fees, court costs, property repairs, 
payment of overdue taxes, or paying sums secured by a lien with 
priority over the lien securing the

[[Page 43594]]

home-equity plan. The requirement that these costs be ``bona fide and 
reasonable'' means that the creditor must actually incur the costs and 
that the amount of the costs must be reasonably related to the services 
related to debt collection, collateral protection or foreclosure. A 
creditor may pass these costs on to the consumer only if the creditor 
incurs these costs due to the consumer's default on an obligation under 
the agreement for the plan.[ltrif]
    Paragraph 5b(f)(3)(i).
    1. Changes provided for in agreement. A creditor may provide in the 
initial agreement that further advances may be prohibited or the credit 
line reduced during any period in which the maximum annual percentage 
rate is reached. A creditor may provide for other specific changes to 
take place upon the occurrence of specific events. Both the triggering 
event and the resulting modification must be stated with specificity. 
For example, in home-equity plans for employees, the agreement could 
provide that a specified higher rate or margin will apply if the 
borrower's employment with the creditor ends, [rtrif]or upon the 
occurrence of some other triggering event. However, the agreement would 
not be permitted to provide for a rate or margin higher than the one 
that would have been available to the consumer in the absence of 
special circumstances such as employment with the creditor (unless the 
triggering event is a circumstance that would permit the rate to be 
increased as a penalty under Sec.  226.5b(f)(2) and comment 5b(f)(2)-
2)).[ltrif] A contract could contain a stepped-rate or stepped-fee 
schedule providing for specified changes in the rate or the fees on 
certain dates or after a specified period of time. A creditor also may 
provide in the initial agreement that it will be entitled to a share of 
the appreciation in the value of the property as long as the specific 
appreciation share and the specific circumstances which require the 
payment of it are set forth. A contract may permit a consumer to switch 
among minimum-payment options during the plan.
* * * * *
    Paragraph 5b(f)(3)(iv).
    1. Beneficial changes. After a plan is opened, a creditor may make 
changes that unequivocally benefit the consumer. Under this provision, 
a creditor may offer more options to consumers, as long as existing 
options remain. For example, a creditor may offer the consumer the 
option of making lower monthly payments or could increase the credit 
limit. Similarly, a creditor wishing to extend the length of the plan 
on the same terms may do so. Creditors are permitted to temporarily 
reduce the rate or fees charged during the plan (though change-in-terms 
notice [rtrif]would[ltrif] [may] be required under Sec.  
226.9(c)[rtrif](1)[ltrif] when the rate or fees are returned to their 
original level [rtrif], unless these features are explained on the 
account-opening disclosure statement required under Sec.  226.6 
(including an explanation of the terms upon resumption). Also, as long 
as the 45-day advance notice timing requirement of Sec.  226.9(c)(1) is 
met, notice of the increase in the rate or fees may be included with a 
notice to the consumer that the rate or fees are being reduced.[ltrif] 
Creditors also may offer an additional means of access to the line, 
even if fees are associated with using the device, provided the 
consumer retains the ability to use prior access devices on the 
original terms.
    Paragraph 5b(f)(3)(v).
    1. Insignificant changes. A creditor is permitted to make 
insignificant changes after a plan is opened. This rule accommodates 
operational and similar problems, such as changing the address of the 
creditor for purposes of sending payments. It does not permit a 
creditor to change a term such as a fee charged for late payments.
    2. Examples of insignificant changes. Creditors may make minor 
changes to features such as the billing cycle date, the payment due 
date (as long as the consumer does not have a diminished grace period 
if one is provided), and the day of the month on which index values are 
measured to determine changes to the rate for variable-rate plans. A 
creditor also may change its rounding practice in accordance with the 
tolerance rules set forth in Sec.  226.14 (for example, stating an 
exact APR is 14.3333 percent as 14.3 percent, even if it had previously 
been stated as 14.33 percent.) A creditor may change the balance 
computation method it uses only if the change produces an insignificant 
difference in the finance charge paid by the consumer. For example, a 
creditor may switch from using the average-daily-balance method 
(including new transactions) to the daily balance method (including new 
transactions). [rtrif]A creditor may also eliminate a means of access 
to the line, as long as one or more access devices available at account 
opening remain available to the consumer on the original terms. For 
example, a creditor could eliminate the option of accessing a plan via 
credit card, but only if the creditor originally offered access to the 
plan via check or a credit card, and the option of accessing the 
account via check remains, based on the terms in the initial agreement. 
A creditor may not change the original terms on which an existing 
access device is available under this provision, although such change 
may be permitted as a ``beneficial change'' under Sec.  
226.5b(f)(3)(iv).[ltrif]
    Paragraph 5b(f)(3)(vi).
    1. Suspension of credit or reduction of credit limit. A creditor 
may prohibit additional extensions of credit or reduce the credit limit 
in the circumstances specified in this section of the regulation. In 
addition, as discussed under Sec.  226.5b(f)(3)(i), a creditor may 
contractually reserve the right to take such actions when the maximum 
annual percentage rate is reached. A creditor may not take these 
actions under other circumstances, unless the creditor would be 
permitted to terminate the line and accelerate the balance as described 
in section 226.5b(f)(2). The creditor's right to reduce the credit 
limit does not permit reducing the limit below the amount of the 
outstanding balance if this would require the consumer to make a higher 
payment.
    [2. Temporary nature of suspension or reduction. Creditors are 
permitted to prohibit additional extensions of credit or reduce the 
credit limit only while one of the designated circumstances exists. 
When the circumstance justifying the creditor's action ceases to exist, 
credit privileges must be reinstated, assuming that no other 
circumstance permitting such action exists at that time.]
    [3. Imposition of fees. If not prohibited by state law, a creditor 
may collect only bona fide and reasonable appraisal and credit-report 
fees if such fees are actually incurred in investigating whether the 
condition permitting the freeze continues to exist. A creditor may not, 
in any circumstances, charge a fee to reinstate a credit line that has 
been suspended or reduced once the condition has been determined not to 
exist.]
    [4. Reinstatement of credit privileges. Creditors are responsible 
for ensuring that credit privileges are restored as soon as reasonably 
possible after the condition that permitted the creditor's action 
ceases to exist. One way a creditor can meet this responsibility is to 
monitor the line on an ongoing basis to determine when the condition 
ceases to exist. The creditor must investigate the condition frequently 
enough to assure itself that the condition permitting the freeze 
continues to exist. The frequency with which the creditor must 
investigate to determine whether a condition continues to exist depends 
upon the specific condition permitting the freeze. As an alternative to 
such

[[Page 43595]]

monitoring, the creditor may shift the duty to the consumer to request 
reinstatement of credit privileges by providing a notice in accordance 
with Sec.  226.9(c)(3). A creditor may require a reinstatement request 
to be in writing if it notifies the consumer of this requirement on the 
notice provided under Sec.  226.9(c)(3). Once the consumer requests 
reinstatement, the creditor must promptly investigate to determine 
whether the condition allowing the freeze continues to exist. Under 
this alternative, the creditor has a duty to investigate only upon the 
consumer's request.]
    [5.][rtrif]2.[ltrif] Suspension of credit privileges following 
request by consumer. A creditor may honor a specific request by a 
consumer to suspend credit privileges [rtrif]or reduce the credit 
limit[ltrif]. If the consumer later requests that the creditor 
reinstate credit privileges, the creditor must do so provided no other 
circumstance justifying a suspension [rtrif]or credit limit 
reduction[ltrif] exists at that time. [rtrif]If a circumstance 
justifying a suspension or credit limit reduction exists at that time 
and the creditor therefore does not reinstate credit privileges, the 
creditor must comply with the notice requirements of Sec.  226.9(j)(1) 
or (j)(3), as applicable.[ltrif] If two or more consumers are obligated 
under a plan and each has the ability to take advances, the agreement 
may permit any of the consumers to direct the creditor not to make 
further advances [rtrif]or to reduce the credit limit[ltrif]. A 
creditor may require that all persons obligated under a plan request 
reinstatement.
    [6.][rtrif]4.[ltrif] Significant decline defined[rtrif]--safe 
harbors[ltrif]. What constitutes a significant decline for purposes of 
Sec.  226.5b(f)(3)(vi)(A) will vary according to individual 
circumstances. [rtrif]At a minimum, this means that compliance with 
this provision requires the creditor to assess the value of the 
property based on specific characteristics of the property. For plans 
with a combined loan-to-value ratio at origination of 90 percent or 
higher, a five (5) percent reduction in the property value would 
constitute a significant decline under Sec.  226.5b(f)(3)(vi)(A). For 
plans with a combined loan-to-value ratio at origination of under 90 
percent, a decline in value would be significant under Sec.  
226.5b(f)(3)(vi)(A)[ltrif] if the value of the dwelling declines such 
that the initial difference between the credit limit and the available 
equity (based on the property's [appraised] value for purposes of the 
plan) is reduced by 50 percent. For example, assume that a house with a 
first mortgage of $50,000 is [appraised] [rtrif]valued[ltrif] at 
origination at $100,000 and the credit limit is $30,000. The difference 
between the credit limit and the available equity is $20,000, half of 
which is $10,000. The creditor could prohibit further advances or 
reduce the credit limit if the value of the property declines from 
$100,000 to $90,000. [This provision does not require a creditor to 
obtain an appraisal before suspending credit privileges, although a 
significant decline must occur before suspension can occur.]
    [rtrif]5. Property valuation tools. Section 226.5b(f)(3)(vi)(A) 
does not require a creditor to obtain an appraisal before suspending 
credit privileges or reducing the credit limit, although a significant 
decline must occur before a creditor suspends advances or reduces the 
credit limit. If not prohibited by state law, property valuation 
methods other than an appraisal that may be appropriate to use under 
this provision include, but are not limited to, automated valuation 
models, tax assessment valuations, and broker price opinions. Any 
property valuation method must, however, consider specific 
characteristics of the property, such as square footage and number of 
rooms, and not merely estimate the value based on property values or 
re-sale prices generally in a particular geographic area.[ltrif]
    [7.][rtrif]6.[ltrif] Material change in financial circumstances. 
Two conditions must be met for Sec.  226.5b(f)(3)(vi)(B) to apply. 
First, there must be a ``material change'' in the consumer's financial 
circumstances[, such as a significant decrease in the consumer's 
income]. [rtrif]Ways in which this first condition may be met include, 
but are not limited to, demonstration of a significant decrease in the 
consumer's income, or credit report information showing late payments 
or nonpayments on the part of the consumer, such as delinquencies, 
defaults, or derogatory collections or public records related to the 
consumer's failure to pay other obligations according to their 
terms.[ltrif] Second, as a result of this change, the creditor must 
have a reasonable belief that the consumer will be unable to fulfill 
the payment obligations of the plan. [rtrif]In all cases, the creditor 
must have a basis to support the creditor's reasonable belief that the 
consumer will be unable to fulfill the repayment obligations of the 
plan.[ltrif] A creditor may[, but does not have to,] rely on[rtrif], 
for example, the consumer's failure to pay other debts, such as 
significant delinquencies, defaults, or derogatory collections or 
public records[ltrif] [specific evidence (such as the failure to pay 
other debts)] in concluding that the second part of the test has been 
met. [rtrif]However, late payments of 30 days or fewer, by themselves, 
would not be sufficient to satisfy the second part of the test. The 
payment failures that may serve as evidence under either prong of the 
two-part test must have occurred within a reasonable time from the date 
of the creditor's review of the consumer's credit performance. In all 
cases, a payment failure will be deemed to have occurred within a 
reasonable time from the date of the creditor's review if it occurred 
within six months of the creditor's suspending advances or reducing the 
credit limit, and the consumer has not brought the account or other 
obligation current as of the time of the review.[ltrif] A creditor may 
prohibit further advances or reduce the credit limit under this section 
if a consumer files for or is placed in bankruptcy.
    [8.][rtrif]7.[ltrif] Default of a material obligation. Creditors 
[rtrif]must[ltrif] [may] specify events that would qualify as a default 
of a material obligation under Sec.  226.5b(f)(3)(vi)(C). For example, 
a creditor may provide that default of a material obligation will exist 
if the consumer moves out of the dwelling or permits an intervening 
lien to be filed that would take priority over future advances made by 
the creditor.
    [9.][rtrif]8.[ltrif] Government limits on the annual percentage 
rate. Under Sec.  226.5b(f)(3)(vi)(D), a creditor may prohibit further 
advances or reduce the credit limit if, for example, a state usury law 
is enacted which prohibits a creditor from imposing the agreed-upon 
annual percentage rate.
    [rtrif]9. Suspensions and credit limit reductions required by 
federal law. ``Federal law'' under this provision is limited to any 
federal statute, its implementing regulation, and official 
interpretations issued by the regulatory agency with authority to 
implement the statute or regulation. A creditor may prohibit either a 
single advance or multiple advances, depending on what the applicable 
federal law requires.[ltrif]
    [rtrif]5b(g) Reinstatement of Credit Privileges.[ltrif]
    1. Temporary nature of suspension or reduction. Creditors are 
permitted to prohibit additional extensions of credit or reduce the 
credit limit [rtrif]under Sec.  226.5b(f)(3)(i) and (f)(3)(vi)[ltrif] 
only while one of the designated circumstances exists. When the 
circumstance justifying the creditor's action ceases to exist, the 
creditor must reinstate the consumer's credit privileges, assuming that 
no other circumstance permitting the creditor's action exists at that 
time.
    2. Imposition of fees to reinstate a credit line. A creditor may 
not, in any circumstances, charge a fee to reinstate

[[Page 43596]]

a credit line [rtrif]that has been suspended or reduced under 
paragraphs 226.5b(f)(3)(i) or (f)(3)(vi)[ltrif] once [the] 
[rtrif]no[ltrif] condition [rtrif]permitting the suspension or 
reduction[ltrif] [has been determined not to] exist[rtrif]s[ltrif].
    [rtrif]Paragraph 5b(g)(1).[ltrif]
    1. Creditor responsibility for restoring credit privileges. 
Creditors are responsible for ensuring that credit privileges are 
restored as soon as reasonably possible after the condition that 
permitted the creditor's action ceases to exist and [rtrif]no other 
condition permitting a freeze or credit limit reduction exists at that 
time.[ltrif] One way [rtrif]in which[ltrif] a creditor can meet this 
obligation is to monitor the line on an ongoing basis to determine when 
the condition permitting the freeze or credit limit reduction ceases to 
exist. The creditor must investigate the condition frequently enough to 
assure itself that the condition permitting the freeze or credit limit 
reduction continues to exist. The frequency with which the creditor 
must investigate to determine whether a condition continues to exist 
depends upon the specific condition permitting the freeze. As an 
alternative to [such] [rtrif]ongoing[ltrif] monitoring, the creditor 
may shift the duty to the consumer to request reinstatement of credit 
privileges. [A creditor may require a reinstatement request to be in 
writing if it notifies the consumer of this requirement on the notice 
provided under Sec.  226.9(c)(3). Once the consumer requests 
reinstatement, the creditor must promptly investigate to determine 
whether the condition allowing the freeze continues to exist. Under 
this alternative, the creditor has a duty to investigate only upon the 
consumer's request.]
    [rtrif]Paragraph 5b(g)(2)(i).
    1. Disclosure of consumer obligation to request reinstatement. The 
creditor may shift the duty to the consumer to request reinstatement 
if, pursuant to Sec.  226.9(j)(1), the creditor discloses that the 
consumer must request reinstatement.[ltrif]
    [rtrif] Paragraph 5b(g)(2)(ii).
    1. Creditor responsibility to investigate reinstatement 
requests.[ltrif] Once the consumer requests reinstatement, the creditor 
must promptly investigate to determine whether the condition allowing 
the [freeze continues to] [rtrif]suspension or credit limit 
reduction[ltrif] exist[rtrif]s[ltrif]. The investigation should verify 
that the information on which the creditor relied to take action in 
fact pertained to the specific property securing the affected plan (as 
with a property valuation) or to the specific consumer (as with a 
credit report). To investigate whether a significant decline in 
property value exists under Sec.  226.5b(f)(3)(vi)(A), the creditor 
should reassess the value of the property securing the line based on an 
updated property valuation meeting the standards in comment 
5b(f)(3)(vi)-5. To investigate whether a material change in the 
consumer's financial circumstances exists under Sec.  
226.5b(f)(3)(vi)(B), the creditor should obtain and evaluate 
information sufficient to assess whether the original finding on which 
action was based was accurate or, if accurate, remains current.[ltrif]
    [rtrif]Paragraph 5b(g)(3).
    1. Duty to provide documentation of property value. The creditor 
has a duty to provide to the consumer, upon request, a copy of 
documentation supporting the property value on which the creditor 
relied to suspend advances or reduce the credit limit due to a 
significant decline in the value of the property securing the line 
under Sec.  226.5b(f)(vi)(A), or to continue suspension or reduction of 
an account due to a significant decline in the property value under 
Sec.  226.5b(f)(vi)(A).
    2. Appropriate documentation of property value. Appropriate 
documentation supporting the property value on which the action was 
based under this paragraph would include, as applicable, a copy of the 
appraisal report or a copy of any written evidence of an automated 
valuation model, tax assessment value, broker price opinion, or other 
valuation method used that clearly and conspicuously shows the property 
value specific to the subject property and factors considered to obtain 
the value.[ltrif]
* * * * *
    [5b(g)][rtrif]5b[(d)][ltrif]
* * * * *
    [5b(h)][rtrif]5b[(e)][ltrif]
* * * * *
    Sec.  226.6--Account-opening Disclosures.
    6(a) Rules affecting home-equity plans.
    [rtrif]1. Fixed-rate and -term payment plans during draw period. 
Under some home-equity plans, a creditor will permit the consumer to 
repay all or part of the balance during the draw period at a fixed rate 
(rather than a variable rate) and over a specified time period. To 
illustrate, a variable-rate plan may permit a consumer to elect during 
a ten-year draw period to repay all or a portion of the balance over a 
three-year period at a fixed rate. A creditor generally may not 
disclose the terms applicable to this feature in the account-opening 
table required under Sec.  226.6(a)(2), except as required under Sec.  
226.6(a)(2)(xix). A creditor must, however, disclose fixed-rate and -
term payment features in the account-opening table if they are the only 
payment plans offered during the draw period of the plan. (See Sec.  
226.6(a)(2).) Even though a creditor generally may not disclose the 
terms of fixed-rate and -term payment plans in the account-opening 
table, the creditor must disclose information about these payment plans 
as required by Sec.  226.6(a)(3), (a)(4) and (a)(5). For example, a 
creditor must disclose fee and rate information related to these 
features under Sec.  226.6(a)(3) and (a)(4), and information about 
payment and other terms related to these features under Sec.  
226.6(a)(5)(v).
    2. Disclosures for the repayment period. The creditor must provide 
the disclosures under Sec.  226.6 for both the draw and repayment 
phases when giving the disclosures under Sec.  226.6. To the extent 
required disclosures are the same for the draw and repayment phases, 
the creditor need not repeat such information, as long as it is clear 
that the information applies to both phases.
    6(a)(1) Form of disclosures; tabular format.
    1. Relation to tabular disclosures required under Sec.  226.5b(b). 
The commentary to Sec.  226.5b(b) and (c) regarding format and content 
requirements are also applicable to disclosures required by Sec.  
226.6(a)(2), except for the following:
    i. A creditor may not disclose above the account-opening table a 
statement that the consumer has applied for a home-equity line of 
credit.
    ii. A creditor may not disclose below the account-opening table an 
identification of any disclosed term that is subject to change prior to 
opening the plan.
    iii. A creditor may not disclose in the account-opening table a 
statement about the right to a refund of fees pursuant to Sec.  
226.5b(d) and (e).
    iv. A creditor must disclose the account number as part of the 
identification information required by Sec.  226.6(a)(2)(i)(A).
    v. With respect to the statements about the conditions under which 
the creditor may take certain actions, such as terminating the plan, a 
creditor must indicate in the account-opening table that information 
about the conditions is provided in the account-opening disclosures or 
agreement, as applicable.
    vi. A creditor must disclose in the account-opening table the 
payment terms applicable to the plan that will apply to the consumer at 
account opening (and may not disclose payment terms for two possible 
payment plans as allowed under Sec.  226.5b(c)(9)(ii)(B)).

[[Page 43597]]

    viii. A creditor must disclose in the account-opening table the 
total of all one-time fees imposed by the creditor and third parties to 
open the plan, and may not disclose the highest amount of possible fees 
as allowed under Sec.  226.5b(c)(11). In addition, a creditor must 
disclose in the account-opening table an itemization of all one-time 
fees imposed by the creditor and third parties to open the plan, and 
may not disclose a range for those fees, as otherwise allowed under 
Sec.  226.5b(c)(11). A creditor also must include in the account-
opening table a cross-reference from the disclosure of the total of 
one-time fees for opening an account, indicating that the itemization 
of the fees is located elsewhere in the table.
    ix. A creditor must include in the account-opening table the 
following fees (that are not required to be disclosed in the table 
under Sec.  226.5b(b)): Late-payment fees; over-the-limit fees; 
transaction charges; returned-payment fees; and fees for failure to 
comply with transaction limitations.
    x. A creditor must include in the account-opening table a statement 
that other fees are located elsewhere in the table, and a statement 
that information about other fees is included in the account-opening 
disclosures or agreement, as applicable.
    xi. A creditor must include in the account-opening table a 
statement that information about the fixed-rate and -term payment plans 
is disclosed in the account-opening disclosures or agreement, as 
applicable.
    xii. A creditor must include below the account-opening table an 
explanation of whether or not a grace period exists for all features on 
the account.
    xiii. A creditor must include below the account-opening table the 
name of the balance computation method used for each feature of the 
account and state that an explanation of the balance computation 
method(s) is provided in the account-opening disclosures or agreement, 
as applicable.
    xiv. A creditor must state below the account-opening table that 
consumers' billing rights are provided in the account-opening 
disclosures or agreement, as applicable.
    xv. A creditor may not disclose below the account-opening table a 
statement that the consumer may be entitled to a refund of all fees 
paid if the consumer decides not to open the plan; and a cross 
reference to the ``Fees'' section in the table described in paragraph 
(b)(2)(i) of this section.
    xvi. A creditor must disclose below the account-opening table a 
statement that the consumer should confirm that the terms disclosed in 
the table are the same terms for which the consumer applied.
    xvii. The applicable forms providing safe harbors for account-
opening tables are under Appendix G-15 to part 226.
    2. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to Sec.  226.6(a) 
disclosures.
    3. Terminology. Section 226.6(a)(1)(i) generally requires that the 
headings, content and format of the tabular disclosures be 
substantially similar, but need not be identical, to the applicable 
tables in appendix G-15 to part 226; but see Sec.  226.5(a)(2) for 
terminology requirements applicable to disclosures provided pursuant to 
Sec.  226.6(a).
    6(a)(2) Required disclosures for account-opening table for home-
equity plans.
    1. Fixed-rate and -term payment plans. See comment 6(a)-1 for 
guidance on disclosing information related to fixed-rate and -term 
payment plans.
    Paragraph 6(a)(2)(vii) Fees imposed by the creditor and third 
parties to open the plan.
    1. Manner of disclosure. A creditor must disclose in the account-
opening table the total of all one-time fees imposed by the creditor 
and third parties to open the plan, and may not disclose the highest 
amount of possible fees as allowed under Sec.  226.5b(c)(11) for the 
disclosure table required under Sec.  226.5b(b). In addition, a 
creditor must disclose in the account-opening table an itemization of 
all one-time fees imposed by the creditor and third parties to open the 
plan, and may not disclose a range for those fees, as otherwise allowed 
under Sec.  226.5b(c)(11) for the disclosure table required under Sec.  
226.5b(b).
    Paragraph 6(a)(2)(x) Late-payment fee.
    1. Applicability. The disclosure of the fee for a late payment 
includes only those fees that will be imposed for actual, unanticipated 
late payments. (See the commentary to Sec.  226.4(c)(2) for additional 
guidance on late-payment fees. See Samples G-15(B), G-15(C) and G-15(D) 
for guidance on how to disclose clearly and conspicuously the late-
payment fee.)
    Paragraph 6(a)(2)(xi) Over-the-limit fee.
    1. Applicability. The disclosure of fees for exceeding a credit 
limit does not include fees for other types of default or for services 
related to exceeding the limit. For example, no disclosure is required 
of fees for reinstating credit privileges or fees for the dishonor of 
checks on an account that, if paid, would cause the credit limit to be 
exceeded. (But see Sec.  226.9(j)(2) for limitations on these fees.) 
See Samples G-15(B), G-15(C), and G-15(D) for guidance on how to 
disclose clearly and conspicuously the over-the-limit fee.
    Paragraph 6(a)(2)(xii) Transaction charges.
    1. Charges imposed by person other than creditor. Charges imposed 
by a third party, such as a seller of goods, shall not be disclosed in 
the table under this section; the third party would be responsible for 
disclosing the charge under Sec.  226.9(d)(1).
    2. Foreign transaction fees. A transaction charge imposed by the 
creditor for use of the home-equity plan includes any fee imposed by 
the creditor for transactions in a foreign currency or that take place 
outside the United States or with a foreign merchant. (See comment 
4(a)-4 for guidance on when a foreign transaction fee is considered 
charged by the creditor.) See Sample G-15(D) for guidance on how to 
disclose a foreign transaction fee for use of a credit card where the 
same foreign transaction fee applies for purchases and cash advances in 
a foreign currency, or that take place outside the United States or 
with a foreign merchant.
    Paragraph 6(a)(2)(xxi) Grace period.
    1. Grace period. Creditors must state any conditions on the 
applicability of the grace period. A creditor that offers a grace 
period on all types of transactions for the account and conditions the 
grace period on the consumer paying his or her outstanding balance in 
full by the due date each billing cycle, or on the consumer paying the 
outstanding balance in full by the due date in the previous and/or the 
current billing cycle(s) will be deemed to meet these requirements by 
providing the following disclosure, as applicable: ``Your due date is 
[at least] ------ days after the close of each billing cycle. We will 
not charge you interest on your account if you pay your entire balance 
by the due date each month.''
    2. No grace period. Creditors may use the following language to 
describe that no grace period is offered, as applicable: ``We will 
begin charging interest on [applicable transactions] on the date the 
transaction is posted to your account.''
    Paragraph 6(b)(2)(xxii) Balance computation method.
    1. Form of disclosure. In cases where the creditor uses a balance 
computation method that is identified by name in the regulation, the 
creditor must disclose below the table only the name of the method. In 
cases where the creditor uses a balance computation method that is not 
identified by name in the regulation, the disclosure below the table 
must clearly explain the method in as much

[[Page 43598]]

detail as set forth in the descriptions of balance computation methods 
in Sec.  226.5a(g). The explanation need not be as detailed as that 
required for the disclosures under Sec.  226.6(a)(4)(i)(D). (See the 
commentary to Sec.  226.5a(g) for guidance on particular methods.)
    2. Content. See Samples G-15(B), G-15(C) and G-15(D) for guidance 
on how to disclose the balance computation method where the same method 
is used for all features on the account.
    6(a)(3) Disclosure of charges imposed as part of home-equity 
plans[ltrif] [6(a)(1) Finance charge.]
    [rtrif]1. Fixed-rate and -term payment plans. See comment 6(a)-1 
for guidance on disclosing information related to fixed-rate and -term 
payment plans.[ltrif]
    [Paragraph 6(a)(1)(i).]
    [rtrif]2.[ltrif][1.] When finance charges accrue. Creditors are not 
required to disclose a specific date when [rtrif]a cost that is a 
finance charge under Sec.  226.4[ltrif] [finance charges] will begin to 
accrue. [Creditors may provide a general explanation such as that the 
consumer has 30 days from the closing date to pay the new balance 
before finance charges will accrue on the account.]
    [rtrif]3.[ltrif][2.] Grace periods. In disclosing [rtrif]in the 
account agreement or disclosure statement[ltrif] whether or not a grace 
period exists, the creditor need not use [``free period,'' ``free-ride 
period,'' ``grace period'' or] any [other] particular descriptive 
phrase or term. [rtrif]However, the descriptive phrase or term must be 
sufficiently similar to the disclosures provided pursuant to Sec.  
226.6(a)(2)(xxi) to satisfy a creditor's duty to provide consistent 
terminology under Sec.  226.5(a)(2).[ltrif] [For example, a statement 
that ``the finance charge begins on the date the transaction is posted 
to your account'' adequately discloses that no grace period exists. In 
the same fashion, a statement that ``finance charges will be imposed on 
any new purchases only if they are not paid in full within 25 days 
after the close of the billing cycle'' indicates that a grace period 
exists in the interim.]
    [rtrif]4. No finance charge imposed below certain balance. 
Creditors are not required to disclose under Sec.  226.6(a)(3) the fact 
that no finance charge is imposed when the outstanding balance is less 
than a certain amount or the balance below which no finance charge will 
be imposed.
    Paragraph 6(a)(3)(ii).
    1. Failure to use the plan as agreed. Late-payment fees, over-the-
limit fees, and fees for payments returned unpaid are examples of 
charges resulting from consumers' failure to use the plan as agreed.
    2. Examples of fees that affect the plan. Examples of charges the 
payment, or nonpayment, of which affects the consumer's account are:
    i. Access to the plan. Fees for using a credit card at the 
creditor's ATM to obtain a cash advance, fees to obtain additional 
checks or credit cards including replacements for lost or stolen cards, 
fees to expedite delivery of checks or credit cards or other credit 
devices, application and membership fees, and annual or other 
participation fees identified in Sec.  226.4(c)(4).
    ii. Amount of credit extended. Fees for increasing the credit limit 
on the account, whether at the consumer's request or unilaterally by 
the creditor.
    iii. Timing or method of billing or payment. Fees to pay by 
telephone or via the Internet.
    3. Threshold test. If the creditor is unsure whether a particular 
charge is a cost imposed as part of the plan, the creditor may at its 
option consider such charges as a cost imposed as part of the plan for 
purposes of the Truth in Lending Act.
    Paragraph 6(a)(3)(iii)(B).
    1. Fees for package of services. A fee to join a credit union is an 
example of a fee for a package of services that is not imposed as part 
of the plan, even if the consumer must join the credit union to apply 
for credit. In contrast, a membership fee is an example of a fee for a 
package of services that is considered to be imposed as part of a plan 
where the primary benefit of membership in the organization is the 
opportunity to apply for credit, and the other benefits offered (such 
as a newsletter or a member information hotline) are merely incidental 
to the credit feature.
    6(a)(4) Disclosure of rates for home-equity plans.
    1. Fixed-rate and -term payment plans. See comment 6(a)-1 for 
guidance on disclosing information related to fixed-rate and -term 
payment plans.
    Paragraph 6(a)(4)(i)(B).[ltrif] [Paragraph 6(a)(1)(ii)]
    1. Range of balances. [rtrif]Creditors are not required to disclose 
the range of balances[ltrif][The range of balances disclosure is 
inapplicable]:
    i. If only one periodic interest rate may be applied to the entire 
account balance.
    ii. If only one periodic interest rate may be applied to the entire 
balance for a feature (for example, cash advances), even though the 
balance for another feature (purchases) may be subject to two rates (a 
1.5% monthly periodic interest rate on purchase balances of $0--$500, 
and a 1% periodic interest rate for balances above $500). In this 
example, the creditor must give a range of balances disclosure for the 
purchase feature.
    [rtrif] Paragraph 6(a)(4)(i)(D).
    1. Explanation of balance computation method. Creditors do not 
provide a sufficient explanation of a balance computation method by 
using a shorthand phrase such as ``previous balance method'' or the 
name of a balance computation method listed in Sec.  226.5a(g). (See 
Model Clauses G-1 in appendix G to part 226. See Sec.  
226.6(a)(2)(xxii) regarding balance computation descriptions required 
to be disclosed below the account-opening table required by Sec.  
226.6(a)(1).)
    2. Allocation of payments. Creditors may, but need not, explain how 
payments and other credits are allocated to outstanding balances.
    Paragraph 6(a)(4)(ii) Variable-rate accounts.[ltrif]
    [rtrif]1.[ltrif][2.] Variable-rate disclosures--coverage.
    i. Examples. This section covers open-end credit plans under which 
rate changes are specifically set forth in the account agreement and 
are tied to an index or formula. A creditor would use variable-rate 
disclosures for plans involving rate changes such as the following:
    A. Rate changes that are tied to [rtrif]Treasury bill rates[ltrif] 
[the rate the creditor pays on its six-month certificates of deposit].
    B. Rate changes that are tied to [rtrif]the prime 
rate[ltrif][Treasury bill rates].
    C. Rate changes that are tied to [rtrif]the Federal Reserve 
discount rate.[ltrif] [changes in the creditor's commercial lending 
rate.]
    ii. [rtrif]The following is an example of open-end plans that 
permit the rate to change and are not considered variable rate: Rate 
changes that are triggered by a specific event such as an[ltrif] [An] 
open-end credit plan in which the employee receives a lower rate 
contingent upon employment[rtrif], and the rate increases upon 
termination of employment.[ltrif] [(that is, with the rate to be 
increased upon termination of employment) is not a variable-rate plan.]
    [3. Variable-rate plan--rate(s) in effect. In disclosing the 
rate(s) in effect at the time of the account-opening disclosures (as is 
required by Sec.  226.6(a)(1)(ii)), the creditor may use an insert 
showing the current rate; may give the rate as of a specified date and 
then update the disclosure from time to time, for example, each 
calendar month; or may disclose an estimated rate under Sec.  226.5(c).
    4. Variable-rate plan--additional disclosures required. In addition 
to disclosing the rates in effect at the time

[[Page 43599]]

of the account-opening disclosures, the disclosures under Sec.  
226.6(a)(1)(ii) also must be made.
    5. Variable-rate plan--index. The index to be used must be clearly 
identified; the creditor need not give, however, an explanation of how 
the index is determined or provide instructions for obtaining it.]
    [rtrif]2.[ltrif][6.] Variable-rate plan--circumstances for 
increase.
    i. [rtrif]The following are examples that comply with the 
requirement to disclose circumstances under which the rate(s) may 
increase:[ltrif][Circumstances under which the rate(s) may increase 
include, for example:]
    A. [rtrif] ``The Treasury bill rate increases.''[ltrif][An increase 
in the Treasury bill rate.]
    B. [rtrif] ``The prime rate increases.'' [ltrif][An increase in the 
Federal Reserve discount rate.]
    ii. [rtrif]Disclosing the frequency with which the rate may 
increase includes disclosing when the increase will take effect; for 
example:[ltrif][The creditor must disclose when the increase will take 
effect; for example:]
    A. ``An increase will take effect on the day that the Treasury bill 
rate increases.'' [or]
    B. ``An increase in the [rtrif]prime rate[ltrif] [Federal Reserve 
discount rate] will take effect on the first day of the creditor's 
billing cycle.''
    [rtrif]3.[ltrif][7.] Variable-rate plan--limitations on increase. 
In disclosing any limitations on rate increases, limitations such as 
the maximum increase per year or the maximum increase over the duration 
of the plan must be disclosed. [When there are no limitations, the 
creditor may, but need not, disclose that fact. (A maximum interest 
rate must be included in dwelling-secured open-end credit plans under 
which the interest rate may be changed. See Sec.  226.30 and the 
commentary to that section.)] Legal limits such as usury or rate 
ceilings under State or Federal statutes or regulations need not be 
disclosed. Examples of limitations that must be disclosed include:
    i. ``The rate on the plan will not exceed 25% annual percentage 
rate.''
    ii. ``Not more than \1/2\% increase in the annual percentage rate 
per year will occur.''
    [rtrif]4.[ltrif][8.] Variable-rate plan--effects of increase. 
Examples of effects of rate increases that must be disclosed include:
    i. Any requirement for additional collateral if the annual 
percentage rate increases beyond a specified rate.
    ii. Any increase in the scheduled minimum periodic payment amount.
    [9. Variable-rate plan--change-in-terms notice not required. No 
notice of a change in terms is required for a rate increase under a 
variable-rate plan as defined in comment 6(a)(1)(ii)-2.]
    [rtrif]5.[ltrif][10.] Discounted variable-rate plans. In some 
variable-rate plans, creditors may set an initial interest rate that is 
not determined by the index or formula used to make later interest rate 
adjustments. Typically, this initial rate is lower than the rate would 
be if it were calculated using the index or formula.
    i. For example, a creditor may calculate interest rates according 
to a formula using the six-month Treasury bill rate plus a 2 percent 
margin. If the current Treasury bill rate is 10 percent, the creditor 
may forgo the 2 percent spread and charge only 10 percent for a limited 
time, instead of setting an initial rate of 12 percent, or the creditor 
may disregard the index or formula and set the initial rate at 9 
percent.
    ii. When creditors [rtrif]disclose in the account-opening 
disclosures an[ltrif] [use an] initial rate that is not calculated 
using the index or formula for later rate adjustments, the [account-
opening] disclosure [statement] should reflect:
    A. The initial rate (expressed as a periodic rate and a 
corresponding annual percentage rate), together with a statement of how 
long the initial rate will remain in effect;
    B. The current rate that would have been applied using the index or 
formula (also expressed as a periodic rate and a corresponding annual 
percentage rate); and
    C. The other variable-rate information required in [rtrif]Sec.  
226.6(a)(4)(ii).[ltrif] [Sec.  226.6(a)(1)(ii).]
    [rtrif]Paragraph 6(a)(4)(iii) Rate changes not due to index or 
formula.
    1. Events that cause the initial rate to change.
    i. Changes based on expiration of time period. If the initial rate 
will change at the expiration of a time period, creditors must identify 
the expiration date and the fact that the initial rate will end at that 
time.
    ii. Changes based on specified contract terms. If the account 
agreement provides that the creditor may change the initial rate upon 
the occurrence of specified event or events, the creditor must identify 
the event or events. Examples include imposing a penalty rate in lieu 
of terminating the account, as allowed under comment 5b(f)(2)-2, or the 
termination of an employee preferred rate when the employment 
relationship is terminated.
    2. Rate that will apply after initial rate changes.
    i. Increased margins. If the initial rate is based on an index and 
the rate may increase due to a change in the margin applied to the 
index, the creditor must disclose the increased margin. If more than 
one margin could apply, the creditor may disclose the highest margin.
    ii. Risk-based pricing. In some plans, the amount of the rate 
change depends on how the creditor weighs the occurrence of events 
specified in the account agreement that authorize the creditor to 
change rates, as well as other factors. For example, a creditor may 
specify that a penalty rate may apply in lieu of termination of the 
account, as allowed under comment 5b(f)(2)-2. In these cases, a 
creditor must state the increased rate that may apply. At the 
creditor's option, the creditor may state the possible rates as a 
range, or state only the highest rate that could be assessed. The 
creditor must disclose the period for which the increased rate will 
remain in effect, such as ``until you make three timely payments,'' or 
if there is no limitation, the fact that the increased rate may remain 
indefinitely.
    3. Effect of rate change on balances. Creditors must disclose 
information to consumers about the balance to which the new rate will 
apply and the balance to which the current rate at the time of the 
change will apply.[ltrif]
    [iii. In disclosing the current periodic and annual percentage 
rates that would be applied using the index or formula, the creditor 
may use any of the disclosure options described in comment 6(a)(1)(ii)-
3.
    11. 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 creditor 
must disclose 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 disclose the index and the margin. The creditor 
must also disclose the specific event or events that may result in the 
increased rate, such as ``22% APR, if 60 days late.'' If the penalty 
rate cannot be determined at the time disclosures are given, the 
creditor must provide an explanation of the specific event or events 
that may result in the increased rate. At the creditor's option, the 
creditor may disclose the period for which the increased rate will 
remain in effect, such as ``until you make three timely payments.'' The 
creditor need not disclose an increased rate that is imposed when 
credit privileges are permanently terminated.
    Paragraph 6(a)(1)(iii).
    1. Explanation of balance computation method. A shorthand

[[Page 43600]]

phrase such as ``previous balance method'' does not suffice in 
explaining the balance computation method. (See Model Clauses G-1 [and 
G-1(A)] to part 226.)
    2. Allocation of payments. Creditors may, but need not, explain how 
payments and other credits are allocated to outstanding balances. For 
example, the creditor need not disclose that payments are applied to 
late charges, overdue balances, and finance charges before being 
applied to the principal balance; or in a multifeatured plan, that 
payments are applied first to finance charges, then to purchases, and 
then to cash advances. (See comment 7-1 for definition of multifeatured 
plan.)
    Paragraph 6(a)(1)(iv).
    1. Finance charges. In addition to disclosing the periodic rate(s) 
under Sec.  226.6(a)(1)(ii), creditors must disclose any other type of 
finance charge that may be imposed, such as minimum, fixed, 
transaction, and activity charges; required insurance; or appraisal or 
credit report fees (unless excluded from the finance charge under Sec.  
226.4(c)(7)). Creditors are not required to disclose the fact that no 
finance charge is imposed when the outstanding balance is less than a 
certain amount or the balance below which no finance charge will be 
imposed.
    6(a)(2) Other charges.
    1. General; examples of other charges. Under Sec.  226.6(a)(2), 
significant charges related to the plan (that are not finance charges) 
must also be disclosed. For example:
    i. Late-payment and over-the-credit-limit charges.
    ii. Fees for providing documentary evidence of transactions 
requested under Sec.  226.13 (billing error resolution).
    iii. Charges imposed in connection with residential mortgage 
transactions or real estate transactions such as title, appraisal, and 
credit-report fees (see Sec.  226.4(c)(7)).
    iv. A tax imposed on the credit transaction by a state or other 
governmental body, such as a documentary stamp tax on cash advances 
(See the commentary to Sec.  226.4(a)).
    v. A membership or participation fee for a package of services that 
includes an open-end credit feature, unless the fee is required whether 
or not the open-end credit feature is included. For example, a 
membership fee to join a credit union is not an ``other charge,'' even 
if membership is required to apply for credit. For example, if the 
primary benefit of membership in an organization is the opportunity to 
apply for a credit card, and the other benefits offered (such as a 
newsletter or a member information hotline) are merely incidental to 
the credit feature, the membership fee would be disclosed as an ``other 
charge.''
    vi. Charges imposed for the termination of an open-end credit plan.
    2. Exclusions. The following are examples of charges that are not 
``other charges''
    i. Fees charged for documentary evidence of transactions for income 
tax purposes.
    ii. Amounts payable by a consumer for collection activity after 
default; attorney's fees, whether or not automatically imposed; 
foreclosure costs; post-judgment interest rates imposed by law; and 
reinstatement or reissuance fees.
    iii. Premiums for voluntary credit life or disability insurance, or 
for property insurance, that are not part of the finance charge.
    iv. Application fees under Sec.  226.4(c)(1).
    v. A monthly service charge for a checking account with overdraft 
protection that is applied to all checking accounts, whether or not a 
credit feature is attached.
    vi. Charges for submitting as payment a check that is later 
returned unpaid (See commentary to Sec.  226.4(c)(2)).
    vii. Charges imposed on a cardholder by an institution other than 
the card issuer for the use of the other institution's ATM in a shared 
or interchange system. (See also comment 7(a)(2)-2.)
    viii. Taxes and filing or notary fees excluded from the finance 
charge under Sec.  226.4(e).
    ix. A fee to expedite delivery of a credit card, either at account 
opening or during the life of the account, provided delivery of the 
card is also available by standard mail service (or other means at 
least as fast) without paying a fee for delivery.
    x. A fee charged for arranging a single payment on the credit 
account, upon the consumer's request (regardless of how frequently the 
consumer requests the service), if the credit plan provides that the 
consumer may make payments on the account by another reasonable means, 
such as by standard mail service, without paying a fee to the 
creditor.]
    [rtrif] 6(a)(5) Additional disclosures for home-equity 
plans.[ltrif] [6(a)(3) Home-equity plan information.]
    [rtrif]Paragraph 6(a)(5)(i) Voluntary credit insurance, debt 
cancellation or debt suspension.
    1. Timing. Under Sec.  226.4(d), disclosures required to exclude 
the cost of voluntary credit insurance or debt cancellation or debt 
suspension coverage from the finance charge must be provided before the 
consumer agrees to the purchase of the insurance or coverage. Creditors 
comply with Sec.  226.6(a)(5)(i) if they provide those disclosures in 
accordance with Sec.  226.4(d). For example, if the disclosures 
required by Sec.  226.4(d) are provided at application, creditors need 
not repeat those disclosures at account opening.[ltrif]
    [1. Additional disclosures required. For home-equity plans, 
creditors must provide several of the disclosures set forth in Sec.  
226.5b(d) along with the disclosures required under Sec.  226.6. 
Creditors also must disclose a list of the conditions that permit the 
creditor to terminate the plan, freeze or reduce the credit limit, and 
implement specified modifications to the original terms. (See comment 
5b(d)(4)(iii)-1.)
    2. Form of disclosures. The home-equity disclosures provided under 
this section must be in a form the consumer can keep, and are governed 
by Sec.  226.5(a)(1). The segregation standard set forth in Sec.  
226.5b(a) does not apply to home-equity disclosures provided under 
Sec.  226.6.
    3. Disclosure of payment and variable-rate examples. i. The 
payment-example disclosure in Sec.  226.5b(d)(5)(iii) and the variable-
rate information in Sec.  226.5b(d)(12)(viii), (d)(12)(x), (d)(12)(xi), 
and (d)(12)(xii) need not be provided with the disclosures under Sec.  
226.6 if the disclosures under Sec.  226.5b(d) were provided in a form 
the consumer could keep; and the disclosures of the payment example 
under Sec.  226.5b(d)(5)(iii), the maximum-payment example under Sec.  
226.5b(d)(12)(x) and the historical table under Sec.  226.5b(d)(12)(xi) 
included a representative payment example for the category of payment 
options the consumer has chosen.
    ii. For example, if a creditor offers three payment options (one 
for each of the categories described in the commentary to Sec.  
226.5b(d)(5)), describes all three options in its early disclosures, 
and provides all of the disclosures in a retainable form, that creditor 
need not provide the Sec.  226.5b(d)(5)(iii) or (d)(12) disclosures 
again when the account is opened. If the creditor showed only one of 
the three options in the early disclosures (which would be the case 
with a separate disclosure form rather than a combined form, as 
discussed under Sec.  226.5b(a)), the disclosures under Sec.  
226.5b(d)(5)(iii), (d)(12)(viii), (d)(12)(x), (d)(12)(xi) and 
(d)(12)(xii) must be given to any consumer who chooses one of the other 
two options. If the Sec.  226.5b(d)(5)(iii) and (d)(12) disclosures are 
provided with the second set of disclosures, they need not

[[Page 43601]]

be transaction-specific, but may be based on a representative example 
of the category of payment option chosen.
    4. Disclosures for the repayment period. The creditor must provide 
disclosures about both the draw and repayment phases when giving the 
disclosures under Sec.  226.6. Specifically, the creditor must make the 
disclosures in Sec.  226.6(a)(3), state the corresponding annual 
percentage rate, and provide the variable-rate information required in 
Sec.  226.6(a)(1)(ii) for the repayment phase. To the extent the 
corresponding annual percentage rate, the information in Sec.  
226.6(a)(1)(ii), and any other required disclosures are the same for 
the draw and repayment phase, the creditor need not repeat such 
information, as long as it is clear that the information applies to 
both phases.]
    [rtrif]Paragraph 6(a)(5)(ii)[ltrif] [6(a)(4)] Security interests.
    1. General. Creditors are not required to use specific terms to 
describe a security interest, or to explain the type of security or the 
creditor's rights with respect to the collateral.
    2. Identification of property. Creditors sufficiently identify 
collateral by type by stating, for example, [rtrif]your home.[ltrif] 
[motor vehicle or household appliances. (Creditors should be aware, 
however, that the federal credit practices rules, as well as some state 
laws, prohibit certain security interests in household goods.)] The 
creditor may, at its option, provide a more specific identification 
(for example, [rtrif]the address of property securing the line of 
credit.[ltrif] [a model and serial number.)]
    3. Spreader clause. If collateral for preexisting credit with the 
creditor will secure the plan being opened, the creditor must disclose 
that fact. (Such security interests may be known as ``spreader'' or 
``dragnet'' clauses, or as ``cross-collateralization'' clauses.) The 
creditor need not specifically identify the collateral; a reminder such 
as ``collateral securing other loans with us may also secure this 
loan'' is sufficient. At the creditor's option, a more specific 
description of the property involved may be given.
    [4. Additional collateral. If collateral is required when advances 
reach a certain amount, the creditor should disclose the information 
available at the time of the account-opening disclosures. For example, 
if the creditor knows that a security interest will be taken in 
household goods if the consumer's balance exceeds $1,000, the creditor 
should disclose accordingly. If the creditor knows that security will 
be required if the consumer's balance exceeds $1,000, but the creditor 
does not know what security will be required, the creditor must 
disclose on the initial disclosure statement that security will be 
required if the balance exceeds $1,000, and the creditor must provide a 
change-in-terms notice under Sec.  226.9(c) at the time the security is 
taken. (See comment 6(a)(4)-2.)
    5. Collateral from third party. Security interests taken in 
connection with the plan must be disclosed, whether the collateral is 
owned by the consumer or a third party.]
    [rtrif]Paragraph[ltrif] 6(a)(5)[rtrif](iii)[ltrif] Statement of 
billing rights.
    1. [rtrif]Model forms.[ltrif] See the commentary to Model Forms 
[rtrif]G-3 and G-4 [ltrif] [G-3, G-3(A), G-4, and G-4(A)].
    [rtrif]Paragraph 6(a)(5)(iv) Possible creditor actions.
    1. Disclosure. Creditors must disclose under Sec.  226.6(a)(5)(iv) 
a list of the conditions that permit the creditor to terminate the 
plan, freeze or reduce the credit limit, and implement specified 
modifications to the original terms. (See comment 5b(c)(7)(i).)
    Paragraph 6(a)(5)(v) Additional information on fixed-rate and -term 
payment plans.
    1. Fixed-rate and -term payment plans. See comment 6(a)-1 for 
guidance on disclosing information related to fixed-rate and -term 
payment plans.[ltrif]
* * * * *
    Sec.  226.7--Periodic Statement.
    7(a) Rules affecting home-equity plans.
    7(a)(1) Previous balance.
    1. Credit balances. If the previous balance is a credit balance, it 
must be disclosed in such a way so as to inform the consumer that it is 
a credit balance, rather than a debit balance.
    2. Multifeatured plans. In a multifeatured plan, the previous 
balance may be disclosed either as an aggregate balance for the account 
or as separate balances for each feature (for example, a previous 
balance for purchases and a previous balance for cash advances). If 
separate balances are disclosed, a total previous balance is optional.
    3. Accrued finance charges allocated from payments. Some open-end 
credit plans provide that the amount of the finance charge that has 
accrued since the consumer's last payment is directly deducted from 
each new payment, rather than being separately added to each statement 
and reflected as an increase in the obligation. In such a plan, the 
previous balance need not reflect finance charges accrued since the 
last payment.
    7(a)(2) Identification of transactions.
    1. Multifeatured plans. [In identifying transactions under Sec.  
226.7(a)(2) for multifeatured plans, creditors may, for example, choose 
to arrange transactions by feature (such as disclosing sale 
transactions separately from cash advance transactions) or in some 
other clear manner, such as by arranging the transactions in general 
chronological order.][rtrif] Creditors may, but are not required to, 
arrange transactions by feature (such as disclosing purchase 
transactions separately from cash advance transactions). Pursuant to 
Sec.  226.7(a)(6), however, creditors must group all fees and all 
interest separately from transactions and may not disclose any fees or 
interest charges with transactions.[ltrif]
    2. Automated teller machine (ATM) charges imposed by other 
institutions in shared or interchange systems. A charge imposed on the 
cardholder by an institution other than the card issuer for the use of 
the other institution's ATM in a shared or interchange system, and 
included by the terminal-operating institution in the amount of the 
transaction, need not be separately disclosed on the periodic 
statement.
    7(a)(3) Credits.
    1. Identification--sufficiency. The creditor need not describe each 
credit by type (returned merchandise, rebate of finance charge, etc.)--
``credit'' would suffice--except if the creditor is using the periodic 
statement to satisfy the billing-error correction notice requirement. 
(See the commentary to Sec.  226.13(e) and (f).)[rtrif] Credits may be 
distinguished from transactions in any way that is clear and 
conspicuous, for example, by use of debit and credit columns or by use 
of plus signs and/or minus signs.[ltrif]
    2. Format. A creditor may list credits relating to credit 
extensions [rtrif]made to the consumer[ltrif] under the plan 
([rtrif]such as[ltrif] payments[rtrif] or[ltrif] rebates[, etc.]) 
together with other types of credits (such as deposits to a checking 
account), as long as the entries are identified so as to inform the 
consumer which type of credit each entry represents.
    3. Date. If only one date is disclosed (that is, the crediting date 
as required by the regulation), no further identification of that date 
is necessary. More than one date may be disclosed for a single entry, 
as long as it is clear which date represents the date on which credit 
was given.
    4. Totals. A total of amounts credited during the billing cycle is 
not required.
    7(a)(4) Periodic rates.
    1. Disclosure of periodic [rtrif]interest[ltrif] rates--whether or 
not actually applied. Except as provided in Sec.  226.7(a)(4)(ii), any 
periodic [rtrif]interest[ltrif] rate that may be used to compute 
finance charges [(and its corresponding annual percentage rate)] 
[rtrif], expressed as and

[[Page 43602]]

labeled ``Annual Percentage Rate,''[ltrif] must be disclosed whether or 
not it is applied during the billing cycle. For example:
    i. If the consumer's account has both a purchase feature and a cash 
advance feature, the creditor must disclose the [rtrif]annual 
percentage[ltrif] rate for each, even if the consumer only makes 
purchases [rtrif](or cash advances)[ltrif] on the account during the 
billing cycle.
    ii. If the [rtrif]annual percentage[ltrif] rate varies (such as 
when it is tied to a particular index), the creditor must disclose each 
[rtrif]annual percentage [ltrif] rate in effect during the cycle for 
which the statement was issued.
    2. Disclosure of periodic [rtrif]interest[ltrif] rates required 
only if imposition possible. [With regard to the periodic rate 
disclosure (and its corresponding annual percentage rate), only rates] 
[rtrif]With regard to disclosure of periodic rates (expressed as annual 
percentage rates), only annual percentage rates[ltrif] that could have 
been imposed during the billing cycle reflected on the periodic 
statement need to be disclosed. For example:
    i. If the creditor is changing [rtrif]annual percentage[ltrif] 
rates effective during the next billing cycle (because of a variable-
rate plan), the [rtrif]annual percentage[ltrif] rates required to be 
disclosed under Sec.  226.7(a)(4) are only those in effect during the 
billing cycle reflected on the periodic statement. For example, if the 
[rtrif]annual percentage[ltrif] [monthly] rate applied during May was 
[1.5] [rtrif]8.0[ltrif]%, but the creditor will increase the rate to 
[1.8%] [rtrif]11.0%[ltrif] effective June 1, [1.5%] [rtrif]8.0%[ltrif] 
[(and its corresponding annual percentage rate)] is the only required 
disclosure under Sec.  226.7(a)(4) for the periodic statement 
reflecting the May account activity.
    ii. If [rtrif]annual percentage[ltrif] rates applicable to a 
particular type of transaction changed after a certain date and the old 
rate is only being applied to transactions that took place prior to 
that date, the creditor need not continue to disclose the old rate for 
those consumers that have no outstanding balances to which that rate 
could be applied.
    3. Multiple rates--same transaction. If two or more periodic rates 
are applied to the same balance for the same type of transaction (for 
example, if the [finance] [rtrif]interest[ltrif] charge consists of a 
monthly periodic [rtrif]interest[ltrif] rate of 1.5% applied to the 
outstanding balance and a required credit life insurance component 
calculated at 0.1% per month on the same outstanding balance), 
[rtrif]creditors must disclose the periodic interest rate, expressed as 
an 18% annual percentage rate and the range of balances to which it is 
applicable. Costs attributable to the credit life insurance component 
must be disclosed as a fee under Sec.  226.7(a)(6)(iii). (See comment 
7(a)(6)-2.) [the creditor may do either of the following:
    i. Disclose each periodic rate, the range of balances to which it 
is applicable, and the corresponding annual percentage rate for each. 
(For example, 1.5% monthly, 18% annual percentage rate; 0.1% monthly, 
1.2% annual percentage rate.)
    ii. Disclose one composite periodic rate (that is, 1.6% per month) 
along with the applicable range of balances and the corresponding 
annual percentage rate.
    4. Corresponding annual percentage rate. In disclosing the annual 
percentage rate that corresponds to each periodic rate, the creditor 
may use ``corresponding annual percentage rate,'' ``nominal annual 
percentage rate,'' ``corresponding nominal annual percentage rate,'' or 
similar phrases.
    5. Rate same as actual annual percentage rate. When the 
corresponding rate is the same as the annual percentage rate disclosed 
under Sec.  226.7(a)(7), the creditor need disclose only one annual 
percentage rate, but must use the phrase ``annual percentage rate.'']
    [rtrif]4. Fees. Creditors that identify fees in accordance with 
Sec.  226.7(a)(6)(iii) need not identify the periodic rate at which a 
fee would accrue if the fee remains unpaid. For example, assume a fee 
is imposed for a late payment in the previous cycle and that the fee, 
unpaid, would be included in the purchases balance and accrue interest 
at the rate for purchases. The creditor need not separately disclose 
that the purchase rate applies to the portion of the purchases balance 
attributable to the unpaid fee.[ltrif]
    [6][rtrif]5.[ltrif]. Range of balances. See comment 6(a)(4)(i)(B)-1 
[6(a)(1)(ii)-1]. A creditor is not required to adjust the range of 
balances disclosure to reflect the balance below which only a minimum 
charge applies.
    7(a)(5) Balance on which finance charge computed.
    [1. Limitation to periodic rates. Section 226.7(a)(5) only requires 
disclosure of the balance(s) to which a periodic rate was applied and 
does not apply to balances on which other kinds of finance charges 
(such as transaction charges) were imposed. For example, if a consumer 
obtains a $1,500 cash advance subject to both a 1% transaction fee and 
a 1% monthly periodic rate, the creditor need only disclose the balance 
subject to the monthly rate (which might include portions of earlier 
cash advances not paid off in previous cycles).]
    [2][rtrif]1[ltrif]. Split rates applied to balance ranges. If split 
rates were applied to a balance because different portions of the 
balance fall within two or more balance ranges, the creditor need not 
separately disclose the portions of the balance subject to such 
different rates since the range of balances to which the rates apply 
has been separately disclosed. For example, a creditor could disclose a 
balance of $700 for purchases even though a monthly periodic rate of 
1.5% applied to the first $500, and a monthly periodic rate of 1% to 
the remainder. This option to disclose a combined balance does not 
apply when the [finance] [rtrif]interest[ltrif] charge is computed by 
applying the split rates to each day's balance (in contrast, for 
example, to applying the rates to the average daily balance). In that 
case, the balances must be disclosed using any of the options that are 
available if two or more daily rates are imposed. (See comment 7(a)(5)-
4.)
    [3][rtrif]2[ltrif]. Monthly rate on average daily balance. 
Creditors may apply a monthly periodic rate to an average daily 
balance.
    [4][rtrif]3[ltrif]. Multifeatured plans. In a multifeatured plan, 
the creditor must disclose a separate balance (or balances, as 
applicable) to which a periodic rate was applied for each feature or 
group of features subject to different periodic rates or different 
balance computation methods. Separate balances are not required, 
however, merely because a grace period is available for some features 
but not others. A total balance for the entire plan is optional. This 
does not affect how many balances the creditor must disclose--or may 
disclose--within each feature. (See, for example, 
comment[rtrif]s[ltrif] 7(a)(5)-4[rtrif]and 7(a)(4)-5[ltrif].)
    [5][rtrif]4[ltrif]. Daily rate on daily balances. i. If the finance 
charge is computed on the balance each day by application of one or 
more daily periodic [rtrif]interest[ltrif] rates, the balance on which 
the [finance] [rtrif]interest[ltrif] charge was computed may be 
disclosed in any of the following ways for each feature:
    ii. If a single daily periodic [rtrif]interest[ltrif] rate is 
imposed, the balance to which it is applicable may be stated as:
    A. A balance for each day in the billing cycle.
    B. A balance for each day in the billing cycle on which the balance 
in the account changes.
    C. The sum of the daily balances during the billing cycle.

[[Page 43603]]

    D. The average daily balance during the billing cycle, in which 
case the creditor [shall] [rtrif]may, at its option,[ltrif] explain 
that the average daily balance is or can be multiplied by the number of 
days in the billing cycle and the periodic rate applied to the product 
to determine the amount of [the finance charge] [rtrif]interest[ltrif].
    iii. If two or more daily periodic [rtrif]interest[ltrif] rates may 
be imposed, the balances to which the rates are applicable may be 
stated as:
    A. A balance for each day in the billing cycle.
    B. A balance for each day in the billing cycle on which the balance 
in the account changes.
    C. Two or more average daily balances, each applicable to the daily 
periodic [rtrif]interest[ltrif] rates imposed for the time that those 
rates were in effect[rtrif].[ltrif] [, as long as the creditor] 
[rtrif]The creditor may, at its option,[ltrif] explain[s] that [the 
finance charge] [rtrif]interest[ltrif] is or may be determined by [(1)] 
multiplying each of the average balances by the number of days in the 
billing cycle (or if the daily rate varied during the cycle, by 
multiplying by the number of days the applicable rate was in effect), 
[(2)] multiplying each of the results by the applicable daily periodic 
rate, and [(3)] adding these products together.
    [6. Explanation of balance computation method. See the commentary 
to 6(a)(1)(iii).]
    [7][rtrif]5[ltrif]. Information to compute balance. In connection 
with disclosing the [finance] [rtrif]interest[ltrif] charge balance, 
the creditor need not give the consumer all of the information 
necessary to compute the balance if that information is not otherwise 
required to be disclosed. For example, if current purchases are 
included from the date they are posted to the account, the posting date 
need not be disclosed.
    [8][rtrif]6[ltrif]. Non-deduction of credits. The creditor need not 
specifically identify the total dollar amount of credits not deducted 
in computing the finance charge balance. Disclosure of the amount of 
credits not deducted is accomplished by listing the credits (Sec.  
226.7(a)(3)) and indicating which credits will not be deducted in 
determining the balance (for example, ``credits after the 15th of the 
month are not deducted in computing the [finance] 
[rtrif]interest[ltrif] charge.'').
    [9][rtrif]7[ltrif]. Use of one balance computation method 
explanation when multiple balances disclosed. Sometimes the creditor 
will disclose more than one balance to which a periodic rate was 
applied, even though each balance was computed using the same balance 
computation method. For example, if a plan involves purchases and cash 
advances that are subject to different rates, more than one balance 
must be disclosed, even though the same computation method is used for 
determining the balance for each feature. In these cases, one 
explanation [rtrif]or a single identification of the name (as permitted 
under Sec.  226.7(a)(5)) [ltrif] of the balance computation method is 
sufficient. Sometimes the creditor separately discloses the portions of 
the balance that are subject to different rates because different 
portions of the balance fall within two or more balance ranges, even 
when a combined balance disclosure would be permitted under comment 
7(a)(5)-2. In these cases, one explanation [rtrif] or a single 
identification of the name (as permitted under Sec.  
226.7(a)(5))[ltrif] of the balance computation method is also 
sufficient (assuming, of course, that all portions of the balance were 
computed using the same method).
    [7(a)(6) Amount of finance charge and other charges.
    Paragraph 7(a)(6)(i).
    1. Total. A total finance charge amount for the plan is not 
required.
    2. Itemization--types of finance charges. Each type of finance 
charge (such as periodic rates, transaction charges, and minimum 
charges) imposed during the cycle must be separately itemized; for 
example, disclosure of only a combined finance charge attributable to 
both a minimum charge and transaction charges would not be permissible. 
Finance charges of the same type may be disclosed, however, 
individually or as a total. For example, five transaction charges of $1 
may be listed separately or as $5.]
    3. Itemization--different periodic rates. Whether different 
periodic rates are applicable to different types of transactions or to 
different balance ranges, the creditor may give the finance charge 
attributable to each rate or may give a total finance charge amount. 
For example, if a creditor charges 1.5% per month on the first $500 of 
a balance and 1% per month on amounts over $500, the creditor may 
itemize the two components ($7.50 and $1.00) of the $8.50 charge, or 
may disclose $8.50.
    4. Multifeatured plans. In a multifeatured plan, in disclosing the 
amount of the finance charge attributable to the application of 
periodic rates no total periodic rate disclosure for the entire plan 
need be given.
    5. Finance charges not added to account. A finance charge that is 
not included in the new balance because it is payable to a third party 
(such as required life insurance) must still be shown on the periodic 
statement as a finance charge.
    6. Finance charges other than periodic rates. See comment 
6(a)(1)(iv)-1 for examples.
    7. Accrued finance charges allocated from payments. Some plans 
provide that the amount of the finance charge that has accrued since 
the consumer's last payment is directly deducted from each new payment, 
rather than being separately added to each statement and therefore 
reflected as an increase in the obligation. In such a plan, no 
disclosure is required of finance charges that have accrued since the 
last payment.
    8. Start-up fees. Points, loan fees, and similar finance charges 
relating to the opening of the account that are paid prior to the 
issuance of the first periodic statement need not be disclosed on the 
periodic statement. If, however, these charges are financed as part of 
the plan, including charges that are paid out of the first advance, the 
charges must be disclosed as part of the finance charge on the first 
periodic statement. However, they need not be factored into the annual 
percentage rate. (See Sec.  226.14(c)(3).)
    Paragraph 7(a)(6)(ii).
    1. Identification. In identifying any other charges actually 
imposed during the billing cycle, the type is adequately described as 
late charge or membership fee, for example. Similarly, closing costs or 
settlement costs, for example, may be used to describe charges imposed 
in connection with real estate transactions that are excluded from the 
finance charge under Sec.  226.4(c)(7), if the same term (such as 
closing costs) was used in the initial disclosures and if the creditor 
chose to itemize and individually disclose the costs included in that 
term. Even though the taxes and filing or notary fees excluded from the 
finance charge under Sec.  226.4(e) are not required to be disclosed as 
other charges under Sec.  226.6(a)(2), these charges may be included in 
the amount shown as closing costs or settlement costs on the periodic 
statement, if the charges were itemized and disclosed as part of the 
closing costs or settlement costs on the initial disclosure statement. 
(See comment 6(a)(2)-1 for examples of other charges.)
    2. Date. The date of imposing or debiting other charges need not be 
disclosed.
    3. Total. Disclosure of the total amount of other charges is 
optional.
    4. Itemization--types of other charges. Each type of other charge 
(such as late-payment charges, over-the-credit-limit charges, and 
membership fees) imposed during the cycle must be separately

[[Page 43604]]

itemized; for example, disclosure of only a total of other charges 
attributable to both an over-the-credit-limit charge and a late-payment 
charge would not be permissible. Other charges of the same type may be 
disclosed, however, individually or as a total. For example, three fees 
of $3 for providing copies related to the resolution of a billing error 
could be listed separately or as $9.
    7(a)(7) Annual percentage rate.
    1. Plans subject to the requirements of Sec.  226.5b. For home-
equity plans subject to the requirements of Sec.  226.5b, creditors are 
not required to disclose an effective annual percentage rate. Creditors 
that state an annualized rate in addition to the corresponding annual 
percentage rate required by Sec.  226.7(a)(4) must calculate that rate 
in accordance with Sec.  226.14(c).
    2. Labels. Creditors that choose to disclose an annual percentage 
rate calculated under Sec.  226.14(c) and label the figure as ``annual 
percentage rate'' must label the periodic rate expressed as an 
annualized rate as the ``corresponding APR,'' ``nominal APR,'' or a 
similar phrase as provided in comment 7(a)(4)-4. Creditors also comply 
with the label requirement if the rate calculated under Sec.  226.14(c) 
is described as the ``effective APR'' or something similar. For those 
creditors, the periodic rate expressed as an annualized rate could be 
labeled ``annual percentage rate,'' consistent with the requirement 
under Sec.  226.7(b)(4). If the two rates represent different values, 
creditors must label the rates differently to meet the clear and 
conspicuous standard under Sec.  226.5(a)(1).]
    [rtrif]7(a)(6) Charges imposed.
    1. Examples of charges. See commentary to Sec.  226.6(a)(3).
    2. Fees. Costs attributable to periodic rates other than interest 
charges shall be disclosed as a fee. For example, if a consumer obtains 
credit life insurance that is calculated at 0.1% per month on an 
outstanding balance and a monthly interest rate of 1.5% applies to the 
same balance, the creditor must disclose the dollar cost attributable 
to interest as an ``interest charge'' and the credit insurance cost as 
a ``fee.''
    3. Total fees for calendar year to date.
    i. Monthly statements. Some creditors send monthly statements but 
the statement periods do not coincide with the calendar month. For 
creditors sending monthly statements, the following comply with the 
requirement to provide calendar year-to-date totals.
    A. A creditor may disclose a calendar-year-to-date total at the end 
of the calendar year by aggregating fees for 12 monthly cycles, 
starting with the period that begins during January and finishing with 
the period that begins during December. For example, if statement 
periods begin on the 10th day of each month, the statement covering 
December 10, 2011, through January 9, 2012, may disclose the year-to-
date total for fees imposed from January 10, 2011, through January 9, 
2012. Alternatively, the creditor could provide a statement for the 
cycle ending January 9, 2012, showing the year-to-date total for fees 
imposed January 1, 2011, through December 31, 2011.
    B. A creditor may disclose a calendar-year-to-date total at the end 
of the calendar year by aggregating fees for 12 monthly cycles, 
starting with the period that begins during December and finishing with 
the period that begins during November. For example, if statement 
periods begin on the 10th day of each month, the statement covering 
November 10, 2011, through December 9, 2011, may disclose the year-to-
date total for fees imposed from December 10, 2010, through December 9, 
2011.
    ii. Quarterly statements. Creditors issuing quarterly statements 
may apply the guidance set forth for monthly statements to comply with 
the requirement to provide calendar year-to-date totals on quarterly 
statements.
    4. Minimum charge in lieu of interest. A minimum charge imposed if 
a charge would otherwise have been determined by applying a periodic 
rate to a balance except for the fact that such charge is smaller than 
the minimum must be disclosed as a fee. For example, assume a creditor 
imposes a minimum charge of $1.50 in lieu of interest if the calculated 
interest for a billing period is less than that minimum charge. If the 
interest calculated on a consumer's account for a particular billing 
period is 50 cents, the minimum charge of $1.50 would apply. In this 
case, the entire $1.50 would be disclosed as a fee; the periodic 
statement would reflect the $1.50 as a fee, and $0 in interest.
    5. Adjustments to year-to-date totals. In some cases, a creditor 
may provide a statement for the current period reflecting that fees or 
interest charges imposed during a previous period were waived or 
reversed and credited to the account. Creditors may, but are not 
required to, reflect the adjustment in the year-to-date totals. If an 
adjustment is made, creditors are not required to provide an 
explanation about the reason for the adjustment. Such adjustments would 
not affect the total fees or interest charges imposed for the current 
statement period.
    6. Acquired accounts. An institution that acquires an account or 
plan must include, as applicable, fees and charges imposed on the 
account or plan prior to the acquisition in the aggregate disclosures 
provided under Sec.  226.7(a)(6) for the acquired account or plan. 
Alternatively, the institution may provide separate totals reflecting 
activity prior and subsequent to the account or plan acquisition. For 
example, a creditor that acquires an account or plan on August 12 of a 
given calendar year may provide one total for the period from January 1 
to August 11 and a separate total for the period beginning on August 
12.
    7. Account replacement. A creditor that replaces a consumer's plan 
with another home equity line of credit plan with the consumer must 
include, as applicable, fees and charges imposed for that portion of 
the calendar year prior to the replacement in the aggregate disclosures 
provided pursuant to Sec.  226.7(a)(6) for the new plan. For example, 
assume a consumer has incurred $125 in fees for the calendar year to 
date for a plan, which is then replaced by a home equity line of credit 
plan also provided by the creditor. In this case, the creditor must 
reflect the $125 in fees incurred prior to the replacement in the 
calendar year-to-date totals provided for the new home equity line of 
credit plan. Alternatively, the institution may provide two separate 
totals reflecting activity prior and subsequent to the replacement of 
the plan.
    7(a)(7) Change-in-terms and increased penalty rate summary.
    1. Location of summary tables. If a change-in-terms notice required 
by Sec.  226.9(c)(1) is provided on or with a periodic statement, a 
tabular summary of key changes must appear on the front of any page of 
the statement. Similarly, if a notice of a rate increase due to 
delinquency or default or as a penalty required by Sec.  226.9(i) is 
provided on or with a periodic statement, information required to be 
provided about the increase, presented in a table, must appear on the 
front of any page of the statement.[ltrif]
    7(a)(8) Grace period.
    1. Terminology. [Although the creditor is required to indicate any 
time period the consumer may have to pay the balance outstanding 
without incurring additional finance charges, no specific wording is 
required, so long as the language used is consistent with that used on 
the account-opening disclosure statement. For example, ``To avoid 
additional finance charges, pay the new balance before --------------'' 
would suffice.] [rtrif] In describing the grace period, the language 
used must be consistent with that used on the account-opening

[[Page 43605]]

disclosure statement. (See Sec. Sec.  226.5(a)(2)(i) and 
226.6(a)(2)(xxi))[ltrif]
    7(a)(9) Address for notice of billing errors.
    1. Terminology. The periodic statement should indicate the general 
purpose for the address for billing-error inquiries, although a 
detailed explanation or particular wording is not required.
    2. Telephone number. A telephone number, e-mail address, or Web 
site location may be included, but the mailing address for billing-
error inquiries, which is the required disclosure, must be clear and 
conspicuous. The address is deemed to be clear and conspicuous if a 
precautionary instruction is included that telephoning or notifying the 
creditor by e-mail or Web site will not preserve the consumer's billing 
rights, unless the creditor has agreed to treat billing error notices 
provided by electronic means as written notices, in which case the 
precautionary instruction is required only for telephoning.
    7(a)(10) Closing date of billing cycle; new balance.
    1. Credit balances. See comment 7(a)(1)-1.
    2. Multifeatured plans. In a multifeatured plan, the new balance 
may be disclosed for each feature or for the plan as a whole. If 
separate new balances are disclosed, a total new balance is optional.
    3. Accrued finance charges allocated from payments. Some plans 
provide that the amount of the finance charge that has accrued since 
the consumer's last payment is directly deducted from each new payment, 
rather than being separately added to each statement and therefore 
reflected as an increase in the obligation. In such a plan, the new 
balance need not reflect finance charges accrued since the last 
payment.
* * * * *

Sec.  226.9--Subsequent Disclosure Requirements.

* * * * *
    9(c) Change in terms.
    9(c)(1) Rules affecting home-equity plans.
    1. Changes initially disclosed. [rtrif]Except as provided in Sec.  
226.9(i), no[ltrif] [No] notice of a change in terms need be given if 
the specific change is set forth initially, such as[:][rtrif]a[ltrif] 
rate increase[s] 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]. The rules in Sec.  
226.5b(f) relating to home-equity plans limit the ability of a creditor 
to change the terms of such plans.
    2. State law issues. Examples of issues not addressed by Sec.  
226.9(c) because they are controlled by state or other applicable law 
include:
    i. The types of changes a creditor may make. (But see Sec.  
226.5b(f)[rtrif].[ltrif])
    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 
Sec.  226.6(a) [or increases the minimum payment], unless an exception 
under Sec.  226.9(c)(1)[(ii)][rtrif](iv)[ltrif] applies[; for example, 
the creditor must give advance notice if the creditor initially 
disclosed a 25-day grace 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.][rtrif]For example, a change in the balance computation 
method, from average-daily-balance to daily-balance (permissible under 
Sec.  226.5b(f)(3)(v) as an ``insignificant change'') need not be 
disclosed to consumers for whose accounts the balance computation 
method will not change. If a single credit account involves multiple 
consumers that may be affected by the change, the creditor should refer 
to Sec.  226.5(d) to determine the number of notices that must be 
given.[ltrif]
    2. Timing--effective date of change. The rule that the notice of 
the change in terms be provided at least [15][rtrif]45[ltrif] 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][rtrif]increasing the credit limit or extending the length of the 
plan[ltrif]. Any change in the balance computation method, in contrast, 
would need to be disclosed at least [15][rtrif]45[ltrif] days prior to 
the billing cycle in which the change is to be implemented.
    3. Timing--advance notice not required. Advance notice of 
[15][rtrif]45[ltrif] 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][rtrif]if[ltrif] the consumer agrees to the particular 
change. This provision is intended [rtrif]solely[ltrif] 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][rtrif]when the consumer and the creditor 
specifically agree to the change in writing before the effective date 
of the change, as permitted under Sec.  226.5b(f)(3)(iii), such as 
on[ltrif] paying an increased minimum payment amount. [Therefore, the 
following are not ``agreements'' between the consumer and the creditor 
for purposes of Sec.  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. [rtrif] Except if the tabular 
format requirement under Sec.  226.9(c)(1)(iii) applies, a[ltrif][A] 
complete new set of the initial disclosures containing the changed term 
complies with Sec.  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.]
    [rtrif]5[ltrif][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 Sec.  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:

[[Page 43606]]

    i. If the index is changed, the maximum annual percentage rate is 
increased (to the limited extent permitted by Sec.  226.30), or a 
variable-rate feature is added to a fixed-rate plan, the creditor must 
include the disclosures required by Sec.  226.5b(c)(9)(iii) and 
(c)(10)(i)(A)(6), 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 Sec.  226.5b(c)(9)(iii) (and, 
in variable-rate plans, the disclosures required by Sec.  
226.5b(c)(10)(i)(A)(6))[rtrif].[ltrif] [unless the disclosures given 
earlier contained representative examples covering the new minimum 
payment requirement. (See the commentary to Sec.  226.5b(c)(9)(iii) and 
(c)(10)(i)(A)(6) for a discussion of representative examples.)]
    iii. When the terms are changed pursuant to a written agreement as 
described in Sec.  226.5b(f)(3)(iii), the advance-notice requirement 
does not apply.
    [rtrif]9(c)(1)(ii) Charges not covered by Sec.  226.6(a)(1) and 
(a)(2).
    1. Applicability. Generally, if a creditor increases any component 
of a charge, or introduces a new charge (assuming in either case that 
such action is permitted under Sec.  226.5b(f)), that is imposed as 
part of the plan under Sec.  226.6(a)(3) but is not required to be 
disclosed as part of the account-opening summary table under Sec.  
226.6(a)(2), the creditor may either, at its option, provide at least 
45 days' written advance notice before the change becomes effective to 
comply with the requirements of Sec.  226.9(c)(1)(i), or 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. (See the commentary under Sec.  226.5(a)(1)(iii) 
regarding disclosure of such changes in electronic form.) For example, 
a fee for expedited delivery of a credit card is a charge imposed as 
part of the plan under Sec.  226.6(a)(3) but is not required to be 
disclosed in the account-opening summary table under Sec.  226.6(a)(2). 
If a creditor adds expedited delivery of a credit card as a new 
service, the new service and the accompanying fee would be permissible 
under Sec.  226.5b(f)(3)(iv) as a beneficial change. In these 
circumstances, 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. (See comment 5(b)(1)(ii)-1 for examples of disclosures 
given at a time and in a manner that the consumer would be likely to 
notice them.)
    9(c)(1)(iii) Disclosure requirements.
    9(c)(1)(iii)(A) Changes to terms described in account-opening 
table.
    1. Changing margin for calculating a variable rate. If a creditor 
is changing a margin used to calculate a variable rate, the creditor 
must disclose the amount of the new rate (as calculated using the new 
margin) in the table described in Sec.  226.9(c)(1)(iii)(B), and 
include a reminder that the rate is a variable rate. For example, if a 
creditor is changing the margin for a variable rate that uses the prime 
rate as an index, the creditor must disclose in the table the new rate 
(as calculated using the new margin) and indicate that the rate varies 
with the market based on the prime rate. (See Sec.  226.5b(f) for 
restrictions on a creditor's right to change terms.)
    2. Changing index for calculating a variable rate. If the creditor 
is changing the index pursuant to Sec.  226.5b(f)(3)(ii), the creditor 
must disclose the amount of the new rate (as calculated using the new 
index) and indicate that the rate varies and the how the rate is 
determined, as explained in Sec.  226.6(a)(2)(vi)(A). For example, if a 
creditor is changing from using a prime rate to using the LIBOR in 
calculating a variable rate, the creditor would disclose in the table 
the new rate (using the new index) and indicate that the rate varies 
with the market based on the LIBOR.
    3. Changing from a variable rate to a non-variable rate. If a 
creditor is changing from a variable rate to a non-variable rate, the 
creditor must disclose the amount of the new rate (that is, the non-
variable rate) in the table. (See Sec.  226.5b(f) for restrictions on a 
creditor's right to change terms.)
    4. Changing from a non-variable rate to a variable rate. If a 
creditor is changing from a non-variable rate to a variable rate, the 
creditor must disclose the amount of the new rate (the variable rate 
using the index and margin), and indicate that the rate varies with the 
market based on the index used, such as the prime rate or the LIBOR. 
(See Sec.  226.5b(f) for restrictions on a creditor's right to change 
terms.)
    5. Changes in the penalty rate, the triggers for the penalty rate, 
or how long the penalty rate applies. If a creditor is changing the 
amount of the penalty rate, the creditor must also redisclose the 
triggers for the penalty rate and the information about how long the 
penalty rate applies even if those terms are not changing. Likewise, if 
a creditor is changing the triggers for the penalty rate, the creditor 
must redisclose the amount of the penalty rate and information about 
how long the penalty rate applies. If a creditor is changing how long 
the penalty rate applies, the creditor must redisclose the amount of 
the penalty rate and the triggers for the penalty rate, even if they 
are not changing. (See Sec.  226.5b(f) for restrictions on a creditor's 
right to change terms.)
    6. Changes in fees. If a creditor is changing part of how a fee 
that is disclosed in a tabular format under Sec.  226.6(a)(2) is 
determined, the creditor must redisclose all relevant information 
related to that fee regardless of whether this other information is 
changing. For example, if a creditor currently charges a cash advance 
fee of ``Either $5 or 3% of the transaction amount, whichever is 
greater. (Max: $100),'' and the creditor is only changing the minimum 
dollar amount from $5 to $10, the issuer must redisclose the other 
information related to how the fee is determined. The creditor in this 
example would disclose the following: ``Either $10 or 3% of the 
transaction amount, whichever is greater. (Max: $100).'' (See Sec.  
226.5b(f) for restrictions on a creditor's right to change terms.)
    7. Combining a notice described in Sec.  226.9(c)(1)(iii) with a 
notice described in Sec.  226.9(i). If a creditor is required to 
provide a notice described in Sec.  226.9(c)(1)(iii) and a notice 
described in Sec.  226.9(i) to a consumer, the creditor may combine the 
two notices. This would occur if penalty pricing has been triggered, 
and other terms are changing on the consumer's account at the same 
time. (See Sec.  226.5b(f) for restrictions on a creditor's right to 
change terms.)
    8. Content. Sample G-25 contains an example of how to comply with 
the requirements in Sec.  226.9(c)(1)(iii) when the following terms are 
being changed: (i) the balance computation method is being changed from 
average-daily-balance to daily-balance; and (ii) the credit limit is 
being increased.
    9. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to disclosures required under 
Sec.  226.9(c)(1)(iii)(A)(1).
    10. Terminology. See Sec.  226.5(a)(2) for terminology requirements 
applicable to

[[Page 43607]]

disclosures required under Sec.  226.9(c)(1)(iii)(A)(1).
    11. Opt-out disclosure. If a consumer has a right to opt out of one 
change (such as an increase in the credit limit), but not another being 
made at the same time (such as a change in the balance computation 
method), the notice should indicate that the consumer has ``the right 
to opt out of some of these changes,'' and refer to additional 
information specifying which change the opt-out right applies 
to.[ltrif]
    [9(c)(1)(iii) Notice to restrict credit.
    1. Written request for reinstatement. If a creditor requires the 
request for reinstatement of credit privileges to be in writing, the 
notice under Sec.  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 Sec.  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)(1)[rtrif](iv)[ltrif][(ii)] 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.]
    [rtrif]i.[ltrif][ii.] A change in the name of the [rtrif]home 
equity credit[ltrif][credit card or credit card] plan.
    [rtrif]ii.[ltrif][iii.] The substitution of one insurer for 
another.
    [iv. A termination or suspension of credit privileges. (But see 
Sec.  226.5b(f).)]
    [rtrif]iii[ltrif][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].
    [rtrif]iv. Suspension of credit privileges, reduction of a credit 
limit under Sec. Sec.  226.5b(f)(2), 226.5b(f)(3)(i), or 
226.5b(f)(3)(vi), or termination of an account under Sec.  226.5b(f)(2) 
do not require notice under paragraph (c)(1)(i) of this section, but 
must be disclosed pursuant to paragraph (j) of this section.[ltrif]
    2. Skip features. If a home-equity plan allows consumers to skip or 
reduce one or more payments during the year, or involves temporary 
reductions in finance charges [rtrif](permissible as beneficial changes 
under Sec.  226.5b(f)(3)(iv))[ltrif], 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 
[rtrif]account-opening[ltrif][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. [rtrif]However, a creditor offering a temporary reduction 
in an interest rate must provide a notice in accordance with the timing 
requirements of Sec.  226.9(c)(1)(i) and the content and format 
requirements of Sec.  226.9(c)(1)(iii)(A) and (B) prior to resuming the 
original rate.[ltrif]
    [rtrif]3. Changing from a variable rate to a non-variable 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 Sec.  226.9(c)(1) even if the 
variable rate at the time of the change is higher than the non-variable 
rate. (See comment 9(c)(1)(iii)(A)-3.) (See Sec.  226.5b(f) for 
restrictions on a creditor's right to change terms.)
    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 Sec.  226.9(c)(1) even if the non-
variable rate is higher than the variable rate at the time of the 
change. (See comment 9(c)(1)(iii)(A)-4.) (See Sec.  226.5b(f) for 
restrictions on a creditor's right to change terms.)[ltrif]
* * * * *
    9(g) Increase in rates due to delinquency or default or as a 
penalty[rtrif]--rules affecting open-end (not home-secured) 
plans[ltrif].
* * * * *
    [rtrif]9(i) Increase in rates due to delinquency or default or as a 
penalty--rules affecting home-equity plans.
    1. Affected consumers. If a single credit account involves multiple 
consumers that may be affected by the change, the creditor should refer 
to Sec.  226.5(d) to determine the number of notices that must be 
given.
    2. Combining a notice described in Sec.  226.9(i)(1) with a notice 
described in Sec.  226.9(c)(1). If a creditor is required to provide 
notices pursuant to both Sec.  226.9(c)(1) and (i)(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. (See Sec.  226.5b(f) for 
restrictions on a creditor's right to change terms.)
    3. Content. Model Clause G-26 contains an example of how to comply 
with the requirements in Sec.  226.9(i)(3)(i) when the rate on a 
consumer's account is being increased to a penalty rate as described in 
Sec.  226.9(i)(1)(ii). (See Sec.  226.5b(f) for restrictions on a 
creditor's right to change terms.)
    4. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to disclosures required under 
Sec.  226.9(i).
    5. Terminology. See Sec.  226.5(a)(2) for terminology requirements 
applicable to disclosures required under Sec.  226.9(i).
* * * * *
[rtrif]9(j) Notices of Action Taken for Home-equity Plans
Paragraph 9(j)(1)
    1. Statement of action taken. The notice under Sec.  226.9(j)(1) 
must state the specific action taken, such as whether the creditor 
suspended advances or reduced the credit limit. If the creditor reduced 
the credit limit, the notice must state the new credit limit. The 
statement of action taken under this section must include the date the 
action taken was effective.
    2. Statement of specific reasons for action taken. A creditor must 
disclose the principal reasons for prohibiting additional extensions of 
credit or reducing the credit limit for a home-equity plan under Sec.  
226.5b(f)(3)(i) or (f)(3)(vi). In addition to any information specified 
in comments 9(j)(1)-3, -4, and -5, as applicable, compliance with this 
provision requires stating the reason under the regulation permitting 
the action, such as that the maximum annual percentage has been 
reached, the property securing the plan has declined significantly, or 
the consumer's financial circumstances have materially changed.
    3. Disclosure of specific reasons for action taken based on a 
significant decline in property value. When a creditor prohibits credit 
extensions or reduces a credit limit because the value of the property 
securing the plan has significantly declined under

[[Page 43608]]

Sec.  226.5b(f)(3)(vi)(A), compliance with the requirement to disclose 
the specific reasons for the action taken is met by disclosing--
    i. the value of the property obtained by the creditor;
    ii. the type of valuation method used to obtain the property value; 
and
    iii. a statement that the consumer has a right to a copy of 
documentation. supporting the property value on which the action was 
based.
    4. Disclosure of specific reasons for action taken based on a 
material change in the consumer's financial circumstances. When a 
creditor prohibits credit extensions or reduces a credit limit because 
the consumer's financial circumstances have materially changed such 
that the creditor has a reasonable belief that the consumer will be 
unable to meet the repayment obligations of the plan under Sec.  
226.5b(f)(3)(vi)(B), compliance with the requirement to disclose the 
specific reasons for the action taken is met by disclosing the type of 
information concerning the consumer's financial circumstances on which 
the creditor relied, such as information about the consumer's income, 
credit report information, or some other indicia of the consumer's 
financial circumstances, as applicable.
    5. Specific reasons in other cases. When a creditor takes action 
due to a consumer's default of a material obligation under Sec.  
226.5b(f)(3)(vi)(C), compliance with the requirement to disclose the 
specific reasons for the action taken is met by disclosing the material 
obligation under the agreement on which the consumer defaulted. When a 
creditor takes action under Sec.  226.5b(f)(3)(vi)(D) through (G), the 
creditor need disclose only the regulatory reason for the action. For 
example, if action was taken because a federal law required the action 
(pursuant to proposed Sec.  226.5b(f)(3)(vi)(G)), the creditor need 
disclose only that the line action was taken because federal law 
required the action.
    6. Method of request for reinstatement. If a creditor requires the 
consumer to request reinstatement of credit privileges under Sec.  
226.5b(g)(1)(ii), the notice under Sec.  226.9(j)(1) must state the 
method or methods by which the consumer may request reinstatement. For 
example, if a creditor requires the request for reinstatement of credit 
privileges to be in writing, the notice under Sec.  226.9(j)(1) must 
state that fact. The notice must also state the address to which the 
consumer should send the written request.
    7. Timing of notice. The creditor must mail or deliver the notice 
required under Sec.  226.9(j)(1) within three business days after the 
action is taken. The general definition of ``business day'' in Sec.  
226.2(a)(6)--a day on which the creditor's offices are open to the 
public for carrying on substantially all of its business functions--is 
used for purposes of Sec.  226.9(j)(1). See comment 2(a)(6)-1.
Paragraph 9(j)(2)
    1. Imposition of fees. If a creditor reduces the credit limit under 
Sec. Sec.  226.5b(f)(3)(i) or (f)(3)(vi), the creditor may not charge 
the consumer a fee for exceeding the new credit limit until after the 
consumer has received notice of the action taken under Sec.  
226.9(j)(1). Similarly, if a creditor suspends future advances on the 
account, the creditor may not charge the consumer a fee for any 
advances that the creditor denies until after the consumer has received 
notice of the action taken under Sec.  226.9(j)(1). These limitations 
apply to fees disclosed in the original agreement for the plan. 
Imposing denied advance fees or over-the-limit fees not disclosed in 
the original agreement would be permitted only if an exception to the 
general limitations on changing home-equity plan terms under Sec.  
226.5b(f) applies.
    2. Receipt of notice. For purposes of when a creditor may impose a 
fee for a denied advance or exceeding the credit limit after suspending 
advances on a line or reducing the credit limit, the consumer will be 
deemed to have received a notice required under Sec.  226.9(j)(1) 
mailed by the creditor after midnight on the third business day 
following mailing of the notice. The more precise definition of 
business day (meaning all calendar days except Sundays and specified 
federal holidays) applies. See comment 2(a)(6)-2.
Paragraph 9(j)(3)
    1. Statement of action taken. The notice under Sec.  226.9(j)(3) 
must disclose whether the creditor has terminated the plan and is 
accelerating the balance, and, if so, the date on which payment of the 
balance is due. If, pursuant to comment 5b(f)(2)-2, the creditor has 
suspended advances or reduced the credit limit, the notice must state 
this fact. If the creditor is reducing the credit limit, the notice 
must disclose the new credit limit. In all cases, the notice must 
include the date on which the action taken was effective.
    2. Statement of specific reasons for action taken.
    i. A creditor must disclose the principal reasons for action taken 
on a home-equity plan under Sec.  226.5b(f)(2). In addition to any 
information specified in comments 9(j)(3)-2.ii, as applicable, 
compliance with the requirement to disclose the specific reasons for 
the action requires stating the reason under the regulation permitting 
the action, such as that the consumer failed to make a required minimum 
payment within 30 days after the due date for that payment (pursuant to 
Sec.  226.5b(f)(2)(ii)).
    ii. When a creditor takes action due to fraud or material 
misrepresentation by the consumer under Sec.  226.5b(f)(2)(i), the 
creditor need only disclose that the action was taken due to either, as 
applicable, fraud or misrepresentation by the consumer; the creditor is 
not required to specify in the notice the nature of the fraud or 
misrepresentation. When a creditor takes action due to the consumer's 
action or inaction that adversely affects the creditor's interest in 
the property securing the plan under Sec.  226.5b(f)(2)(iii), the 
creditor should include in the notice the consumer's action or inaction 
that jeopardizes the creditor's interest in the property securing the 
account, such as failing to pay property taxes or allowing a new 
superior lien on the property.
    3. Timing of notice. The creditor must mail or deliver the notice 
required under Sec.  226.9(j)(3) within three business days after the 
action is taken. The general definition of ``business day'' in Sec.  
226.2(a)(6)--a day on which the creditor's offices are open to the 
public for carrying on substantially all of its business functions--is 
used for purposes of Sec.  226.9(j)(3). See comment 2(a)(6)-1.
Paragraph 9(j)(4)
    1. Notice of action taken under Sec.  226.5b(f)(2) other than 
termination and acceleration, suspension, and reduction. If, pursuant 
to comment 5b(f)(2)-2, a creditor takes action under Sec.  226.5b(f)(2) 
other than termination and acceleration, suspension of advances, or 
reduction of the credit limit, such as imposing fees or raising the 
interest rate applicable to the account, the creditor must comply with 
the notice requirements of Sec.  226.9(c)(1) (for fee changes) or (i) 
(for rate changes), as applicable.
* * * * *
    Sec.  226.14 Determination of Annual Percentage Rate.
    14(a) General rule.
    1. Tolerance. The tolerance of [frac18]th of 1 percentage point 
above or below the annual percentage rate applies to any required 
disclosure of the annual percentage rate. The disclosure of the annual 
percentage rate is required in

[[Page 43609]]

Sec. Sec.  226.5a, 226.5b, 226.6, 226.7, 226.9, 226.15, 226.16, and 
226.26.
    2. Rounding. The regulation does not require that the annual 
percentage rate be calculated to any particular number of decimal 
places; rounding is permissible within the [frac18]th of 1 percent 
tolerance. For example, an exact annual percentage rate of 14.33333% 
may be stated as 14.33% or as 14.3%, or even as 14 [frac14]%; but it 
could not be stated as 14.2% or 14%, since each varies by more than the 
permitted tolerance.
    3. Periodic rates. No explicit tolerance exists for any periodic 
rate as such; a disclosed periodic rate may vary from precise accuracy 
(for example, due to rounding) only to the extent that its annualized 
equivalent is within the tolerance permitted by Sec.  226.14(a). 
Further, a periodic rate need not be calculated to any particular 
number of decimal places.
    4. Finance charges. The regulation does not prohibit creditors from 
assessing finance charges on balances that include prior, unpaid 
finance charges; state or other applicable law may do so, however.
    5. Good faith reliance on faulty calculation tools. The regulation 
relieves a creditor of liability for an error in the annual percentage 
rate or finance charge that resulted from a corresponding error in a 
calculation tool used in good faith by the creditor. Whether or not the 
creditor's use of the tool was in good faith must be determined on a 
case-by-case basis, but the creditor must in any case have taken 
reasonable steps to verify the accuracy of the tool, including any 
instructions, before using it. Generally, the safe harbor from 
liability is available only for errors directly attributable to the 
calculation tool itself, including software programs; it is not 
intended to absolve a creditor of liability for its own errors, or for 
errors arising from improper use of the tool, from incorrect data 
entry, or from misapplication of the law.
    14(b) Annual percentage rate--in general.
    1. Corresponding annual percentage rate computation. For [purposes 
of Sec. Sec.  226.5a, 226.5b, 226.6, 226.7(a)(4) or (b)(4), 226.9, 
226.15, 226.16, and 226.26,] [rtrif]open-end credit under Subpart B of 
Regulation Z,[ltrif] the annual percentage rate is determined by 
multiplying the periodic rate by the number of periods in the year. 
[This computation reflects the fact that, in such disclosures, the rate 
(known as the corresponding annual percentage rate) is prospective and 
does not involve any particular finance charge or periodic balance.]
    [14(c) Optional effective annual percentage rate for periodic 
statements for creditors offering open-end plans subject to the 
requirements of Sec.  226.5b.
    1. General rule. The periodic statement may reflect (under Sec.  
226.7(a)(7)) the annualized equivalent of the rate actually applied 
during a particular cycle; this rate may differ from the corresponding 
annual percentage rate because of the inclusion of, for example, fixed, 
minimum, or transaction charges. Sections 226.14(c)(1) through (c)(4) 
state the computation rules for the effective rate.
    2. Charges related to opening, renewing, or continuing an account. 
Sections 226.14(c)(2) and (c)(3) exclude from the calculation of the 
effective annual percentage rate finance charges that are imposed 
during the billing cycle such as a loan fee, points, or similar charge 
that relates to opening, renewing, or continuing an account. The 
charges involved here do not relate to a specific transaction or to 
specific activity on the account, but relate solely to the opening, 
renewing, or continuing of the account. For example, an annual fee to 
renew an open-end credit account that is a percentage of the credit 
limit on the account, or that is charged only to consumers that have 
not used their credit card for a certain dollar amount in transactions 
during the preceding year, would not be included in the calculation of 
the annual percentage rate, even though the fee may not be excluded 
from the finance charge under Sec.  226.4(c)(4). (See comment 4(c)(4)-
2.) This rule applies even if the loan fee, points, or similar charges 
are billed on a subsequent periodic statement or withheld from the 
proceeds of the first advance on the account.
    3. Classification of charges. If the finance charge includes a 
charge not due to the application of a periodic rate, the creditor must 
use the annual percentage rate computation method that corresponds to 
the type of charge imposed. If the charge is tied to a specific 
transaction (for example, 3 percent of the amount of each transaction), 
then the method in Sec.  226.14(c)(3) must be used. If a fixed or 
minimum charge is applied, that is, one not tied to any specific 
transaction, then the formula in Sec.  226.14(c)(2) is appropriate.
    4. Small finance charges. Section 226.14(c)(4) gives the creditor 
an alternative to Sec.  226.14(c)(2) and (c)(3) if small finance 
charges (50 cents or less) are involved; that is, if the finance charge 
includes minimum or fixed fees not due to the application of a periodic 
rate and the total finance charge for the cycle does not exceed 50 
cents. For example, while a monthly activity fee of 50 cents on a 
balance of $20 would produce an annual percentage rate of 30 percent 
under the rule in Sec.  226.14(c)(2), the creditor may disclose an 
annual percentage rate of 18 percent if the periodic rate generally 
applicable to all balances is 1[frac12] percent per month.
    5. Prior-cycle adjustments. i. The annual percentage rate reflects 
the finance charges imposed during the billing cycle. However, finance 
charges imposed during the billing cycle may relate to activity in a 
prior cycle. Examples of circumstances when this may occur are:
    A. A cash advance occurs on the last day of a billing cycle on an 
account that uses the transaction date to figure finance charges, and 
it is impracticable to post the transaction until the following cycle.
    B. An adjustment to the finance charge is made following the 
resolution of a billing error dispute.
    C. A consumer fails to pay the purchase balance under a deferred 
payment feature by the payment due date, and finance charges are 
imposed from the date of purchase.
    ii. Finance charges relating to activity in prior cycles should be 
reflected on the periodic statement as follows:
    A. If a finance charge imposed in the current billing cycle is 
attributable to periodic rates applicable to prior billing cycles (such 
as when a deferred payment balance was not paid in full by the payment 
due date and finance charges from the date of purchase are now being 
debited to the account, or when a cash advance occurs on the last day 
of a billing cycle on an account that uses the transaction date to 
figure finance charges and it is impracticable to post the transaction 
until the following cycle), and the creditor uses the quotient method 
to calculate the annual percentage rate, the numerator would include 
the amount of any transaction charges plus any other finance charges 
posted during the billing cycle. At the creditor's option, balances 
relating to the finance charge adjustment may be included in the 
denominator if permitted by the legal obligation, if it was 
impracticable to post the transaction in the previous cycle because of 
timing, or if the adjustment is covered by comment 14(c)-5.ii.B.
    B. If a finance charge that is posted to the account relates to 
activity for which a finance charge was debited or credited to the 
account in a previous billing cycle (for example, if the finance charge 
relates to an adjustment such as the resolution of a billing error 
dispute, or an unintentional posting error, or a

[[Page 43610]]

payment by check that was later returned unpaid for insufficient funds 
or other reasons), the creditor shall at its option:
    1. Calculate the annual percentage rate in accordance with ii.A. of 
this paragraph, or
    2. Disclose the finance charge adjustment on the periodic statement 
and calculate the annual percentage rate for the current billing cycle 
without including the finance charge adjustment in the numerator and 
balances associated with the finance charge adjustment in the 
denominator.
    14(c)(1) Solely periodic rates imposed.
    1. Periodic rates. Section 226.14(c)(1) applies if the only finance 
charge imposed is due to the application of a periodic rate to a 
balance. The creditor may compute the annual percentage rate either:
    i. By multiplying each periodic rate by the number of periods in 
the year; or
    ii. By the ``quotient'' method. This method refers to a composite 
annual percentage rate when different periodic rates apply to different 
balances. For example, a particular plan may involve a periodic rate of 
1[frac12] percent on balances up to $500, and 1 percent on balances 
over $500. If, in a given cycle, the consumer has a balance of $800, 
the finance charge would consist of $7.50 (500 x .015) plus $3.00 (300 
x .01), for a total finance charge of $10.50. The annual percentage 
rate for this period may be disclosed either as 18% on $500 and 12 
percent on $300, or as 15.75 percent on a balance of $800 (the quotient 
of $10.50 divided by $800, multiplied by 12).
    14(c)(2) Minimum or fixed charge, but not transaction charge, 
imposed.
    1. Certain charges not based on periodic rates. Section 
226.14(c)(2) specifies use of the quotient method to determine the 
annual percentage rate if the finance charge imposed includes a certain 
charge not due to the application of a periodic rate (other than a 
charge relating to a specific transaction). For example, if the 
creditor imposes a minimum $1 finance charge on all balances below $50, 
and the consumer's balance was $40 in a particular cycle, the creditor 
would disclose an annual percentage rate of 30 percent (\1/40\ x 12).
    2. No balance. If there is no balance to which the finance charge 
is applicable, an annual percentage rate cannot be determined under 
Sec.  226.14(c)(2). This could occur not only when minimum charges are 
imposed on an account with no balance, but also when a periodic rate is 
applied to advances from the date of the transaction. For example, if 
on May 19 the consumer pays the new balance in full from a statement 
dated May 1, and has no further transactions reflected on the June 1 
statement, that statement would reflect a finance charge with no 
account balance.
    14(c)(3) Transaction charge imposed.
    1. Transaction charges. i. Section 226.14(c)(3) transaction charges 
include, for example:
    A. A loan fee of $10 imposed on a particular advance.
    B. A charge of 3 percent of the amount of each transaction.
    ii. The reference to avoiding duplication in the computation 
requires that the amounts of transactions on which transaction charges 
were imposed not be included both in the amount of total balances and 
in the ``other amounts on which a finance charge was imposed'' figure. 
In a multifeatured plan, creditors may consider each bona fide feature 
separately in the calculation of the denominator. A creditor has 
considerable flexibility in defining features for open-end plans, as 
long as the creditor has a reasonable basis for the distinctions. For 
further explanation and examples of how to determine the components of 
this formula, see Appendix F to part 226.
    2. Daily rate with specific transaction charge. Section 
226.14(c)(3) sets forth an acceptable method for calculating the annual 
percentage rate if the finance charge results from a charge relating to 
a specific transaction and the application of a daily periodic rate. 
This section includes the requirement that the creditor follow the 
rules in Appendix F to part 226 in calculating the annual percentage 
rate, especially the provision in the introductory section of Appendix 
F which addresses the daily rate/transaction charge situation by 
providing that the ``average of daily balances'' shall be used instead 
of the ``sum of the balances.''
    14(d) Calculations where daily periodic rate applied.
    1. Quotient method. Section 226.14(d) addresses use of a daily 
periodic rate(s) to determine some or all of the finance charge and use 
of the quotient method to determine the annual percentage rate. Since 
the quotient formula in Sec.  226.14(c)(1)(ii) and (c)(2) cannot be 
used when a daily rate is being applied to a series of daily balances, 
Sec.  226.14(d) provides two alternative ways to calculate the annual 
percentage rate--either of which satisfies the provisions of Sec.  
226.7(a)(7).
    2. Daily rate with specific transaction charge. If the finance 
charge results from a charge relating to a specific transaction and the 
application of a daily periodic rate, see comment 14(c)(3)-2 for 
guidance on an appropriate calculation method.]
* * * * *

Appendix F [--Optional Annual Percentage Rate Computations for 
Creditors Offering Open-End Plans Subject to the Requirements of Sec.  
226.5b] [rtrif][Reserved][ltrif]

    [1. Daily rate with specific transaction charge. If the finance 
charge results from a charge relating to a specific transaction and 
the application of a daily periodic rate, see comment 14(c)(3)-2 for 
guidance on an appropriate calculation method.]

Appendices G and H--Open-End and Closed-End Model Forms and Clauses

    1. Permissible changes. Although use of the model forms and 
clauses is not required, creditors using them properly will be 
deemed to be in compliance with the regulation with regard to those 
disclosures. Creditors may make certain changes in the format or 
content of the forms and clauses and may delete any disclosures that 
are inapplicable to a transaction or a plan without losing the act's 
protection from liability[rtrif].[ltrif] [, except] 
[rtrif]However,[ltrif] formatting changes may not be made to 
[rtrif]the following[ltrif] model forms [rtrif], model 
clauses,[ltrif] and samples in [rtrif]Appendices G and H:[ltrif] G-
2[(A)], G-3[(A)], G-4[(A)], G-10(A)-(E), [rtrif]G-14(A)-(E), G-
15(A)-(D),[ltrif] G-17(A)-(D), G-18(A) (except as permitted pursuant 
to Sec.  226.7(b)(2)), G-18(B)-(C), G-19, G-20, [and] G-21[rtrif], 
G-22(A)-(B), G-23(A)-(B), G-24(A) (except as permitted pursuant to 
Sec.  226.7(a)(2)), G-25, and G-26; and H-4(B) through H-4(L), H-
17(A) through (D), H-19(A)-(I), and H-20 through H-22[ltrif]. The 
rearrangement of the model forms and clauses may not be so extensive 
as to affect the substance, clarity, or meaningful sequence of the 
forms and clauses. Creditors making revisions with that effect will 
lose their protection from civil liability. Except as otherwise 
specifically required, acceptable changes include, for example:
    i. Using the first person, instead of the second person, in 
referring to the borrower.
    ii. Using ``borrower'' and ``creditor'' instead of pronouns.
    iii. Rearranging the sequences of the disclosures.
    iv. Not using bold type for headings.
    v. Incorporating certain state ``plain English'' requirements.
    vi. Deleting inapplicable disclosures by whiting out, blocking 
out, filling in ``N/A'' (not applicable) or ``0,'' crossing out, 
leaving blanks, checking a box for applicable items, or circling 
applicable items. (This should permit use of multipurpose standard 
forms [rtrif]for transactions not secured by real property or a 
dwelling[ltrif].)
    [vii. Using a vertical, rather than a horizontal, format for the 
boxes in the closed-end disclosures.]
* * * * *

Appendix G--Open-End Model Forms and Clauses

    1. Model[s] G-1 [and G-1(A)]. The model disclosures in G-1 [and 
G-1(A)] (different

[[Page 43611]]

balance computation methods) may be used in both the account-opening 
disclosures under Sec.  226.6 and the periodic disclosures under 
Sec.  226.7. As is clear from the models given, ``shorthand'' 
descriptions of the balance computation methods are not sufficient, 
except where Sec.  226.7(b)(5) applies. [For creditors using model 
G-1, the phrase ``a portion of'' the finance charge should be 
included if the total finance charge includes other amounts, such as 
transaction charges, that are not due to the application of a 
periodic rate.] If unpaid interest or finance charges are subtracted 
in calculating the balance, that fact must be stated so that the 
disclosure of the computation method is accurate. [Only model G-1(b) 
contains a final sentence appearing in brackets, which reflects the 
total dollar amount of payments and credits received during the 
billing cycle. The other models do not contain this language because 
they reflect plans in which payments and credits received during the 
billing cycle are subtracted. If this is not the case, however, the 
language relating to payments and credits should be changed, and the 
creditor should add either the disclosure of the dollar amount as in 
model G-1(b) or an indication of which credits (disclosed elsewhere 
on the periodic statement) will not be deducted in determining the 
balance. (Such an indication may also substitute for the bracketed 
sentence in model G-1(b).) (See the commentary to Sec.  226.7(a)(5) 
and (b)(5).) For open-end plans subject to the requirements of Sec.  
226.5b, creditors may, at their option, use the clauses in G-1 or G-
1(A).]
    2. Model[s] G-2 [and G-2(A)]. [rtrif]This[ltrif] [These] 
model[s] contain[rtrif]s[ltrif] the notice of liability for 
unauthorized use of a credit card. [For home-equity plans subject to 
the requirements of Sec.  226.5b, at the creditor's option, a 
creditor either may use G-2 or G-2(A). For open-end plans not 
subject to the requirements of Sec.  226.5b, creditors properly use 
G-2(A).]
    3. Models G-3[, G-3(A),] [rtrif]and[ltrif] G-4 [and G-4(A)].
    i. These set out models for the long-form billing-error rights 
statement (for use with the account-opening disclosures and as an 
annual disclosure or, at the creditor's option, with each periodic 
statement) and the alternative billing-error rights statement (for 
use with each periodic statement), respectively. [For home-equity 
plans subject to the requirements of Sec.  226.5b, at the creditor's 
option, a creditor either may use G-3 or G-3(A), and for creditors 
that use the short form, G-4 or G-4(A). For open-end (not home-
secured) plans that not subject to the requirements of Sec.  226.5b, 
creditors properly use G-3(A) and G-4(A).] Creditors must provide 
the billing-error rights statements in a form substantially similar 
to the models in order to comply with the regulation. The model 
billing-rights statements may be modified in any of the ways set 
forth in the first paragraph to the commentary on appendices G and 
H. The models may, furthermore, be modified by deleting inapplicable 
information, such as:
    A. The paragraph concerning stopping a debit in relation to a 
disputed amount, if the creditor does not have the ability to debit 
automatically the consumer's savings or checking account for 
payment.
    B. The rights stated in the special rule for credit card 
purchases and any limitations on those rights.
    ii. The model billing rights statements also contain optional 
language that creditors may use. For example, the creditor may:
    A. Include a statement to the effect that notice of a billing 
error must be submitted on something other than the payment ticket 
or other material accompanying the periodic disclosures.
    B. Insert its address or refer to the address that appears 
elsewhere on the bill.
    C. Include instructions for consumers, at the consumer's option, 
to communicate with the creditor electronically or in writing.
    iii. Additional information may be included on the statements as 
long as it does not detract from the required disclosures. For 
instance, information concerning the reporting of errors in 
connection with a checking account may be included on a combined 
statement as long as the disclosures required by the regulation 
remain clear and conspicuous.
* * * * *
    [rtrif]12. Models G-22(A) and G-22(B). These model clauses 
illustrate the disclosures required under Sec.  226.5b(g)(2)(v). 
They inform the consumer that the consumer's reinstatement request 
has been received and that the creditor has investigated the 
request. They contain sample language for explaining the results of 
a reinstatement investigation in which the creditor found that a 
reason for suspension of advances or reduction of the credit limit 
still exists. Clauses in Model G-22(A) illustrate how a notice may 
explain that the same reason or reasons originally supporting the 
suspension or reduction still exist. Clauses in Model G-22(B) 
illustrate how a creditor may explain that a new reason or reasons 
for account suspension or reduction exist. Models G-22(A) and G-
22(B) do not contain sample clauses for all reasons in which a 
creditor may temporarily suspend or reduce a home-equity plan. A 
creditor may comply with the disclosure requirements of Sec.  
226.5b(g)(2)(v) by using language substantially similar to the 
language in the model clauses or by substituting applicable reasons 
for the action not represented in these model clauses, as long as 
the information required to be disclosed is clear and conspicuous.
    13. Models G-23(A) and G-23(B). These model clauses illustrate 
the disclosures required under Sec.  226.9(j)(1) and (j)(3).
    i. Clauses in Model G-23(A) contain information regarding 
information required by Sec.  226.9(j)(1) regarding the nature of 
the action taken on the home-equity plan under Sec.  226.5b(f)(3)(i) 
and (f)(3)(vi) and the specific reasons for the action taken. In 
particular, they illustrate language for a notice in which the 
creditor temporarily suspends advances or reduces a credit limit due 
to a significant decline in the value of the property securing the 
plan under Sec.  226.5b(f)(3)(vi)(A); a material change in the 
consumer's financial circumstances such that the creditor has a 
reasonable belief that the consumer will be unable to meet the 
repayment terms of the plan under Sec.  226.5b(f)(3)(vi)(B)); and 
the consumer's default of a material obligation under the plan under 
Sec.  226.5b(f)(3)(vi)(C)). Model G-23(A) clauses also contain 
information regarding the consumer's rights when the creditor 
requires the consumer to request reinstatement under Sec.  
226.5b(g)(1)(ii).
    ii. Clauses in Model G-23(B) contain information required under 
Sec.  226.9(j)(3) regarding the nature of the action taken on the 
account under Sec.  226.5b(f)(2) and the specific reasons for the 
action taken. In particular, they illustrate language for a notice 
in which the creditor takes action on an account due to the 
consumer's failure to meet the repayment terms of the plan under 
Sec.  226.5b(f)(2)(ii) and the consumer's action or inaction that 
adversely affected the creditor's interest in the property securing 
the plan under Sec.  226.5b(f)(2)(iii). Model clauses for the notice 
when a creditor takes action due to a consumer's fraud or material 
misrepresentation under Sec.  226.5b(f)(2)(i) are not included 
because a creditor need disclose only that the consumer's fraud or 
misrepresentation is the reason for the action; if the creditor does 
not include this information.
    iii. A creditor may comply with the disclosure requirements of 
Sec.  226.9(j)(1) and (j)(3) by using language substantially similar 
to the language in the model clauses or by substituting applicable 
reasons for the action not represented in these model clauses, as 
long as the information required to be disclosed is clear and 
conspicuous.
    14. Models G-14(A) and G-14(B), Samples G-14(C), G-14(D), and G-
14(E), Model G-15(A), and Samples G-15(B), G-15(C), and G-15(D).
    i. Models G-14(A) and G-14(B) and Samples G-14(C), G-14(D), and 
G-14(E) illustrate, in the tabular format, the disclosures required 
under Sec.  226.5b to be provided within three business days after a 
consumer makes an application for a home equity line of credit 
(HELOC). Model G-15(A) and Samples G-15(B), G-15(C), and G-15(D) 
illustrate, in the tabular format, the disclosures required under 
Sec.  226.6(a)(1) and (a)(2) for HELOC account-opening disclosures.
    ii. Except as otherwise permitted, disclosures must be 
substantially similar in sequence and format to Models G-14(A), G-
14(B), and G-15(A). While proper use of the model forms will be 
deemed in compliance with the regulation, creditors offering HELOCs 
are permitted to use headings other than those in the forms if they 
are clear and concise and are substantially similar to the headings 
contained in model forms, except that the terms ``Borrowing 
Period,'' ``Repayment Period,'' ``Balloon Payment,'' and ``Annual 
Percentage Rate'' (or ``APR''), must be used as applicable. In 
addition, in relation to required insurance, or debt cancellation or 
suspension coverage, if applicable, the term ``Required'' and the 
name of the product must be used, and for headings that must be used 
to describe the grace period, or lack of grace period, the terms 
``Paying Interest'' or ``How to Avoid Paying Interest'' must be 
used, as applicable.
    iii. Model G-14(A) and Sample G-14(C) provide guidance for 
creditors that offer two or more HELOC plans and that, accordingly,

[[Page 43612]]

are required under Sec.  226.5b to disclose two HELOC plans and, if 
the creditor offers more than two plans, a statement that the 
consumer should ask for details about other plans that the creditor 
offers. Sample G-14(C) illustrates two plans, one (``Plan B'') with 
a balloon payment at the end of the repayment period and the other 
(``Plan A'') with no balloon payment, and shows the required 
disclosures about the balloon payment, as well as the required 
disclosures stating which plan results in the lesser and which 
results in the greater amount of interest.
    iv. Model G-14(B) and Samples G-14(D) and G-14(E) provide 
guidance for creditors that offer only one HELOC plan. Sample G-
14(D) illustrates a plan with an interest-only draw period of 10 
years, no repayment period (i.e., the consumer is required to pay 
the outstanding balance in full in a single payment at the end of 
the draw period), and a balloon payment. Sample G-14(E) illustrates 
a plan in which the length of the repayment period depends upon the 
outstanding balance at the end of the draw period, and in which no 
balloon payment will occur.
    v. Among the account-opening disclosure samples, Sample G-15(B) 
corresponds to early disclosure Sample G-14(C), and illustrates the 
situation where the consumer has chosen Plan B (the plan with a 
balloon payment) shown in Sample G-14(C). Account-opening disclosure 
Sample G-15(C) corresponds to early disclosure Sample G-14(D), 
showing the plan with an interest-only draw period, no repayment 
period, and a balloon payment. Account-opening disclosure Sample G-
15(D) corresponds to early disclosure Sample G-14(E), showing the 
plan in which the length of the repayment period depends upon the 
outstanding balance at the end of the draw period, and in which no 
balloon payment will occur.
    vi. Samples G-14(C), G-14(E), G-15(B), and G-15(D) illustrate 
plans with discounted introductory APRs, and show the required use 
of the term ``introductory'' (``intro'' is also permissible, but is 
not shown in the samples) in immediate proximity to the term 
``APR.'' Samples G-14(D) and G-15(C) illustrate plans without 
discounted introductory APRs. All of the samples illustrate plans 
with variable-rate APRs, and show required use of the term 
``variable rate'' in underlined text.
    vii. The samples do not contain all possible required 
disclosures. For example, the models show the format for disclosure 
of limits on number of credit transactions, limits on amount of 
credit borrowed, minimum APR, payment limitations, and negative 
amortization, but the samples do not show this information. Also, 
the account-opening disclosure samples show certain account-opening, 
penalty, and transaction fees in the table detailing fees, but the 
fees shown in the samples do not constitute an exhaustive list of 
all the fees in these categories that may have to be disclosed.
    viii. Although creditors are not required to use a certain paper 
size in disclosing the Sec. Sec.  226.5b or 226.6(a)(1) and (2) 
disclosures, Samples G-14(C), G-14(D), G-14(E), G-15(B), G-15-(C), 
and G-15(D) are each designed to be printed on two 8\1/2\ x 14 inch 
sheets of paper. A creditor may use a smaller sheet of paper, such 
as an 8\1/2\ x 11 inch sheet of paper. A creditor must disclose the 
table on consecutive pages and may not include any intervening 
information between portions of the table. In addition, the 
following formatting techniques were used in presenting the 
information in the sample tables to ensure that the information is 
readable:
    A. A readable font style and font size (10-point Arial font 
style, except for annual percentage rates shown in 16-point type).
    B. Sufficient spacing between lines of the text.
    C. Adequate spacing between paragraphs when several pieces of 
information were included in the same row of the table, as 
appropriate.
    D. Standard spacing between words and characters. In other 
words, the text was not compressed to appear smaller than 10-point 
type.
    E. Sufficient white space around the text of the information in 
each row, by providing sufficient margins above, below and to the 
sides of the text.
    F. Sufficient contrast between the text and the background. 
Generally, black text was used on white paper.
    ix. While the Board is not requiring creditors to use the above 
formatting techniques in presenting information in the table (except 
for the 10-point and 16-point font requirement), the Board 
encourages creditors to consider these techniques when deciding how 
to disclose information in the table, to ensure that the information 
is presented in a readable format.
    x. Creditors are allowed to use color, shading and similar 
graphic techniques with respect to the table, so long as the table 
remains substantially similar to the model and sample forms in 
Appendix G.
    15. Samples G-24(A), G-24(B), G-24(C), G-25, and G-26. Samples 
G-24(A), G-24(B), and G-24(C) are intended as a compliance aid to 
illustrate front sides of a periodic statement, and how periodic 
statements for HELOC plans might be designed to comply with the 
requirements of Sec.  226.7. The samples contain information that is 
not required by Regulation Z. The samples also present information 
in additional formats that are not required by Regulation Z.
    i. Creditors are not required to use a certain paper size in 
disclosing the Sec.  226.7 disclosures. However, Samples G-24(B) and 
G-24(C) are designed to be printed on two 8 x 14 inch sheets of 
paper.
    ii. The summary of account activity presented on Samples G-24(B) 
and G-24(C) is not itself a required disclosure, although the 
previous balance and the new balance, presented in the summary, must 
be disclosed in a clear and conspicuous manner on periodic 
statements.
    iii. Additional information not required by Regulation Z may be 
presented on the statement. The information need not be located in 
any particular place or be segregated from disclosures required by 
Regulation Z. Any additional information must be presented 
consistent with the creditor's obligation to provide required 
disclosures in a clear and conspicuous manner.
    iv. Samples G-24(B) and G-24(C) demonstrate two examples of ways 
in which transactions could be presented on the periodic statement. 
Sample G-24(B) presents transactions grouped by type and Sample G-
24(C) presents transactions in a list in chronological order. 
Neither of these approaches to presenting transactions is required; 
a creditor may present transactions differently, such as in a list 
grouped by authorized user or other means.
    v. Samples G-24(B) and G-24(C) also illustrate how change-in-
terms notices and rate increases notices would be required to 
appear, if given on a periodic statement. Sample G-24(B) provides an 
example of a rate increase notice on a periodic statement; Sample G-
24(C) provides an example of a change-in-terms notice on a periodic 
statement. Change-in-terms notices and rate increase notices may 
alternatively be given separately from periodic statements, provided 
the formatting requirements of Sec.  226.9(c)(1) and (i) are 
followed; Sample G-25 provides an example of a change-in-terms 
notice, and Sample G-26 provides an example of a rate increase 
notice.

    By order of the Board of Governors of the Federal Reserve 
System, July 24, 2009.
Robert deV. Frierson,
Deputy Secretary of the Board.

    Note:  The following appendix will not appear in the Code of 
Federal Regulations.

BILLING CODE 6210-01-P

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[FR Doc. E9-18121 Filed 8-25-09; 8:45 am]
BILLING CODE 6210-01-C